-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2tQuuhSPJ3Ml71pl6BWxa8F1WYy4BooI4aE1aFMN+k1s/BmgwqEtg5fBzopkW+s CZbqBq161rgLnBryhPd3Ww== 0000950152-98-000409.txt : 19980126 0000950152-98-000409.hdr.sgml : 19980126 ACCESSION NUMBER: 0000950152-98-000409 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19980123 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELDER BEERMAN STORES CORP CENTRAL INDEX KEY: 0000032020 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 310271980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-02788 FILM NUMBER: 98512273 BUSINESS ADDRESS: STREET 1: 3155 ELBEE RD CITY: DAYTON STATE: OH ZIP: 45439 BUSINESS PHONE: 9372962700 MAIL ADDRESS: STREET 1: 3155 EL BEE ROAD CITY: DAYTON STATE: OH ZIP: 45439 10-12G/A 1 ELDER BEERMAN STORES CORP. FORM 10-12G/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998 --------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10/A-1 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- The Elder-Beerman Stores Corp. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Ohio 31-0271980 - -------------------------------------------- ---------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 3155 El-Bee Road, Dayton, Ohio 45439 - -------------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (937) 296-2700 ----------------------------- Securities to be registered pursuant to Section 12(b) of the Act: None - -------------------------------------------------------------------------------- (Title of Class) Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, no par value - -------------------------------------------------------------------------------- (Title of Class) Share Purchase Rights - -------------------------------------------------------------------------------- (Title of Class) 2 TABLE OF CONTENTS
PAGE BUSINESS........................................................................................1 General.....................................................................................1 Background..................................................................................1 Bankruptcy..................................................................................1 Business....................................................................................2 Business Plan and Strategy for the Company..............................................2 Seasonality.............................................................................3 Competition.............................................................................4 Employees...............................................................................4 FINANCIAL INFORMATION...........................................................................5 Selected Historical Financial Information...................................................5 Management's Discussion and Analysis of Financial Condition and Results of Operations.......7 Results of Operations...................................................................7 Liquidity and Capital Resources.........................................................9 PROPERTIES......................................................................................10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................11 Pro Forma Ownership of Equity Securities.......................................................11 DIRECTORS AND EXECUTIVE OFFICERS................................................................12 Directors and Executive Officers...........................................................12 Certain Corporate Governance Matters............................................................13 Board Committees............................................................................14 EXECUTIVE COMPENSATION..........................................................................15 Cash Compensation Table.....................................................................16 Existing Compensatory Plans and Agreements..................................................16 Key Employee Retention Program..........................................................16 Reorganization Bonus....................................................................17 Calculation of Certain Severance and Bonus Benefits Paid to Senior Executives...........17 New Compensatory Programs and Agreements....................................................17 General.................................................................................17 Equity and Performance Incentive Plan...................................................18 Employment Agreements and the Severance Pay Plan........................................20 Compensation Committee Interlocks and Insider Participation.................................21 Director Compensation.......................................................................21 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................21 LEGAL PROCEEDINGS...............................................................................22 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................................22 Absence of Public Market....................................................................22 Holders.....................................................................................23 Dividends...................................................................................24 RECENT SALES OF UNREGISTERED SECURITIES.........................................................24
i 3 DESCRIPTION OF REGISTRANT'S SECURITIES..........................................................24 Common Stock................................................................................24 Transfer Agent and Registrar................................................................27 Preferred Stock.............................................................................27 General.................................................................................27 New Class A Preferred Stock.............................................................28 New Class B Preferred Stock.............................................................28 New Class C Preferred Stock.............................................................28 New Warrants................................................................................28 Future Issuances of Stock...................................................................28 Share Purchase Rights Agreement.............................................................28 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................................30 Existing Indemnification Obligations........................................................30 Treatment of Indemnification Obligations Under the Plan.....................................30 New Indemnification Agreements..............................................................31 FINANCIAL STATEMENTS............................................................................31 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL ......................31 FINANCIAL STATEMENTS AND EXHIBITS...............................................................32 Financial Statements........................................................................32 Exhibits....................................................................................33 SIGNATURES......................................................................................34
ii 4 BUSINESS This Registration Statement contains certain forward-looking statements that are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, the Company's management. The Company's future results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements for various reasons, including, among other factors, competition, consumer demand and confidence, the availability and mix of store-level inventory, weather that affects consumer traffic and general economic conditions. GENERAL The Elder-Beerman Stores Corp. ("Elder-Beerman" or the "Company"; except where the context otherwise requires, references to the "Company" refer to Elder-Beerman and its subsidiaries, as described below) operates department stores that sell a wide range of moderate to better brand merchandise, including women's, men's, and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, the Company owns a specialty shoe store chain and a private label credit card program through its wholly-owned subsidiaries, The Bee-Gee Shoe Corp. ("Bee-Gee") and The El-Bee Chargit Corp. ("Chargit"), respectively. Elder-Beerman operates approximately 50 stores, principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Wisconsin, Kentucky, and West Virginia, and Bee-Gee operates 61 stores (51 shoe outlets and 10 Shoebilee! stores), principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Pennsylvania, Virginia and West Virginia. See "Properties." The Company's operations are diversified by size of store, merchandising character, and character of the community served. The Company seeks to satisfy the merchandising needs of its geographic markets, serving customers of all ages with varied interests and incomes. The Company's historical competitive advantage is its niche in medium and small size cities, and in many cases, Elder-Beerman is the dominant supplier of moderate to better brands of soft goods (e.g., Liz Claiborne, Estee Lauder, Tommy Hilfiger, Polo, Guess) in such markets. In many of these cities, there is only one shopping mall, and the Company is a main department store anchor along with J.C. Penney, Sears, or a discount retailer such as Kmart. These other anchors generally supply moderate private label goods, which typically complement the Company's merchandise. The Company's strong metropolitan rivals have tended to bypass smaller Midwestern cities, leaving Elder-Beerman as the dominant department store in these smaller markets. BACKGROUND Elder-Beerman and its predecessors have been operating department stores since 1883. Historically, the Company's underlying strategy had been to manage the bottom-line through an aggressive approach to (a) containing operating costs, (b) enhancing gross profit percentages within its "moderate to better" brand merchandise, and (c) expanding its presence from a single store city retailer into a regional retailer. This strategy enabled the Company to experience steady sales growth and consistent earnings results beginning in the mid-1960s and continuing into the early 1990s. During 1992 and through 1994, the Company undertook a new and high volume merchandising strategy. During 1995, it became apparent that this strategy had a negative impact on the Company's financial position, and the Company entered into negotiations with its lenders for a plan to provide additional liquidity. Such negotiations ultimately were unsuccessful. In addition, as the need for working capital to fund increased inventory purchases for the holiday season drew closer, Elder-Beerman's suppliers began to show concerns about further extensions of trade credit to the Company in the wake of other bankruptcies in the retail industry. The Company was faced with an absence of working capital financing and the prospect of being unable to secure inventory for the 1995 Christmas season. BANKRUPTCY On October 17, 1995 (the "Petition Date"), Elder-Beerman and its subsidiaries, Chargit, Bee-Gee, Margo's LaMode, Inc. ("Margo's"), McCook Wholesale Corp. ("McCook"), E-B Community Urban Redevelopment Corp. ("E-B"), and EBA, Inc. ("EBA") (collectively, the "Old Elder-Beerman Companies"), filed voluntary petitions for relief (the "Reorganization Cases") under chapter 11 of the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), with the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"). The Old Elder-Beerman Companies filed their proposed joint plan of reorganization with the Bankruptcy Court on August 6, 1997, their amended joint plan of reorganization on October 16, 1997, their second amended joint plan of reorganization on November 7, 1997 and their third amended joint plan of reorganization on November 18, 1997 (the "Plan"). The Plan 1 5 was confirmed at a hearing before the Bankruptcy Court on December 15, 1997 (the "Confirmation Date"), and became effective on December 30, 1997, (the "Effective Date"). The Plan will result in a significant reduction in the total indebtedness of the Company. More specifically, the Plan provides for, among other things: (i) the cancellation of certain indebtedness in exchange for cash, conveyances of collateral and/or new equity interests; (ii) the discharge of certain prepetition intercompany claims; (iii) the settlement of certain contingent claims and mutual releases among the Old Elder-Beerman Companies and other persons or entities (including certain affiliated persons or entities); (iv) the assumption or rejection of executory contracts and unexpired leases to which any Old Elder-Beerman Company was a party; (v) the merger of Elder-Beerman's subsidiaries, other than Bee-Gee and Chargit, with and into Elder-Beerman, with Elder-Beerman being the surviving entity; and (vi) the selection of the Company's board of directors. Additionally, under the terms of the Plan, holders of allowed general unsecured claims against the Old Elder-Beerman Companies other than Margo's (collectively, the "General Unsecured Creditors"), including The Elder-Beerman Stores Corp. Profit Sharing and Stock Ownership Plan (the "ESOP"), will receive a pro rata share of a cash distribution amount and a pro rata share of approximately 99% of the shares of the Company's common stock, without par value, (the "Common Stock") distributed pursuant to the Plan. The ESOP will receive, on account of its claims, which were estimated to total approximately $13 million, 5.25% of the distributions made to the General Unsecured Creditors. Furthermore, Beerman-Peal Holdings, Inc. ("Beerman-Peal") will receive, in full satisfaction of certain of its allowed interests: (a) 124,036 shares of Common Stock, (b) warrants to be issued by the Company to purchase up to 2% of the outstanding Common Stock, which will have a strike price set to reflect a total equity value for the reorganized Company of approximately $160 million (the "New Series A Warrants"), and (c) warrants to be issued by the Company to purchase up to 3% of the outstanding Common Stock, which will have a strike price set to reflect a total equity value for the reorganized Company of approximately $185 million (the "New Series B Warrants"). All securities issued pursuant to the Plan will be issued by Elder-Beerman. Substantially all of the Common Stock and other securities of Elder-Beerman will be owned by prepetition creditors and prepetition equity holders of the Old Elder-Beerman Companies. Distributions of Common Stock pursuant to the Plan are subject to dilution from issuance of the amount of stock and stock options to be awarded to employees under the Company's Equity and Performance Incentive Plan (the "Incentive Plan"). See "Executive Compensation -- New Compensatory Programs and Agreements -- Equity and Performance Incentive Plan." Holders of allowed general unsecured claims against Margo's will receive a pro rata share of approximately $2.5 million. BUSINESS The Company sells a wide range of merchandise, including women's, men's, and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, as discussed above the Company owns a specialty shoe store chain and a private label credit card program through its wholly-owned subsidiaries, Bee-Gee and Chargit, respectively. The Company's historical competitive advantage is its niche in medium and small size cities, and in many cases, Elder-Beerman is the dominant supplier of moderate to better brands of soft goods (e.g., Liz Claiborne, Estee Lauder, Tommy Hilfiger, Polo, Guess) in such markets. In many of these cities, there is only one shopping mall, and the Company is a main department store anchor along with J.C. Penney, Sears, or a discount retailer such as Kmart. These other anchors generally supply moderate private label goods, which typically complement the Company's more upscale merchandise. The Company's strong metropolitan rivals have tended to bypass smaller Midwestern cities, leaving Elder-Beerman as the dominant department store in these smaller markets. BUSINESS PLAN AND STRATEGY FOR THE COMPANY The Company expects its business strategy will continue to be to improve profitability by focusing on a more productive core department store business, primarily in Dayton, Ohio and smaller communities in the Midwest, by seeking to be the dominant destination retailer for fashion apparel, accessories, cosmetics, shoes, and home accessories for the entire family, while continuing its tradition of providing strong customer service in key product areas. In addition, the Company and Bee-Gee aggressively use technology and business process changes to reduce operating costs and improve operating performance through productivity gains. 2 6 The Company's long-term business plan (the "Business Plan") is designed to accomplish these objectives by (a) focusing on its traditional strengths as the major retailer in its markets; (b) emphasizing major supplier partnerships to improve sales and margins while improving supply chain integration and efficiencies; (c) competing with traditional department store competitors through emphasis on customer service, timely and broad product assortments, and competitive pricing and promotions in appropriate markets and product areas; (d) competing with moderate department stores and discounters through merchandise breadth and advantages in branded and gift areas; (e) focusing price/product competition in key basic merchandising areas; and (f) leveraging technology to create a selling culture with "customer-focused" stores, to develop and execute customer and market specific marketing programs, and to distribute, price, and promote goods by market. Merchandising Strategy. The Company carries a broad assortment of goods to provide fashion, selection, and variety usually found in better leading department stores that feature better merchandise brands. Although all stores stock identical core assortments, specific types of goods are distributed to stores based on the particular characteristic of the local market. The Company emphasizes "signature" areas critical to its image in its niche market, as a primary destination for fashion apparel and gifts. The Company also seeks to increase penetration of its private label credit card program through a combination of efforts intended to increase the use of cards by existing Elder-Beerman credit card customers, either through incremental sales or shifting sales from other credit cards and other retailers, and attracting new cardholders. In addition, through continued efforts to develop a partnership with its most significant vendors, the Company is (a) pursuing automated replenishment of basic stock to increase sales and reduce basic inventories and (b) using technology and focused merchandising and distribution to reduce material handling costs and increase speed in moving stock from the vendor to the selling floor. The Company is implementing certain technological advances and an enhanced sales training program to aid in the restructuring of its competitive pricing strategies in key areas toward a more "value price" image. Expansion Strategy. The Company is implementing a controlled expansion of new stores with market characteristics consistent with current stores. The Company believes that sufficient new locations are available in strategic markets within the Company's current area of operations to support such an expansion. In addition, the Company believes that opportunities exist to expand approximately 10 existing stores where current space constraints prevent adequate presentation of certain core merchandise departments. Information Systems Strategy. The Company is enhancing its management information systems, through capital investment and training programs, to (a) improve the data integrity of financial and merchandise systems; (b) reduce administrative costs through automation and elimination of paperwork and redundant controls; (c) utilize Electronic Data Interchange and other industry standards to increase "floor ready" merchandise receipts; (d) eliminate paperwork through automatic invoice processing; and (e) improve merchandise analysis and decision making. Store Operations Strategy. The Company is enhancing its customer service image and creating a customer-oriented store environment by (a) eliminating nonselling activities from stores; (b) using training and recruiting practices to instill a culture of customer helpfulness and responsiveness; (c) developing tools and training to enhance selling skills and awareness; (d) implementing selling productivity measurement and compensation systems directed at encouraging selling activities and results; and (e) reducing store expenses through increased use of technology and improved controls. Human Resource Strategy. The Company is implementing a senior management and executive compensation program in order to attract, retain, and provide incentives to the best associates in its markets. The Company seeks associates with exceptional knowledge, skills, education, and experience required for their positions and compensates them with a focus on rewarding productivity. Continued development of associates is accomplished through a comprehensive core training program and special courses to address leadership, supervisory management, and creative problem-solving. Overall, the Company strives to create an environment that focuses on fostering team work, expanding quality communication, satisfying customers, and enhancing profits. SEASONALITY The department store business is seasonal, with a high proportion of sales and operating income generated in November and December. Working capital requirements fluctuate during the year, increasing somewhat in mid-summer in anticipation of the fall merchandising season and increasing substantially prior to the holiday season when the Company must carry significantly higher inventory levels. Consumer spending in the peak retail season may be affected by many factors outside the Company's control including competition, consumer demand and confidence, weather that affects 3 7 consumer traffic and general economic conditions. A failure to generate substantial holiday season sales could have a material adverse effect on the Company. COMPETITION The retail industry, in general, and the department store and shoe store businesses, in particular, are intensely competitive. Generally, the Elder-Beerman department stores and Bee-Gee family shoe stores are in competition not only with other department stores and family shoe stores, respectively, in the geographic areas in which they operate, but also with numerous other types of retail outlets, including specialty stores, general merchandise stores, off-price and discount stores, and manufacturer outlets. Some of the retailers with which the Company competes have substantially greater financial resources than the Company and may have other competitive advantages over the Company. EMPLOYEES On December 31, 1997, the Company had approximately 7,600 regular and part-time employees, 7,200 of which are employed by Elder-Beerman's department stores. Because of the seasonal nature of the retail business, the number of employees rises to a peak in the holiday season. The Company's management considers its relations with employees to be satisfactory. 4 8 FINANCIAL INFORMATION SELECTED HISTORICAL FINANCIAL INFORMATION The following table sets forth various selected financial information for the Company as of and for the fiscal years ended February 1, 1997, February 3, 1996, January 28, 1995, January 29, 1994, and January 30, 1993 and the 39-week periods ended November 1, 1997 and November 2, 1996. Such selected consolidated financial information should be read in conjunction with the audited and unaudited historical consolidated financial statements of the Company, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" that appear elsewhere in this Registration Statement.
39 WEEKS ENDED FISCAL YEAR ENDED NOV 1, 1997 NOV 2, 1996 FEB 1, 1997 FEB 3, 1996 (a) JAN 28, 1995 JAN 29, 1994 JAN 30, 1993 ----------- ----------- ----------- ----------- ------------ ------------ ------------ DOLLARS IN THOUSANDS DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA) (EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues $ 405,980 $ 398,685 $ 597,008 $ 608,931 $ 647,326 $ 633,936 $ 598,318 Income/(Loss) Before Reorganization Items and Income Tax Expense (Benefit) 593 (635) 11,579 (33,631) (4,590) 23,194 18,519 Reorganization Items 12,850 12,339 23,648 19,711 -- -- -- Income/(Loss) Before Discontinued Operations (b)(c) (12,257) (12,974) (12,429) (51,010) (2,064) 14,884 11,552 Net Income/(Loss) $ (12,257) $ (12,974) $ (12,429) $ (63,286) $ (13,355) $ 15,865 $ 9,592 Earnings/(Loss) Per Common Share: Continuing Operations $ (1.88) $ (1.99) $ (1.90) $ (7.83) $ (0.32) $ 2.26 $ 1.77 Preferred Stock Dividend -- -- -- -- (0.14) 0.15 (0.30) Discontinued Operations -- -- -- (1.89) (1.73) (0.14) (0.11) --------- --------- --------- --------- ----------- ----------- ----------- Net Earnings/ (Loss) $ (1.88) $ (1.99) $ (1.90) $ (9.72) $ (2.19) $ 2.27 $ 1.36 ========= ========= ========= ========= =========== =========== =========== Cash Dividends Per Share Paid: Common $ -- $ -- $ -- $ -- $ 0.22 $ 0.20 $ 0.11 Preferred $ -- $ -- $ -- $ -- $ 1.39 $ 1.39 $ 1.34
5 9
39 WEEKS ENDED FISCAL YEAR ENDED ------------------------ ---------------------------------------------------------------------- NOV 1, 1997 NOV 2, 1996 FEB 1, 1997 FEB 3, 1996 (a) JAN 28, 1995 JAN 29, 1994 JAN 30, 1993 ----------- ----------- ----------- ---------------------------- ------------ ------------ DOLLARS IN THOUSANDS DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA) (EXCEPT PER SHARE DATA) BALANCE SHEET DATA Total Assets $ 421,998 $ 413,298 $ 365,141 $ 367,069 $ 267,822 $ 285,996 $ 261,781 Short Term Debt 89,410 87,982 57,931 50,100 6,221 -- 42,619 Liabilities Subject to Compromise 232,454 224,205 231,675 229,409 -- -- -- Long-Term Obligations 5,744 5,689 5,669 3,100 109,487 108,010 63,833 OTHER DATA Sales Increase/(Decrease) From Prior Period 2.0% (4.0%) (3.5%) (6.5%) 1.8% 5.6% 9.3% Dept. Store Comp. Sales 3.9% (2.7%) (1.2%) (8.4%) (3.8%) 0.6% 7.0% Inc./(Dec.) From Prior Period(d) - ---------- NOTES TO SELECTED HISTORICAL FINANCIAL INFORMATION: (a) Fiscal Year ended February 3, 1996 included 53 weeks as compared to 52 weeks for each of the other fiscal years shown. (b) The financial information for Margo's is included in discontinued operations for all period. (c) The financial information for Bee-Gee is included as part of continuing operations for all periods except for the initial reserve for discontinued operations that was recorded in fiscal 1994 and the subsequent reversal recorded in fiscal 1995. (d) Comparable store sales include only those department stores that operated during the applicable full fiscal year.
6 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for the 39-week periods ending November 1, 1997 and November 2, 1996, and for the 52-weeks ending February 1, 1997 ("Fiscal 1996"), 53-weeks ending February 3, 1996 ("Fiscal 1995"), and 52-weeks ending January 28, 1995 ("Fiscal 1994"). The Company's fiscal year ends on the Saturday closest to January 31. The discussion and analysis which follows are based upon and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Registration Statement. RESULTS OF OPERATIONS 39-Weeks Ending November 1, 1997 Compared to the 39-Weeks Ending November 2, 1996 Net sales for the 39-weeks ending November 1, 1997 increased by 2.0% to $386.2 million from $378.7 million for the 39-weeks ending November 2, 1996. The increase is due to a 3.9% comparative store sales increase for the department store division. The Company closed the outlet section of the downtown Dayton, Ohio department store, the Fairborn, Ohio furniture store, and the outlet section of the Hamilton, Ohio department store, which contributed a combined total of approximately $3.5 million in sales, for the 39-weeks ending November 2, 1996 that were absent in the 39-weeks ending November 1, 1997. The Company's business is subject to seasonal fluctuations. Approximately one-third of the Company's annual sales occur in the fourth quarter (i.e., November - January), as well as a majority of the Company's profits. Financing revenue from the Company's private label credit card for the 39-weeks ending November 1, 1997 decreased by 1.0% to $19.8 million from $20.0 million for the 39-weeks ending November 2, 1996. The decline is due to a 4.0% decrease in sales attributed to the Company's private credit card, and a resulting decline in the outstanding customer accounts receivable. The decline in finance charges due to outstanding customer accounts receivable has been largely offset by an increase in late fees charged. Cost of goods sold, occupancy, and buying expenses increased to 73.3% of net sales for the 39-weeks ending November 1, 1997 from 72.2% of net sales for the 39-weeks ending November 2, 1996. This increase is due to $5.9 million in excess mark-downs in cost of goods sold, due to store closings in the 39-weeks ending November 1, 1997. This increase is partially offset by an increase in the initial rate of mark-up on goods sold. Selling, general, and administrative, expenses decreased by $4.5 million to $113.5 million for the 39-weeks ending November 1, 1997 from $118.0 million for the 39-weeks ending November 2, 1996. This improvement is primarily due to a reduction in payroll and suspension of ongoing payments on certain computer leases resulting from settlements with the lessors in which such lessors received claims in the Reorganization Cases, offset partially by an increase in sales promotion expense. In addition, for the key-employee retention bonus program $1.5 million has been expensed for the 39-weeks ending November 1, 1997 compared to $2.8 million for the 39-weeks ending November 2, 1996. The decline is due to an increase in the profit threshold to which such bonus is tied. Provision for doubtful accounts remains the same at 1.1% of net sales for both the 39-weeks ending November 2, 1997 and the 39-weeks ending November 2, 1996, which is consistent with the sales attributed to the Company's private credit card. Interest expense increased to $4.6 million for the 39-weeks ending November 2, 1997 from $3.8 million for the 39-weeks ending November 1, 1996. The Company has certain interest rate swap agreements and is required to make adjustments to market value. For the 39-weeks ending November 1, 1997, the swap adjustment to market resulted in an expense of $0.6 million compared to income of $0.8 million in the prior period. Reorganization items increased by $0.6 million to $12.9 million for the 39-weeks ending November 1, 1997 from $12.3 million for the 39-weeks ending November 2, 1996. The increase is primarily due to a $2.0 million increase in professional fees partially offset by a $1.6 million reduction in financing cost expense. Income taxes were zero for both periods as no tax benefit was recorded due to valuation allowances. 7 11 Fiscal 1996 Compared to Fiscal 1995 Net sales for Fiscal 1996 decreased 3.5% to $569.6 million from $590.0 million for Fiscal 1995. Fiscal 1995 contains 53 weeks and contained approximately $4.6 million in net sales for the extra week. The department store division comparative store sales for Fiscal 1996 and the first 52-weeks of Fiscal 1995 decreased approximately 0.4%. In Fiscal 1995 two department stores were closed and two new department stores were opened. In addition, the Bee-Gee shoe division closed 11 El-Bee shoe outlet stores in Fiscal 1996. Financing revenue for Fiscal 1996 increased by $8.6 million to $27.5 million from $18.9 million in Fiscal 1995. In Fiscal 1995, prior to the Petition Date, the Company maintained a financing facility through the sale ("securitization") of customer accounts receivable. With the filing of bankruptcy the securitization facility was canceled. In fiscal 1995 gross financing revenue was reduced by $5.9 million of securitization expense. Cost of goods sold, occupancy, and buying decreased from 77.5% of net sales in Fiscal 1995 to 72.0% of net sales in Fiscal 1996. This improvement is attributable to a significant increase in the initial rate of mark-up on goods sold coupled with a significant decrease in the mark-down rate for Fiscal 1996 compared to Fiscal 1995. In Fiscal 1995, increased markdowns were taken to clear excess inventories. In Fiscal 1996, the LIFO inventory valuation adjustment reduced cost of goods sold by $1.9 million compared to an increase in cost of goods sold of $0.8 million in Fiscal 1995. Selling, general, and administrative expenses, including key employee performance bonus plan expense, hiring and recruiting expenses for new executives, and other income, decreased by $7.8 million to $162.2 million, or 28.5% of net sales, in Fiscal 1996, compared to $170.0 million, or 28.8% of net sales, in Fiscal 1995. In Fiscal 1996 through expense reduction programs, the Company was able to reduce expenses in a significant number of expense categories, particularly in the areas of data processing and sales promotion, which was partially offset by implementation in Fiscal 1996 of a key employee retention bonus program and hiring and recruiting expenses. Other income for Fiscal 1996 relates to mark-to-market adjustments in interest rate swaps. Provision for doubtful accounts increased $0.8 million to $6.7 million, or 1.2% of net sales, in Fiscal 1996, compared to $5.9 million, or 1.0% of net sales, in Fiscal 1995. This increase is primarily the result of an increase in customer personal bankruptcy filings. Interest expense decreased $3.1 million to $6.5 million, or 1.1% of net sales, in Fiscal 1996, compared to $9.6 million, or 1.6% of net sales, in Fiscal 1995. After the Petition Date, the primary method of financing was through a Debtor-in-Possession ("DIP") short-term financing agreement. The required financing through the DIP after the Petition Date was significantly less than the long-term and short-term debt outstanding prior to the Petition Date, resulting in substantially less interest expense for Fiscal 1996; however, this benefit was partially offset with higher interest rates associated with the DIP financing. Reorganization expense increased $3.9 million to $23.6 million in Fiscal 1996 compared to $19.7 million in Fiscal 1995. Professional fees in Fiscal 1996 were $5.0 million higher than Fiscal 1995 because the bankruptcy filing occurred in October 1995. Other major differences include an expense of $7.5 million for equipment lease settlements in Fiscal 1996 that was not in Fiscal 1995, restructuring expenses that were $4.4 million less in Fiscal 1996, and an expense in Fiscal 1995 of $5.0 million for the market value adjustment of interest rate swaps. Income tax expense (benefit) for Fiscal 1996 was an expense of $0.4 million, compared to a benefit of $2.3 million in Fiscal 1995. The tax provision for Fiscal 1996 is for state and local taxes only, no federal tax benefit is recorded due to a valuation allowance. Fiscal 1995's tax benefit includes the carryback of net operating losses for a refund of prior tax paid net of state and local taxes paid, and was also subject to a valuation allowance. Discontinued operations for Fiscal 1996 was zero compared to $12.3 million for Fiscal 1995. Fiscal 1995's expense relates to an additional reserve for the disposing of the Margo's subsidiary, and reversal of the reserve for discontinued operations set up for Bee-Gee in Fiscal 1994, as the Company had decided to retain Bee-Gee as a continuing operation in Fiscal 1995. The Margo's disposal was completed in January 1996 (i.e., Fiscal 1995). 8 12 Fiscal 1995 Compared to Fiscal 1994 Net sales for Fiscal 1995 decreased by 6.5% to $590.0 million from $631.1 million in Fiscal 1994. The decrease occurred primarily from October 1995 through January 1996, when sales for the department stores decreased 9.7% compared to the same period the previous year. This was due to a slow-down in the receipt of goods from vendors as a result of the Company filing for bankruptcy protection in October 1995. Also, El-Bee shoe outlet sales declined 5.0% for the year, primarily as a result of closing 44 unprofitable stores. The department store division opened two new stores in Fiscal 1994 and two new stores in Fiscal 1995 (prior to filing for bankruptcy protection), and closed three stores in Fiscal 1994 and closed two stores in Fiscal 1995. Also, Fiscal 1995 contains 53 weeks and contained approximately $4.6 million in net sales for the extra week. Financing revenue from the Company's private label credit card for Fiscal 1995 increased by $2.7 million to $18.9 million, from $16.2 million in Fiscal 1994. This 16.6% increase in revenue is primarily due to an increase in the average monthly outstanding balance of customer accounts receivable, due to a change in mid-1994 decreasing the minimum monthly payment required to 5% of their account balance from 10%. Cost of goods sold, occupancy, and buying expense as a percent of net sales increased to 77.5% in Fiscal 1995 from 74.0% in Fiscal 1994. This increase is primarily the result of increased mark-downs taken to clear excess inventories and the write-off of obsolete computer systems. Selling, general, and administrative, expenses decreased by $1.8 million to $170.0 million, or 28.8% of net sales, in Fiscal 1995 compared to $171.8 million, or 27.2% of net sales, in Fiscal 1994. The expense reduction was caused primarily by a reduction in store related payrolls as a result in the sales decline, and no employee pension expense because the Company was not profitable. Provision for doubtful accounts increased by $2.4 million to $5.9 million, or 1.0% of net sales, in Fiscal 1995 compared to $3.5 million, or 0.5% of net sales in Fiscal 1994. This increase is primarily the result of an increase in regular write-offs and customer personal bankruptcy filings. Interest expense in Fiscal 1995 deceased by $0.3 million compared to Fiscal 1994. The decrease was due to decreased borrowings after the Petition Date. However, this benefit of reduced debt was partially offset with higher interest rates associated with the DIP financing. Reorganization expense was $19.7 million in Fiscal 1995. Items included as part of this expense are professional fees, restructuring expense primarily due to store closings, the write-off of pre-bankruptcy loan costs, fee amortization expense for DIP loans, and an expense for the market value adjustment of interest rate swaps. Income tax expense (benefit) for Fiscal 1995 was a benefit of $2.3 million, which includes the carryback of net operating losses for a refund of prior tax paid, net of state and local taxes paid, and was subject to a valuation allowance. Fiscal 1994's tax benefit of $2.5 million was disproportionate to the effective tax rate principally because of tax credits and other adjustments. Discontinued operations reflects the estimates of the costs to be incurred in disposing of the Margo's subsidiary for Fiscal 1995 and Fiscal 1994, as well as a reserve for Bee-Gee Shoes in Fiscal 1994 which was reversed in Fiscal 1995. The costs include losses incurred in liquidating all Margo's assets, as well as terminated lease costs. LIQUIDITY AND CAPITAL RESOURCES Prior to the filing for bankruptcy protection in October 1995, the Company's primary sources of funds were cash flow from operations and borrowings under various debt agreements 9 13 and during the Reorganization Cases were cash flow from operations and a debtor-in-possession Credit Agreement. After the Effective Date, the Company's principal sources of funds are cash flow from operations, borrowings under the New Revolving Credit Facility and New Receivable Securitization Facility ("New Credit Facilities"). The Company's primary ongoing cash requirements are to fund debt service, make capital expenditures, and finance working capital. The Company believes that it will generate sufficient cash flow from operations, as supplemented by its available borrowings under the New Credit Facilities, to meet anticipated working capital and capital expenditure requirements as well as debt service requirements under the New Credit Facilities. The New Revolving Credit Facility with Citicorp USA, Inc., as the Agent, and Citicorp Securities, Inc., as the Arranger, provides for revolving credit loans of up to $125.0 million for seasonal working capital purposes (including a $20.0 million letter of credit subfacility). The borrowing base used in determining the aggregate availability for loans and other extensions of credit under the New Revolving Credit Facility is equal to (a) up to 95% of cash and (b) eligible finished-goods inventory as follows: January-April, up to 60%; May-July, up to 50%; August-October, up to 60%; and November-December, up to 65%, less such reserves as the Arranger deems appropriate. The New Receivable Securitization Facility established with Citibank, N.A. provides that a master trust established by the Company will issue up to $125 million of asset-backed certificates in three separate classes to finance purchase of revolving consumer credit card receivables generated by the Company's department store operations. All of these certificates will represent undivided interests in the assets of the master trust. The master trust will hold all revolving credit card receivables arising from private-label credit cards of the Company. The Company's capital expenditures for Fiscal 1996 were $4.8 million, which were primarily attributable to stores. The Company presently anticipates that capital expenditures aggregating approximately $22.4 million will be made in Fiscal 1997, of which $6.2 million relates primarily to data processing and the remaining $16.2 million will be attributable to store maintenance, remodeling, and expansions. The Company is reviewing its exposure to the computer software problems associated with the year 2000, and believes that the costs associated with correcting the remaining issues will not be material. The Company has implemented a key employee retention program, which includes severance payments and bonus payments. Under this program, expenses of $2.2 million and $4.5 million were recognized in the thirty-nine weeks ended November 1, 1997 and November 2, 1996, respectively. Expenses of $6.8 million and $0.5 million were recorded in fiscal 1996 and 1995, respectively. A reorganization bonus will also be paid to certain employees upon the substantial consummation of a consensual plan of reorganization. Expenses related to the reorganization bonus of approximately $2.0 million are expected to be recorded in the fourth quarter of fiscal 1997. No amounts have been paid or accrued related to the reorganization bonus as of November 1, 1997. A key component of the Company's post-emergence business plan is the implementation of new compensatory programs and agreements. These compensatory arrangements are expected to have no material impact on the operations and liquidity of the Company. PROPERTIES The following table sets forth certain information with respect to Elder-Beerman's department store operations and Bee-Gee's shoe store operations, based on operating data as of February 1, 1997, the end of Elder-Beerman's and Bee-Gee's most recently completed fiscal year:
SALES FOR FISCAL YEAR NUMBER GROSS SQUARE FOOTAGE ENDED FEBRUARY 1, 1997 UNIT OF STORES (IN THOUSANDS) (IN MILLIONS) - ------------------------ --------- -------------------- ----------------------- Elder-Beerman department 52 4,557.1 $ 535,581.3 store operations Bee-Gee shoe store 68 277.5 $ 33,975.5 operations
10 14 Elder-Beerman currently operates approximately 50 stores, principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Wisconsin, Kentucky, and West Virginia, and Bee-Gee operates 61 stores (51 shoe outlets and 10 Shoebilee! stores), principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Pennsylvania, Virginia and West Virginia. Substantially all of the Company's stores are leased properties. The Company owns, subject to a mortgage, the 302,570 square foot office/warehouse facility located in Dayton, Ohio, which serves as its principal executive offices. The Company also has a 20% limited partnership interest in a partnership that owns a 300,000 square foot distribution center located in Fairborn, Ohio. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRO FORMA OWNERSHIP OF EQUITY SECURITIES The following table sets forth information regarding the beneficial ownership of the Company's Common Stock as of January 15, 1998 by (i) each person who owns beneficially more than 5% of Common Stock of the Company to the extent known to management, (ii) each executive officer and director of the Company, and (iii) all directors and executive officers, as a group. Unless otherwise indicated, the named persons exercise sole voting and investment power over the shares that are shown as beneficially owned by them. 11 15
Number Percent Beneficial Owner* Title of Class of Shares of Class - ------------------------------------------ -------------- ----------- ---------- Stewart M. Kasen Common Stock 1,300 * Steve C. Mason Common Stock 1,300 * Frederick J. Mershad Common Stock 47,087 * John A. Muskovich Common Stock 30,606 * Thomas J. Noonan Common Stock 1,300 * Bernard Olsoff Common Stock 1,300 * Jack A. Staph Common Stock 1,300 * Jack J. Wiesner Common Stock 1,300 * Herbert O. Glaser(1) * 30,962(1) * Max Gutmann(2) * 36,970(2) * Maxwell B. McArthur(3) -- -- -- Leonard B. Peal(4) * * * All directors and executive officers as a Common Stock 153,425 * group (12 persons) - ---------- * Because the Common Stock will not be issued until after the effective date of this Registration Statement and because issuance is based on the allowed claims in the Reorganization Cases and other variables contained in the Plan, Elder-Beerman is unable to determine, prior to such time, the information required to be disclosed herein other than as set forth above, including, without limitation, whether any person will own 5% or more of the Common Stock and the percentage of outstanding Common Stock that will be held by any person as of such date or the number of shares Messrs. Glaser, Gutmann, and Peal will beneficially own on account of their claims or interests in the Reorganization Cases. Elder-Beerman will make such information publicly available through an appropriate filing with the Securities and Exchange Commission (the "SEC") once such information becomes available. 1 Effective August 1997, Mr. Glaser is no longer employed by the Company. The 30,962 shares represent those shares that were issued to Mr. Glaser pursuant to the Reorganization Bonus Order (as defined herein). The Company expects that Mr. Glaser will receive additional shares on account of his claims in the Reorganization Cases. As described above, the Company is currently unable to determine the number of such additional shares. 2 As of the Effective Date, Mr. Gutmann is no longer employed by the Company. The 36,970 shares represent those shares that were issued to Mr. Gutmann pursuant to the Reorganization Bonus Order (as defined herein). The Company expects that Mr. Gutmann will receive additional shares on account of his claims in the Reorganization Cases. As described above, the Company is currently unable to determine the number of such additional shares. 3 Effective May 31, 1997, Mr. McArthur is no longer employed by the Company. 4 Effective February 28, 1997, Mr. Peal is no longer employed by the Company.
12 16 DIRECTORS AND EXECUTIVE OFFICERS Directors and Executive Officers The following table sets forth information regarding those persons currently serving as the executive officers and directors of the Company. Certain biographical information regarding each of the Company's current directors and executive officers is described below the table. Name Age Position - ---------------------- ---- ------------------------------------------------- Frederick J. Mershad 54 Chairman of the Board and Chief Executive Officer John A. Muskovich 50 President, Chief Operating Officer, Chief Financial Officer and Director James M. Zamberlan 51 Executive Vice President, Stores Steven D. Lipton 46 Senior Vice President, Controller Perry J. Schiller 39 Senior Vice President and Treasurer Scott J. Davido, Esq 36 Senior Vice President, General Counsel, and Secretary Stewart M. Kasen . 58 Director Steve C. Mason 62 Director Thomas J. Noonan 58 Director Bernard Olsoff 68 Director Jack A. Staph 52 Director John J. Wiesner 59 Director 13 17 Frederick J. Mershad has served as Chairman of the Board and Chief Executive Officer since December 1997 and as President and Chief Executive Officer of Elder-Beerman since January 1997. Prior to this time, Mr. Mershad served as President and Chief Executive Officer of the Proffitt's division of Proffitt's, Inc. ("Proffitt's") from February 1995 to December 1996; Executive Vice President, Merchandising Stores for Proffitt's from May 1994 to January 1995; Senior Vice President, General Merchandise Manager, Home Store for Rich's Department Store, Inc. from August 1993 to May 1994; and Executive Vice President, Merchandising and Marketing of the McRae's Department Stores division of Proffitt's from June 1990 to August 1993. John A. Muskovich has served as President, Chief Operating Officer, Chief Financial Officer and Director of Elder-Beerman since December 1997 and served as Executive Vice President of Administration of Elder-Beerman since February 1996. Prior to this time, Mr. Muskovich served in the Business Administration Group for Kmart Corp. from September 1995 to February 1996; President of the Federated Claims Services Group with Federated Department Stores, Inc. ("Federated") from February 1992 to August 1995; Vice President of Benefits of Federated from 1994 to 1995; and Vice President, Corporate Controller of Federated from 1988 to 1992. James M. Zamberlan has served as Executive Vice President, Stores of Elder-Beerman since July 1997. Prior to this time, Mr. Zamberlan served as Executive Vice President of Stores for Bradlee's, Inc. from September 1995 to January 1997 and also served as Senior Vice President of Stores for the Lazarus Division of Federated Department Stores, Inc. from November 1989 to August 1995. Steven D. Lipton has served as Senior Vice President, Controller of Elder-Beerman since March 1996. Prior to this time, Mr. Lipton served as Operating Vice President of Payroll for Federated Financial & Credit Services from September 1994 to January 1996 and served as Vice President and Controller of the Lazarus Division of Federated from February 1990 to August 1994. Perry J. Schiller has served as Senior Vice President and Treasurer of Elder-Beerman since November 1995. Prior to this time, Mr. Schiller served as the Director of Internal Audit for Elder-Beerman from October 1993 to November 1995 and served as a Senior Manager of Financial Audit for Deloitte & Touche LLP from May 1988 to October 1993. Scott J. Davido, Esq. has served as Senior Vice President, General Counsel, and Secretary of Elder-Beerman since January 1998. Prior to this time, Mr. Davido was a partner with Jones, Day, Reavis & Pogue, a law firm. Mr. Davido was employed by this law firm, since December 1996 and as an associate since September 1987. Stewart M. Kasen has served as a Director of Elder-Beerman since January 1998. Prior to this time, Mr. Kasen served as Chairman of the Board, President, and Chief Executive Officer of Best Products Company, Inc., a Richmond, Virginia retailer, from 1994 through May 1996, President and Chief Executive Officer from 1991 to 1994, and President and Chief Operating Officer from 1989 to 1991. Mr. Kasen is also currently a Director of O'Sullivan Industries Holdings, Inc., Factory Card Outlet Corp., Bibb Co., and K2 Inc. Steven C. Mason has served as a Director of Elder-Beerman since January 1998. Prior to this time, Mr. Mason served as Chairman of the Board and Chief Executive Officer of Mead Corp., a paper products company, from 1992 to 1997. Mr. Mason is also currently a Director of PPG Industries, Inc. Thomas J. Noonan, Jr. has served as a Director of Elder-Beerman since January 1998. Mr. Noonan has served as Managing Director of The Coopergate Group, a financial investment and management company, since May 1997. Mr. Noonan also serves as Executive Vice President and Chief Financial Officer of Herman's Sporting Goods, a sporting goods retailer, since October 1994. Prior to this time, Mr. Noonan served as Managing Director and Chief Executive Officer of TFGII, a financial investment and management company, from January 1993 to October 1994, and as Executive Vice President of Intrenet Inc., a trucking holding company, from October 1990 to March 1993. Mr. Noonan is also currently a Director of Intrenet Inc. and Richman Gordman 1/2 Price Stores Inc. 14 18 Bernard Olsoff has served as a Director of Elder-Beerman since January 1998. Prior to this time, Mr. Olsoff served as President, Chief Executive Officer and Chief Operating Officer of Frederick Atkins, an international retail merchandising and product development organization for department stores, from 1994 to April 1997, and President and Chief Operating Officer from 1987 to 1994. Jack A. Staph has served as a Director of Elder-Beerman since January 1998. Mr. Staph has served in an unrestricted advisory capacity to CVS Corp. since June 1997. Prior to this time, Mr. Staph served as Senior Vice President, Secretary, and General Counsel of Revco D.S., Inc., a retail pharmacy company, from October 1972 to August 1997. Mr. Staph is also currently a Director of Delta Holdings, Inc. John J. Wiesner has served as a Director of Elder-Beerman since January 1998. Prior to this time, Mr. Wiesner served as Chairman of the Board of Directors, President, and Chief Executive Officer of C.R. Anthony, a regional apparel retailer, from 1987 to 1997. CERTAIN CORPORATE GOVERNANCE MATTERS Under the Ohio General Corporation Law (the" OGCL"), the business and affairs of Elder-Beerman are managed under the direction of the Board of Directors of Elder-Beerman (the "Board of Directors"). The Amended Articles of Incorporation (the "Amended Articles") and the Amended Regulations provide that the size of the Board of Directors will be established from time to time only (a) by an affirmative vote of a majority of the total number of directors that the Company would have if there were no vacancies on the Board of Directors or (b) by the affirmative vote of the holders of at least 72% of the voting stock, voting together as a single class, except as may be provided in any designation containing the express terms of preferred stock to be issued pursuant to resolution of the Board of Directors (a "Preferred Stock Designation"); provided, however, that the number of directors shall not be less than nine nor more than 11, except as may be provided in any Preferred Stock Designation. When so fixed, such number shall continue to be the authorized number of directors until changed by the shareholders or directors. The Amended Articles and the Amended Regulations also provide that the directors of Elder-Beerman, other than those who may be expressly elected by virtue of the terms of any Preferred Stock Designation, are classified with respect to the time for which they severally hold office into three classes, as nearly equal in size as possible and consisting of not less than three directors in each class, with the directors in each class serving for three-year terms and until their successors are elected, except that the initial terms of the initial directors of Elder-Beerman after the Effective Date expire at the 1999, 2000, or 2001 annual meeting of the shareholders of Elder-Beerman, depending upon the particular class in which each such director is placed. Except as may be otherwise provided in any Preferred Stock Designation, at each annual meeting of shareholders of the Company, the successors of the class of directors whose terms expire at that meeting shall be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. Except as provided otherwise in any Preferred Stock Designation, directors may be elected by the shareholders (a) at an annual meeting of shareholders or (b) if no annual meeting is held or if an annual meeting is held but directors are not elected, at a special meeting of shareholders called for that purpose. Neither the holding of a special meeting of shareholders nor the election of directors at a special meeting of shareholders will, by itself, shorten the term of any incumbent director. Except as may be provided in any Preferred Stock Designation, any vacancy that occurs on the Board of Directors, including any vacancy that results from an increase in the number of directors and any vacancy that results from death, resignation, disqualification, removal, or other cause, may be filled only (i) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, or (ii) by the affirmative vote of the shareholders after a vote to increase the number of directors at a meeting called for that purpose. Any director elected to fill a vacancy created by the death, resignation, disqualification, or removal of an incumbent director will hold office for the remainder of the term of the class of directors in which the vacancy was created. Pursuant to the Amended Regulations, no annual meeting of shareholders was held in 1997 or will be held in 1998. The first annual meeting of the shareholders of Elder-Beerman following the Effective Date will be held in May 1999, following the completion of Elder-Beerman's 1998 fiscal year, at such time and on such business day as the Board of Directors determines. Pursuant to the Amended Regulations the Board of Directors could postpone the date of this first 15 19 annual meeting for up to 30 days. Any amendment to such postponement provision requires approval by shareholders holding at least 72% of the voting power of Elder-Beerman. The Amended Regulations provide that nominations for election of directors, except as may be otherwise provided in any Preferred Stock Designation, shall be made at an annual meeting of shareholders by or at the direction of the Board of Directors, or any committee thereof, or by any shareholder entitled to vote in the election of directors at such meeting. The Amended Regulations require that a shareholder's notice of intent to nominate candidates for election as directors must be delivered to or mailed and received at the principal executive offices of Elder-Beerman not less than 60 days, nor more than 90 days, prior to the annual meeting of shareholders; provided, however, that if public announcement of the date of the annual meeting is not made at least 105 calendar days prior to the date of the annual meeting, notice by the shareholder to be timely must be received not later than the close of business on the tenth calendar day following the day on which such announcement of the date of the meeting was so communicated. The Amended Regulations further require that the notice by the shareholder set forth certain information concerning such shareholder and the shareholder's nominees, including their names and addresses, proof that such shareholder is entitled to vote at such annual meeting, the class and number of shares of Elder-Beerman owned or beneficially owned by such shareholder and the shareholder's nominees, any agreements between the relevant parties pursuant to which the nomination is to be made, such other information as would be required to be included in a proxy statement soliciting proxies for the election of the nominees of such shareholder, and the consent of each nominee to serve as a director of Elder-Beerman, if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with these requirements. BOARD COMMITTEES The Amended Code of Regulations of Elder-Beerman (the "Amended Regulations") provide that the Board of Directors may establish an executive committee or any other committees as it may from time to time determine are necessary. Elder-Beerman contemplates that the Board of Directors will establish an Executive Committee, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The composition of such Committees has not been determined, but Elder-Beerman expects that the members of each of the Audit Committee and the Compensation Committee will be non-employee directors. Under the Amended Regulations, a committee will possess and may exercise all of the power and authority granted to it by the Board of Directors consistent with the OGCL, provided that such committees may not fill vacancies among the directors or any committee thereof. The Executive Committee will possess and may exercise, subject to the control and direction of the Board of Directors, all the powers of the Board of Directors in the management and control of the business of Elder-Beerman, regardless of whether such powers are specifically conferred by the Amended Articles or Amended Regulations. The Audit Committee is expected to review: (a) the professional services to be provided by Elder-Beerman's independent auditors and the independence of such firm from management of Elder-Beerman; (b) the scope of the audit by Elder-Beerman's independent auditors; (c) the annual financial statements of Elder-Beerman; (d) Elder-Beerman's systems of internal accounting controls; and (e) such other matters with respect to the accounting, auditing, and financial reporting practices and procedures of Elder-Beerman as it may find appropriate or as may be brought to its attention. The Audit Committee is expected to meet from time to time with members of Elder-Beerman's internal audit staff. The Compensation Committee is expected to: (a) review executive salaries, (b) administer the bonus, stock option and other incentive compensation plans of Elder-Beerman, and (c) approve the salaries and other benefits of the executive officers of Elder-Beerman. See "Executive Compensation - -- New Compensatory Programs and Agreements." In addition, the Compensation Committee is expected to advise and consult with Elder-Beerman's management regarding pension and other benefit plans and compensation policies and practices of Elder-Beerman. The Nominating and Corporate Governance Committee is expected to initially be responsible for exercising all powers of the Board of Directors to: (a) select, evaluate and nominate candidates for election to the Board; (b) evaluate the performance of the overall Board of Directors and its individual members; and (c) ensure effective operations of the Board of Directors and overall corporate governance of Elder-Beerman. 16 20 EXECUTIVE COMPENSATION The compensation discussion that follows has been prepared based on the actual compensation paid and benefits provided during the fiscal year ended February 1, 1997 by the Company to certain executive officers as of February 1, 1997. The existing employment, compensation, and benefit arrangements of the Company are described below. Compensation and benefit arrangements of the Company that were terminated as of the Effective Date are not described below. CASH COMPENSATION TABLE The following table sets forth the compensation paid or payable by the Company during the fiscal year ended February 1, 1997 to Mr. Gutmann, Mr. Mershad, and the four most highly compensated executive officers of the Company as of February 1, 1997.
ANNUAL COMPENSATION ---------------------- SALARY BONUS NAME AND PRINCIPAL POSITION ($) ($) - ------------------------------------------ ----------- --------- MAX GUTMANN (1)........................... 368,846 160,000 Chairman of the Board FREDERICK J. MERSHAD (2).................. 19,231 633,632 President and Chief Executive Officer HERBERT O. GLASER (3)..................... 325,789 134,000 Vice Chairman JOHN A. MUSKOVICH......................... 192,239 67,908 Executive Vice President - -Administration MAXWELL B. MCARTHUR (4)................... 161,545 48,800 Executive Vice President Stores LEONARD B. PEAL (5)....................... 160,450 8,000 Executive Vice President - Cost/Leased - ---------- (1) Mr. Gutmann served as Chairman and Chief Executive Officer during fiscal year 1996, but was replaced as Chief Executive Officer by Mr. Mershad during January 1997, the last month of the fiscal year. (2) Mr. Mershad began serving as President and Chief Executive Officer of Elder-Beerman during January 1997, the last month of the 1996 fiscal year. In accordance with his employment contract, Mr. Mershad received a signing bonus of $633,632 as reimbursement for forfeiting his performance bonus, restricted stock grants, and stock option grants that he would have received from his prior employer. (3) Effective August 1997, Mr. Glaser is no longer employed by the Company. (4) Effective May 31, 1997, Mr. McArthur is no longer employed by the Company. (5) Effective February 28, 1997, Mr. Peal is no longer employed by the Company.
EXISTING COMPENSATORY PLANS AND AGREEMENTS Information as to the Company's current compensatory plans and agreements that remained in effect following the Effective Date is set forth below. See "-- New Compensatory Programs and Agreements" for a description of the new plans and agreements that were or will be adopted as of or following the Effective Date. 17 21 KEY EMPLOYEE RETENTION PROGRAM On December 14, 1995, the Bankruptcy Court entered an order authorizing the Company's key employee retention program (the "KERP Order"). This program includes four principal components: (a) The program authorized the Company to enter into termination agreements with approximately 20 of their senior management employees. The benefits available in any termination agreement were in addition to severance benefits to which the employee was entitled, provided that such employee could not receive more than 18 months' salary in termination/severance benefits; (b) The program established a master severance plan for certain key employees. Approximately 450 key employees are covered by this master severance plan. The benefits payable under this plan, which are not to exceed $9 million in the aggregate, are in substitution for the benefits that covered employees would otherwise receive under the alternative base severance pay program. Employees are eligible to receive the greater of the benefits under these two plans; (c) The program established a bonus program consisting of bonuses paid annually and at mid-year, if the Company met predetermined financial goals. The Company paid out approximately $5.0 million in bonuses for the 1996-97 fiscal year. The Company estimates that it will pay a total of approximately $2.0 million in bonuses for the 1997-98 fiscal year. In addition to these bonuses, which were based on a percentage of the applicable employee's salary, the Company's management was given authority to award additional amounts to covered employees in its discretion; and (d) The program includes a base severance pay plan for rank-and-file employees equal to one week of severance pay for each full year of employment. REORGANIZATION BONUS Pursuant to an order entered by the Bankruptcy Court on November 15, 1996, as amended (the "Reorganization Bonus Order"), Messrs. Gutmann, Glaser, and Muskovich will receive the equivalent of two-years of their respective salaries as a lump sum reorganization bonus upon the substantial consummation of a consensual plan of reorganization. These bonuses will be paid through a distribution of cash and Common Stock in the same proportion as the distributions that will be made to unsecured creditors under the Plan. CALCULATION OF CERTAIN SEVERANCE AND BONUS BENEFITS PAID TO SENIOR EXECUTIVES On July 10, 1997, the Bankruptcy Court entered a Stipulation and Order concerning the calculation of the severance pay and reorganization bonuses payable to Messrs. Gutmann and Glaser pursuant to the KERP Order and the Reorganization Bonus Order. This Stipulation and Order provides that to the extent that Messrs. Gutmann or Glaser are otherwise entitled to such benefits, all such benefits shall be payable to Messrs. Gutmann and Glaser on the basis that their respective annual salaries are $400,000 and $335,000, respectively, notwithstanding any downward adjustments made or to be made to those salaries. Effective as of August 1, 1997 and December 30, 1997, Elder-Beerman terminated the employment of Mr. Glaser and Mr. Gutmann, respectively. In accordance with the terms of the KERP Order, Elder-Beerman paid both Mr. Glaser and Mr. Gutmann severance pay equal to one year's salary in connection with their respective termination. As part of the releases provided under the Plan, the Company will release any potential claims, demands, rights, or causes of action it may have against Messrs. Gutmann and Glaser to recover the payment of these severance benefits. NEW COMPENSATORY PROGRAMS AND AGREEMENTS GENERAL One of the key elements of the Company's Business Plan is an executive compensation program designed to attract, retain, and provide incentives to directors, officers, and key employees for the Company and to provide such persons 18 22 appropriate incentives and rewards for superior performance. See "Business -- Business -- Business Plan and Strategy for the Company." Accordingly, the Company instituted a new senior management and executive compensation program (the "New Benefit Program") that includes changes in (a) base salaries, (b) annual incentives, (c) long-term incentives, (d) perquisites, and (e) employment and change-of-control agreements. The New Benefit Program is intended to attract and retain key employees over the long term, encourage employee stock ownership, and provide incentives for career advancement with the Company. Approval of the Plan was deemed to constitute approval of the New Benefit Program by holders of certain claims and interests who are to receive Common Stock pursuant to the Plan. The Equity and Performance Incentive Plan (described below) came into existence as of the Confirmation Date. Generally, however, employee agreements and employee benefit plans implementing the New Benefit Program did not become effective until the Effective Date occurred. The following discussion summarizes the principal terms of the New Benefit Program. EQUITY AND PERFORMANCE INCENTIVE PLAN The Company's new Equity and Performance Incentive Plan (the "Equity and Performance Incentive Plan") includes both annual and long-term (i.e., three or more years) incentives. Under the Equity and Performance Incentive Plan, the Company first expects to motivate and reward designated key employees for the achievement of annual corporate, departmental, and/or individual goals and objectives through new annual incentives. The new annual incentives compensate key employees chosen by the Board of Directors' Compensation Committee based on three performance levels -- threshold, target, and optimum. These performance levels are predetermined on both an individual level for each key employee, based on a percentage of the key employee's base salary, and on a company wide level. If the Company achieves the threshold level under the company-wide performance criteria, key employees will be eligible to receive a cash bonus payment based on the threshold incentive percentage. Key employees may receive additional bonus payments if they meet their goals in other performance categories such as department, region, store, and individual. The Equity and Performance Incentive Plan also allows key employees entitled to receive an annual incentive bonus to defer voluntarily up to 50% of their annual incentive bonus and instead receive Deferred Shares (as hereinafter defined). These Deferred Shares are 100% vested at all times and may be exercised on the earliest of (a) the third anniversary of the date awarded, (b) the date the employee's employment is terminated for reasons other than death, (c) the employee's death, or (d) an unforeseeable financial emergency of the employee. To provide key employees with the incentive to defer, the Equity and Performance Incentive Plan also grants Restricted Shares (as described below) equal in value to 25% of the amount deferred. These Restricted Shares will become 100% vested on the third anniversary of the date of grant if such employee remains in the continuous employ of the Company. In the event of the retirement, death, or disability of a key employee prior to the determination of any annual incentive, and in the event the Board of Directors determines that the key employee's goals have been met, such employee or employee's beneficiary will be eligible to receive a pro rata portion of the award. However, if such employee's employment terminates for any reason other than retirement, death, or disability, the employee will forfeit his or her right to any award not paid to the key employee prior to such termination of employment. If a key employee is employed on the date a change in control occurs, his annual incentive bonus for such year will not be less than such award for the immediately preceding year. The Equity and Performance Incentive Plan also permits equity-related grants as long-term incentives that are intended to motivate and reward certain employees for the achievement of long-term corporate goals and to balance annual goals with strategic plans. These long-term incentives also offer capital accumulation potential for employees and align employees' interests with shareholder interests. Only certain senior executives, as determined by the Board of Directors, are eligible to receive grants under the long-term incentive portion of the Equity and Performance Incentive Plan. The shares awarded as long-term incentives may not exceed the equivalent of 2,250,000 shares plus any shares relating to awards that expire or are forfeited or canceled (the "Long-Term Incentive Reserve"). The Equity and Performance Plan have an evergreen provision that provides that, in any acquisition, merger, or secondary offering, the Long-Term Incentive Reserve shall remain constant. The Equity and Performance Incentive Plan permits grants in a variety of forms. First, the Board of Directors may authorize the granting of stock options ("Option Rights") to designated employees and non-employee directors. Option Rights provide the right to purchase Common Stock at a predetermined price per share (which, in 19 23 the case of non-qualified stock options, may not be less than 75% of the fair market value on the date of grant and, in the case of incentive stock options as described in Section 422 of the Internal Revenue Code, may not be less than fair market value on the date of grant). The grant may provide for payment of the option price by one or more methods. The grant may also provide for the automatic grant of additional Option Rights, known as Related Option Rights, to an employee or non-employee director upon the exercise of Option Rights using Common Stock or other defined consideration as payment. Options granted to non-employee directors become exercisable one-third on each of the first three anniversaries of the date of grant for so long as the individual remains a non-employee director. Options granted to employees become exercisable 20% on each of the first five anniversaries of the date of grant for so long as the employee remains in the continuous employ of the Company. No Option Rights may be exercised more than ten years from the date of grant. All Option Rights provide for the earlier exercisability of the Option Rights in the event of retirement, death, or disability of the employee or non-employee director or a change in control of the Company. Any grant of Option Rights may specify performance goals that must be achieved as a condition to exercise such rights. Second, the Board of Directors may authorize the granting of appreciation rights ("Appreciation Rights") to designated employees. Appreciation Rights represent the right to receive from the Company an amount, determined by the Board of Directors and expressed as a percentage not exceeding 100%, of the difference between the base price established for such rights and the market value of the Common Stock on the date the rights are exercised. Appreciation Rights can be tandem (i.e., granted with Option Rights to provide an alternative to exercise of the Option Rights) or free-standing. Tandem Appreciation Rights may only be exercised at a time when the related Option Right is exercisable and the spread is positive, and requires that the related Option Right be surrendered for cancellation. Free-standing Appreciation Rights must have a base price per right that does not exceed a maximum specified by the Board of Directors on the date of grant, may specify the period of employment that is necessary before such Appreciation Rights become exercisable, may provide for the exercise of the Appreciation Rights only in the event of retirement, death, or disability of the employee or a change in control of the Company and must be evidenced by an agreement executed on behalf of the Company and accepted by the employee describing such Appreciation Rights and other terms and provisions. Such grant may also include that payment may be made by one or more methods of payment and may specify performance goals that must be achieved as a condition to exercise such rights. Third, the Board of Directors may authorize the granting of restricted shares ("Restricted Shares") to designated employees and non-employee directors. Restricted Shares constitute an immediate transfer of ownership to the recipient in consideration of the performance of services. The recipient has dividend and voting rights on such shares. Restricted Shares must be subject to a "substantial risk of forfeiture" of the Restricted Shares, within the meaning of Section 83 of the Internal Revenue Code. To enforce these forfeiture provisions, the transferability of Restricted Shares is prohibited or restricted in the manner prescribed by the Board of Directors on the date of grant for the period during which such forfeiture provisions are to continue. Any grant of Restricted Shares (a) may specify performance goals which, if achieved, will result in termination or early termination of the restrictions applicable to such shares, (b) may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional Restricted Shares, which may be subject to the same restrictions as the underlying award, and (c) must be evidenced by an agreement executed on behalf of the Company and accepted by the employee. Fourth, the Board of Directors may authorize the granting of deferred shares ("Deferred Shares") to designated employees. Deferred Shares constitute an agreement to issue shares to the recipient in the future in consideration of the performance of services, but subject to the fulfillment of such conditions as the Board of Directors may specify. The Board of Directors must fix a deferral period of at least one year at the time of grant, and may provide for the earlier termination of the deferral period in the event of retirement, hardship, death, or disability of the employee or a change in control of the Company. During the deferred period, the employee has no right to transfer any rights under his or her award and has no ownership or voting rights in the Deferred Shares, but the Board of Directors may, at or after the grant date, authorize the payment of dividend equivalents on such shares on either a current, deferred, or contingent basis, either in cash or in additional Common Stock. Each grant of Deferred Shares is evidenced by an agreement executed on behalf of the Company and accepted by the employee. Finally, the Board of Directors may authorize the granting of performance shares ("Performance Shares") and performance units ("Performance Units") to designated employees upon achievement of specified performance objectives. A Performance Share is the equivalent of one share of Common Stock and a Performance Unit is denominated in dollars. The employee is given one or more performance goals to meet within a specified period, not less than one 20 24 year (the "Performance Period"). The specified Performance Period may be subject to earlier termination in the event of retirement, death, or disability of the employee or a change in control of the Company. A minimum level of acceptable achievement also will be established. If, by the end of the Performance Period, the employee has achieved the specified performance goals, the employee will be deemed to have fully earned the Performance Shares or Performance Units. If the designated employee has not achieved the performance goals, but has attained or exceeded the predetermined minimum level of acceptable achievement, the employee will be deemed to have partly earned the Performance Shares or Performance Units in accordance with a predetermined formula. To the extent earned, the Performance Shares or Performance Units will be paid to the employee at the time and in the manner determined by the Board of Directors as set forth in each grant. The Board of Directors may, at or after the date of grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current or deferred or contingent basis, either in cash or in additional Common Stock. Each grant of Performance Shares or Performance Units is evidenced by an agreement executed on behalf of the Company and accepted by the employee. The Equity and Performance Incentive Plan is administered by the Board of Directors, which may from time to time delegate all or any part of its authority under the Equity and Performance Incentive Plan to an agent or a committee or subcommittee of the Board of Directors. The Equity and Performance Incentive Plan offers a large, up-front grant of an aggregate of 788,020 Option Rights and an aggregate of 86,793 Restricted Shares that is intended to cover the first three years following the Effective Date. All initial grants of Options Rights to designated employees vest 20% per year over five years as long as the employee remains in the continuous employ of the Company. All initial grants of Option Rights to non-employee directors vest one-third per year over three years as long as they remain directors. All initial grants of Restricted Shares vest one-third per year over three years as long as the employee remains in the continuous employ of the Company or as long as the director remains a director, as appropriate. For the top two executives, 80% of the targeted gain opportunity is allocated to nonqualified Option Rights and 20% to Restricted Share awards. The other executives receive 100% of their grant in nonqualified Option Rights. EMPLOYMENT AGREEMENTS AND THE SEVERANCE PAY PLAN The Company also provides employment agreements that include severance pay for certain key executives in order to assist in recruiting and to promote long-term security during uncertain times. These executives serve the Company under their respective agreements starting on the Effective Date and ending on the second or third anniversary, as applicable, of the Effective Date with an automatic yearly extension thereafter, unless the employer or the executive has given written notice of termination not less than 120 days prior to the yearly renewal date. The employment agreements set forth (a) the executive's compensation and benefits; (b) the employer's right to terminate the executive for cause or otherwise; (c) the amounts to be paid by the employer in the event of the executive's termination, death, or disability while rendering services; (d) the executive's duty of strict confidence and to refrain from conflicts of interest; (e) the executive's obligations not to compete for the term of the agreement plus one year unless the executive terminated his employment for good reason or the employer terminates the executive other than for cause; and (f) the executive's right to receive severance payments if he or she (i) is terminated within two years of a change in control without cause, (ii) voluntarily terminates for defined good reasons within two years of a change of control, (iii) terminates his or her employment for any reason, or without reason, during the thirty-day period immediately following the first anniversary of a change in control, or (iv) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control. Specifically, under the employment agreements, the amount of any severance payment by the Company will be the greater of 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code or two times his most recent base salary and bonus. Severance payments made under the employment agreements will reduce any amounts that would be payable under any other severance plan or program, including the master severance plan for certain key employees. A tax gross-up also will be paid if the severance pay exceeds the limit imposed by the Internal Revenue Code. In addition, the executive will continue to be eligible for health benefits, perquisites, and fringe benefits generally made available to senior executives for two years following his or her termination, unless the executive waives such coverage, fails to pay any amount required to maintain such coverage, or obtains new employment providing substantially similar benefits. The Company entered into employment agreements similar to those described above with Frederick J. Mershad, Chairman and Chief Executive Officer, and John A. Muskovich, President, Chief Operating Officer, and Chief 21 25 Financial Officer. Such employment agreements were effective as of the Effective Date and will end on the third anniversary of the Effective Date. These employment agreements will be automatically renewed every year on the anniversary date of the employment agreement for an additional one year period, unless such executive provides the Company or the Company provides the executive with 180 days prior notice terminating this yearly renewal. In general, the employment agreements provide that if such executive officer is terminated for any reason other than for cause or following a change in control, he will receive payments equal to the remaining base salary that would have been distributed to him by the Company under the remaining term of his employment agreement and the incentive compensation earned by the executive for the most recent fiscal year. In the event such executive (a) is terminated within two years of a change in control without cause, (b) voluntarily terminates within two years of a change in control, or (c) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control, he will receive a severance payment equal to the greater of 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code or two times his most recent base salary and bonus and the executive will continue to be eligible for health benefits, perquisites, and fringe benefits generally made available to senior executives following his termination, unless the executive obtains new employment providing substantially similar benefits. A tax gross-up also will be paid if the severance pay exceeds the limits imposed by the Internal Revenue Code. Mr. Mershad's employment agreement shall supersede his current employment agreement with Elder-Beerman. Under the Severance Pay Plan for Key Employees (the "Severance Plan for Key Employees"), upon a change of control, designated key employees who are not covered by the contracts disclosed above are entitled to severance pay if the key employee (a) is terminated within 18 months of a change in control without cause, (b) voluntarily terminates for defined good reasons within 18 months of a change of control, or (c) is terminated not more than 90 days prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control. Each key employee so terminated, who is a Senior Vice President, Vice President, or is otherwise designated by the Board of Directors to receive severance pay at the same multiple as a Senior Vice President shall receive a lump sum severance payment in an amount equal to 1 1/2 times the employee's base salary plus his incentive pay. Each of the remaining designated key employees shall receive a lump sum payment in an amount equal to the key employee's base salary plus incentive pay. In addition, each terminated key employee will continue to be eligible for health and life insurance benefits for one year following such termination unless such employee waives such coverage, fails to pay any amount required to maintain such coverage, or becomes eligible for other group health coverage. However, any severance payment is conditioned upon the employee's agreeing in writing to keep in strict confidence any trade secrets or confidential business information and to return, in good condition, all property belonging to the employer. The employee must also agree to release the employer for certain claims, demands, damages, and actions that the employee may have on account of the termination. The Company also will require any successor to assume and agree to perform the obligations under both the employment agreements and the Severance Pay Plan for Key Employees. In addition, multiple arrangements (including plans and individual employment and termination agreements) are in effect providing for severance pay, including the severance arrangements established pursuant to the KERP Order that continued in effect beyond the Effective Date. The termination of an employee who is covered under more than one severance arrangement may trigger severance payments under only one severance arrangement or under more than one severance arrangement. However, the Company intends for the severance arrangements to coordinate so that an employee eligible to receive payments under more than one severance arrangement receives no more than the largest amount payable to him under any one severance arrangement. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Effective Date, the Company never had a Compensation Committee or other committee of the Board of Directors performing similar functions. Previously, decisions concerning compensation of executive officers of the Company were made by the Company's Chief Executive Officer. The Board of Directors will establish a Compensation Committee soon after the Effective Date. See "Directors and Executive Officers -- Board Committees." 22 26 DIRECTOR COMPENSATION Commencing in calendar 1998, each director of Elder-Beerman who is not an employee of Elder-Beerman or any of its subsidiaries will be paid an annual base retainer fee of $15,000, with the choice to take such retainer as cash or in the form of a discounted stock option. Non-employee directors also will be paid $1,500 for each meeting of the Board of Directors attended and $500 for any committee meeting of the Board of Directors attended. Each such director is also expected to receive an initial grant of (a) 1,300 shares of restricted stock and (b) 4,000 options to purchase shares of Common Stock. Members of the Board of Directors who are also employees of any of Elder-Beerman or any of its subsidiaries will receive no additional compensation for service on the Board of Directors. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company, Bee-Gee, and Margo's lease or leased real estate from entities (the "Related Entities") that are affiliated with Beerman-Peal, which, prior to the Effective Date, owned 100% of the Company. The Related Entities are owned by various Beerman stockholders, officers, directors, and family members thereof. The Company does not expect that any of these persons will own, individually or beneficially, more than 5% of the Common Stock of the Company or be a director or officer of the Company after the Effective Date. In fiscal 1996, the Company leased ten of its stores and its distribution center from Related Entities and paid aggregate rent to the Related Entities of $3,703,055, and Bee-Gee leased four of its stores and its corporate offices from Related Entities and paid aggregate rent to the Related Entities of $282,393. In fiscal 1995, the Company leased ten of its stores and its distribution center from Related Entities and paid aggregate rent to the Related Entities of $3,938,490, Bee-Gee leased six of its stores and its corporate offices from Related Entities and paid aggregate rent to the Related Entities of $400,844, and Margo's leased its corporate offices and distribution center from Related Entities and paid aggregate rent to the Related Entities of $97,917. In 1994, the Company leased ten of its stores and its distribution center from Related Entities and paid aggregate rent to the Related Entities of $3,050,795, Bee-Gee leased six of its stores and its corporate offices from Related Entities and paid aggregate rent to the Related Entities of $265,478, and Margo's leased its corporate offices and distribution center from Related Entities and paid aggregate rent to the Related Entities of $80,417. Raymond Clayman, formerly a director of the Company, served as a principal in the Law Offices of Raymond Clayman, which has provided legal services to the Company for the fiscal years ended February 3, 1996 and January 28, 1995 and for which the Company paid legal fees of approximately $288,400 and $300,700, respectively. LEGAL PROCEEDINGS The Company, Bee-Gee and Margo's each are currently parties to the Reorganization Cases. See "Business-Bankruptcy" for a description of the Reorganization Cases. In addition, Beerman-Peal and certain of its affiliated entities (the "Beerman Entities") have asserted various Claims (with "Claim" being defined as such term is defined in section 101(5) of the Bankruptcy Code) against the Old Elder-Beerman Companies in the Reorganization Cases. Many of these Claims relate to Elder-Beerman and Bee-Gee store properties that certain Beerman Entities currently lease or formerly leased to the Old Elder-Beerman Companies. The Old Elder-Beerman Companies have asserted certain claims, rights, and causes of action against certain of the Beerman Entities. In addition, based on certain actions of certain of Elder-Beerman's former directors, the Old Elder-Beerman Companies believe that they may have breach of fiduciary duty and equitable subordination claims against certain Beerman Entities. A New Tax Indemnification Agreement, entered into as of the Effective Date, describes several federal tax matters related to deconsolidation of the consolidated taxpayer group of companies including the Old Elder-Beerman Companies, of which Beerman-Peal is the common parent, which resulted upon consummation of the Plan on the Effective Date. These tax matters include issues in connection with the filing of future tax returns, the conduct of future tax audits, and the preservation and orderly utilization of Elder-Beerman's tax attributes in accordance with applicable tax laws and regulations. 23 27 The Old Elder-Beerman Companies and the Beerman Entities agreed to resolve the various remaining unresolved claims that they asserted against each other upon the terms and subject to the conditions of the New Tax Indemnification Agreement and a Comprehensive Settlement Agreement, which was effective as of the Effective Date. The obligations set forth in the New Tax Indemnification Agreement provide additional consideration for certain of the releases set forth in the Comprehensive Settlement Agreement. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ABSENCE OF PUBLIC MARKET The Company's Common Stock is not currently listed or admitted to unlisted trading privileges on a national securities exchange or included for quotation through an inter-dealer quotation system of a registered national securities association. The Company also is not aware of any dealer or "market maker" in the Common Stock and, consequently, the trading market for such securities is limited. The Company has filed an application with The Nasdaq Stock Market to list the Common Stock on the Nasdaq National Market. HOLDERS Because issuance of the Common Stock is based on the allowed claims in the Reorganization Cases and other receivables contained in the Plan, Elder-Beerman is unable to determine, prior to such issuance, the number of record holders of Common Stock. There were no record holders of Preferred Stock as of the Effective Date. All outstanding shares of Common Stock, and all shares of Common Stock issued upon the exercise of New Warrants, are eligible for resale unless the holder thereof is deemed to be an "underwriter" with respect to such securities, an "affiliate" of the issuer of such securities or a "dealer." Section 1145(b) of the Bankruptcy Code defines four types of "underwriters": (a) persons who purchase a claim against, an interest in, or a claim for administrative expense against the debtor with a view to distributing any security received in exchange for such a claim or interest ("accumulators"); (b) persons who offer to sell securities offered under a plan for the holders of such securities ("distributors"); (c) persons who offer to buy securities from the holders of such securities, if the offer to buy is (i) with a view to distributing such securities and (ii) made under a distribution agreement; and (d) a person who is an "issuer" with respect to the securities, as the term "issuer" is defined in Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act"). Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate" of the issuer, which means any person directly or indirectly through one or more intermediaries controlling, controlled by, or under common control with the issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who engages either for all or part of his or her time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person. Whether any particular person would be deemed to be an "underwriter" or an "affiliate" with respect to any security to be issued pursuant to the Plan or to be a "dealer" would depend upon various facts and circumstances applicable to that person. Accordingly, the Company expresses no view as to whether any person would be an "underwriter" or an "affiliate" with respect to any security to be issued pursuant to the Plan or to be a "dealer." In connection with prior bankruptcy cases, the staff of the SEC has taken the position that resales by accumulators and distributors of securities distributed under a plan of reorganization are exempt from the registration under the Securities Act if effected in "ordinary trading transactions." The staff of the SEC has indicated in this context that a transaction may 24 28 be considered an "ordinary trading transaction" if it is made on an exchange or in the over-the-counter market and does not involve any of the following factors: (a) (i) concerted action by the recipients of securities issued under a plan in connection with the sale of such securities or (ii) concerted action by distributors on behalf of one or more such recipients in connection with such sales; (b) the use of informational documents concerning the offering of the securities prepared or used to assist in the resale of such securities, other than a bankruptcy court-approved disclosure statement and supplements thereto, and documents filed with the SEC pursuant to the Exchange Act of 1934, as amended (the "Exchange Act"); or (c) the payment of special compensation to brokers and dealers in connection with the sale of such securities designed as a special incentive to the resale of such securities (other than the compensation that would be paid pursuant to arm's-length negotiations between a seller and a broker or dealer, each acting unilaterally, not greater than the compensation that would be paid for a routine similar-sized sale of similar securities of a similar issuer). The Company has not, however, sought the views of the SEC on this matter and, therefore, no assurance can be given regarding the proper application of the "ordinary trading transaction" exemption described above. Any person intending to rely on such exemption is urged to consult his or her own counsel as to the applicability thereof to his or her circumstances. In addition, Securities Act Rule 144 provides an exemption from registration under the Securities Act for certain limited public resales of unrestricted securities by "affiliates" of the issuer of such securities. Rule 144 allows a holder of unrestricted securities that is an affiliate of the issuer of such securities to sell, without registration, within any three month period a number of shares of such unrestricted securities that does not exceed the greater of 1% of the number of outstanding securities in question or the average weekly trading volume in the securities in question during the four calendar weeks preceding the date on which notice of such sale was filed pursuant to Rule 144, subject to the satisfaction of certain other requirements of Rule 144 regarding the manner of sale, notice requirements, and the availability of current public information regarding the issuer. The Company believes that, pursuant to section 1145(c) of the Bankruptcy Code, the Common Stock and the New Warrants to be issued pursuant to the Plan and the Common Stock issuable upon the exercise of New Warrants will be unrestricted securities for purposes of Rule 144. GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER, THE COMPANY MAKES NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE COMMON STOCK AND NEW WARRANTS TO BE DISTRIBUTED PURSUANT TO THE PLAN OR THE NEW COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE NEW WARRANTS. THE COMPANY RECOMMENDS THAT HOLDERS OF CLAIMS AND INTERESTS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES. DIVIDENDS As of the Effective Date, each share of new Common Stock is entitled to participate equally in any dividend declared by the Board of Directors and paid by the Company. But the Company does not anticipate paying any dividends on the new Common Stock in the foreseeable future. In addition, covenants in certain debt instruments to which the Company is a party will restrict the ability of the Company to pay dividends, and may prohibit the payment of dividends and certain other payments. In particular, the Company anticipates that the agreement for its new revolving credit facility includes a customary covenant prohibiting the Company from paying any dividends or making any other distributions to shareholders. 25 29 RECENT SALES OF UNREGISTERED SECURITIES Except as set forth below, the Company does not have any recent sales of unregistered securities. The new Common Stock and the New Warrants will be issued pursuant to the Plan in satisfaction of certain allowed claims against, or interests in, the Company. Based upon the exemptions provided by section 1145 of the Bankruptcy Code, the Company believes that none of such securities will be required to be registered under the Securities Act in connection with their issuance and distribution pursuant to the Plan. DESCRIPTION OF REGISTRANT'S SECURITIES COMMON STOCK The Company is authorized to issue 25 million shares of Common Stock, without par value. Subject to such rights of the holders of any class or series of preferred stock as may be fixed by the Company's Board of Directors or by law when and if any class or series is created and issued, the holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to preferential rights that may be applicable to any preferred stock of the Company, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Company's Board of Directors out of funds legally available therefor. However, the Company does not presently anticipate that dividends will be paid on Common Stock in the foreseeable future. In the event of a liquidation, dissolution, or winding up of the Company, holders of Common Stock will be entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any preferred stock of the Company. Holders of Common Stock of the Company have no preemptive, subscription, redemption, or conversions rights. All of the outstanding shares of Common Stock issued pursuant to the Plan are or will, upon such issuance, be fully paid and nonassessable. Subject to the terms and conditions set forth in Elder-Beerman's Share Purchase Rights Agreement, each share of Common Stock issued pursuant to the Plan is accompanied by a New Share Purchase Right. See "-- Share Purchase Rights Agreement" below. The Company has filed an application with The Nasdaq Stock Market to list the stock and the accompanying Share Purchase Rights on the Nasdaq National Market. In addition to the provisions relating to the Board of Directors described above, the Amended Articles and Amended Regulations provide, in general, that: (a) shareholder action can be taken at an annual or special meeting of shareholders; (b) except as directed below, special meetings of shareholders may be called for any proper purpose or purposes, including the election of directors, by (i) the Chairman of the Board, (ii) the President, (iii) a majority of the Board of Directors, (iv) any person or persons holding at least 50% of all shares outstanding and entitled to vote at such meeting, or (v) holders of shares that are entitled to call a special meeting of the shareholders by virtue of any Preferred Stock Designation for the purposes provided in the terms of such Preferred Stock Designation; (c) written notice of every meeting of the shareholders stating the time, place, and purposes for which the meeting is called must be given by or at the direction of the President, a Vice President, the Secretary, or an Assistant Secretary to each shareholder of record; and (d) the Board of Directors may postpone, for up to thirty days, any previously scheduled annual or special meeting of shareholders. The Amended Regulations also require that shareholders desiring to bring any business before any annual meeting of shareholders deliver written notice thereof to the Secretary of Elder-Beerman not less than 60, nor more than 90 calendar days, prior to the meeting of shareholders; provided, however, that if the date of the annual meeting is not publicly announced by Elder-Beerman more than 105 calendar days prior to the meeting, notice by the shareholder to be timely must be delivered to the Secretary of Elder-Beerman not later than the close of business on the tenth day following the day on which such announcement of the date of the annual meeting was so communicated. The Amended Regulations further require that the notice by the shareholder set forth a description in reasonable detail of the business to be brought before the annual meeting and the reasons for conducting such business at the annual meeting and certain information concerning the shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, including their names and addresses, the class and number of shares of Elder-Beerman that are owned beneficially and of record by each of them, and any material interest of either of them in the business proposed to be brought before the annual meeting. Upon the written request of the holders of not less than 50% of Elder-Beerman's voting stock to the Chairman, the President, or 26 30 the Secretary, such officer is required to call a annual meeting of shareholders for the purposes specified in such written request and fix a record date for the determination of shareholders entitled to notice of and vote at such annual meeting (which record date may not be later than 60 days after the date of receipt of notice of such meeting). Under applicable provisions of Ohio law, shareholder approval is required to adopt amendments to a company's articles of incorporation, except that a company's board of directors may adopt certain amendments relating to unissued or treasury shares, changes in the number of authorized shares necessitated by a conversion, option program, redemption, or provisions that were, at one time, necessary for a merger or consolidation. Under Ohio law, an Ohio corporation's code of regulations may be amended only by action of its shareholders. The Amended Articles and Amended Regulations provide that the provisions relating to the time and place of shareholder meetings, who may call a special meeting of shareholders, the order of business at shareholder meetings, the number, nomination, classification election, and term of directors on the Board of Directors, allowing directors to fill vacancies on the Board of Directors, the removal of directors by shareholders, the elimination of cumulative voting in the election of directors, allowing the corporation to reacquire capital stock of the corporation, and forbidding preemptive rights with respect to unissued shares and treasury stock may not be amended, altered, superseded, or repealed in any respect without the affirmative vote of the holders of at least 72% of the voting stock of Elder-Beerman, voting together as a single class; provided, however, that these provisions shall not alter the voting entitlement of shares that, by virtue of any Preferred Stock Designation, are expressly entitled to vote on any amendment to the Amended Articles or Amended Regulations. In addition to the matters discussed above, the OGCL contains certain provisions that may have the effect of delaying, deterring, or preventing a change in control of Elder-Beerman. All information set forth below regarding the OGCL is necessarily general in nature and reference should be made to the OGCL for more specific, detailed information. Section 1701.831 of the OGCL (the "Control Share Act") regarding shareholder review of control share acquisitions applies to Elder-Beerman. Under the Control Share Act, any "control share acquisition" of an Ohio corporation having fifty or more shareholders (an "Ohio Public Company") shall be made only with the prior authorization of the shareholders of the Ohio Public Company in accordance with the provisions of the Control Share Act. A "control share acquisition" is defined as the acquisition, directly or indirectly, by any person of shares of an Ohio Public Company that, when added to all other shares of the corporation in respect of which such person may exercise or direct the exercise of voting power, would entitle such person, immediately after such acquisition, directly or indirectly, alone or with others, to exercise or direct the exercise of the voting power of the corporation in the election of directors within any of the following ranges of voting power: (a) one fifth or more, but less than one third; (b) one third or more, but less than a majority; or (c) a majority or more. The Control Share Act requires that the acquiring person deliver an "acquiring person's statement" to the Ohio Public Company. The Ohio Public Company must then hold a special meeting of its shareholders to vote upon the proposed acquisition within 50 days after receipt of such acquiring person's statement, unless the acquiring person agrees to a later date. The Control Share Act further specifies that the shareholders of the Ohio Public Company must approve the proposed control share acquisition by certain percentages at a special meeting of shareholders at which a quorum is present. In order to comply with the Control Share Act, the acquiring person may only acquire the stock of the Ohio Public Company upon the affirmative vote of: (a) a majority of the voting power of the Ohio Public Company that is represented in person or by proxy at the special meeting and (b) a majority of the voting power of the Ohio Public Company that is represented in person or by proxy at the special meeting, excluding those shares of the corporation deemed to be "interested shares." "Interested shares" are defined to mean shares in respect of which the voting power is controlled by any of the following persons: (i) an acquiring person; (ii) any officer of the Ohio Public Company; and (iii) any employee who is also a director of the Ohio Public Company. "Interested shares" also includes shares of the Ohio Public Company that are acquired, directly or indirectly, by any person after the date of the first public disclosure of the proposed acquisition and prior to the date of the special meeting, if either (A) the aggregate consideration paid by such person, and any person acting in concert with him, for such shares of the Ohio Public Company exceeds $250,000 or (B) the number of shares acquired by such person, and any person acting in concert with him, exceeds one-half of one percent of the outstanding shares of the Ohio Public Company. Elder-Beerman is also subject to Chapter 1704 of the OGCL, which generally prohibits a wide range of business combinations and other transactions (including mergers, consolidations, asset sales, loans, disproportionate distributions of property, and disproportionate issuances or transfers of shares or rights to acquire shares) between an Ohio Public Company 27 31 and a person that owns, alone or with other related parties, shares representing at least 10% of the voting power of the Ohio Public Company (an "Interested Shareholder"). Such prohibitions continue for a period of three years after such person becomes an Interested Shareholder, unless, prior to the date that the Interested Shareholder became such, the board of directors approve either the transaction or the acquisition of the Ohio Public Company's shares that resulted in the person becoming an Interested Shareholder. Following the three-year moratorium period, the Ohio Public Company may engage in covered transactions with an Interested Shareholder only if, among other things, (a) the transaction receives the approval of the holders of two-thirds of all the voting shares or the approval of the holders of a majority of the voting shares held by persons other than an Interested Shareholder or (b) the remaining shareholders receive an amount for their shares equal to the higher of the highest amount paid in the past by the Interested Shareholder for the Ohio Public Company's shares or the amount that would be due the shareholders if the Ohio Public Company were to dissolve. Under Ohio's Control Bid Statute, no person may make a control bid for the Common Stock of Elder-Beerman pursuant to a tender offer or a request or invitation for tenders until such person has filed with the Ohio Division of Securities (the "Division") and Elder-Beerman a control bid information statement. A "control bid" is defined by Section 1707.01 of the OGCL as the purchase or offer to purchase any equity security of an issuer located in Ohio, which has more than 10% of its record equity security holders who are residents of Ohio, from a resident of Ohio where, after such purchase, the offeror would own, directly or indirectly, more than 10% of any class of the issued and outstanding equity securities of such issuer. Within three calendar days of the filing of the control bid information statement, the Division may summarily suspend the continuation of the control bid if the Division determines that the information given in the information statement does not provide full disclosure to offerees of all material information relating to the control bid. A hearing will be scheduled within 10 days of any such suspension. In addition, no offeror may make a control bid that is not made to all holders residing in Ohio, or that is not made to such holders on the same terms as the control bid made to holders residing outside of the state of Ohio. Further, no offeror may acquire from any resident of Ohio any equity security within two years following the last acquisition of any security of the same class pursuant to a control bid by such offeror unless the resident is afforded, at the time of the later acquisition, a reasonable opportunity to dispose of the security to the offeror upon substantially the same terms of those provided in the earlier control bid. For the purpose of preventing manipulative practices by a person who makes a proposal, or publicly discloses the intention or possibility of making a proposal, to acquire control of Elder-Beerman, Section 1707.043 of the OGCL states that any profit realized, directly or indirectly, from the disposition of any equity securities of Elder-Beerman by a person who, within 18 months before the disposition, directly or indirectly, alone or in concert with others, made a proposal, or publicly disclosed the intention or possibility of making a proposal, to acquire control of Elder-Beerman, inures to Elder-Beerman and is recoverable by Elder-Beerman by an action brought within two years after the date of the disposition of such securities. Finally, the OGCL provides for the right of Elder-Beerman's Board of Directors to consider the interests of various constituencies, including employees, customers, suppliers, and creditors of Elder-Beerman, as well as the communities in which Elder-Beerman is located, in addition to the interest of Elder-Beerman and its shareholders, in discharging its duties in determining what is in the best interests of Elder-Beerman. The foregoing provisions of the Amended Articles; the provisions of the Amended Regulations relating to advance notice of shareholder nominations; and the provisions of the Share Purchase Rights Agreement described under "-- Share Purchase Rights Agreement," together with applicable state law, may discourage or make more difficult the acquisition of control of Elder-Beerman by means of a tender offer, open market purchase, proxy fight, or otherwise. These provisions are intended to discourage, or may have the effect of discouraging, certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of Elder-Beerman first to negotiate with Elder-Beerman. The management of the Company believes that the foregoing measures, many of which are substantially similar to the takeover-related measures in effect for many other publicly-held companies, provide benefits, by enhancing Elder-Beerman's potential ability to negotiate with the proponent of an unsolicited proposal to acquire or restructure Elder-Beerman, which outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. In addition, management of the Company believes that such takeover-related measures aid in protecting shareholders from takeover bids that the directors of such companies have determined to be inadequate. While there necessarily can be no assurance in this regard, the management of the Company also believes that the foregoing measures are not likely to have a material impact on market prices for Common Stock and the New Warrants in circumstances other than those described above in light of, among other factors, the existence of generally comparable measures in effect for other publicly-held companies and management's belief that market prices will 28 32 be influenced most significantly by Elder-Beerman's actual results of operations, general market and economic conditions, and other traditional determinants of stock market prices rather than takeover-related measures and other corporate governance provisions. Nevertheless, such collective anti-takeover effects could prevent shareholders from realizing a premium for the sale of their shares in an acquisition of the Company. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Norwest Banks Minnesota, N.A. PREFERRED STOCK GENERAL As of the Effective Date of the Plan, Elder-Beerman was authorized to issue 5 million shares of New Preferred Stock, without par value (the "New Preferred Stock"). The Board of Directors has the authority to issue preferred stock from time to time in one or more classes or series and to fix the price, rights, preferences, privileges, and restrictions thereof, including dividend rights, dividend rates, conversion rights, terms or redemption, redemption prices, liquidation preferences, and the number of shares constituting a class or series or the designation of such class or series, without any further vote or action by Elder-Beerman's shareholders. The New Preferred Stock may be issued in distinctly designated classes, may be convertible into Common Stock and may rank prior to the Common Stock as to dividend rights, liquidation preferences, or both. Also the express terms of shares of a different series of any particular class of preferred stock shall be identical except for such variations as may be permitted by law. Without limiting the foregoing, Elder-Beerman is authorized to issue three initial classes of New Preferred Stock that will be designated New Class A Preferred Stock, New Class B Preferred Stock, and New Class C Preferred Stock, with voting rights as set forth below. NEW CLASS A PREFERRED STOCK Each holder of New Class A Preferred Stock is entitled to 100 votes per share and, except as otherwise required by law, shall vote together with the Common Stock as a single class on all matters properly submitted to a vote at a meeting of the shareholders. NEW CLASS B PREFERRED STOCK Each holder of New Class B Preferred Stock is entitled to one vote per share and, except as otherwise required by law, shall vote together with the Common Stock as a single class on all matters properly submitted to a vote at a meeting of shareholders. NEW CLASS C PREFERRED STOCK Holders of New Class C Preferred Stock have no voting rights. NEW WARRANTS The New Warrants will be issued in two series (the "New Warrants"), the New Series A Warrants and the New Series B Warrants, and will be issued under the New Form Warrant Agreement to be effective as of the Effective Date between Elder-Beerman and the holders of the New Warrants. Each New Warrant, when exercised, will entitle the holder thereof to acquire: (a) in the case of the New Series A Warrants, approximately 250,000 shares of Common Stock at an exercise price of $12.80 per share (representing 2% of the outstanding Common Stock at a total equity value of $160 million) or (b) in the case of the New Series B Warrants, approximately 375,000 shares of Common Stock at an exercise price of $14.80 per share (representing 3% of the outstanding Common Stock at a total equity value of $185 million). The New Warrants will expire on the fifth anniversary of the Effective Date. 29 33 FUTURE ISSUANCES OF STOCK In addition to the Common Stock to be issued pursuant to the Plan, Elder-Beerman is authorized to issue additional shares of capital stock from time to time following the Effective Date to the extent permitted under the Amended Articles, the Amended Regulations, the Plan, and applicable law. SHARE PURCHASE RIGHTS AGREEMENT As of the Effective Date, Elder-Beerman entered into a Rights Agreement (the "Rights Agreement") with a "Rights Agent," which agreement was approved by the Bankruptcy Court upon confirmation of the Plan. Under the Rights Agreement, the Board of Directors has declared a dividend on the Common Stock of one right (a "Right") to purchase one one-hundredth of a share of New Class A Preferred Stock, without par value (the "Preferred Shares"), of Elder-Beerman at a price per one one-hundredth of a Preferred Share, subject to adjustment (the "Purchase Price"), which was approved by the Bankruptcy Court. Under the Rights Agreement, the Rights are evidenced by the Common Stock share certificates until the earlier (the "Distribution Date") of: (a) the close of business on the first date (the "Share Acquisition Date") of public announcement that a person (other than a person that has maintained beneficial ownership of at least 20% of the outstanding shares of Common Stock since the Effective Date, Elder-Beerman, a subsidiary or employee benefit or stock ownership plan of Elder-Beerman or any of its affiliates or associates), together with its affiliates and associates, has acquired beneficial ownership of 20% or more of the outstanding shares of Common Stock (any such person or group being hereinafter called an "Acquiring Person") or (b) the close of business on the tenth business day (or such later date as may be specified by the Board of Directors) following the commencement of a tender offer or exchange offer by any person (other than Elder-Beerman, a subsidiary or employee benefit or stock ownership plan of Elder-Beerman, or any of its affiliates or associates), the consummation of which would result in beneficial ownership by such person of 20% or more of the outstanding shares of Common Stock. Rights are exercisable to purchase Preferred Shares only after the Distribution Date occurs and prior to the occurrence of a Flip-in Event, as described below. A Distribution Date resulting from the commencement of a tender offer or exchange offer described in clause (b) above could precede the occurrence of a Flip-in Event and thus result in the Rights being exercisable to purchase Preferred Shares. A Distribution Date resulting from any occurrence described in clause (a) above would necessarily follow the occurrence of a Flip-in Event and thus result in the Rights being exercisable to purchase Common Stock or other securities as described below. Under the Rights Agreement, in the event (a "Flip-in Event") that (a) any person or group, together with its affiliates and associates, becomes an Acquiring Person, (b) any Acquiring Person or any affiliate or associate thereof merges into or combines with Elder-Beerman and Elder-Beerman is the surviving corporation, (c) any Acquiring Person or any affiliate or associate thereof effects certain other transactions with Elder-Beerman, or (d) during such time as there is an Acquiring Person, Elder-Beerman effects certain transactions, in each case as described in the Rights Agreement, then, in each such case, proper provision will be made so that from and after the later of the Distribution Date and the date of the occurrence of such Flip-in Event each holder of a Right, other than Rights that are or were owned beneficially by an Acquiring Person (which, from and after the date of a Flip-in Event, will be void), will have the right to receive, upon exercise thereof at the then-current exercise price of the Right, that number of shares of Common Stock (or, under certain circumstances, an economically equivalent security or securities of the Elder-Beerman) that at the time of such Flip-in Event have a market value of two times the exercise price of the Right. In the event (a "Flip-over Event") that, at any time after a person has become an Acquiring Person, (a) Elder-Beerman merges with or into any person and Elder-Beerman is not the surviving corporation, (b) any person merges with or into Elder-Beerman and Elder-Beerman is the surviving corporation, but all or part of the Common Stock is changed or exchanged for stock or other securities of any other person or cash or any other property, or (c) 50% or more of Elder-Beerman's assets or earning power, including securities creating obligations of Elder-Beerman, are sold, in each case as described in the Rights Agreement, then, and in each such case, proper provision will be made so that each holder of a Right, other than Rights which have become void, will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock (or, under certain circumstances, an economically equivalent security or securities) of such other person that at the time of such Flip-over Event have a market value of two times the exercise price of the Right. 30 34 From and after the later of the Share Acquisition Date and the Distribution Date, Rights (other than any Rights that have become void) will be exercisable to purchase shares of Common Stock as described above, upon payment of the aggregate exercise price in cash. In addition, at any time after the later of the Share Acquisition Date and the Distribution Date and prior to the acquisition by any person or group of affiliated or associated persons of 50% or more of the outstanding shares of Common Stock, Elder-Beerman may exchange the Rights (other than any rights that have become void), in whole or in part, at an exchange ratio of one share of Common Stock per Right (subject to adjustment). For all purposes of the Rights Agreement, any person that, as of the Effective Date, has beneficial ownership of 20% or more of the then-outstanding shares of Common Stock, or that becomes the beneficial owner of 20% or more of the then-outstanding shares of Common Stock solely as a result of a reduction in the number of shares of Common Stock outstanding, will not be deemed to have become an Acquiring Person unless and until such time as (a) such person, or any affiliate or associate of such person, thereafter becomes the beneficial owner of additional shares of Common Stock representing 1% or more of the then-outstanding Common Stock or (b) any other person that is the beneficial owner of shares of Common Stock representing 1% or more of the then-outstanding Common Stock thereafter becomes an affiliate or associate of such person. Elder-Beerman will be able, at its option, to redeem the Rights in whole, but not in part, at a price of $.01 per Right, subject to adjustment (the "Redemption Price"), at any time prior to the close of business on the date of the first occurrence of a Flip-in Event or Flip-over Event. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The Company will be able to amend the Rights Agreement without the approval of any holders of Right certificates, including amendments that increase or decrease the Purchase Price, that add other events requiring adjustment to the Purchase Price payable and the number of the Preferred Shares or other securities issuable upon the exercise of the Rights or that modify procedures relating to the redemption of the Rights, except that no amendment may be made that decreases the stated Redemption Price to an amount less than $.01 per Right. The Rights Agreement will expire on (a) the first anniversary of the Effective Date or (b) such later date as the Board of Directors, by resolution adopted prior to the first anniversary of the Effective Date, may establish, but not later than the tenth anniversary of the Effective Date. In accordance with the foregoing, the Board of Directors (a) will have the right to reconsider any of the terms of the Rights Agreement at any time and (b) may take such action with respect to the Rights Agreement as the Board of Directors deems appropriate. The Rights are being registered under the Exchange Act, together with the Common Stock, pursuant to this Registration Statement. The Company has filed an application with The Nasdaq Stock Market to list the Common Stock and the accompanying Right on the Nasdaq National Market. In the event that the Rights become exercisable, the Company will register the Preferred Shares for which the Rights may be exercised, in accordance with applicable law. INDEMNIFICATION OF DIRECTORS AND OFFICERS EXISTING INDEMNIFICATION OBLIGATIONS The Company's Amended Regulations provides for the indemnification of the directors and officers of the Company, and persons serving at the request of the Company's Board of Directors as a director, trustee, officer, employee, or agent of another entity, for claims against them arising from and after the Effective Date to the fullest extent permitted by Ohio law. Under Ohio law, a director is not liable for monetary damages unless it is proven by clear and convincing evidence that his action or failure to act was undertaken with deliberate intent to cause injury to the corporation or with reckless disregard for the best interests of the corporation. There is, however, no comparable provision limiting the liability of officers or other agents of a corporation. Under Ohio law, Ohio corporations are authorized to indemnify directors, officers, and agents within prescribed limits and must indemnify them under certain circumstances. Determinations regarding discretionary indemnification are to be made by a majority vote of a quorum of disinterested directors or, if a quorum is not available, by independent counsel, the shareholders, the court of common pleas, or the court in which the proceeding was brought. Ohio law does not provide statutory authorization for a corporation to indemnify directors and officers for settlements, fines, or judgments in the context 31 35 of derivative suits. However, it provides that directors (but not officers) are entitled to mandatory advancement of expenses, including attorneys' fees, incurred in defending any action, including derivative actions, brought against the director, provided the director agrees to cooperate with the corporation concerning the matter and to repay the amount advanced if it is proved by clear and convincing evidence that his act or failure to act was done with deliberate intent to cause injury to the corporation or with reckless disregard for the corporation's best interests. Ohio law does not authorize payment of expenses or judgments to an officer or other agent after a finding of negligence or misconduct in a derivative suit absent a court order. Indemnification is required, however, to the extent such person succeeds on the merits. In all other cases, if a director or officer acted in good faith and in a manner he reasonably believed to be in (or not opposed to) the best interests of the company, indemnification is discretionary except as otherwise provided by a company's articles of incorporation, code of regulations, or by contract except with respect to the advancement of expenses of directors. In addition to the statutory right to indemnify, Ohio law provides express authority for Ohio corporations to procure not only insurance policies, but also to furnish protection similar to insurance, including trust funds, letters of credit, and self-insurance, or to provide similar protection such as indemnity against loss of insurance. TREATMENT OF INDEMNIFICATION OBLIGATIONS UNDER THE PLAN The obligations of the Company to indemnify any person serving as one of its directors, officers, or employees as of or following the Petition Date, by reason of such person's prior or future service in such a capacity, or as a director, officer, or employee of another corporation, partnership, or other legal entity, to the extent provided in the applicable articles of incorporation, code of regulations, or similar constituent documents or by statutory law or written agreement of or with the Company, were deemed and treated as executory contracts and were assumed by the Company or applicable subsidiary of the Company pursuant to the plan and section 365 of the Bankruptcy Code as of the Effective Date. Accordingly, such indemnification obligations survived and were unaffected by entry of the confirmation order, irrespective of whether such indemnification is owed for an act or event occurring before or after the Petition Date. The obligations of the Company or applicable subsidiary of the Company to indemnify any person who, as of the Petition Date, was no longer serving as a director or officer of such entity, which indemnity obligation arose by reason of such person's prior service in any such capacity, or as a director, officer, or employee of another corporation, partnership, or other legal entity, whether provided in the applicable articles of incorporation, code of regulations, or similar constituent documents or by statutory law (including Texas law with respect to Margo's and Ohio law with respect to the other Old Elder-Beerman Companies), written agreement, policies, or procedures of or with such entity, terminated and were discharged pursuant to section 502(e) of the Bankruptcy Code or otherwise, as of the Effective Date; provided, however, that, to the extent that such indemnification obligations no longer gave rise to contingent Claims that can be disallowed pursuant to section 502(e) of the Bankruptcy Code, such indemnification obligations were deemed and treated as executory contracts that were rejected by the applicable entity pursuant to the Plan and section 365 of the Bankruptcy Code, as of the Effective Date, and any Claims arising from such indemnification obligations (including any rejection damage claims) were subject to the bar date provisions of the Plan. NEW INDEMNIFICATION AGREEMENTS The Company entered into indemnification agreements, effective as of the Effective Date, with each of its directors and officers and each of the directors and officers of the Company's subsidiaries. The indemnification agreements provide for, among other things, (a) the indemnification of the indemnitee by the Company for conduct in the capacities described above, (b) the advancement of attorneys' fees and other expenses, and (c) the establishment, upon approval by the Board of Directors at its option, of trusts or other funding mechanisms to fund the Company's indemnification obligations thereunder. FINANCIAL STATEMENTS The Company's audited consolidated financial statements for the years ended February 1, 1997, February 3, 1996, and January 28, 1995, respectively, and the Company's unaudited condensed consolidated financial statements for the 32 36 39-week periods ended November 1, 1997 and November 2, 1996, respectively, are set forth at the end of this Registration Statement and begin on page F-1. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with the Company's independent public accountants during the last two fiscal years. FINANCIAL STATEMENTS AND EXHIBITS FINANCIAL STATEMENTS The following financial statements of the Company are included at the indicated page in this Registration Statement:
Page ---- Condensed Consolidated Balance Sheets (unaudited) as of November 1, 1997 and November 2, 1996...................F-2 Condensed Consolidated Statements of Operations (unaudited) for the 39-weeks ended November 1, 1997 and November 2, 1996.......................................................................................F-3 Condensed Consolidated Statements of Cash Flows (unaudited) for the 39-weeks ended November 1, 1997 and November 2, 1996.......................................................................................F-4 Notes to Condensed Consolidated Financial Statements (unaudited)................................................F-5 Independent Auditors' Report....................................................................................F-9 Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996........................................F-10 Consolidated Statements of Operations for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995......................................................................................F-12 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995..................................................................................F-13 Consolidated Statements of Cash Flows for the fiscal years Ended February 1, 1997, February 3, 1996 and January 28, 1995......................................................................................F-14 Notes to Consolidated Financial Statements.....................................................................F-15
33 37 EXHIBITS A. Exhibit Index Exhibit Number Description of Exhibit ------ ---------------------- 2 Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997* 3(a) Form of Amended Articles of Incorporation* 3(b) Form of Amended Code of Regulations* 4(a) Form of Stock Certificate for Common Stock** 4(b) Form of Registration Rights Agreement* 4(c) Form of Rights Agreement* 4(d) Form of Warrant Agreement* 10(a)(i) Form of Pooling and Servicing Agreement** 10(a)(ii) Form of Series 1997-1 Supplement** 10(a)(iii) Form of Certificate Purchase Agreement** 10(a)(iv) Form of Loan Agreement** 10(a)(v) Form of Intercreditor Agreement** 10(a)(vi) Form of Parent Undertaking Agreement** 10(a)(vii) Form of Purchase Agreement (Chargit)** 10(a)(viii) Form of Purchase Agreement (Elder-Beerman)** 10(a)(ix) Form of Subordinated Note** 10(b)(i) Form of Credit Agreement** 10(b)(ii) Form of Borrower Pledge Agreement** 10(b)(iii) Form of Chargit Pledge Agreement** 10(b)(iv) Form of Security Agreement** 10(b)(v) Form of Chargit Guaranty** 10(b)(vi) Form of Bee-Gee Guaranty** 10(b)(vii) Form of Revolving Note** 10(b)(viii) Form of Assignment of Account** 10(c) Form of Employment Agreement for Senior Vice Presidents* 10(d) Form of Employment Agreement for Executive Vice Presidents* 10(e) Form of Severance Pay Plan for Key Employees of the Company* 10(f) Form of Director Indemnification Agreement* 10(g) Form of Officer Indemnification Agreement* 10(h) Form of Director and Officer Indemnification Agreement* 34 38 10(i) Form of The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan* 10(j) Form of Restricted Stock Agreement for Non-Employee Director* 10(k) Form of Restricted Stock Agreement* 10(l) Form of Deferred Shares Agreement* 10(m) Form of Nonqualified Stock Option Agreement for Non-Employee Director* 10(n) Form of Nonqualified Stock Option Agreement* 10(o) Form of Employee Stock Purchase Plan* 10(p) Form of Comprehensive Settlement Agreement* 10(q) Form of Tax Indemnification Agreement* 10(r) Form of Tax Sharing Agreement* 21 Subsidiaries of the Company* 27 Financial Data Schedule* - ------------------- * Previously filed ** Filed herewith B. Financial Statement Schedules None. SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. THE ELDER-BEERMAN STORES CORP. Date: January 23, 1998 By: /s/ Scott J. Davido, Esq. ---------------------------- Scott J. Davido, Esq., Senior Vice President, General Counsel and Secretary 35 39 INDEX TO HISTORICAL FINANCIAL INFORMATION
Page ---- Condensed Consolidated Balance Sheets (unaudited) as of November 1, 1997 and November 2, 1996...................F-2 Condensed Consolidated Statements of Operations (unaudited) for the 39-weeks ended November 1, 1997 and November 2, 1996.......................................................................................F-3 Condensed Consolidated Statements of Cash Flows (unaudited) for the 39-weeks ended November 1, 1997 and November 2, 1996.......................................................................................F-4 Notes to Condensed Consolidated Financial Statements (unaudited)................................................F-5 Independent Auditors' Report....................................................................................F-9 Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996........................................F-10 Consolidated Statements of Operations for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995......................................................................................F-12 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995..................................................................................F-13 Consolidated Statements of Cash Flows for the fiscal years Ended February 1, 1997, February 3, 1996 and January 28, 1995......................................................................................F-14 Notes to Consolidated Financial Statements.....................................................................F-15
F-1 40 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (Debtors in Possession) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
Nov. 1, Nov. 2, 1997 1996 --------- --------- ASSETS Current assets: Cash and equivalents $ 8,882 $ 7,483 Customer accounts receivable 134,306 140,637 Merchandise inventories 188,604 180,217 Refundable income taxes 10,359 Other current assets 25,302 11,302 --------- --------- Total current assets 357,094 349,998 Property, net 57,639 51,541 Other assets 7,265 11,759 --------- --------- 64,904 63,300 --------- --------- Total assets $ 421,998 $ 413,298 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Current portion of long-term obligations $ 89,410 $ 87,982 Accounts payable 59,398 44,989 Accrued liabilities 26,562 30,048 Liabilities of discontinued operations 9,917 10,053 --------- --------- Total current liabilities 185,287 173,072 Long-term obligations 5,744 5,689 Deferred Lease Incentives 4,632 4,741 Liabilities subject to compromise 232,454 224,205 Commitments and contingencies Shareholders' equity (deficiency in assets): Series B convertible preferred stock 7 7 Common stock 6,511 6,511 Additional paid-in capital 23,283 23,283 Deficit (35,920) (24,210) --------- --------- (6,119) 5,591 --------- --------- Total liabilities and shareholders' equity (deficiency in assets) $ 421,998 $ 413,298 ========= =========
See notes to condensed consolidated financial statements. F-2 41 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (Debtors in Possession) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands, except share data)
Thirty-nine Weeks Ended -------------------------- Nov. 1, Nov. 2, 1997 1996 --------- --------- Revenues: Net sales $ 386,179 $ 378,682 Financing 19,801 20,003 --------- --------- Total revenues 405,980 398,685 Costs and expenses: Costs of merchandise sold, occupancy and buying expenses 283,127 273,397 Selling, general and administrative 113,456 117,999 Provision for doubtful accounts 4,187 4,147 Interest expense 4,617 3,777 --------- --------- Total costs and expenses 405,387 399,320 Income before reorganization items and income taxes 593 (635) Reorganization items 12,850 12,339 --------- --------- Loss before income taxes (12,257) (12,974) Income taxes --------- --------- Net (loss) $ (12,257) $ (12,974) ========= ========= Net (Loss) per common share $ (1.88) $ (1.99) ========= ========= Average common shares outstanding (thousands) 6,511 6,511 ========= =========
See notes to condensed consolidated financial statements. F-3 42 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (Debtors in Possession) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Thirty-nine Weeks Ended ------------------------ Nov. 1, Nov. 2, 1997 1996 -------- -------- Cash flows from operating activities: Net(loss) $(12,257) $(12,974) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts 4,187 4,147 Provision for depreciation & amortization 8,961 9,629 Net loss on disposal of assets 481 1,675 Changes in noncash assets and liabilities: Accounts receivable 9,321 (408) Merchandise inventories (61,754) (60,893) Other current assets (3,649) (916) Income tax refunds 128 Other long-term assets 768 79 Discontinued operations (196) (2,290) Accounts payable 41,301 18,914 Accrued liabilities (3,996) 804 -------- -------- Net cash used in operating activities (16,705) (42,233) -------- -------- Cash flows from investing activities: Capital expenditures (12,498) (3,070) Proceeds from sale of fixed assets 1,200 Proceeds from disposal of investments 300 -------- -------- Net cash used in investing activities (12,498) (1,570) -------- -------- Cash flows from financing activities: Net borrowings under DIP Facility 31,479 37,830 Payments on long-term obligations (160) (155) Debt acquisition costs (325) (1,052) -------- -------- Net cash provided by financing activities 30,994 36,623 -------- -------- Increase (decrease) in cash and equivalents 1,791 (7,180) Cash and equivalents at beginning of year 7,091 14,663 -------- -------- Cash and equivalents at end of thirty-nine weeks $ 8,882 $ 7,483 ======== ======== Supplemental Cash Flow Information: Interest paid $ 5,244 $ 4,957 Income taxes paid 150 Supplemental Non-Cash Investing and Financing Activities: Property acquired from lease incentives $ $ 339
See notes to condensed consolidated financial statements. F-4 43 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (Debtors in Possession) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except share data) A - FINANCIAL STATEMENTS The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the interim periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed. It is suggested that the condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto for the year ended February 1, 1997. The results of operations for the period ended November 1, 1997, may not necessarily be indicative of the operating results for the full year. B - CHAPTER 11 PROCEEDINGS On October 17, 1995 ("the Filing Date"), The Elder-Beerman Stores Corp. ("Elder-Beerman") and each of its wholly-owned subsidiaries; The El-Bee Chargit Corp., The Bee-Gee Shoe Corp., Margo's La Mode, Inc., McCook Wholesale Corp., E-B Community Urban Redevelopment Corporation and EBA, Inc., (collectively the "Corporation"), filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court (the "Bankruptcy Court") For the Southern District of Ohio, Western Division. Pursuant to an order of the Bankruptcy Court, the individual Chapter 11 cases were consolidated for procedural purposes only and are being jointly administered by the Bankruptcy Court. The Corporation is currently operating as debtor in possession, subject to the approval of the Bankruptcy Court for certain of its proposed actions. Additionally, certain creditors of the Corporation have formed two official committees pursuant to the Bankruptcy Code. Such committees (as well as other parties in interest) have the right to review and object to transactions outside of the ordinary course of the Corporation's business and are expected to participate in the approval of the plan of reorganization. Under Chapter 11, actions in respect of certain claims against the Corporation in existence prior to the filing of the petitions for relief under the Bankruptcy Code are stayed while the Corporation continues business operations as debtors in possession. In addition, under the Bankruptcy Code, the Corporation may reject executory contracts, including lease obligations. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Substantially all liabilities as of the petition date are subject to settlement under the plan of reorganization to be voted upon by the creditors and approved by the Bankruptcy Court. The Corporation expects to file the plan in fiscal 1997. The Corporation is in default under the terms of substantially all prepetition loan and note agreements and certain equipment and store leases. The amounts outstanding in respect to these agreements are subject to settlement under the reorganization proceedings. Generally, as a result of the bankruptcy, the contractual terms of prepetition debt obligations are suspended. The Corporation did not accrue or pay interest on debt subsequent to the Filing Date, except as permitted. The financial statements do not include accrued interest on prepetition unsecured debt of $27,605 and $14,110 at November 1, 1997 and November 2, 1996, respectively. In the accompanying consolidated balance sheets, liabilities subject to settlement under the Chapter 11 proceedings are classified as liabilities subject to compromise and are comprised of the following: F-5 44
Nov. 1, Nov. 2, 1997 1996 -------- -------- Accounts payable and accrued liabilities $ 93,884 $ 84,785 Unsecured debt 131,900 131,900 Secured debt 2,455 2,455 Capital lease obligations 2,222 3,072 Accrued interest 1,993 1,993 -------- -------- Total $232,454 $224,205 ======== ========
These amounts represent management's best estimate of all known or potential claims. Such claims remain subject to future adjustments with respect to disputed claims depending on negotiations with creditors and actions of the Bankruptcy Court in the Chapter 11 case. Consequently, the amount included in the Consolidated Balance Sheet as "Liabilities Subject to Compromise" may be subject to adjustment. Certain prepetition liabilities have been paid after obtaining the approval of the Bankruptcy Court, including certain wages and benefits of employees, insurance costs, department leases, reclamation claims, and contractors' costs. Under the provisions of the Bankruptcy Code the Corporation has the right to reject leases. Lessors may file claims for damages incurred from such rejections, which would be treated as prepetition liabilities. Claims filed in respect to leases for real property may not exceed the greater of an amount equal to (a) one year's rental payments or (b) payments for a period equal to 15% of the remaining term of the lease, but not in excess of three years rent. The Corporation is actively engaged in the process of reviewing its executory contracts and final decisions with respect to assuming or rejecting contracts; approval by the Bankruptcy Court is still pending. Outstanding prepetition accounts payable have been reported net of prepetition accounts receivable and deposits from various vendors and their representatives. Additional prepetition liabilities may arise as a result of claims filed by parties affected by the Corporation's bankruptcy filing. These claims will be analyzed and either settled or disputed in the bankruptcy proceedings. Ultimately the adjustment of the total liabilities of the Corporation remains subject to Bankruptcy Court approved plan of reorganization, and accordingly, the total amount of such liabilities is not presently determinable. Pursuant to an order of the Bankruptcy Court, the Corporation presently has the exclusive right to file a plan of reorganization through March 16, 1998. C - GOING CONCERN The Corporation's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and the liquidation of liabilities and commitments in the normal course of business. The bankruptcy filings raise substantial doubt about its ability to continue as a going concern. The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and financing sources to meet obligations. In this regard, management developed and is executing a plan which includes improving gross margins and reducing costs and possibly closing certain retail store locations. While under protection of Chapter 11, the Corporation may sell or otherwise dispose of assets, liquidate or settle liabilities, for amounts other than those reflected in the accompanying consolidated financial statements. Further, a plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements. The accompanying F-6 45 consolidated financial statements do not include any adjustments relating to the recoverability of the value of recorded asset amounts or the amounts and classification of liabilities that might be necessary as a result of the plan of reorganization. D - ACCOUNTING POLICIES On an interim basis, all costs subject to recurring year-end adjustments have been estimated and allocated ratably to the quarters. No income taxes have been provided as a valuation allowance has been established for the entire amount of deferred tax assets resulting from the Company's net losses. E - REORGANIZATION ITEMS Reorganization costs consist of the following: Thirty-nine Weeks Ended ----------------------- Nov. 1, Nov. 2, 1997 1996 -------- -------- Professional fees $ 8,713 $ 6,684 Restructuring 3,683 3,546 Financing costs 454 2,109 ------- ------- Total $12,850 $12,339 ======= ======= Subsequent to the Chapter 11 filings, the Corporation began restructuring its business and decided, amount other things, to close stores and and terminate employees. Severance payments and other store closing costs are in restructuring costs. Financing costs include the amortization of fees associated with the DIP Facility. F - LONG-TERM OBLIGATIONS In connection with the Chapter 11 filing, on October 17, 1995, Elder-Beerman and Chargit entered into a Postpetition Loan and Security Agreement (the DIP Facility) with Citibank N.A. Substantially all assets are pledged as collateral for the DIP Facility. In October 1995, the Bankruptcy Court signed an order approving the DIP Facility, which had a maturity of January 31, 1997. On September 30, 1996, the DIP Facility was extended to October 31, 1997. Further extension was approved on August 31, 1997 through January 31, 1998. F-7 46 G - DISCONTINUED OPERATIONS In fiscal 1994, the Corporation adopted formal plans to dispose of its subsidiaries Margo's La Mode, Inc. ("Margo's") and The Bee-Gee Shoe Corp. ("Bee Gee"). During fiscal 1995, the Corporation was unsuccessful in its attempt to sell Margo's and decided to liquidate the subsidiary. In fiscal, 1996, management determined the value of Bee Gee would be more effectively realized by retaining Bee Gee as a part of the Corporation's ongoing operations. Accordingly, the consolidated balance sheets, statements of operations and cash flows reflect Bee Gee as a part of continuing operations. H - COMMITMENTS AND CONTINGENCIES Litigation - The Corporation is a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. Management believes the outcome of any of the litigation matters that will have a material effect on the Corporation's results of operations, cash flows or financial position have been appropriately accrued. As discussed in Note A, on October 17, 1995, the Corporation and its subsidiaries filed voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. All material civil litigation commenced against the Corporation and those referenced subsidiaries prior to that date has been stayed under the Bankruptcy Code. Other Claims - The Elder-Beerman Stores Corp. Profit-Sharing and Stock Ownership Plan Committee has made claims relevant to Fiscal Year 1998, 1997 and 1996 for corporate contributions and payment of certain expenses. The Corporation believes that such contributions are discretionary and the expenses are not liabilities of the Corporation. Letter of Credit - At November 1, 1997, the Corporation had outstanding commercial and standby letters of credit totaling $9,077 under the DIP Facility and with other banks, relating to trade financing and insurance activities. Insurance - The Corporation is self-insured for employee medical and workers' compensation subject to limitation for which insurance has been purchased. Management believes that those claims reported and not paid and claims incurred, but not yet reported, are appropriately accrued. F-8 47 INDEPENDENT AUDITORS' REPORT To the Board of Directors of The Elder-Beerman Stores Corp.: We have audited the accompanying consolidated balance sheets of The Elder-Beerman Stores Corp. and subsidiaries (Debtors in Possession) (the "Corporation") as of February 1, 1997 and February 3, 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 1, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of February 1, 1997 and February 3, 1996 and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. As discussed in Notes A and B, the Corporation has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholder accounts, the effect of any changes that may be made in the capitalization of the Corporation; or (d) as to operations, the effect of any changes that may be made in its business. The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note B, the bankruptcy filings raise substantial doubt about its ability to continue as a going concern. The continuation of its business as a going concern is contingent upon, among other things, future profitable operations, the ability to generate sufficient cash from operations and financing sources to meet obligations, and the development and confirmation of a plan of reorganization. Management's plans concerning these matters are also discussed in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties referred to herein and in the preceding paragraph. April 18, 1997 Dayton, Ohio F-9 48
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (DEBTORS IN POSSESSION) CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------- FEBRUARY 1, FEBRUARY 3, 1997 1996 ASSETS (DOLLARS IN THOUSANDS) CURRENT ASSETS: Cash and equivalents $ 7,091 $ 14,665 Customer accounts receivable (less allowance for doubtful accounts: fiscal 1996 - $3,800; fiscal 1995 - $3,200) 147,814 144,376 Merchandise inventories 126,850 119,305 Refundable income taxes 10,336 10,354 Assets of discontinued operations 3 581 Other current assets 10,572 4,922 -------- -------- Total current assets 302,666 294,203 -------- -------- PROPERTY: Land and improvements 1,177 1,177 Buildings and leasehold improvements 54,361 61,225 Furniture, fixtures and equipment 76,047 72,535 -------- -------- Total cost 131,585 134,937 Less accumulated depreciation and amortization 77,782 74,816 -------- -------- Property, net 53,803 60,121 -------- -------- OTHER ASSETS 8,672 12,745 -------- -------- TOTAL $365,141 $367,069 ======== ========
See notes to consolidated financial statements. F-10 49
- ------------------------------------------------------------------------------------------------------------ FEBRUARY 1, FEBRUARY 3, 1997 1996 (DOLLARS IN THOUSANDS, LIABILITIES AND SHAREHOLDERS' EQUITY EXCEPT SHARE DATA) CURRENT LIABILITIES: Current portion of long-term obligations $ 57,931 $ 50,100 Accounts payable 18,877 18,177 Accrued liabilities: Compensation and related items 8,696 5,126 Other taxes 6,421 5,840 Rent 2,009 2,061 Other 12,458 18,417 Liabilities of discontinued operations 10,216 11,100 --------- --------- Total current liabilities 116,608 110,821 --------- --------- LONG-TERM OBLIGATIONS - Less current portion 5,669 3,100 DEFERRED LEASE INCENTIVES 5,051 5,172 LIABILITIES SUBJECT TO COMPROMISE 231,675 229,409 COMMITMENTS AND CONTINGENCIES (Note Q) SHAREHOLDERS' EQUITY: Series B convertible preferred stock, $.01 par value, 1,250,000 shares authorized, 662,474 issued and outstanding (aggregate liquidation preference $12,700) 7 7 Common stock, $1 stated value, 10,000,000 shares authorized, 6,510,733 shares issued and outstanding 6,511 6,511 Additional paid-in capital 23,283 23,283 Deficit (23,663) (11,234) --------- --------- Total shareholders' equity 6,138 18,567 --------- --------- TOTAL $ 365,141 $ 367,069 ========= =========
F-11 50 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (DEBTORS IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------- YEAR ENDED -------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) REVENUES: Net sales $ 569,557 $ 590,018 $ 631,100 Financing 27,451 18,913 16,226 --------- --------- --------- Total revenues 597,008 608,931 647,326 --------- --------- --------- COSTS AND EXPENSES: Cost of merchandise sold, occupancy and buying expenses 410,067 457,122 466,785 Selling, general and administrative expenses 156,892 169,919 171,774 Key employees performance bonus plan expense 4,994 - - Hiring and recruiting expenses for new executives 1,435 86 - Provision for doubtful accounts 6,680 5,878 3,459 Interest expense 6,467 9,557 9,898 Other income (1,106) - - --------- --------- --------- Total costs and expenses 585,429 642,562 651,916 --------- --------- --------- INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAX EXPENSE (BENEFIT) 11,579 (33,631) (4,590) REORGANIZATION ITEMS (23,648) (19,711) - --------- --------- --------- LOSS BEFORE INCOME TAX EXPENSE (BENEFIT) AND DISCONTINUED OPERATIONS (12,069) (53,342) (4,590) INCOME TAX EXPENSE (BENEFIT) 360 (2,332) (2,526) --------- --------- --------- LOSS BEFORE DISCONTINUED OPERATIONS (12,429) (51,010) (2,064) DISCONTINUED OPERATIONS - (12,276) (11,291) --------- --------- --------- NET LOSS $ (12,429) $ (63,286) $ (13,355) ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ (1.90) $ (7.83) $ (0.32) Preferred stock dividend (0.14) Discontinued operations (1.89) (1.73) --------- --------- --------- $ (1.90) $ (9.72) $ (2.19) ========= ========= =========
See notes to consolidated financial statements. F-12 51 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (DEBTORS IN POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED ADDITIONAL RETAINED SHARE- STOCK COMMON PAID-IN EARNINGS HOLDERS' SERIES B STOCK CAPITAL (DEFICIT) EQUITY SHAREHOLDERS' EQUITY AT JANUARY 29, 1994 $ 7 $ 6,511 $ 11,358 $ 74,745 $ 92,621 CASH DIVIDENDS: Common stock ($.22 per share) (1,432) (1,432) Preferred stock - Class B ($1.39 per share) (921) (921) PROPERTY DIVIDEND (6,985) (6,985) CONTRIBUTION TO CAPITAL 11,925 11,925 NET LOSS (13,355) (13,355) --- ------- -------- --------- ------- SHAREHOLDERS' EQUITY AT JANUARY 28, 1995 7 6,511 23,283 52,052 81,853 NET LOSS (63,286) (63,286) --- ------- -------- --------- ------- SHAREHOLDERS' EQUITY AT FEBRUARY 3, 1996 7 6,511 23,283 (11,234) 18,567 NET LOSS (12,429) (12,429) --- ------- -------- --------- ------- SHAREHOLDERS' EQUITY AT FEBRUARY 1, 1997 $ 7 $ 6,511 $ 23,283 $ (23,663) $ 6,138 ==== ======== ========= =========== =======
See notes to consolidated financial statements. F-13 52 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (DEBTORS IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED --------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 --------- --------- --------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (12,429) $ (63,286) $ (13,355) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for doubtful accounts 6,680 5,878 3,459 Deferred income taxes - 5,270 1,861 Provision for depreciation and amortization 13,139 15,768 11,716 Loss on disposal of assets 1,737 6,640 421 Loss on equipment settlements 7,457 - - Changes in noncash assets and liabilities: Customer accounts receivable (10,118) (9,621) (24,409) Merchandise inventories (7,545) 23,980 10,213 Other current assets (5,331) (2,841) 279 Other long-term assets 916 (1,202) - Discontinued operations - 583 8,317 Accounts payable (2,709) 66,850 (2,502) Accrued liabilities (2,478) 8,063 (4,445) Deferred lease incentives 365 1,048 (4,099) --------- --------- --------- Net cash provided by (used in) operating activities (10,316) 57,130 (12,544) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of customer accounts receivable, net 15,000 Capital expenditures (4,759) (11,401) (12,753) Proceeds from surrender of insurance policies 271 3,000 - Proceeds from sale of property 1,200 - - Proceeds from sale of investment 300 - - Acquisition of securitized receivables - (115,000) - --------- --------- --------- Net cash used in investing activities (2,988) (123,401) 2,247 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of senior notes 50,000 Net borrowings (payments) on bankers' acceptance and revolving lines of credit - 29,500 (39,900) Payments on long-term obligations (991) (1,200) (8,944) Debt acquisition costs (1,052) (3,875) (741) Contribution to capital 11,925 Cash dividends paid (2,353) Net borrowings under DIP Facility 7,773 50,000 - --------- --------- --------- Net cash provided by financing activities 5,730 74,425 9,987 --------- --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (7,574) 8,154 (310) --------- CASH AND EQUIVALENTS - Beginning of year 14,665 6,511 6,821 --------- --------- --------- CASH AND EQUIVALENTS - End of year $ 7,091 $ 14,665 $ 6,511 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 6,929 $ 11,053 $ 10,388 Income taxes paid 335 300 5,823 SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Property acquired from lease incentives $ 366 $ 1,956 $ 584 Property acquired from lease settlements 3,142 - - Property dividend - - 6,985
See notes to consolidated financial statements. F-14 53 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES (DEBTORS IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) - ------------------------------------------------------------------------------- A. CHAPTER 11 PROCEEDINGS On October 17, 1995 ("the Filing Date"), The Elder-Beerman Stores Corp. ("Elder-Beerman") and each of its wholly-owned subsidiaries, The El-Bee Chargit Corp., The Bee-Gee Shoe Corp., Margo's La Mode, Inc., McCook Wholesale Corp., E-B Community Urban Redevelopment Corporation and EBA, Inc., (collectively the "Corporation"), filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court (the "Bankruptcy Court") for the Southern District of Ohio, Western Division. Pursuant to an order of the Bankruptcy Court, the individual Chapter 11 cases were consolidated for procedural purposes only and are being jointly administered by the Bankruptcy Court. The Corporation is currently operating as debtor in possession, subject to the approval of the Bankruptcy Court for certain of its proposed actions. Additionally, certain creditors of the Corporation have formed two official committees pursuant to the Bankruptcy Code. Such committees (as well as other parties in interest) have the right to review and object to transactions outside of the ordinary course of the Corporation's business and are expected to participate in the approval of the plan of reorganization. Under Chapter 11, actions in respect of certain claims against the Corporation in existence prior to the filing of the petitions for relief under the Bankruptcy Code are stayed while the Corporation continues business operations as debtors in possession. In addition, under the Bankruptcy Code, the Corporation may reject executory contracts, including lease obligations. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Substantially all liabilities as of the petition date are subject to settlement under the plan of reorganization to be voted upon by the creditors and approved by the Bankruptcy Court. The Corporation expects to file the plan in fiscal 1997. At February 1, 1997, the Corporation is in default under the terms of substantially all prepetition loan and note agreements and certain equipment and store leases. The amounts outstanding in respect to these agreements are subject to settlement under the reorganization proceedings. Generally, as a result of the bankruptcy, the contractual terms of prepetition debt obligations are suspended. The Corporation did not accrue or pay interest on debt subsequent to the Filing Date, except as permitted. The financial statements do not include accrued interest on prepetition unsecured debt of $17,483 and $4,251 at February 1, 1997 and February 3, 1996, respectively. In the accompanying consolidated balance sheets, liabilities subject to settlement under the Chapter 11 proceedings are classified as liabilities subject to compromise and are comprised of the following:
1997 1996 Accounts payable and accrued liabilities $ 92,209 $ 86,597 Unsecured debt 131,900 131,900 Secured debt 2,455 5,250 Capital lease obligations 2,834 3,657 Accrued interest 2,277 2,005 --------- --------- Total $ 231,675 $ 229,409 ========= =========
F-15 54 These amounts represent management's best estimate of all known or potential claims. Such claims remain subject to future adjustments with respect to disputed claims depending on negotiations with creditors and actions of the Bankruptcy Court in the Chapter 11 case. Consequently, the amount included in the Consolidated Balance Sheet as "Liabilities Subject to Compromise" may be subject to adjustment. Certain prepetition liabilities have been paid after obtaining the approval of the Bankruptcy Court, including certain wages and benefits of employees, insurance costs, department leases, reclamation claims, and contractors' costs. Under the provisions of the Bankruptcy Code the Corporation has the right to reject leases. Lessors may file claims for damages incurred from such rejections, which would be treated as prepetition liabilities. Claims filed in respect to leases for real property may not exceed the greater of an amount equal to (a) one year's rental payments or (b) payments for a period equal to 15% of the remaining term of the lease, but not in excess of three years rent. The Corporation is actively engaged in the process of reviewing its executory contracts and final decisions with respect to assuming or rejecting contracts; approval by the Bankruptcy Court is still pending. Outstanding prepetition accounts payable have been reported net of prepetition accounts receivable and deposits from various vendors and their representatives. Additional prepetition liabilities may arise as a result of claims filed by parties affected by the Corporation's bankruptcy filing. These claims will be analyzed and either settled or disputed in the bankruptcy proceedings. Ultimately the adjustment of the total liabilities of the Corporation remains subject to a Bankruptcy Court approved plan of reorganization, and accordingly, the total amount of such liabilities is not presently determinable. Pursuant to an order of the Bankruptcy Court, the Corporation presently has the exclusive right to file a plan of reorganization through August 18, 1997. B. GOING CONCERN The Corporation's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and the liquidation of liabilities and commitments in the normal course of business. The bankruptcy filings raise substantial doubt about its ability to continue as a going concern. The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and financing sources to meet obligations. In this regard, management developed and is executing a plan which includes improving gross margins and reducing costs and possibly closing certain retail store locations. While under the protection of Chapter 11, the Corporation may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the accompanying consolidated financial statements. Further, a plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the value of recorded asset amounts or the amounts and classification of liabilities that might be necessary as a result of the plan of reorganization. F-16 55 C. SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - The Corporation operates principally in midwestern states, through retail department stores and free-standing shoe stores. The women's specialty stores (Margo's La Mode, Inc.) were liquidated in 1995 (see Note N). Beerman-Peal Holdings, Inc. owns all outstanding common stock of the Corporation. ESTIMATES - The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of The Elder-Beerman Stores Corp. and subsidiaries (including The El-Bee Chargit Corp., a finance subsidiary). All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR - The Corporation's fiscal year ends on the Saturday nearest January 31. Fiscal year 1996 consists of 52 weeks, fiscal year 1995 consists of 53 weeks and fiscal year 1994 consists of 52 weeks ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. CASH AND EQUIVALENTS - The Corporation considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. CUSTOMER ACCOUNTS RECEIVABLE - Customer accounts receivable are classified as current assets since the average collection period is generally less than one year. MERCHANDISE INVENTORIES - Retail inventory is determined principally by the retail method applied on a last-in, first-out (LIFO) basis and is stated at the lower of cost or market. If the first-in, first-out (FIFO) basis had been used, inventories would be higher by $8,048 at February 1, 1997 and $7,252 at February 3, 1996. PROPERTY is stated at cost less accumulated depreciation determined by the straight-line method over the expected useful lives of the assets. Assets held under capital leases and related obligations are recorded initially at the lower of fair market value or the present value of the minimum lease payments. The straight-line method is used to amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the lease. OTHER ASSETS include the value assigned to lease agreements acquired in an acquisition which is being amortized over the lease terms. The Corporation continually evaluates, based upon income and/or cash flow projections and other factors as appropriate, whether events and circumstances have occurred that indicate that the remaining estimated useful life of the asset warrants revision or that the remaining balance of this asset may not be recoverable. During fiscal year 1995, the Corporation adopted Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Upon the adoption of FASB No. 121, the Corporation recognized an impairment loss of $551 related to the value assigned to lease agreements associated with closed stores, which is included in cost of merchandise sold, occupancy and buying expenses. FINANCIAL INSTRUMENTS - The Company utilizes interest rate swap agreements to manage its interest rate risks when receivables are sold under asset securitization programs or other borrowings. The Company does not hold or issue derivative financial instruments for trading purposes. The Company does not have derivative financial instruments that are held or issued and accounted for as hedges of anticipated transactions. Amounts currently due to or from interest rate swap counterparties are recorded in interest F-17 56 expense in the period in which they accrue. Gains or losses on terminated interest rate swap agreements are included in long-term liabilities or assets and amortized to interest expense over the shorter of the original term of the agreements or the life of the financial instruments to which they are matched. Gains or losses on the mark to market for interest rate swap agreements that do not qualify for hedge accounting are recorded as income or expense each period. REVENUES are recognized on merchandise inventory sold upon receipt by the customer. PRE-OPENING COSTS associated with opening new stores are charged to expense over the first fiscal year of store operations. INCOME TAXES - The Corporation files a consolidated income tax return. Deferred income taxes are provided for temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements less any valuation allowance (see Note I). EARNINGS (LOSS) PER COMMON SHARE are computed by dividing net income (loss) less preferred stock dividends, if any, by the weighted average number of common shares outstanding, and common stock equivalents, if dilutive. The average number of common shares outstanding during fiscal 1996, 1995 and 1994 was 6,510,733. The Corporation calculates earnings per share using methods prescribed by Accounting Principles Board Opinion (APB) No. 15, "Earnings per Share." In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which replaces APB No. 15 and requires adoption for periods ending after December 15, 1997. The Statement will require dual presentation of basic and diluted earnings per share on the face of the statement of operations. The Corporation believes that the basic and diluted earnings (loss) per share calculated pursuant to SFAS No. 128 are not materially different from primary earnings (loss) per share calculated under APB No. 15. RECLASSIFICATIONS - Certain amounts in the fiscal 1995 and fiscal 1994 financial statements have been reclassified to conform with the 1996 presentation. F-18 57 D. CUSTOMER ACCOUNTS RECEIVABLE Customer accounts receivable, which represent finance subsidiary receivables (Note E), are classified as shown in the following table. Interest is charged at an annual rate of 18% to 21%, depending on state law.
FEBRUARY 1, FEBRUARY 3, TYPE OF ACCOUNT 1997 1996 Optional and other $ 140,623 $ 134,793 Deferred payment 12,239 14,324 --------- --------- Total 152,862 149,117 Less: Allowance for doubtful accounts (3,800) (3,200) Unearned interest (1,248) (1,541) --------- --------- Customer accounts receivable, net $ 147,814 $ 144,376 ========= =========
YEAR ENDED ------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 Allowance for doubtful accounts: Balance, beginning of year $ 3,200 $ 1,700 $ 1,709 Provision 6,680 5,878 3,459 Charge offs, net of recoveries (6,080) (4,378) (3,468) ------- ------- ------- Balance, end of year $ 3,800 $ 3,200 $ 1,700 ======= ======= =======
Customer accounts receivable result from the Corporation's proprietary credit card sales to customers residing principally in the midwestern states. As such, the Corporation believes it is not dependent on a given industry or business for its customer base and therefore has no significant concentration of credit risk. Deferred payment accounts include the remaining unearned interest charge to be received. Unearned interest is amortized to finance income using the effective interest method. F-19 58 E. FINANCE SUBSIDIARY The El-Bee Chargit Corp. ("Chargit") purchases substantially all Elder-Beerman and subsidiaries' proprietary credit card receivables; such receivables are purchased at a 2% discount. Customer accounts receivable held by the finance subsidiary are included in Note D; purchase discounts are eliminated in consolidation.
FEBRUARY 1, FEBRUARY 3, BALANCE SHEETS 1997 1996 Assets: Customer accounts receivable - net $ 147,814 $ 144,376 Unamortized purchase discount (3,057) (2,983) Intercompany - prepetition 4,845 4,845 Other assets 2,295 2,882 --------- --------- Total $ 151,897 $ 149,120 ========= ========= Liabilities and shareholders' equity: Liabilities $ 2,286 $ 3,811 Intercompany - postpetition 114,769 124,251 Liabilities subject to compromise 445 452 Shareholders' equity 34,397 20,606 --------- --------- Total $ 151,897 $ 149,120 ========= =========
YEAR ENDED -------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, STATEMENTS OF OPERATIONS 1997 1996 1995 Revenues: Financing (net of securitization expense of $5,933, and $5,125 for fiscal 1995 and 1994, respectively) $ 27,451 $ 18,913 $ 16,226 Purchase discount 5,277 5,594 5,843 -------- -------- -------- Total revenues 32,728 24,507 22,069 -------- -------- -------- Expenses: Selling, general and administrative 6,517 6,486 5,728 Provision for doubtful accounts 6,680 5,878 3,459 Other income (1,106) - - -------- -------- -------- Total expenses 12,091 12,364 9,187 -------- -------- -------- Income before reorganization items and income taxes 20,637 12,143 12,882 Reorganization items - 5,288 - -------- -------- -------- Income before income taxes $ 20,637 $ 6,855 $ 12,882 ======== ======== ========
F-20 59 Prior to the Filing Date, the Corporation had a variable rate asset securitization agreement with a commercial bank whereby it could sell up to $115,000 of customer accounts receivable. The Corporation sold approximately $115,000 of customer accounts receivable under this agreement. These receivables were sold with a repurchase liability for balances ultimately determined to be uncollectible. As a result of the bankruptcy filing, the Corporation discontinued its accounts receivable sale program and terminated its asset securitization agreement. Upon termination of the accounts receivable sale program, the interest rate swaps were unmatched and a $5,025 mark to market adjustment was recorded as reorganization expense in fiscal 1995. Through the Filing Date, the Corporation utilized interest rate swap agreements to effectively establish long-term fixed rates on receivables sold under the asset securitization agreement, thus reducing the impact of interest rate changes on future income. These swap agreements involved the receipt of variable rate amounts in exchange for fixed rate interest payments over the life of the agreement. The differential between the fixed and variable rates to be paid or received was accrued as interest rates changed and recognized as an adjustment to finance income related to the receivables sold. Notional amounts of effective swap agreements hedged against receivables sold were $55,000 at October 17, 1995. At February 1, 1997, the Corporation has outstanding swap agreements with notional amounts totaling $55,000. A portion of these swaps have been hedged against the DIP Facility through October 31, 1997 (Note G). During 1995, but prior to the Filing Date, the Corporation entered into interest rate swaps under a master agreement with notional amounts of $50,000 with an effective date subsequent to the Filing Date. The Corporation violated and defaulted on the master agreement which includes a penalty for default. As of the Filing Date, the estimated market value of the interest rate swaps under the master agreement is recorded as a liability subject to compromise and included in reorganization expense. The Corporation is exposed to credit related losses in the event of non-performance by the counterparties to the swap agreements. The Corporation does not anticipate non-performance by any of its counterparties. The Corporation is exposed to market related losses on the unmatched portion of interest rate swaps. In fiscal 1996, the mark to market adjustment of $1,106 is recorded as other income. The amounts the Corporation ultimately will realize could differ materially in the near term from the market values recorded at February 1, 1997. F. OTHER LONG-TERM ASSETS
FEBRUARY 1, FEBRUARY 3, 1997 1996 Value assigned to lease agreements $ 2,681 $ 2,900 Receivables from developers 2,380 3,883 Unamortized debt issuance costs 454 2,462 Other 3,157 3,500 ------- ------- Total other long-term assets $ 8,672 $12,745 ======= =======
Receivables from developers represent receivables related to lease incentives, in the form of construction reimbursements and advertising allowances and are included in other long-term assets because payment of certain construction reimbursements by the developer to the Corporation will coincide with the Corporation's lease assumption and/or payments for construction work performed. F-21 60 G. LONG-TERM OBLIGATIONS In connection with the Chapter 11 filing, on October 17, 1995, Elder-Beerman and Chargit entered into a Postpetition Loan and Security Agreement (the DIP Facility) with Citibank N.A. Substantially all assets are pledged as collateral for the DIP Facility. In October 1995, the Bankruptcy Court signed an order approving the DIP Facility, which had a maturity of January 31, 1997. On September 30, 1996, the DIP Facility was extended to October 31, 1997. The DIP Facility provides for borrowings and letters of credit in an aggregate amount of $175,000 as of February 1, 1997, subject to a borrowing base formula based primarily on eligible accounts receivable and merchandise inventories. The DIP Facility contains financial covenants related to certain permitted reorganization expenditures, working capital, capital expenditures and attainment of earnings before interest, taxation, depreciation, amortization and reorganization items. In addition, the agreement contains certain other restrictive covenants including limitations on the incurrence of additional liens and indebtedness, the amount of prepetition claim payments, and a prohibition on payment of dividends. Commitment and related fees of $1,052 and $3,179 paid during fiscal years 1996 and 1995, respectively, in connection with the origination of and amendments to the DIP Facility are amortized as reorganization expense over the term of the DIP Facility. The DIP Facility includes borrowing sublimits relating to merchandise inventories and letters of credit. Regarding merchandise inventories, the Corporation may borrow on up to $65,000 of eligible merchandise inventories. The sublimit for letters of credit is $20,000. Borrowings bear interest at either prime plus .50% or LIBOR plus 1.50%. The prime and LIBOR borrowing rates at February 1, 1997 were 8.25% and 5.4375%, respectively. The rate on average daily outstanding letters of credit is 1.5% per annum. Additionally, the Corporation is required to pay a commitment fee of .5% per annum of the average daily unused portion of the total amount available under the DIP Facility. As of February 1, 1997, the Corporation had $57,773 in outstanding borrowings and $6,960 of outstanding letters of credit. As a result of the Chapter 11 filing (see Note A), debt outstanding at the Filing Date has been classified as "Liabilities Subject to Compromise". No principal or interest payments on prepetition debt will be made without Bankruptcy Court approval or until a reorganization plan defining the repayment terms has been confirmed. In addition, the Corporation is in default of substantially all of its prepetition debt agreements. The Corporation's defaults will be settled as part of the reorganization plan. F-22 61 Long-term obligations consist of the following:
FEBRUARY 1, FEBRUARY 3, 1997 1996 DIP Facility, due October 31, 1997, 6.9375% to 8.75% $ 57,773 $ 50,000 Revolving credit arrangement 3,600 3,600 Unsecured credit facility: Eurodollar borrowings 40,000 40,000 Bankers' acceptances 13,300 13,300 Competitive bid advances 5,000 5,000 Unsecured senior notes payable, Series A-C 50,000 50,000 Unsecured senior notes payable 20,000 20,000 Mortgage note payable, 9.75% 2,727 2,795 Industrial development revenue bonds, variable rates based on published index of tax-exempt bonds or prime, 3.66% 5,555 5,655 Capital lease obligations (Note H) 2,834 3,657 -------- -------- Total 200,789 194,007 Less: Liabilities subject to compromise 137,189 140,807 DIP Facility 57,773 50,000 Current portion of long-term obligations, not subject to compromise 158 100 -------- -------- Net long-term obligations $ 5,669 $ 3,100 ======== ========
Maturities of borrowings not classified as liabilities subject to compromise are $57,931 in 1997, $163 in 1998, $170 in 1999, $177 in 2000, $185 in 2001, and $4,974 thereafter. As of October 17, 1995, the Corporation ceased accruing interest on unsecured prepetition debt. All or a portion of such interest (approximately $17,483 at February 1, 1997 and $4,251 at February 3, 1996) may not be payable unless permitted by the bankruptcy court. During fiscal 1996 and 1995, the Corporation utilized interest rate swap agreements to reduce the impact of interest rate changes on portions of its variable rate debt. Swaps with a notional amount of $45,000 have been matched against the DIP Facility since the Filing Date. During 1996, the weighted average rate paid, net of amortization of the recorded market value liability, was 5.8% and the weighted average rate received was 5.6%. The differential between the fixed rates paid and variable rates received is recognized as an adjustment to interest expense. Collateral for the industrial development revenue bonds and the mortgage note payable is land, buildings, furniture, fixtures and equipment with a net book value of $5,998 at February 1, 1997. Mechanics' liens have been filed for improvements made to certain properties. F-23 62 H. LEASES The Corporation leases retail store properties and certain equipment. Generally, leases are net leases which require the payment of executory expenses such as real estate taxes, insurance, maintenance and other operating costs, in addition to minimum rentals. Leases for retail stores generally contain renewal or purchase options, or both, and generally provide for contingent rentals based on a percentage of sales. At February 1, 1997, the Corporation is in default under the terms of certain equipment and retail property leases. Minimum annual rentals, for leases having initial or remaining noncancelable lease terms in excess of one year at February 1, 1997, are as follows:
CAPITAL OPERATING LEASES LEASES --------------------------------------- ------------ RELATED FISCAL YEAR OTHER PARTY TOTAL 1997 $ 15,349 $ 3,078 $ 18,427 $ 1,032 1998 13,669 3,073 16,742 768 1999 11,468 3,072 14,540 529 2000 9,539 3,028 12,567 469 2001 9,095 2,086 11,181 290 Thereafter 68,198 16,610 84,808 277 ------- ------- ------- --- Minimum lease payments $ 127,318 $ 30,947 $ 158,265 3,365 ========== ========= ========== Less imputed interest 531 ------ Present value of net minimum lease payments $ 2,834 =======
YEAR ENDED -------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, RENT EXPENSE 1997 1996 1995 Operating leases: Minimum $ 20,489 $ 23,228 $ 13,585 Contingent 2,136 2,766 2,599 --------- --------- -------- Total rent expense $ 22,625 $ 25,994 $ 16,184 ========= ========= ========
FEBRUARY 1, FEBRUARY 3, ASSETS HELD UNDER CAPITAL LEASES 1997 1996 Buildings $ 11,033 $ 11,033 Less accumulated depreciation and amortization 9,565 9,120 --------- -------- Net $ 1,468 $ 1,913 ======== =======
Assets acquired under capital leases are included in the consolidated balance sheets as property, while the related obligations are included in liabilities subject to compromise (see Note A). F-24 63 I. INCOME TAXES Income tax provision (benefit) consists of the following:
YEAR ENDED ----------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 Current: Federal $ - $(10,400) $ (6,138) State and local 360 504 442 -------- -------- -------- 360 (9,896) (5,696) -------- -------- -------- Deferred: Net operating losses and tax credit carryforwards (13,560) (6,487) - Interest 6,119 - - Deferred income 1,513 (270) 150 Inventory 2,398 (1,766) 223 Depreciation (3,726) (1,108) (447) Restructuring 1,393 136 - Discontinued operations (Note N) 158 (274) (4,286) Other (790) (1,462) 1,935 Valuation allowance 6,495 20,787 - -------- -------- -------- - 9,556 (2,425) -------- -------- -------- Income tax expense (benefit) $ 360 $ (340) $ (8,121) ======== ======== ======== Income statement classification: Continuing operations $ 360 $ (2,332) $ (2,526) Discontinued operations - 1,992 (5,595) -------- -------- -------- Total $ 360 $ (340) $ (8,121) ======== ======== ========
The income tax provision varies from the statutory rate primarily because of the valuation allowance and certain expenses not deductible for tax purposes. The current tax benefit in fiscal 1995 includes the carryback of net operating losses for a refund of prior taxes paid. The refund request was filed with the Internal Revenue Service ("IRS") by the Corporation's parent, Beerman-Peal Holdings, Inc. In fiscal 1995, the IRS issued a notice of proposed adjustment to the Corporation asserting the Corporation owed additional federal income taxes with respect to its consolidated income tax returns filed for the fiscal years 1989, and 1992 through 1994. The case was tried in Bankruptcy Court. A decision was rendered in March 1997 rejecting the IRS claim in its entirety; the IRS has appealed the Bankruptcy Court's decision to the District Court. Management believes the effect of any adjustment to federal and state income tax returns resulting from the audit will not have a material effect on the Corporation's financial position, results of operations or cash flows. F-25 64 Deferred income taxes consist of the following:
FEBRUARY 1, FEBRUARY 3, 1997 1996 Deferred tax assets: Net operating losses and tax credit carryforwards $ 20,047 $ 6,487 Discontinued operations 2,362 2,520 Deferred income 2,406 3,919 Bad debts 1,414 1,121 Inventory basis 1,208 3,606 Deferred compensation 1,092 1,092 Restructuring 511 1,904 Other 4,706 6,286 -------- -------- 33,746 26,935 Valuation allowance (27,282) (20,787) -------- -------- Total deferred tax assets 6,464 6,148 -------- -------- Deferred tax liabilities: Interest expense 6,119 - Depreciation 219 3,945 Other 126 2,203 -------- -------- Total deferred tax liabilities 6,464 6,148 -------- -------- Net $ 0 $ 0 ======== ========
The net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets will result in future benefits only if the Corporation has taxable income in future periods. Under current accounting pronouncements, future taxable income cannot be assumed. In addition, net operating losses may be reduced due to the bankruptcy proceeding and the IRS assessment previously discussed. Accordingly, a 100% valuation allowance has been recorded. The federal net operating loss carryforward is approximately $49,482 and is available to reduce federal taxable income through 2011. The tax credit carryforward is approximately $2,728; $632 will expire in 2009 and 2010, and the balance is an indefinite carryforward. J. EMPLOYEE BENEFIT PLAN A defined-contribution employee benefit plan (the "Plan") covers substantially all employees. The Corporation may contribute to the Plan based on a percentage of compensation and on a percentage of income before income taxes. No contributions were made in fiscal year 1996 and 1995 (Note Q). Corporate contributions to the Plan were approximately $1,391 in fiscal year 1994. Eligible employees can make contributions to the Plan through payroll withholdings of one to fifteen percent of their annual compensation. The Plan includes an employee stock ownership (ESOP) component. At February 1, 1997, the Plan held all of the outstanding Preferred Shares of the Corporation (Note M). Under the ESOP component, the Corporation is required to repurchase these shares from the Plan, to the extent necessary, for the Plan to provide participant distributions. Such Preferred Share repurchases would require approval of the Bankruptcy Court. F-26 65 K. DEFERRED COMPENSATION AND BONUS PLAN The Corporation has unfunded deferred compensation plans for certain retired and current executive officers, management personnel and the board of directors. Upon establishment of the key employee bonus programs, certain deferred compensation agreements were waived by the executives. At February 1, 1997 and February 3, 1996, the deferred compensation obligations of $3,122 are included in accounts payable and accrued liabilities as Liabilities Subject to Compromise (see Note A). Deferred compensation expense, including service cost and interest on the accrued obligation, was $406 and $492 in 1995 and 1994, respectively. No such expense was incurred during the current year. The assumed discount rate is generally 6%. The Corporation established a key employee bonus program for the duration of its Chapter 11 reorganization. Bonus amounts are determined primarily on operating results and continued employment. L. TRANSACTIONS WITH RELATED PARTIES Transactions with related parties are as follows:
FEBRUARY 1, FEBRUARY 3, 1997 1996 Customer accounts receivable $ 368 $ 400 Other current assets 60 563 Other long-term assets 460 - Accounts payable and other liabilities 536 190 Liabilities subject to compromise 951 506
See Note I for federal refundable income tax request filed by parent company. Repayment of certain obligations of the Corporation owed to a vendor are guaranteed by a related party. The Corporation leases real estate under operating leases from certain affiliated entities and directors, and made payments to these related parties totaling $3,742, $4,129 and $2,996 in fiscal years 1996, 1995 and 1994, respectively. M. SHAREHOLDERS' EQUITY PREFERRED STOCK - Each Series B Preferred Share provides cumulative dividends at $1.39 per share and is convertible to .7 shares of common stock. Shares may be called, after January 31, 1999, at the option of the Corporation for a price of $20.32 declining to $19.17 in 2005 and thereafter. These shareholders are also entitled to receive out of the assets of the Corporation liquidating distributions in the amount of $19.17 per share upon any voluntary or involuntary liquidation of the Corporation. At February 1, 1997, there were 463,732 shares of common stock reserved for conversion of Series B Preferred Shares. Dividends in arrears at February 1, 1997 and February 3, 1996 were $1,842 and $921, respectively. RETAINED EARNINGS - Stock repurchases and dividend payments would require approval of the Bankruptcy Court. No dividends were declared or paid during fiscal year 1996 and 1995. The Corporation declared and distributed a $6,985 dividend in the form of property during fiscal year 1994. The dividend was recorded at the net book value of the property transferred. F-27 66 N. DISCONTINUED OPERATIONS In fiscal 1994, the Corporation adopted formal plans to dispose of its subsidiaries Margo's La Mode, Inc. ("Margo's") and The Bee-Gee Shoe Corp. ("Bee Gee") and recorded reserves for loss on disposal of $9,834, net of tax benefit of $5,066. During fiscal 1995, the Corporation was unsuccessful in its attempt to sell Margo's and decided to liquidate the subsidiary. In connection with the liquidation, Margo's has rejected all of its existing operating leases. During fiscal 1996 and 1995, the Corporation closed 5 and 44 Bee Gee locations, respectively, and rejected certain leases. The ultimate settlement of these liabilities is contingent upon approval of the creditors' committees and the Bankruptcy Court. The remaining assets of Bee Gee were held for sale at February 3, 1996. During fiscal 1996, management determined the value of Bee Gee would be more effectively realized by retaining Bee Gee as a part of the Corporation's ongoing operations. Accordingly, the balance sheet for fiscal 1995 and the results of operations for fiscal 1995 and fiscal 1994 have been reclassified to continuing operations.
MARGO'S LA MODE, INC. --------------------------- YEAR ENDED --------------------------- FEBRUARY 1, FEBRUARY 3, ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS: 1997 1996 Merchandise inventories Income tax receivable Other current assets $ 3 $ 581 Property, net ------- ------- Assets of discontinued operations $ 3 $ 581 ======= ======= Accounts payable $ 38 $ 88 Other liabilities 125 249 Liabilities subject to compromise 9,743 9,847 Reserve for loss on disposal 310 916 ------- ------- Liabilities of discontinued operations $10,216 $11,100 ======= =======
Based on management's estimates and the change in the disposition strategy of Margo's in 1995, the Corporation provided an additional reserve of $19,262 (including income tax expense of $1,992) for the discontinued operations of Margo's. The discontinued operations expense of $12,276 for fiscal 1995 includes the additional reserve for Margo's net of the reversal of reserves for Bee Gee of $6,986 as a result of management's decision in fiscal 1996, previously discussed. The amounts shown above do not include amounts owed to or due from the parent. Margo's operating losses of $451, $16,419 and $1,517 were charged against the reserve for discontinued operations for fiscal years 1996, 1995 and 1994, respectively. Margo's net sales in the period of disposal were $34,227 in 1995 and $26,551 in 1994. Margo's loss for 1994 prior to adopting a formal plan of disposal was $1,457, net of tax benefit of $529. F-28 67 O. REORGANIZATION ITEMS Reorganization costs consist of the following:
YEAR ENDED ------------------------ FEBRUARY 1, FEBRUARY 3, 1997 1996 Professional fees $ 8,612 $ 3,586 Equipment lease settlements 7,458 - Restructuring 4,497 8,897 Financing costs 3,081 2,203 Market value adjustments of interest rate swaps - 5,025 ------- ------- Total $23,648 $19,711 ======= =======
Subsequent to the Chapter 11 filings, the Corporation began restructuring its business and decided, among other things, to close two outlet stores and certain Bee Gee locations and discontinue certain vendors in fiscal 1995 and to close a furniture store in fiscal 1996. Property impairment, severance payments and certain store closing costs are included in restructuring costs. The Corporation negotiated various equipment lease settlements during the year. Equipment lease settlement costs primarily resulted from renegotiated leases where cash payments and unsecured claims were granted in exchange for ownership of the equipment and relief from other claims previously filed. In 1995, the market value adjustments of interest rate swaps represent the recognition of losses on interest rate swap s previously hedged against accounts receivable sold. Financing costs include the write-off of the unamortized balance of previously deferred financing costs and amortization of fees associated with the DIP Facility. P. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND EQUIVALENTS - The carrying amount approximates fair value because of the short maturity of those instruments. ACCOUNTS RECEIVABLE AND DIP FACILITY - The net carrying amount approximates fair value because of the relatively short average maturity of the instruments. LONG-TERM DEBT - It is not practicable to estimate the fair value of the Corporation's long-term debt as the quoted market prices for the same or similar issues and the current rates offered to the Corporation for debt of the same remaining maturities are not available as a result of the Corporation's Chapter 11 status. INTEREST RATE SWAP AGREEMENTS - The fair value of interest rate swaps is based on the quoted market prices which the Corporation would pay to terminate the swap agreements at the reporting date. F-29 68 LIABILITIES SUBJECT TO COMPROMISE - Subsequent to the filing under Chapter 11, a market has developed for the trading of prepetition claims against the Corporation. However, as the market for claims against Corporations under Chapter 11 is not well developed, no reliable source of market prices is available. The estimated fair value of the Corporation's financial instruments, excluding liabilities subject to compromise and long-term debt are as follows:
FEBRUARY 1, 1997 FEBRUARY 3, 1996 ----------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE Financial assets (liabilities): Cash and equivalents $ 7,091 $ 7,091 $ 14,215 $ 14,215 Customer accounts receivable 147,814 147,814 144,376 144,376 DIP Facility (57,773) (57,773) (50,000) (50,000) Financial instruments - interest rate swaps (1,415) (1,415) (3,100) (3,100) Unrecognized financial instruments - interest rate swaps (579) (844) (925) (1,440)
Q. COMMITMENTS AND CONTINGENCIES LITIGATION - The Corporation is a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. Management believes the outcome of any of the litigation matters that will have a material effect on the Corporation's results of operations, cash flows or financial position have been appropriately accrued. As discussed in Note A, on October 17, 1995, the Corporation and its subsidiaries filed voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. All material civil litigation commenced against the Corporation and those referenced subsidiaries prior to that date has been stayed under the Bankruptcy Code. OTHER CLAIMS - The Elder-Beerman Stores Corp. Profit-Sharing and Stock Ownership Plan Committee has made claims relevant to fiscal 1996 and fiscal 1995 corporate contributions and payment of certain expenses. The Corporation believes that such contributions are discretionary and the expenses are not liabilities of the Corporation. LETTERS OF CREDIT - At February 1, 1997, the Corporation had outstanding commercial and standby letters of credit totaling $11,717 under the DIP facility and with other banks, relating to trade financing and insurance activities. INSURANCE - The Corporation is self-insured for employee medical and workers' compensation subject to limitation for which insurance has been purchased. Management believes that those claims reported and not paid and claims incurred, but not yet reported, are appropriately accrued. * * * * * * F-30 EX-4.A 2 EXHIBIT 4(A) 1 Exhibit 4(a) NUMBER ELDER-BEERMAN SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO THE ELDER-BEERMAN STORES CORP. SEE REVERSE SIDE FOR CERTAIN DEFINITIONS CUSIP 284470 10 1 THIS CERTIFIES THAT SPECIMEN IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF THE ELDER-BEERMAN STORES CORP. transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by facsimile signature of its duly authorized officer. Dated: Countersigned and Registered: NORTHWEST BANK MINNESOTA, N.A. Transfer Agent and Registrar By AUTHORIZED SIGNATURE /s/ Frederick J. Mershad /s/ John A. Muskovich /s/ Scott J. Davido CHAIRMAN OF THE BOARD AND PRESIDENT AND CHIEF SENIOR VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER OPERATING OFFICER SECRETARY 2 THE ELDER-BEERMAN STORES CORP. - -------------------------------------------------------------------------------- The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UTMA - ______ Custodian _______ (Cust) (Minor) TEN ENT - as tenants by entireties under Uniform Transfer to Minors Act_____________________________ JT TEN - as joint tenants with right (State) of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. - -------------------------------------------------------------------------------- The Corporation will furnish to any shareholder without charge within five days after receipt of a written request therefor a copy of the express terms of the shares represented by this Certificate and of the other class or classes and series of shares the Corporation is authorized to issue. Any such request should be made to the Secretary of the Corporation at its principal place of business. This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of The Elder-Beerman Stores Corp. The Rights are not exercisable prior to the occurrence of certain events specified in the Rights Agreement. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged, may expire, may be amended, or may be evidenced by separate certificates and no longer be evidenced by this Certificate. The Elder-Beerman Stores Corp. will mail to the holder of this Certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances as set forth in the Rights Agreement, Rights that are or were beneficially owned by an Acquiring Person or any Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement) may become null and void. For value received _______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [____________________________________]__________________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________ _______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated _________________________________________________ _________________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular without alteration or enlargement, or any change whatever. SIGNATURE GUARANTEED EX-10.A.I 3 EXHIBIT 10(A)(I) 1 Exhibit 10(a)(i) EXECUTION COPY ================================================================================ ELDER-BEERMAN MASTER TRUST POOLING AND SERVICING AGREEMENT Dated as of December 30, 1997 Among THE EL-BEE RECEIVABLES CORPORATION, AS TRANSFEROR THE EL-BEE CHARGIT CORP., AS SERVICER and BANKERS TRUST COMPANY, AS TRUSTEE ================================================================================ POOLING AND SERVICING AGREEMENT 2
TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01 Definitions..................................................................................... 1 Section 1.02 Other Definitional Provisions................................................................... 24 ARTICLE II TRANSFER OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.01 Transfer of Receivables......................................................................... 25 Section 2.02 Acceptance by Trustee........................................................................... 26 Section 2.03 Representations and Warranties of the Transferor................................................ 27 Section 2.04 Representations and Warranties of the Transferor Relating to the Receivables.................... 31 Section 2.05 Covenants of the Transferor..................................................................... 36 Section 2.06 Required Deposits............................................................................... 47 Section 2.07 Trustee May Perform............................................................................. 48 Section 2.08 No Assumption of Liability...................................................................... 48 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.01 Acceptance of Appointment and Other Matters Relating to the Servicer............................ 48 Section 3.02 Servicing Compensation.......................................................................... 49 Section 3.03 Representations, Warranties and Covenants of the Servicer....................................... 50 Section 3.04 Reports and Records for the Trustee............................................................. 58 Section 3.05 Annual Servicer's Certificate................................................................... 59 Section 3.06 Annual Independent Accountants' Servicing Report................................................ 59 Section 3.07 Tax Treatment................................................................................... 60 Section 3.08 Notices to the Transferor....................................................................... 60
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ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.01 Rights of Certificateholders.................................................................... 61 Section 4.02 Establishment of Accounts....................................................................... 61 Section 4.03 Collections and Allocations..................................................................... 63 ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS ARTICLE VI THE CERTIFICATES Section 6.01 Certificates.................................................................................... 67 Section 6.02 Authentication of Certificates.................................................................. 68 Section 6.03 Registration of Transfer and Exchange of Certificates........................................... 68 Section 6.04 Mutilated, Destroyed, or Stolen Certificates.................................................... 71 Section 6.05 Persons Deemed Owners........................................................................... 71 Section 6.06 Appointment of Paying Agent..................................................................... 72 Section 6.07 Access to List of Certificateholders' Names and Addresses....................................... 73 Section 6.08 Authenticating Agent............................................................................ 73 Section 6.09 Tender of Exchangeable Transferor Certificate................................................... 75 Section 6.10 Uncertificated Classes.......................................................................... 77 ARTICLE VII OTHER MATTERS RELATING TO THE TRANSFEROR Section 7.01 Liability of the Transferor..................................................................... 77 Section 7.02 Obligations Not Assignable...................................................................... 77 Section 7.03 Limitation on Liability......................................................................... 77 Section 7.04 Indemnification of the Trustee, the Certificateholders, any Program Agent and any Enhancement Provider.................................................................... 78
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ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.01 Liability of the Servicer....................................................................... 80 Section 8.02 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer............................................................................. 80 Section 8.03 Limitation on Liability......................................................................... 81 Section 8.04 Servicer Indemnification........................................................................ 81 Section 8.05 The Servicer Not to Resign...................................................................... 82 Section 8.06 Access to Certain Documentation and Information Regarding the Receivables....................... 82 Section 8.07 Delegation of Duties............................................................................ 83 Section 8.08 Examination of Records.......................................................................... 83 ARTICLE IX EARLY AMORTIZATION EVENTS Section 9.01 Trust Early Amortization Events................................................................. 83 Section 9.02 Additional Rights upon the Occurrence of Any Trust Early Amortization Event................................................................................ 85 ARTICLE X SERVICER DEFAULTS Section 10.01 Servicer Defaults.............................................................................. 86 Section 10.02 Trustee to Act; Appointment of Successor....................................................... 88 Section 10.03 Notification of Servicer Default and Successor Servicer........................................ 90 Section 10.04 Waiver of Past Defaults........................................................................ 91 ARTICLE XI THE TRUSTEE Section 11.01 Duties of Trustee.............................................................................. 91 Section 11.02 Certain Matters Affecting the Trustee.......................................................... 93 Section 11.03 Trustee Not Liable for Recitals in Certificates................................................ 95 Section 11.04 Trustee May Own Certificates................................................................... 95
POOLING AND SERVICING AGREEMENT 5 iv Page ---- Section 11.05 The Servicer to Pay Trustee's Fees and Expenses................................................ 95 Section 11.06 Eligibility Requirements for Trustee........................................................... 96 Section 11.07 Resignation or Removal of Trustee.............................................................. 96 Section 11.08 Successor Trustee.............................................................................. 97 Section 11.09 Merger or Consolidation of Trustee............................................................. 97 Section 11.10 Appointment of Co-Trustee or Separate Trustee.................................................. 98 Section 11.11 Tax Returns.................................................................................... 99 Section 11.12 Trustee May Enforce Claims Without Possession of Certificates.................................. 99 Section 11.13 Suits for Enforcement.......................................................................... 99 Section 11.14 Rights of Investor Certificateholders to Direct Trustee........................................100 Section 11.15 Representations and Warranties of the Trustee..................................................100 Section 11.16 Maintenance of Office or Agency................................................................101 ARTICLE XII TERMINATION Section 12.01 Termination of Trust...........................................................................101 Section 12.02 Optional Purchase..............................................................................102 Section 12.03 Final Payment with Respect to Any Series.......................................................103 Section 12.04 Termination of Rights of Holder of Exchangeable Transferor Certificate.........................104 Section 12.05 Defeasance.....................................................................................104 ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.01 Amendment......................................................................................105 Section 13.02 Limitation on Rights of Certificateholders.....................................................107 Section 13.03 Governing Law, Etc.............................................................................108 Section 13.04 Notices........................................................................................109 Section 13.05 Severability of Provisions.....................................................................109 Section 13.06 Assignment.....................................................................................110 Section 13.07 Certificates Non-Assessable and Fully Paid.....................................................110 Section 13.08 Further Assurances.............................................................................110 Section 13.09 Non-petition Covenant..........................................................................110 Section 13.10 No Waiver; Cumulative Remedies.................................................................110 Section 13.11 Counterparts...................................................................................110 Section 13.12 Third-Party Beneficiaries......................................................................111 Section 13.13 Actions by Certificateholders..................................................................111
POOLING AND SERVICING AGREEMENT 6 v Page ---- Section 13.14 Rule 144A Information..........................................................................111 Section 13.15 Merger and Integration.........................................................................111 Section 13.16 Headings.......................................................................................111 Section 13.17 Inconsistent Provisions........................................................................112 SCHEDULES Schedule 3.03(a)(vi) Concentration Account and Collection Accounts EXHIBITS Exhibit A Form of Monthly Servicer's Report Exhibit B Form of Exchangeable Transferor Certificate Exhibit C Form of Annual Servicer's Certificate Exhibit D Form of Annual Independent Accountant's Servicing Report Exhibit E-1 Form of Collection Account Letter Exhibit E-2 Form of Store Account Letter Exhibit E-3 Form of Local Bank Blocked Account Letter Exhibit F Form of Representation Letters Exhibit G Form of Reconveyance of Receivables
POOLING AND SERVICING AGREEMENT 7 POOLING AND SERVICING AGREEMENT, dated as of December 30, 1997, by and among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Transferor, THE EL-BEE CHARGIT CORP., an Ohio corporation ("CHARGIT"), as Servicer, and BANKERS TRUST COMPANY, a New York banking corporation, as Trustee. In consideration of the mutual agreements contained herein, each party agrees as follows for the benefit of the other parties, the Certificateholders and any Enhancement Provider to the extent provided herein and in any Supplement: ARTICLE I DEFINITIONS Section 1.01 DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms. With respect to any Series of Certificates, capitalized terms not otherwise defined in this Agreement have the same meanings as specified in the related Supplement. "ACCOUNT" means each of the Parent's revolving credit card accounts, including accounts which have been written off as uncollectible, issued to an Obligor pursuant to a Cardholder Agreement between any Originator and any Person for the sole purpose of providing credit for the purchase of merchandise, services or insurance from any Originator or Affiliate of any Originator. The term "Account" shall include any such revolving credit card account with respect to which a new credit account number has been issued by the Servicer or an Originator under circumstances resulting from (i) a lost or stolen credit card, (ii) the transfer from one Obligor to another Obligor or (iii) the addition of any Obligor, in each case not requiring standard application and credit evaluation procedures under the Cardholder Guidelines. "ACCOUNT FILE" means the file on an Originator's computer system that identifies revolving credit card accounts of such Originator, which file is designated by such Originator as its "Account File." "ACCOUNT INFORMATION" shall have the meaning specified in Section 2.02(b). "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a POOLING AND SERVICING AGREEMENT 8 2 Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "AGGREGATE INVESTED AMOUNT" means, as of any date of determination, the aggregate sum of the Series Invested Amounts of all Series issued and outstanding on such date of determination PLUS the sum of the Enhancement Invested Amounts, if any, for all outstanding Series on such date of determination. "AGGREGATE MINIMUM TRANSFEROR INVESTED AMOUNT" means, as of any date of determination, the product of 5.0% and the Aggregate Invested Amount on such date of determination. "AGREEMENT" means this Pooling and Servicing Agreement and all amendments, supplements and other modifications hereof. "AMORTIZATION PERIOD," with respect to any Series, shall have the meaning specified in the related Supplement. "APPLICANTS" shall have the meaning specified in Section 6.07. "APPROVED RATING" means a rating of P-1 by Moody's and a rating of A-1+ by Standard & Poor's. "BENEFICIARY" means, as of any date of determination, any of the Trustee, the Investor Certificateholders, the Program Agent and any Enhancement Provider. "BENEFIT PLAN" shall have the meaning specified in Section 6.03(c). "BIF" means the Bank Insurance Fund administered by the FDIC. "BUSINESS DAY" means (a) a day of the year on which banks are not required or authorized by law to close in New York City or the city in which the Corporate Trust Office is located, (b) with respect to non-financial reporting requirements of the Servicer or the Transferor, any day on which the Servicer or the Transferor is not closed, (c) if during any applicable interest period an interest rate or certificate rate is calculated by reference to a eurodollar rate, a day on which dealings are carried on in the London interbank market and (d) any other day specified in a Supplement as a "Business Day". POOLING AND SERVICING AGREEMENT 9 3 "CARDHOLDER AGREEMENT" means the agreement (and the related application) for any Account, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "CARDHOLDER GUIDELINES" means the Parent's policies and procedures relating to the operation of its credit card business in effect on the date hereof, including the policies and procedures for determining the creditworthiness of potential and existing credit card customers, and relating to the maintenance of credit card accounts and collection of credit card receivables, as such policies and procedures may be amended, supplemented or otherwise modified from time to time. "CERTIFICATE" means any one of the Investor Certificates of any Series or the Exchangeable Transferor Certificate. "CERTIFICATEHOLDER" means any Person in whose name a Certificate is registered in the Certificate Register. "CERTIFICATE INTEREST" means interest payable in respect of the Investor Certificates of any Series pursuant to the Supplement for such Series. "CERTIFICATE PRINCIPAL" means principal payable in respect of the Investor Certificates of any Series pursuant to the Supplement for such Series. "CERTIFICATE PURCHASE AGREEMENT" means, with respect to any Series, a certificate purchase agreement, executed and delivered in connection with the original issuance of the Investor Certificates of such Series pursuant to Article VI, and all amendments, supplements and other modifications from time to time thereto. "CERTIFICATE RATE" shall have, with respect to any Series of Certificates, the meaning specified in the related Supplement. "CERTIFICATE REGISTER" means the register maintained pursuant to Section 6.03, providing for the registration of the Certificates and transfers and exchanges thereof. "CLOSING DATE" means, with respect to any Series, the date of issuance of such Series of Certificates, as specified in the related Supplement. "CODE" means the Internal Revenue Code of 1986, as amended. "COLLECTION" means (a) any payment by or on behalf of Obligors received by any Originator, Transferor or Servicer, or deposited in any Collection Account or the POOLING AND SERVICING AGREEMENT 10 4 Concentration Account, in respect of the Receivables, in the form of cash, checks, wire transfers, electronic transfers, ATM transfers or other form of payment in accordance with the Cardholder Agreement in effect from time to time on any Receivables, including all Recoveries, and (b) all interest and other investment earnings (net of losses and investment expenses) on Collections as a result of the investment thereof pursuant to Section 4.02. The term "Collection" shall include Insurance Proceeds and other amounts constituting Recoveries generally. A Collection processed on an Account in excess of the aggregate amount of Receivables in such Account as of the date of receipt by any Originator, the Transferor or Servicer of such Collection shall be deemed to be a payment in respect of Principal Receivables to the extent of such excess. "COLLECTION ACCOUNT" shall have the meaning specified in Section 4.02(c). "COLLECTION ACCOUNT BANK" shall have the meaning specified in Section 4.02(c). "COLLECTION ACCOUNT LETTER" shall have the meaning specified in Section 4.02(c). "CONCENTRATION ACCOUNT" shall have the meaning specified in Section 4.02(a). "CONCENTRATION ACCOUNT BANK" shall have the meaning specified in Section 4.02(a). "CONSOLIDATED TANGIBLE NET WORTH" means, with respect to any Person, at any time, (i) total consolidated tangible assets of such Person and its Subsidiaries, MINUS (ii) total consolidated liabilities of such Person and its Subsidiaries. "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group/Structured Finance Team. "CREDIT AGREEMENT" means the Credit Agreement dated as of December 30, 1997 among the Parent, the lenders party thereto, Citibank, N.A. as issuing bank and Citicorp USA, Inc., as agent, as amended, supplemented, modified, restated, replaced or refinanced from time to time. "CYCLE" means each monthly billing cycle for an Account, as determined by the Servicer in accordance with its normal practice. "DAILY REPORT" shall have the meaning specified in Section 3.04(a). POOLING AND SERVICING AGREEMENT 11 5 "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments or other similar laws in any jurisdiction from time to time in effect affecting the rights of creditors generally, and general principles of equity (whether considered in a suit at law or in equity). "DEFEASANCE" shall have the meaning specified in Section 12.05(a). "DEFEASED SERIES" shall have the meaning specified in Section 12.05(a). "DESIGNATED OBLIGOR" means, at any time, each Obligor, PROVIDED, HOWEVER, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by any Program Agent to the Transferor that such Program Agent has determined, in its reasonable credit judgment, that such Obligor shall not be considered a Designated Obligor. "DETERMINATION DATE" means the second Business Day preceding each Distribution Date. "DILUTION AMOUNT" shall have, with respect to any Due Period, the meaning specified in Section 4.03(c). "DISTRIBUTION DATE" means the twentieth day of each month, or if such day is not a Business Day, the next succeeding Business Day; PROVIDED that the initial Distribution Date for any Series shall be set forth in the related Supplement. Notwithstanding the foregoing, in the event a Total Systems Failure exists on any Distribution Date, the date of such Distribution Date shall mean the fourth Business Day after the date on which the Transferor or the Servicer delivers the Monthly Servicer's Report pursuant to Section 3.04(b); PROVIDED that in no event shall a Distribution Date be postponed more than 10 Business Days due to a Total Systems Failure. "DOLLARS", "$" or "U.S. $" means the lawful currency of the United States. "DUE PERIOD" means, initially, the period from the close of business on December 30, 1997 until the close of business on the last day of the last Cycle for the month of January, 1998, and thereafter, the period from the close of business on the last day of the prior Due Period until the close of business on the last day of the last Cycle for the following month. "EARLY AMORTIZATION EVENT" means any Trust Early Amortization Event or any Series Early Amortization Event for any Series. POOLING AND SERVICING AGREEMENT 12 6 "EARLY AMORTIZATION PERIOD" shall have the meaning specified in any Supplement hereto. "EFFECTIVE DATE" means the date on which all the conditions precedent to the initial issuance of the initial Series of Certificates pursuant hereto and to the related Supplement are satisfied or waived. "ELIGIBLE ACCOUNT" means, at any time, each Account which satisfies each of the following conditions: (i) such Account is denominated and payable only in Dollars to a location within the United States of America; (ii) such Account has been originated in connection with the extension of credit to an Obligor whose application for the extension of credit was processed through any Originator or an Affiliate of such Originator or such Account has been acquired by any Originator from a third party and determined by such Originator to be in compliance with the Cardholder Guidelines, including those relating to the extension of credit; (iii) an Originator has not classified such Account on its electronic records as counterfeit, canceled or fraudulent, and no card issued in connection therewith has been stolen or lost; (iv) the Obligor on such Account has provided, as its most recent billing address, an address which is located in the United States or in Canada, so long as the aggregate amount of Principal Receivables owing from Obligors with addresses located in Canada does not exceed an amount equal to 10% of the aggregate balance of all Principal Receivables; (v) an Originator has not charged off such Account pursuant to the Cardholder Guidelines; (vi) all filings, consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the creation of each of the underlying Receivables in such Account or the execution, delivery and performance by any Originator of the Cardholder Agreement pursuant to which such underlying Receivable was created, have been duly obtained, effected or given and are in full force and effect as of such date of creation; POOLING AND SERVICING AGREEMENT 13 7 (vii) such Account satisfies all applicable requirements of the Cardholder Guidelines; and (viii) if such Account is a "Deferred Account" (as defined in the Cardholder Guidelines), such Account shall be payable in full within five years after the creation thereof. "ELIGIBLE RECEIVABLE" means each Receivable which satisfies each of the following conditions: (i) such Receivable has arisen under an Eligible Account; (ii) such Receivable, together with the Cardholder Agreement related thereto, was created in compliance with all, and does not contravene any, applicable Requirements of Law; (iii) such Receivable, at the time of and at all times after the creation of such Receivable, the Transferor or the Trust has good and marketable title thereto, free and clear of all Liens and such Receivable has been the subject of either a valid Transfer and assignment from the Transferor to the Trust of all the Transferor's right, title and interest therein (and in the proceeds thereof), or the grant of a first priority perfected "security interest" (within the meaning of the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in such Receivable created hereunder) therein (and in the proceeds thereof); (iv) such Receivable arises under a Cardholder Agreement which, together with such Receivable is in full force and effect and is the legal, valid and binding payment obligation of the Obligor thereon, enforceable against such Obligor in accordance with its terms, subject only to Debtor Relief Laws; (v) such Receivable constitutes an "account" or a "general intangible" and is not evidenced by an "instrument" or "chattel paper", in each case under Article 9 of the UCC as then in effect in any applicable jurisdiction the law of which governs the perfection of the interest in such Receivable created hereunder; (vi) the Transfer of such Receivable constitutes a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act; (vii) such Receivable is not subject to any provision prohibiting the transfer or assignment by any Originator of such payment obligation; POOLING AND SERVICING AGREEMENT 14 8 (viii) the Obligor of such Receivable, at the time of the Transfer of such Receivable to the Trust, is a Designated Obligor; (ix) the Obligor of such Receivable has been directed to remit payments with respect thereto to the Servicer or to a Collection Account; (x) such Receivable arose in the ordinary course of business of the Originator and represents all or part of the sales price of merchandise, services or insurance within the meaning of Section 3(c)(5) of the Investment Company Act, the Obligor of which is primarily liable with respect thereto; and (xi) such Receivable, when acquired hereunder, does not cause the aggregate amount of Principal Receivables arising under "Deferred Accounts" (as defined in the Cardholder Guidelines) to exceed 15% of the aggregate balance of all Principal Receivables. "ENHANCEMENT" means, with respect to any Series, any cash collateral account, letter of credit, surety bond, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap or any other contract or agreement for the benefit of the Investor Certificateholders of such Series, as designated in the applicable Supplement. "ENHANCEMENT INVESTED AMOUNT" shall have the meaning, if applicable with respect to any Series, specified in the related Supplement. "ENHANCEMENT PROVIDER" means, with respect to any Series, the Person or Persons, if any, designated as such in the related Supplement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, any successor statute, and the regulations promulgated and rulings issued thereunder. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of the Transferor, or under common control with the Transferor, within the meaning of Section 414 of the Internal Revenue Code and the regulations promulgated thereunder. "EXCESS FUNDING ACCOUNT" shall have the meaning specified in Section 4.03(d). "EXCHANGE" means the procedure described under Section 6.09. POOLING AND SERVICING AGREEMENT 15 9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. "EXCHANGE DATE" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in Section 6.09(b). "EXCHANGE NOTICE" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in Section 6.09(b). "EXCHANGEABLE TRANSFEROR CERTIFICATE" means the certificate or certificates executed and authenticated by the Trustee, substantially in the form of Exhibit B and exchangeable as provided in Section 6.09. "EXTENDED TRUST TERMINATION DATE" shall have the meaning specified in Section 12.01(a). "FDIC" means the Federal Deposit Insurance Corporation or any successor. "FEE LETTER" means that certain fee letter dated June 25, 1997, from Citibank, N.A. to the Parent, as may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "FINANCE CHARGE RECEIVABLES" means the aggregate of all amounts billed to or other indebtedness of the Obligors on any Account in the ordinary course of any Originator's business, whether due or to become due, in respect of (a) periodic rate finance charges, (b) late payment fees, (c) annual fees, if any, with respect to Accounts, (d) returned check charges, (e) Recoveries not yet received and (f) any other fees with respect to the Accounts designated by the Transferor by notice to the Trustee at any time and from time to time to be included as Finance Charge Receivables. "FINANCE CHARGE SHORTFALLS" shall have the meaning specified in Section 4.03(f). "FISCAL YEAR" means a fiscal year of the Parent and its Subsidiaries ending on the Saturday immediately preceding February 1 of any calendar year. "FIXED ALLOCATION PERCENTAGE" means, for any Series with respect to any Due Period (including any day within such Due Period), the percentage equivalent of a fraction the numerator of which is the Series Invested Amount for such Series as of the end of the day on the last day of the Due Period most recently ended before the Fixed Principal Allocation Date and the denominator of which is the aggregate Series Invested Amounts for all outstanding Series or, if greater, the Principal Receivables Balance, in each case on such last day. POOLING AND SERVICING AGREEMENT 16 10 "FIXED PRINCIPAL ALLOCATION DATE" means the earliest of the date (i) on which the Amortization Period commences, (ii) on which an Early Amortization Period commences and (iii) selected by the Servicer to be the "Fixed Principal Allocation Date." "FLOATING ALLOCATION PERCENTAGE" means, for any Series with respect to any Due Period (including any day within such Due Period), the percentage equivalent of a fraction the numerator of which is the Series Invested Amount for such Series at the end of the day on the last day of the most recently ended Due Period (or with respect to the first Due Period, the Initial Series Invested Amount) and the denominator of which is the aggregate Series Invested Amounts for all outstanding Series or, if greater, the Principal Receivables Balance, in each case on such last day. "GAAP" means generally accepted accounting principles as applied in the United States. "GOVERNMENTAL AUTHORITY" means any country or nation, any political subdivision, state or municipality of such country or nation, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of any country or nation or political subdivision thereof. "GROUP" means, with respect to any Series, the group of Series, if any, in which the related Supplement specifies such Series is to be included. "INDEBTEDNESS" of any Person, at any time, means without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under any lease of any property which, in accordance with generally accepted accounting principles, is or should be accounted for as a capital lease on the balance sheet of such Person, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all obligations of others referred to in clauses (a) through (g) above or clause (i) below guaranteed directly or indirectly in any manner by such Person, POOLING AND SERVICING AGREEMENT 17 11 or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such obligation or to advance or supply funds for the payment or purchase of such obligation, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such obligation or to assure the holder of such obligation against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, and (i) all obligations referred to in clauses (a) through (g) above of another Person secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such obligation. "INDEMNIFIED AMOUNTS" shall have the meaning specified in Section 7.04. "INDEMNIFIED PARTY" shall have the meaning specified in Section 7.04. "INDEPENDENT PUBLIC ACCOUNTANTS" means any of (a) Arthur Andersen & Co., (b) Deloitte & Touche LLP, (c) Coopers & Lybrand, (d) Ernst & Young, (e) KPMG Peat Marwick and (f) Price Waterhouse or any of their respective successors so long as such successor is one of the four largest United States accounting firms; PROVIDED that such firm is independent with respect to the Servicer within the meaning of the Securities Act. "INELIGIBLE RECEIVABLE" shall have the meaning specified in Section 2.04(d)(iii). "INITIAL CUT OFF DATE" means the close of business of the Transferor on the day two Business Days prior to the Effective Date. "INITIAL SERIES INVESTED AMOUNT" means with respect to any Series, the amount specified as such in the related Supplement. "INSOLVENCY EVENT" means, with respect to any Person, any of the following: (i) such Person shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such Person seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any Debtor Relief Laws, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the relief sought in POOLING AND SERVICING AGREEMENT 18 12 such proceeding (including the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or another similar official for, it or for any substantial part of its property) shall be granted; or (ii) such Person shall take any corporate, partnership, trust or similar action to authorize any of the actions set forth in clause (i) above. "INSURANCE PROCEEDS" means any amounts recovered by the Servicer pursuant to any credit life, credit disability or unemployment insurance policies covering any Obligor with respect to Receivables under such Obligor's Account to the extent such amounts are used to make payments on such Account. "INTERCREDITOR AGREEMENT" means the agreement, dated as of the date hereof, among Citicorp North America, Inc., as Program Agent, The El-Bee Receivables Corporation, as Purchaser and Transferor, the Parent, as Borrower (as defined in the Credit Agreement) and Originator, The El-Bee Chargit Corp., as Originator and as Servicer, Bankers Trust Company, as Trustee, and Citicorp, USA, Inc., as Bank Agent (as defined therein), as the same may be amended, supplemented or otherwise modified from time to time. "INTEREST RATE PROTECTION AGREEMENT" with respect to any Series, shall have the meaning specified in the related Supplement. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time. "INVESTOR CERTIFICATE" means any one of the certificates, including the Registered Certificates, executed and authenticated by the Trustee substantially in the form of the investor certificate attached to the related Supplement, evidencing an Undivided Trust Interest, other than the Exchangeable Transferor Certificate. "INVESTOR CERTIFICATEHOLDER" means the holder of record of an Investor Certificate. "INVESTOR EXCHANGE" shall have the meaning specified in Section 6.09(b). "INVESTOR MONTHLY SERVICING FEE" for any Series, shall have the meaning specified in the related Supplement. "INVESTOR PERCENTAGE" means for any Series (A), with respect to Collections of Principal Receivables, the Principal Allocation Percentage for such Series, and (B) with respect to Collections of Finance Charge Receivables, Loss Amounts or Dilution Amounts, the Floating Allocation Percentage for such Series. POOLING AND SERVICING AGREEMENT 19 13 "KNOWLEDGE" (and the related term "KNOW") means, with respect to a Person's knowledge, the actual knowledge of a Responsible Officer of such Person. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), preference, participation interest, priority or other security agreement or preferential arrangement of any kind or nature whatsoever resulting in an encumbrance against real or personal property of a Person, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction to evidence any of the foregoing; PROVIDED that any issuance of an Undivided Trust Interest pursuant to any Supplement, any assignment pursuant to Section 8.02 hereof and any lien created by or in connection with any Transaction Document shall not be deemed to constitute a Lien. "LOAN AGREEMENT" means, with respect to any Series, a loan agreement, executed and delivered in connection with the original issuance of the Investor Certificates of such Series pursuant to Article VI, and all amendments, supplements and other modifications from time to time thereto. "LOSS AMOUNT" for any Due Period means (a) an amount (which shall not be less than zero) equal to (i) the aggregate principal balance of all Principal Receivables included in the Trust Assets, or any portion thereof, that has been written off or, consistent with the Cardholder Guidelines, should have been written off any Originator's books as uncollectible during such Due Period, MINUS (ii) the amount of Recoveries received in such Due Period with respect to Receivables previously charged off as uncollectible or (b) as otherwise defined in the applicable Series Supplement. "MAJORITY IN INTEREST" means the holders of Certificates evidencing 51% or more of the Aggregate Invested Amount or, if in respect of any Series, the holders of Certificates evidencing 51% or more of the aggregate Series Invested Amount in such Series or, in relation to any Series which has an Enhancement Provider, as otherwise specified in the Supplement related to such Series, excluding, in all cases, any Certificates held by the Transferor or any of its Affiliates (to the extent such holding is Known to a Responsible Officer of the Trustee), until the holders of all other Certificates shall have been paid in full. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Transferor or the Parent and its Subsidiaries taken as a whole, (b) the rights and remedies of any Beneficiary under any Transaction Document, (c) the interests of any Beneficiary in the Trust Assets, (d) the collectibility of the Receivables taken as a whole (other than as a result of the default of one or more Obligors on the payment thereof) or (e) the ability of the Servicer, POOLING AND SERVICING AGREEMENT 20 14 the Transferor, the Parent or any Originator to perform its obligations under any Transaction Document to which it is or is to be a party. "MINIMUM AGGREGATE PRINCIPAL RECEIVABLES" means, on the last Business Day of any Due Period, an amount equal to the sum of the Aggregate Invested Amount for all Series, issued and outstanding on such date. "MONTHLY SERVICER'S REPORT" shall have the meaning specified in Section 3.04(b). "MONTHLY SERVICING FEE" shall have the meaning specified in Section 3.02. "MOODY'S" means Moody's Investors Service, Inc., or its successor. "MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in Section 4001(a)(3) of ERISA, to which the Transferor or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Transferor or any ERISA Affiliate and at least one Person other than the Transferor and the ERISA Affiliates or (b) was so maintained and in respect of which the Transferor or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "OBLIGOR" means, with respect to any Account or Receivable, the Person or Persons obligated to make payments with respect to such Account or Receivable, as the case may be, including any guarantor thereof. "OFFICER'S CERTIFICATE" means a certificate signed by a Responsible Officer of an Originator, the Transferor or the Servicer, as applicable. "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for or an employee of the Person providing the opinion, and who shall be reasonably acceptable to the Trustee and, in the case of an opinion to be delivered to any Originator, the Transferor or any Enhancement Provider, reasonably acceptable to such Originator, the Transferor or such Enhancement Provider, as the case may be. "ORIGINATORS" means, collectively Chargit and the Parent. POOLING AND SERVICING AGREEMENT 21 15 "PARENT" means The Elder-Beerman Stores Corp., an Ohio corporation. "PARENT UNDERTAKING AGREEMENT" means the agreement between the Parent and the Trustee, dated as of the date hereof, governing the terms and conditions upon which the Parent shall undertake the performance of certain obligations of each Originator, the Transferor and other Affiliates of the Parent, as Servicer or otherwise, as the same may from time to time be amended, supplemented or otherwise modified. "PAYING AGENT" means any paying agent appointed pursuant to Section 6.06 and shall initially be the Trustee. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "PERMITTED INVESTMENTS" means, unless otherwise provided in the Supplement with respect to any Series, book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence any of the following: (i) readily marketable direct obligations of, and obligations fully guaranteed by, the United States of America or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America; (ii) (A) demand and time deposits in, certificates of deposit of, bankers' acceptances issued by, or federal funds sold by, any depository institution or trust company (including the Trustee or any agent of the Trustee, acting in their respective commercial capacities) incorporated under the laws of the United States of America, any State thereof or the District of Columbia or any foreign depository institution with a branch or agency licensed under the laws of the United States of America or any State, subject to supervision and examination by Federal and/or State banking authorities and having an Approved Rating at the time of such investment or contractual commitment providing for such investment or otherwise approved in writing by each Rating Agency or (B) any other demand or time deposit or certificate of deposit which is fully insured by the FDIC; (iii) repurchase obligations with a term of not more than ten days with respect to (A) any security described in clause (i) above or (B) any other security issued or guaranteed by an agency or instrumentality of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (ii)(A) above; POOLING AND SERVICING AGREEMENT 22 16 (iv) short-term securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any State, the short-term unsecured obligations of which have an Approved Rating at the time of such investment; PROVIDED, HOWEVER, that securities issued by any particular corporation will not be Permitted Investments with respect to any account in which the amount on deposit is permitted to be invested in Permitted Investments hereunder to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Trust Assets to exceed 10% of the amount held in such account; (v) commercial paper having an Approved Rating at the time of such investment or pledge as security; (vi) investments in money market funds rated in the highest rating category by Moody's or Standard & Poor's (including funds for which the Trustee or any of its Affiliates is investment manager or advisor); or (vii) any other investments approved in writing by each Rating Agency. "PERSON" means any legal person, including any individual, corporation, partnership, joint venture, association, joint-stock company, trust (including a business trust), unincorporated organization, limited liability company, Governmental Authority or other entity of similar nature. "PLAN" means a Single Employer Plan or Multiple Employer Plan. "PLAN EVENT" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Transferor or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Transferor or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section POOLING AND SERVICING AGREEMENT 23 17 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "POOL FACTOR", as such term is used in any Supplement with respect to any Series, means a number carried out to seven decimals representing the ratio of the applicable Series Invested Amount as of the last Business Day of the preceding Due Period (determined after taking into account any reduction in the Series Invested Amount that will occur on the following Distribution Date) to the applicable Initial Series Invested Amount. "PRINCIPAL ALLOCATION PERCENTAGE" means for any Series (A) with respect to any Due Period (including any day within such Due Period) occurring prior to the Fixed Principal Allocation Date, the Floating Allocation Percentage for such Series for such Due Period, and (B) with respect to any Due Period (including any day within such Due Period) occurring on or after the Fixed Principal Allocation Date, the Fixed Allocation Percentage for such Series for such Due Period. "PRINCIPAL RECEIVABLES" means (a) the aggregate of all amounts (other than amounts which represent Finance Charge Receivables) billed to the Obligor on any Account in respect of purchases of merchandise, services or insurance (whether constituting an account, contract right, chattel paper, instrument, general intangible or otherwise), (b) all other fees (other than amounts which represent Finance Charge Receivables) billed to Obligors on the Accounts, (c) all monies due, (d) all Collections and other amounts received or receivable from time to time with respect to the Accounts, including all amounts on deposit in any Collection Accounts (other than amounts which represent Finance Charge Receivables), except, solely with respect to the Store Accounts, to the extent described in the Intercreditor Agreement and (e) all proceeds (including all cash collections and all "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of all rights, titles, interests, remedies, powers and privileges purported to be Transferred by or pursuant to this Agreement, other than proceeds which represent Finance Charge Receivables) thereof. In calculating the aggregate amount of Principal Receivables on any day, the amount of Principal Receivables shall be reduced by the aggregate amount of any credit balances in the Accounts owing to any Obligor thereunder on such day. "PRINCIPAL RECEIVABLES BALANCE" means, as of any date of determination, the sum of (x) the aggregate amount of Principal Receivables in the Trust Assets PLUS (y) the credit balance in the Excess Funding Account, in each case as of the close of business on such date. POOLING AND SERVICING AGREEMENT 24 18 "PRINCIPAL SHARING SERIES" means a Series that is designated as such pursuant to the related Supplement. "PRINCIPAL SHORTFALLS" shall have the meaning specified in Section 4.03(e). "PRINCIPAL STORE ACCOUNT" means the Store Account maintained with the bank party to an agreement substantially in the form of Exhibit E hereto. "PRINCIPAL TERMS", with respect to any Series issued pursuant to an Exchange, shall have the meaning specified in Section 6.09(c). "PROGRAM AGENT" means any Person designated as program agent in any Supplement. "PURCHASE AGREEMENT" means, with respect to any Originator, a purchase agreement between the Transferor and such Originator, or between Originators, executed and delivered in connection with the transfer to the Transferor or an Originator, as the case may be, of any interest in the Receivables Transferred to the Trust pursuant to Article II hereof, as amended, supplemented or otherwise modified from time to time. "QUALIFIED DEPOSITORY INSTITUTION" means (i) the Trustee or (ii) a depository institution or trust company organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or the domestic branch of a foreign depository institution), with deposit insurance provided by BIF or SAIF, the short-term deposits of which have an Approved Rating and which has a combined capital and surplus of at least $500,000,000. "RATING AGENCY" means, with respect to any Series, the rating agency or agencies, if any, specified in the related Supplement. "RATING AGENCY CONDITION" means, with respect to any specified action, that each Rating Agency, upon the written request of the Transferor, the Servicer or the Trustee, shall have notified all of such parties in writing that such action in and of itself will not result in a reduction or withdrawal of the rating of any outstanding Series with respect to which it is a Rating Agency and, in relation to a Series with respect to which an Enhancement is in effect, the Enhancement Provider has given its prior written consent thereto. "REASSIGNMENT DATE" shall have the meaning specified in Section 2.04(e). "RECEIVABLES" means Principal Receivables and Finance Charge Receivables; PROVIDED that upon the reassignment or removal by the Trustee to the Transferor of POOLING AND SERVICING AGREEMENT 25 19 Receivables pursuant to Section 2.04(d) or (e), such reassigned or removed Receivables, as of the date of such reassignment or removal, shall no longer be treated as Receivables. "RECORD DATE" means, with respect to any Distribution Date, the last calendar day of the preceding calendar month. "RECOVERIES" means, all amounts received (net of out-of-pocket costs of collection), including Insurance Proceeds, with respect to Receivables previously charged off as uncollectible. "REGISTERED CERTIFICATES" shall have the meaning specified in Section 6.01. "REQUIRED DESIGNATION DATE" shall have the meaning specified in Section 2.06. "REQUIREMENTS OF LAW" means any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority and, when used with respect to any Person, the certificate of incorporation and by-laws or other charter or other organizational or governing documents of such Person. "RESERVE ACCOUNT" shall have the meaning specified in the applicable Supplement. "RESPONSIBLE OFFICER" means (i) with respect to the Trustee, any officer assigned to the Corporate Trust Office, including any managing director, vice president, assistant vice president, assistant treasurer, assistant secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and having direct responsibility for the administration of the Transaction Documents and the transactions contemplated thereby, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject or (ii) when used with respect to the Transferor, the Servicer or the Parent, any President, Vice-President, Assistant Vice- President, Secretary, Assistant Secretary, Treasurer, Assistant Treasurer or any other of its officers customarily performing functions similar to those performed by the foregoing officers. "REVOLVING PERIOD" shall have, with respect to any Series, the meaning specified in the related Supplement. "SAIF" means the Savings Association Insurance Fund administered by the FDIC. POOLING AND SERVICING AGREEMENT 26 20 "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SERIES" means any series of Investor Certificates. "SERIES ACCOUNT" means, with respect to any Series, any account or accounts established pursuant to the related Supplement for the benefit of such Series. "SERIES DILUTION AMOUNT" means, for any Series with respect to any Due Period, an amount equal to the product of the Investor Percentage for such Series for such Due Period and the Dilution Amount for such Due Period. "SERIES EARLY AMORTIZATION EVENT" with respect to any Series, shall have the meaning specified in the related Series. "SERIES INVESTED AMOUNT," with respect to any Series, shall have the meaning specified in the related Supplement. "SERIES SERVICING FEE PERCENTAGE" means, with respect to any Series, the amount specified in the related Supplement. "SERIES SUPPLEMENT" means, with respect to any Series, the Supplement entered into in connection with such Series. "SERIES TERMINATION DATE" means, with respect to any Series, the date specified in the related Supplement. "SERVICER" means initially The El-Bee Chargit Corp., an Ohio corporation, and its permitted successors and assigns and thereafter any Person appointed Successor Servicer pursuant to Section 10.02. "SERVICER DEFAULT" shall have the meaning specified in Section 10.01. "SERVICER TERMINATION NOTICE" shall have the meaning specified in Section 10.01. "SERVICING OFFICER" means any officer of the Servicer involved in, or responsible for, the administration and servicing of the Receivables whose name appears on a list of servicing officers furnished to the Trustee by the Servicer, as such list may from time to time be amended. POOLING AND SERVICING AGREEMENT 27 21 "SHARED EXCESS FINANCE CHARGE COLLECTIONS" shall have the meaning specified in Section 4.03(f). "SHARED PRINCIPAL COLLECTIONS" shall have the meaning specified in Section 4.03(e). "SINGLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Transferor or any ERISA Affiliate or (b) was so maintained and in respect of which the Transferor or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STANDARD & POOR'S" means Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc., or its successor. "STORE" means any retail location of any Originator or any Affiliate of any Originator, the corporate headquarters of any Originator or the Parent's Distribution Center. "STORE ACCOUNT" means any Collection Account used to collect receipts from stores including Store Payments. "STORE PAYMENT" means any payment by an Obligor on account of a Receivable made by means of cash, check, money order or any other form of payment delivered in person by such Obligor to an employee at any Store. "SUBORDINATED NOTE" shall have the meaning specified in any Purchase Agreement. POOLING AND SERVICING AGREEMENT 28 22 "SUBSIDIARY" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "SUCCESSOR SERVICER" shall have the meaning specified in Section 10.02(a). "SUPPLEMENT" means, with respect to any Series, a supplement to this Agreement complying with the terms of Section 6.09 of this Agreement, executed in conjunction with any issuance of any Series of Certificates, and all amendments, supplements and other modifications thereto. "TAX OPINION" means, with respect to any action, an Opinion of Counsel who is not an employee of the Servicer or any Affiliate of the Servicer to the effect that, for Federal income tax purposes and for New York and Ohio state income and franchise tax purposes, (a) such action will not adversely affect the characterization of the Investor Certificates of any outstanding Series as debt of the Transferor, (b) such action will not cause a taxable event to any Investor Certificateholder, (c) following such action the Trust should not be treated as an association (or publicly traded partnership) taxable as a corporation and (d) in the case of the original issuance of Certificates and the issuance of any new Series of Investor Certificates pursuant to Section 6.09, the Investor Certificates should properly be characterized as either debt of the Transferor, or if not debt, as an interest in a partnership and not in an association (or a publicly traded partnership) taxable as a corporation. "TERMINATION EVENT" shall have the meaning specified in any Purchase Agreement. "TOTAL SYSTEMS FAILURE" means, in respect of any Distribution Date, a total failure of the computer system (including but not limited to off-site backup systems) of the Servicer which contain records relating to the Receivables, the effect of which would make it impossible or impracticable for the Servicer to perform the acts required to be performed hereunder on or in anticipation of such Distribution Date. "TRANSACTION DOCUMENTS" means this Agreement, each Purchase Agreement, each Supplement, each Certificate Purchase Agreement, each Loan Agreement, the Parent Undertaking Agreement, the Intercreditor Agreement, the Fee Letter for each Series and the POOLING AND SERVICING AGREEMENT 29 23 other agreements and instruments executed or to be executed in connection with any of the foregoing. "TRANSFER" shall have the meaning specified in Section 2.01. "TRANSFER AGENT AND REGISTRAR" shall have the meaning specified in Section 6.03 and shall initially be the Trustee. "TRANSFEROR" means The El-Bee Receivables Corporation, a Delaware corporation. "TRANSFEROR EXCHANGE" shall have the meaning specified in Section 6.09(b). "TRANSFEROR INVESTED AMOUNT" means at any time the aggregate amount of Principal Receivables in the Trust PLUS the credit balance in the Excess Funding Account MINUS the Aggregate Invested Amount. "TRANSFEROR MONTHLY SERVICING FEE" means with respect to any Due Period, an amount equal to one-twelfth of the product of 2% and the Aggregate Invested Amount as of the last day of the preceding Due Period. "TRANSFEROR PERCENTAGE" means on any date of determination, when used with respect to Principal Receivables, Finance Charge Receivables and Loss Amounts, a percentage equal to 100% MINUS the aggregate Investor Percentages for all Series with respect to such categories of Receivables. "TRUST" means the Elder-Beerman Master Trust created by this Agreement, the corpus of which shall consist of the Trust Assets. "TRUST ASSETS" shall have the meaning specified in Section 2.01. "TRUST EARLY AMORTIZATION EVENT" shall have the meaning specified in Section 9.01. "TRUST EXTENSION" shall have the meaning specified in Section 12.01(a). "TRUST TERMINATION DATE" means the earliest of (a) the date of the termination of the Trust pursuant to Section 9.02(b), (b) (i) unless a Trust Extension shall have occurred, the day after the Distribution Date following the date on which funds shall have been deposited in the applicable Series Accounts for the payment of Investor Certificateholders of each Series then issued and outstanding sufficient to pay in full the Series Invested Amount and, if POOLING AND SERVICING AGREEMENT 30 24 applicable, the Enhancement Invested Amount of each such Series plus accrued interest at the applicable Certificate Rate through the date specified in the related Supplement with respect to each such Series plus all fees and expenses of the Trustee, the Servicer, any Enhancement Provider and any other Person as specified therein and (ii) if a Trust Extension shall have occurred, the Extended Trust Termination Date, and (c) December 30, 2017. "TRUSTEE" means Bankers Trust Company, a New York banking corporation, in its capacity as trustee on behalf of the Trust, and its successors and any banking corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee appointed as herein provided. "UCC" means the Uniform Commercial Code, as amended from time to time, as in effect in the State of New York and any other state where the filing of a financing statement is required or advisable to perfect an interest in the Receivables and the proceeds thereof, or in any other specified jurisdiction. "UNDIVIDED TRUST INTEREST" means the undivided interest in the Trust evidenced by a Certificate. "VOTING STOCK" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "YIELD CHANGE" shall have the meaning specified in Section 2.05(t). Section 1.02 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement or any Supplement shall have the defined meanings when used in any Transaction Document, certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.01, and accounting terms partially defined in Section 1.01 to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained herein shall control. POOLING AND SERVICING AGREEMENT 31 25 (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Article, Section, Schedule and Exhibit references contained in this Agreement are references to Articles, Sections, Schedules and Exhibits in or to this Agreement, unless otherwise specified; and the term "including" means "including without limitation". (d) Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". ARTICLE II TRANSFER OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.01 TRANSFER OF RECEIVABLES. The Transferor does hereby transfer, assign, set-over and otherwise convey (the making of such transfer, assignment, set-over and conveyance being a "TRANSFER," and so to transfer, assign, set-over and otherwise convey being to "TRANSFER") to the Trust for the benefit of the Beneficiaries without recourse (except as expressly provided herein), in each case whether now existing or hereafter created, (a) all of the Transferor's right, title and interest in and to all of the Receivables existing on the Effective Date and thereafter arising from time to time in connection with the Accounts until the termination of the Trust, (b) all monies due or to become due with respect thereto, (c) all Recoveries and Insurance Proceeds relating to such Receivables, (d) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, (e) all rights, remedies, powers and privileges with respect to such Receivables, (f) all of the Transferor's rights, remedies, powers and privileges under each Purchase Agreement and each Interest Rate Protection Agreement, if any, and (g) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. Such property described in the preceding sentence, together with all monies from time to time on deposit in, and all Permitted Investments and other securities, instruments and other investments purchased from funds on deposit in, the Concentration Account, the Collection Accounts (except, solely with respect to the Store Accounts, to the extent described in the Intercreditor Agreement), the Excess Funding Account and any Series Account, and any Enhancement issued with respect to any Series (the drawing on or payment of such Enhancement not being available to Certificateholders of any other Series), shall constitute the assets of the Trust (collectively the "TRUST ASSETS"). The foregoing Transfer is made to the POOLING AND SERVICING AGREEMENT 32 26 Trust for the benefit of the Beneficiaries and each reference in this Agreement to such Transfer shall be construed accordingly. The parties intend that if, and to the extent that, such Transfer is not deemed to be a sale, the Transferor shall be deemed hereunder to have granted to the Trust a first priority perfected security interest in all of the Transferor's right, title and interest in and to all Trust Assets to secure all the Transferor's and Servicer's obligations hereunder, including the Transferor's obligation to sell or Transfer to the Trust all Receivables existing on the date hereof or hereafter created and transferred to the Transferor from time to time under the Purchase Agreements. This Agreement shall constitute a security agreement under applicable law. Pursuant to the request of the Transferor, the Trustee shall cause Certificates in authorized denominations evidencing the entire interest in the Trust to be duly authenticated and delivered to or upon the order of the Transferor pursuant to Section 6.02. Section 2.02 ACCEPTANCE BY TRUSTEE. (a) The Trustee hereby acknowledges its acceptance, on behalf of the Trust, of all right, title and interest previously held by the Transferor in and to the Trust Assets, and declares that it shall maintain such right, title and interest, upon the Trust herein set forth, for the benefit of all Beneficiaries to the extent set forth in the Transaction Documents. The Trustee further acknowledges that, on or prior to the Effective Date, it has received from the Servicer (on behalf of the Transferor) the computer file or microfiche or written list required to be delivered to it pursuant to Section 3.03(b)(viii)(E). (b) The Trustee hereby agrees not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche or written lists delivered to the Trustee pursuant to Section 3.03(b)(viii)(E) ("ACCOUNT INFORMATION") except as is required in connection with the performance of its duties hereunder or in enforcing the rights of the Beneficiaries or to a Successor Servicer appointed pursuant to Section 10.02 or as mandated pursuant to any Requirement of Law applicable to the Trustee. Notwithstanding anything herein to the contrary, the foregoing shall not be construed to prohibit (i) disclosure of any and all information that is or becomes publicly known, or information obtained by the Trustee from sources other than the Transferor or the Servicer which, insofar Known to the Trustee, are not prohibited from transmitting the information by a contractual, legal or fiduciary obligation to the Transferor or the Servicer, (ii) disclosure of any and all information (A) if required to do so by any applicable statute, law, rule or regulation, (B) to any government agency or regulatory body having authority to regulate or oversee any aspects of the Trustee's business or that of its Affiliates, (C) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory POOLING AND SERVICING AGREEMENT 33 27 authority, arbitrator or arbitration to which Trustee or an Affiliate, officer, director, employer or shareholder thereof is a party, (D) in any preliminary or final offering circular, registration statement or contract or other document pertaining to the transactions contemplated herein approved in advance in writing by the Transferor or the Servicer or (E) to any Affiliate, independent or internal auditor, agent, employee or attorney of Trustee having a need to know the same, provided that the Trustee advises such recipient of the confidential nature of the information being disclosed and which recipient agrees to maintain the confidentiality of any such information in accordance with the applicable provisions of this Agreement, or (iii) any other disclosure authorized in writing by the Transferor or the Servicer. The Trustee agrees to take such measures as shall be reasonably requested by the Transferor to protect and maintain the security and confidentiality of such information, and, in connection therewith, shall allow the Transferor at the Transferor's expense to inspect the Trustee's security and confidentiality arrangements from time to time during normal business hours, upon reasonable prior notice. In the event that the Trustee is required by law to disclose any Account Information, the Trustee shall provide the Transferor with prompt written notice, unless such notice is prohibited by law, of any such request or requirement so that the Transferor may request a protective order or other appropriate remedy. The Trustee shall use its best efforts to provide the Transferor with written notice no later than five days prior to any disclosure pursuant to this Section 2.02(b). (c) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust or place Liens on Trust Assets other than as contemplated in this Agreement. (d) The Trustee is hereby authorized and directed to execute and deliver to the other parties thereto each Transaction Document to which the Trustee is a party. Section 2.03 REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. The Transferor hereby represents and warrants to the Trustee for the benefit of the Trust (i) as of the date hereof and the Effective Date, (ii) by accepting on the date of each Transfer the proceeds of such Transfer, as of such date and (iii) with respect to any Series, as of the Closing Date for such Series that: (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Transferor (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. POOLING AND SERVICING AGREEMENT 34 28 (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Transferor of the Transaction Documents to which it is or is to be a party, the consummation of the transactions contemplated hereby and the making of each Transfer, are within the Transferor's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene or violate any Requirement of Law, (ii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Transferor or any of its properties or (iii) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Transferor, and no transaction contemplated hereby requires compliance on the Transferor's part with any bulk sales act or similar law. The Transferor is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery or performance by the Transferor of any of the Transaction Documents to which it is or is to be a party, any Transfer or the consummation of the other transactions contemplated hereby or thereby, (ii) the grant by the Transferor of the liens granted by it pursuant to the Transaction Documents, (iii) the perfection or maintenance of the liens created by the Transaction Documents (including the first priority nature thereof) or (iv) the exercise by the Trustee of its rights under the Transaction Documents or the remedies granted under the Transaction Documents, except for (A) the financing statements and other documents required to have been filed on or prior to the Effective Date pursuant to the Certificate Purchase Agreement and the Loan Agreement for the initial Series issued pursuant hereto, all of which have already been duly filed and are in full force and effect, (B) the filing from time to time of any amendments, assignments, continuation statements or other documents which may become required pursuant to Sections 2.05(i) or 3.03(b)(viii) and (C) any properly completed and executed UCC-3 termination statements which shall have been delivered to the Program Agent on or before the Effective Date. (d) ENFORCEABILITY. Each Transaction Document to which the Transferor is or is to be a party constitutes a legal, valid and binding obligation of the Transferor enforceable against the Transferor in accordance with its terms (except as such enforceability may be limited by Debtor Relief Laws). Each Transaction Document is in full force and effect and is not subject, as to the Transferor, to any specific dispute, offset, counterclaim or defense of the Transferor. POOLING AND SERVICING AGREEMENT 35 29 (e) NO LITIGATION. There is no action, suit, investigation, litigation or proceeding affecting the Transferor, pending or threatened before any Governmental Authority or arbitrator that (i) could have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated hereby or (iii) could adversely affect the income tax attributes of the Trust. (f) LIENS ON PROPERTIES. Except for Liens that will be terminated prior to the Effective Date, there are no Liens of any nature whatsoever on any Account or Receivable. The Transferor is not a party to any contract, agreement, lease or instrument (other than this Agreement or as contemplated by this Agreement) the performance of which, either unconditionally or upon the happening of an event, will result in or require the creation of any Lien on any Account or Receivable, or otherwise result in a violation of this Agreement. (g) CONTRACTUAL OBLIGATIONS. (i) The Transferor is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument, or subject to any Requirement of Law, that would have an adverse effect on the ability of the Transferor to carry out its obligations under this Agreement or any other Transaction Document to which it is a party, and (ii) neither the Transferor nor any other party is in default in any respect under or with respect to the Purchase Agreements or any other contract, agreement, lease or instrument to which the Transferor is a party. (h) INVESTMENT COMPANY ACT. The Transferor is not an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, or a company controlled by, an "investment company," within the meaning of and as such terms are defined in the Investment Company Act. (i) LOCATIONS. The chief place of business and chief executive office of the Transferor, and the office where the Transferor keeps the originals of its books, records and documents regarding the Receivables and the other Trust Assets of the Transferor are located at the address of the Transferor specified in Section 13.04. The Transferor maintains no other business locations. (j) TRADENAMES. The legal name of the Transferor is as set forth on the signature page of this Agreement, and the Transferor has no tradenames, fictitious names, assumed names or "doing business as" names. (k) SUBSIDIARIES. The Transferor has no Subsidiaries. x POOLING AND SERVICING AGREEMENT 36 30 (l) ACCURACY OF INFORMATION. Each certificate, information, exhibit, financial statement, document, book, record or report furnished by a Responsible Officer of the Transferor to the Trustee, any Enhancement Provider or the Servicer in connection with this Agreement is acurate in all material respects as of its date and no such document contains any misstatement of material fact. (m) SOLVENCY. The Transferor is Solvent and will be Solvent after giving effect to the transactions contemplated by the Transaction Documents. (n) COMPLIANCE. The Transferor has complied, and will comply on each initial issuance of Certificates of any Series, with each Requirement of Law with respect to all Receivables Transferred to the Trust hereunder and the Cardholder Agreements related thereto and with respect to the Transferor's business or properties. (o) TAXES. The Transferor has filed all tax returns (federal, state and local) which it reasonably believes are required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from the Transferor or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its other creditors. The Transferor knows of no reasonable basis for any additional tax assessment for any year for which adequate reserves have not been established. (p) USE OF PROCEEDS. No proceeds of the issuance of any Certificate will be used by the Transferor to acquire any security in a transaction that is subject to Sections 13 and 14 of the Exchange Act or to purchase or carry any margin security in violation of any applicable law or regulation. (q) COLLECTION ACCOUNTS. The Collection Account Banks are the only institutions holding Collection Accounts for the receipt of payments in respect of Receivables (subject to such changes as may be made from time to time in accordance with Section 4.02(c) hereof), and all Obligors, and only such Obligors, have been instructed or, upon the creation of Receivables, will be instructed to make payments only to the Servicer or to Collection Accounts in accordance with Section 4.03 and such instructions have not been modified or revoked by the Transferor (except as permitted under Section 4.02(c) hereof) and such instructions that have been given are in full force and effect. (r) EARLY AMORTIZATION EVENT. As of the Closing Date for any Series, no event or condition has occurred and is continuing that is, or with the giving of notice, POOLING AND SERVICING AGREEMENT 37 31 the passage of time or both would constitute, a Trust Early Amortization Event or, with respect to such Series, a Series Early Amortization Event. (s) ERISA. No Plan has any accumulated funding deficiency, as defined in Section 302(a) of ERISA, whether or not waived. The Transferor and each ERISA Affiliate has timely made all contributions required to be made by it to any Plan, except where a failure to contribute could not reasonably be expected to give rise to a Lien under Section 302(f) of ERISA. No Plan Event with respect to any Plan has occurred or could reasonably be expected to occur that could result, directly or indirectly, in any Lien being imposed on the property of the Transferor. Neither the Transferor nor any ERISA Affiliate has incurred, or could reasonably be expected to incur, withdrawal liability to, or liability in connection with, the reorganization, termination or insolvency of any Multiemployer Plan. (t) FRAUDULENT CONVEYANCE. The Transferor is not entering into the transactions contemplated hereby with the intent of hindering, delaying or defrauding any creditor. (u) LIMITED PURPOSE. The Transferor engages in no activities other than those contemplated by the Transaction Documents. (v) CERTIFICATES. Each Certificate, when executed and authenticated by the Trustee in accordance with the terms of Article VI and delivered to and paid for by an Investor Certificateholder pursuant to the related Certificate Purchase Agreement or Loan Agreement, will be validly issued and outstanding and entitled to the benefits of this Agreement and the related Transaction Documents. (w) ELIGIBILITY OF ACCOUNTS. Each Account that was classified as an "Eligible Account" by the Transferor or the Servicer in any document or report delivered hereunder satisfied, at the time of such classification, the requirements for eligibility contained in the definition of Eligible Account. (x) OFFERING OF CERTIFICATES. Neither the Transferor nor any agent acting on its behalf has, directly or indirectly, offered any Certificate or any similar security of the Transferor for sale to, or solicited any offer to buy any Certificate or any similar security of the Transferor from, or otherwise approached or negotiated with respect thereto, with any Person which, and neither the Transferor nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of any Certificate to the provisions of Section 5 of the Securities Act or to the qualification provisions of any securities or blue sky law of any applicable jurisdiction. POOLING AND SERVICING AGREEMENT 38 32 The representations and warranties set forth in this Section 2.03 shall survive the Transfer and assignment of the respective Receivables to the Trust and the termination of the rights and obligations of the Servicer pursuant to Section 10.01. Section 2.04 REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR RELATING TO THE RECEIVABLES. (a) VALID TRANSFER AND ASSIGNMENT; ELIGIBILITY OF RECEIVABLES. The Transferor hereby represents and warrants to the Trustee for the benefit of the Trust (i) as of the date hereof, (ii) by accepting on the date of each Transfer the proceeds of such Transfer, as of such date and (iii) with respect to any Series, as of the Closing Date for such Series that: (i) VALID TRANSFER AND ASSIGNMENT. Each of the Purchase Agreements creates a valid sale, transfer and assignment to the Transferor of, and, subject to the interest of the Trust hereunder, the Transferor is the legal and beneficial owner of, in each case whether now existing or hereafter created, (A) all of the Originators' right, title and interest in and to the Receivables existing on the Effective Date and thereafter arising from time to time in connection with the Accounts until the termination of the Trust, (B) all monies due or to become due with respect thereto, (C) all Recoveries and Insurance Proceeds relating to such Receivables, (D) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, (E) all rights, remedies, powers and privileges with respect to such Receivables, (F) all of the Originators' rights, remedies, powers and privileges under each Interest Rate Protection Agreement and (G) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. This Agreement constitutes either (A) a valid Transfer and assignment to the Trust of all right, title and interest of the Transferor in and to the Trust Assets, or (B) a valid grant to the Trust of a first priority perfected security interest (as defined in the UCC as in effect in any applicable jurisdiction) in all right, title and interest of the Transferor in and to the Trust Assets, which is enforceable with respect to the Receivables now existing in connection with the Accounts and the other existing Trust Assets and the proceeds thereof, and which will be enforceable by the Trustee, in the case of Receivables hereafter created and arising from time to time in connection with the Accounts and all other Trust Assets and the proceeds thereof hereafter created, upon such creation. Upon the filing of the appropriate financing statements, the Trust shall have a first priority perfected ownership or security interest in those Trust Assets and proceeds thereof in which a security interest may be perfected by filing appropriate financing statements. Neither the Transferor nor any Person claiming through or under the Transferor has any claim to or interest in the Concentration Account, any Collection Account (except, solely with respect to the Store Accounts, to the extent POOLING AND SERVICING AGREEMENT 39 33 described in the Intercreditor Agreement), the Excess Funding Account or any Series Account, except for (x) the Transferor's rights to receive interest accruing on, and investment earnings in respect of, the Concentration Account, as provided in this Agreement (and, if applicable, any Series Account as provided in any Supplement) and (y) to the extent that this Agreement constitutes the grant of a security interest in such property, the interest of the Transferor in such property as a debtor for purposes of the UCC as in effect in any applicable jurisdiction. Except as otherwise provided in this Agreement, the Transferor has caused the Servicer to clearly and unambiguously mark all its computer records and all its microfiche storage files, if any, in a manner reasonably calculated to indicate the Trust's interest in the Trust Assets and shall cause the Servicer to maintain such records in a manner such that the Trust's perfected first priority interest in the Receivables shall not be adversely affected. (ii) ELIGIBILITY. Each Receivable (i) was purchased in accordance with the terms of a Purchase Agreement and (ii) is an Eligible Receivable. (iii) FREE AND CLEAR OF LIENS. Each Receivable and the Collections with respect thereto then existing have been or will be Transferred to the Trust free and clear of any Lien or interest of any Person or any other Person not holding through the Trust, and in compliance with all Requirements of Law applicable to the Transferor. (iv) RECORDS. The computer file or microfiche or written lists referred to in Section 3.03(b)(viii)(E), as of the date of delivery thereof, are accurate and complete listings in all material respects of all the Accounts, and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct in all material respects as of such date. As of the Initial Cut Off Date the aggregate amount of Receivables in all the Accounts was $162,377,744.49. (v) INVESTMENT COMPANY ACT, ETC. Each Transfer of Receivables to the Trust hereunder constitutes a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act. The acquisition by the Trust of each Receivable constitutes a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act. (vi) NO PAYMENT. The Transferor has no Knowledge of any fact which would lead it to reasonably expect that, when billed, any Receivable Transferred hereunder would not be paid in accordance with its terms when due. POOLING AND SERVICING AGREEMENT 40 34 (b) SURVIVAL. The representations and warranties set forth in this Section 2.04 shall survive the Transfer of any of the respective Receivables to the Trust and the termination of the rights and obligations of the Servicer pursuant to Section 10.01. (c) NOTICE OF BREACH. Upon discovery by the Transferor, the Servicer or the Trustee of a breach of any of the representations and warranties set forth in Section 2.03 or 2.04, the party discovering such breach shall give prompt written notice to the other parties hereto and each Enhancement Provider as soon as practicable and in any event within three Business Days following such discovery. (d) INELIGIBLE RECEIVABLES. (i) AUTOMATIC REMOVAL. In the event (x) of a breach with respect to a Receivable of any representations and warranties set forth in Section 2.04(a)(iii), (y) a Receivable does not arise under an Eligible Account as a result of the failure to satisfy the conditions set forth in clause (v) of the definition of Eligible Account or (z) a Receivable is not an Eligible Receivable as a result of the failure to satisfy the conditions set forth in clause (iv) of the definition of Eligible Receivable, and any of the following three conditions is met: (A) as a result of such breach or event such Receivable is charged off as uncollectible or the Trust's rights in, to or under such Receivable or its proceeds are impaired or the proceeds of such Receivable are not available for any reason to the Trust free and clear of any Lien; or (B) any Lien upon such Receivable (1) arises in favor of the United States of America or any State or any agency or instrumentality thereof and involves taxes or liens arising under Title IV of ERISA or (2) has been consented to by any Originator or the Transferor, then, upon the earlier to occur of the discovery of such breach or event by the Transferor or the Servicer or receipt by the Transferor of written notice of such breach or event given by the Trustee, each such Receivable shall be automatically reduced on the terms and conditions set forth in Section 2.04(d)(iii) and shall no longer be treated as a Receivable; PROVIDED that if any such Lien does not have a Material Adverse Effect, the Transferor shall have 10 days to remove any such Lien. (ii) REMOVAL AFTER CURE PERIOD. In the event of a breach of any of the representations and warranties set forth in Sections 2.04(a)(ii) through 2.04(a)(vi), other than a breach or event as set forth in clause (d)(i) above, and as a result of such breach the Receivable becomes charged off or the Trust's rights in, to or under the Receivable or its proceeds are impaired or the proceeds of such Receivable are not available for any reason to the Trust free and clear of any Lien, then, upon the expiration of 60 days after the earlier to occur of the discovery of any such event by either the Transferor or the Servicer or receipt by the Transferor of written notice of any such event given by the Trustee, each such Receivable shall be reduced on the terms and conditions set forth in Section 2.04(d)(iii) and shall no longer be treated as a Receivable; PROVIDED, HOWEVER, that no such reduction shall be required POOLING AND SERVICING AGREEMENT 41 35 if, on any day within such applicable 60-day period, such representations and warranties with respect to such Receivable shall then be true and correct in all material respects as if such Receivable had been created on such day. (iii) PROCEDURES FOR REDUCTION. When the provisions of Section 2.04(a)(i) or (ii) above require reduction of a Receivable, the Transferor shall, with respect to each such Receivable (an "INELIGIBLE RECEIVABLE"), direct the Servicer to deduct the principal balance of each such Ineligible Receivable from the Principal Receivables in the Trust and to decrease the Transferor Invested Amount by such amount (but not below zero). On and after the date of such reduction, each Ineligible Receivable shall be deducted from the aggregate amount of Principal Receivables used in the calculation of any Investor Percentage, the Transferor Percentage and the Transferor Invested Amount. In the event that the exclusion of an Ineligible Receivable from the calculation of the Transferor Invested Amount would cause the Transferor Invested Amount to be reduced below the Aggregate Minimum Transferor Invested Amount, the Transferor shall immediately, but in no event later than 10 Business Days after such event, or, if earlier, the next succeeding Distribution Date, make a deposit in the Excess Funding Account in immediately available funds in an amount equal to the amount by which the Transferor Invested Amount would be reduced below the Aggregate Minimum Transferor Invested Amount were such deposit not made. The obligation of the Transferor set forth in this Section 2.04(d)(iii), or the automatic reduction of such Receivable from the Trust, as the case may be, shall constitute the sole remedy respecting any breach of the representations and warranties set forth in the above-referenced Sections with respect to such Receivable available to Certificateholders or the Trustee on behalf of Certificateholders, except as otherwise specified in any Supplement. (e) REASSIGNMENT OF TRUST PORTFOLIO. In the event of a breach of the representations and warranties set forth in Section 2.03(d) or 2.04(a)(i) of this Agreement or Section 3.01(d) or 3.01(t) of the Purchase Agreements, the Trustee or a Majority in Interest of all Series, by notice then given in writing to the Transferor (and to the Trustee and the Servicer, if given by such Majority in Interest) may direct the Transferor to accept reassignment of an amount of Principal Receivables (as specified below) within 60 days after such notice and the Transferor shall be obligated to accept reassignment of such Principal Receivables on a Distribution Date specified by such Person (such Distribution Date, the "REASSIGNMENT DATE") occurring within such applicable period on the terms and conditions set forth below; PROVIDED, HOWEVER, that no such reassignment shall be required to be made if, at any time during such applicable period, the representations and warranties contained in Section 2.03(d) or 2.04(a)(i) shall then be true and correct. The Transferor shall deposit on the Reassignment Date an amount equal to the reassignment deposit amount (as specified below) for such Receivables in the Concentration Account for distribution to the Investor Certificateholders pursuant to Article XII or any Enhancement Provider pursuant to the applicable Supplement. The reassignment deposit amount for each Series with respect to POOLING AND SERVICING AGREEMENT 42 36 which a notice directing reassignment has been given, unless otherwise stated in the related Supplement, shall be equal to (i) the Series Invested Amount of such Series and, if applicable, the Enhancement Invested Amount of such Series at the end of the day on the last day of the Due Period preceding the Reassignment Date, LESS the amount, if any, previously allocated for payment of principal to such Certificateholders on the related Distribution Date in the Due Period in which the Reassignment Date occurs PLUS (ii) an amount equal to all interest accrued but unpaid on the Investor Certificates and, if applicable, the Enhancement Invested Amount of such Series at the applicable Certificate Rate through such last day, LESS the amount, if any, previously allocated for payment of interest to the Certificateholders of such Series on the related Distribution Date in the Due Period in which the Reassignment Date occurs. Payment in full in cash of the reassignment deposit amount with respect to each Series and all other amounts in the applicable Series Account in respect of the preceding Due Period shall be considered a prepayment in full of the interest in the Receivables represented by such Series. On the Distribution Date on which such amount has been deposited in full into the Concentration Account, Receivables with an aggregate principal balance equal to that portion of the Aggregate Invested Amount, with respect to which a notice directing reassignment has been given, all monies due or to become due with respect thereto, all Recoveries and Insurance Proceeds relating thereto and all proceeds of any of the foregoing shall be released to the Transferor after payment of all amounts otherwise due hereunder on or prior to such dates and the Trustee shall execute and deliver such instruments of transfer or assignment, in each case without recourse, representation or warranty, as shall be prepared by and as are reasonably requested by the Transferor to vest in the Transferor, all right, title and interest of the Trust in and to the Trust Assets. If the Trustee or a Majority in Interest of all Series give notice directing the Transferor to accept reassignment as provided above, the obligation of the Transferor to accept reassignment of the Receivables and pay the reassignment deposit amount pursuant to this Section 2.04(e) shall constitute the sole remedy respecting a breach of the representations and warranties contained in Section 2.03(d) and 2.04(a)(i) available to the Investor Certificateholders or the Trustee on behalf of the Investor Certificateholders. Section 2.05 COVENANTS OF THE TRANSFEROR. The Transferor hereby covenants and agrees that: (a) COMPLIANCE WITH LAW. The Transferor shall duly satisfy all obligations on its part to be fulfilled under or in connection with the Receivables, will maintain in effect all qualifications required under Requirements of Law in order to properly purchase and Transfer the Receivables and other Trust Assets to the Trust and will comply in all respects with all Requirements of Law applicable to the Transferor, its business and properties and the Trust Assets. (b) PRESERVATION OF LEGAL EXISTENCE. The Transferor will preserve and maintain its existence, legal structure, legal name, its rights (charter and statutory), POOLING AND SERVICING AGREEMENT 43 37 franchises, permits, licenses, approvals and privileges in the jurisdiction of its formation, and qualify and remain qualified in each jurisdiction where the failure to maintain such qualification could have a Material Adverse Effect. (c) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Transferor will (i) keep proper books of record and account, which shall be maintained or caused to be maintained by the Transferor and shall be separate and apart from those of any Affiliate of the Transferor, in which full and correct entries shall be made of all financial transactions and the assets and business of the Transferor in accordance with generally accepted accounting principles consistently applied, (ii) maintain and implement administrative and operating procedures (including the ability to recreate records evidencing the Receivables, the Accounts and related Cardholder Agreements in the event of the destruction of the originals thereof) and (iii) keep and maintain all documents, books, records and other information necessary or reasonably advisable for the collection of all Receivables and the related Accounts (including records adequate to permit the daily identification of each new Receivable and Account, and all Collections of and adjustments to each existing Receivable). The Transferor shall provide to the Trustee access to the documentation regarding the Receivables and the Accounts in such cases where the Trustee requires such access in connection with the enforcement of the rights of any Beneficiary or is required by applicable statutes or regulations to review such documentation, such access being afforded without charge and at the sole cost of the Transferor but only (i) upon reasonable written request, (ii) during normal business hours, (iii) subject to the Transferor's normal security and confidentiality procedures and (iv) at reasonably accessible offices in the continental United States designated by the Transferor. (d) MAINTENANCE OF SEPARATE DIRECTORS. The Transferor will maintain at least two independent directors who are not officers, directors, shareholders or employees of (i) the Parent or the Transferor or (ii) any Affiliate of the Parent or the Transferor, or a parent, child, spouse or sibling of any such Person; PROVIDED, HOWEVER, that if either such independent director dies or resigns, the Transferor shall have 30 Business Days to replace that Person with another independent director. The Transferor will not, without the consent of the two independent directors, so long as there shall not have elapsed one year and one day after the termination of the Trust, institute against the Trust or the Transferor any proceeding of the type referred to in the definition of "Insolvency Event" or cause or permit any action prohibited by Section 2.05(r). (e) PAYMENT OF TAXES, ETC. The Transferor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon it or any Trust POOLING AND SERVICING AGREEMENT 44 38 Asset, or in respect of its income or profits therefrom, and any and all claims of any kind, except that no such amount, so long as such amount is not material, need be paid if the charge or levy is being contested in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its creditors. (f) REPORTING REQUIREMENTS. The Transferor will: (i) within one Business Day after a Responsible Officer of the Transferor obtains Knowledge of the occurrence of any Early Amortization Event or Servicer Default or any event which, with the giving of notice or lapse of time or both, would constitute an Early Amortization Event or a Servicer Default, notify the Trustee in writing of such occurrence; (ii) as soon as possible and in any event (A) within three Business Days after a Responsible Officer of the Transferor obtains Knowledge of the occurrence of any Early Amortization Event or Servicer Default, or any event which, with the giving of notice or lapse of time or both, would constitute an Early Amortization Event or Servicer Default, furnish to the Trustee, each Rating Agency and each Enhancement Provider the written statement of a Responsible Officer of the Transferor setting forth details of such Early Amortization Event or Servicer Default or such event and the action which the Transferor has taken and proposes to take with respect thereto, and (B) within three Business Days after a Responsible Officer of the Transferor makes a determination that any other event, development or information is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, give written notice thereof to the Trustee, each Rating Agency and each Enhancement Provider; (iii) promptly, from time to time, furnish to the Trustee such other information, documents, records or reports regarding the Receivables, the other Trust Assets or the condition or operations, financial or otherwise, of the Transferor as the Trustee may from time to time reasonably request; (iv) within forty-five (45) (or, after the last calendar month in each calendar year, ninety (90)) days after the end of each calendar month in each Fiscal Year, deliver to the Trustee, each Rating Agency and each Enhancement Provider the balance sheet of the Transferor as at the end of such period and the related statement of income of the Transferor for such calendar month and for the period from the beginning of the then current Fiscal Year to the end of such calendar month, and for the corresponding period during the previous Fiscal POOLING AND SERVICING AGREEMENT 45 39 Year, and a comparison of the statement of the year to date earnings to the corresponding statement for the corresponding period from the previous Fiscal Year, if applicable, certified by the President or other executive or senior officer of the Transferor as fairly presenting the financial position of the Transferor as at the date indicated and the results of its operations for the period indicated in accordance with generally accepted accounting principles, subject to normal year end adjustments; (v) within ninety (90) days after the end of each Fiscal Year deliver to the Trustee and each Rating Agency audited financial statements of the Parent, including therein a balance sheet of the Parent as at the end of such Fiscal Year and statements of income and cash flow of the Parent for each Fiscal Year, reported on by Independent Public Accountants and accompanied by their related audit letter, which report and letter shall be unqualified as to scope and shall state that such financial statements fairly present the financial position of the Parent as at the dates indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years, if applicable, and that the examination by such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; and (vi) as soon as possible and in any event within 30 days after a Responsible Officer of the Transferor obtains Knowledge that one of the following events has occurred or is reasonably expected to occur: (i) the occurrence of any Plan Event with respect to any Plan or (ii) the withdrawal by the Transferor or any of its ERISA Affiliates from, or the termination, reorganization or insolvency of, any Multiemployer Plan, notify the Trustee in writing of such occurrence. (g) PURCHASE AGREEMENTS. The Transferor (i) will, at its expense, timely perform and comply with all provisions, covenants and other promises required to be observed by it under the Purchase Agreements, maintain the Purchase Agreements in full force and effect, enforce its rights under the Purchase Agreements substantially in accordance with the terms thereof and comply with its obligations under all Cardholder Agreements giving rise to the Receivables, and (ii) will not amend or otherwise modify any term or condition of any Purchase Agreement or give any consent, waiver or approval thereunder. The Transferor shall, within one Business Day after a Responsible Officer obtains Knowledge of the occurrence of any Termination Event or any event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, notify the Trustee in writing of such occurrence. The Transferor POOLING AND SERVICING AGREEMENT 46 40 shall promptly furnish to the Trustee copies of any notices, reports or certificates given or delivered to the Transferor under the Purchase Agreements. (h) UCC OPINION. The Transferor shall deliver to the Trustee within 90 days after the end of each calendar year, beginning with the calendar year ending on or about December 31, 1998, an Opinion of Counsel to the Transferor (who may be counsel employed by an Affiliate of the Transferor), dated as of a date during such 90-day period, substantially to the effect that, in the opinion of such counsel, either (A) such action has been taken as is necessary to continue the perfection of the interests of (1) each Purchaser (as defined in the related Purchase Agreement) in and to the Receivables and other Transferred Assets (as defined in such Purchase Agreement) Transferred under such Purchase Agreement (to the same extent as such interest was perfected on the Effective Date with respect to the Receivables and other Transferred Assets then owned by the Seller (as defined in such Purchase Agreement) and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given and (2) the Trustee in and to the Receivables Transferred hereby and the other Trust Assets Transferred hereunder (to the same extent as such interest was perfected on the Effective Date with respect to the Receivables and other Trust Assets then owned by the Transferor) and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given or (B) no such action is necessary to continue the perfection of such interests. (i) FURTHER ASSURANCES. (A) The Transferor agrees that from time to time, at its own expense, the Transferor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Receivable and the Trust Assets. Without limiting the generality of the foregoing, the Transferor will: (i) mark its master data processing and computer records in a manner reasonably calculated to indicate that the Trust Assets have been sold, in the case of any Originator, to the Transferor in accordance with the Purchase Agreements and have been Transferred, in the case of the Transferor, to the Trust in accordance with the Transaction Documents for the benefit of the Beneficiaries; (ii) clearly and unambiguously identify each Account in its computer or other records and all its microfiche storage files, if any, to reflect that an interest in the Receivables arising in such Account has been Transferred pursuant to this Agreement; (iii) if any Trust Assets shall be evidenced by a promissory note, other instrument or chattel paper, deliver and pledge to the Trustee hereunder such note, instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Trustee; and (iv) execute and file such POOLING AND SERVICING AGREEMENT 47 41 financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Trustee may reasonably request, in order to perfect and preserve the valid and perfected first priority ownership or security interest granted or purported to be granted under any Transaction Document. (B) The Transferor hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Trust Assets without the signature of the Transferor where permitted by law. A photocopy or other reproduction of any Transaction Document or any financing statement covering the Trust Assets or any part thereof shall be sufficient as a financing statement where permitted by law. (C) The Transferor will furnish to the Trustee from time to time statements and schedules further identifying and describing the Trust Assets and such other reports in connection with the Trust Assets as the Trustee may reasonably request, all in reasonable detail. (D) The Transferor shall, from time to time, execute and deliver to the Obligors any bills, statements and letters or other writings necessary to carry out the terms and provisions of any Transaction Document and to facilitate the collection of the Receivables in a manner consistent with the Cardholder Guidelines. (j) NO LIENS. Except for the Transfers hereunder, the Transferor will not sell, pledge, assign or transfer any Receivable or any interest therein or any other Trust Asset to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Trust Asset or any other property or asset of the Transferor (other than the Exchangeable Transferor Certificate and funds deposited pursuant to the applicable Supplement or the Exchangeable Transferor Certificate), whether now existing or hereafter created, or any interest therein, and the Transferor shall defend the right, title and interest of the Trust in and to the Trust Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Transferor or any Originator. The Transferor shall notify the Trustee and each Enhancement Provider after becoming aware of any Lien on any Receivable. (k) ACTIVITIES OF THE TRANSFEROR. The Transferor will not engage in, enter into or be a party to any business, activity or transaction of any kind other than the businesses, activities and transactions contemplated and authorized for it by the Transaction Documents or incidental to its ability to carry out its obligations under such agreements. POOLING AND SERVICING AGREEMENT 48 42 (l) INDEBTEDNESS. Except for the Subordinated Notes, the Transferor will not create, incur or assume any Indebtedness (other than Indebtedness related to operating expenses incurred in the performance of or incidental to its obligations under this Agreement which shall not exceed $150,000 per annum) or sell or transfer any Receivable to a trust or other Person which issues securities in respect of any such Receivables, other than as contemplated by the Transaction Documents. (m) GUARANTEES. Except as provided herein, the Transferor will not become or remain liable, directly or indirectly, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise. (n) INVESTMENTS. The Transferor will not make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of Indebtedness, acquisition of the business or assets, or otherwise) in, any of its Affiliates or any other Person except for (i) purchases of Receivables pursuant to the terms of the Purchase Agreements, (ii) investments in Permitted Investments in accordance with the terms of this Agreement and (iii) holding the Exchangeable Transferor Certificate. (o) CHANGE IN LEGAL NAME. The Transferor will not (i) make any change to its legal name, identity or business structure in any manner or chief executive office (including the address thereof) or use any trade name, fictitious name, assumed name or "doing business as" name or (ii) change its jurisdiction of organization UNLESS, prior to the effective date of any such name change, change in chief executive office, use or change of jurisdiction, the Transferor delivers to the Trustee (A) written notice of such change at least 30 days prior to the effective date thereof, (B) such financing statements (Forms UCC-1 and UCC-3) executed by the Transferor required to reflect such name change, change in chief executive office, use or change of jurisdiction, together with such other documents and instruments required in connection therewith to maintain the continued perfection of the interests of the Trustee in the Trust Assets and (C) prior to the effective date thereof, an Opinion of Counsel, in form and substance satisfactory to the Trustee, as to the Transferor's due organization, valid existence and good standing and the continued perfection after the effective date thereof of the interests of the Trustee in and to the Receivables and other Trust Assets Transferred hereby (to the same extent as such interest was perfected on the Effective Date with respect to the Receivables then owned by the Transferor). Furthermore, the Transferor shall give 30 days' prior written notice to the Trustee of any change in the location of the office POOLING AND SERVICING AGREEMENT 49 43 where it keeps the books, records and documents regarding the Receivables and the other Trust Assets from the address of the Transferor referred to in Section 13.04. (p) CHARTER DOCUMENTS. The Transferor will not amend any provision of its certificate of incorporation or bylaws relating to or affecting (i) voting rights of, actions by, appointment of, criteria for or qualifications of any independent director or (ii) the requirement that the Transferor maintain at all times two independent directors, including Articles Third, Fourth, Ninth and Tenth of such certificate of incorporation. (q) MAINTENANCE OF SEPARATE EXISTENCE. (i) The Transferor will not: (A) except as provided under any Transaction Document, suffer any limitation on the authority of its own directors and officers to conduct its business and affairs in accordance with their independent business judgment, or authorize or suffer any Person other than its own directors and officers to act on its behalf with respect to matters (other than matters customarily delegated to others under powers of attorney) for which a corporation's own directors and officers would customarily be responsible; (B) commingle its money or other assets with those of the Servicer, the Parent, any Affiliate of the Parent or any Affiliate of the Transferor, or use its funds for other than the Transferor's uses; (C) assume the liabilities of the Servicer, the Parent or any Affiliate of the Parent; (D) guarantee the liabilities of the Servicer, the Parent or any Affiliate of the Parent; (E) be involved in the day-to-day management of the Servicer or the Parent; (F) act as agent of the Servicer, the Parent or any Affiliate of the Parent or allow the Servicer, the Parent or any Affiliate of the Parent to act as its agent (other than as Servicer hereunder or pursuant to a contract on terms no less favorable to the Transferor than it would have obtained in a similar contract with a Person not an Affiliate of the Transferor); (G) make any advances to the Servicer, the Parent or any Affiliate of the Parent; POOLING AND SERVICING AGREEMENT 50 44 (H) have insufficient officers and personnel to conduct its business and operations; (I) enter into business transactions with any of its Affiliates unless the terms are not more or less favorable to the Transferor than terms and conditions available at the time to the Transferor for comparable transactions with unaffiliated persons and a majority of the board of directors of the Transferor including each director who is an independent director approves the transaction; and (J) conduct its affairs in a manner at any time inconsistent with the assumptions set forth in the opinions delivered pursuant to any Certificate Purchase Agreement or Loan Agreement regarding the true sale of assets to the Transferor under the Purchase Agreements and the non-substantive consolidation of the Transferor with the Parent or any Affiliate of the Parent; and (ii) the Transferor will: (A) do all things necessary to maintain its existence as a corporation separate and apart from the Servicer, the Parent, any Affiliate of the Parent, and any Affiliate of the Transferor including conducting business correspondence in its own name and maintaining appropriate and separate books, records and financial statements; (B) (1) maintain or cause to be maintained by an agent of the Transferor under the Transferor's control physical possession of all its books and records, (2) maintain capitalization adequate for the conduct of its business, (3) account for and manage its liabilities separately from those of any other Person, including payment of all payroll and other administrative expenses and taxes from its own assets, (4) segregate and identify separately all of its money and assets from those of any other Person (including, but not limited to, maintaining separate bank accounts in its own name), and (5) maintain offices through which its business is conducted separate from those of the Servicer, the Parent, any Affiliate of the Parent and any Affiliate of the Transferor (which offices may be leased or sub-leased from any such Person, PROVIDED that, to the extent that the Transferor and any of its Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs and expenses among them, and each such entity shall bear its fair share of such costs and expenses and each such office shall be conspicuously identified as the office of such entity); POOLING AND SERVICING AGREEMENT 51 45 (C) (1) maintain its books, financial statements, accounting records and other business documents and records separate from those of the Servicer, the Parent and each other Person, (2) act solely in its legal name and through its own authorized officers and agents, (3) make investments directly or by brokers engaged and paid by the Transferor or its agents (PROVIDED that if any such agent is an Affiliate of the Transferor it shall be compensated at a fair market rate for its services), (4) separately manage its liabilities from those of the Servicer, the Parent or any Affiliate of the Parent and pay its own liabilities, including all administrative expenses, from its own separate assets (PROVIDED that, to the extent the employees of the Transferor participate in pension, insurance and other benefit plans of the Parent or any Affiliate thereof, the Transferor will reimburse the Parent or such Affiliate, as the case may be, for an appropriate share of the costs thereof), (5) pay from its assets all obligations and Indebtedness of any kind incurred by it and (6) abide by all corporate legal formalities, including the maintenance of current corporate records; (D) if the Transferor is included within the consolidated financial statements of the Parent or any Affiliate thereof, disclose in a note in the financial reports required to be delivered quarterly and annually the existence of the Transferor as a separate legal entity, having separate assets, liabilities and operations, and the participation of the Transferor in the transactions contemplated by the Transaction Documents; (E) establish investment guidelines and criteria by a majority of the board of directors including at least two directors who are independent directors; and (F) conduct its affairs in a manner at all times consistently with the assumptions set forth in the opinions delivered pursuant to any Certificate Purchase Agreement or any Loan Agreement regarding the true sale of assets to the Transferor under the Purchase Agreements and the non-substantive consolidation of the Transferor with the Parent or any of its Affiliates. (r) OWNERSHIP; MERGER. The Transferor will not (i) sell any shares of any class of its capital stock to any Person (other than the Parent or any of its Affiliates that are Subsidiaries of the Parent), or enter into any transaction of merger or consolidation, or convey or otherwise dispose of all or substantially all of its assets (except as contemplated herein), or (ii) terminate, liquidate or dissolve itself (or suffer any termination, liquidation or dissolution), or (iii) acquire or be acquired by any Person. POOLING AND SERVICING AGREEMENT 52 46 (s) RECEIVABLES TO BE ACCOUNTS. The Transferor will take no action to cause any Receivable to be evidenced by any instrument (as defined in the UCC as in effect in any applicable jurisdiction), except as permitted under Section 3.03(b)(vi). The Transferor will take no action to cause any Receivable to be anything other than an "account," or a "general intangible" or the "proceeds" of either for purposes of the UCC as in effect in any applicable jurisdiction. (t) CARDHOLDER AGREEMENTS AND CARDHOLDER GUIDELINES. The Transferor shall enforce the covenant in each Purchase Agreement requiring the related Originator to comply with and perform its obligations under the Cardholder Agreements relating to the Accounts and the Cardholder Guidelines. The Transferor may permit any Originator to change the terms and provisions of the Cardholder Agreements or the Cardholder Guidelines in any respect (including the reduction of the required minimum monthly payment, the calculation of the amount, or the timing, of charge-offs and the periodic finance charges and other fees to be assessed thereon), unless such change would have a Material Adverse Effect; PROVIDED, HOWEVER, that the Transferor may not permit an Originator to change the required minimum monthly payment or periodic finance charge (collectively, a "YIELD CHANGE") unless, after five Business Days' prior written notice to the Rating Agency of a Yield Change, the Rating Agency shall have provided written notice to the Transferor that the Rating Agency Condition shall be satisfied or unless such Yield Change is mandated by applicable law. The Transferor will not rescind or cancel, or permit the rescission or cancellation of, any Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority. (u) ACCOUNT ALLOCATIONS. In the event that the Transferor is unable for any reason to Transfer Receivables to the Trust in accordance with the provisions of this Agreement (including by reason of the application of the provisions of Section 9.01(c) or 9.01(e) hereof or by an order by any federal or state governmental agency having regulatory authority over the Transferor or any court of competent jurisdiction that the Transferor not Transfer any additional Principal Receivables to the Trust) then, in any such event, (A) the Transferor agrees to allocate and pay to the Trust, after the date of such inability, all Collections with respect to Principal Receivables, and all amounts which would have constituted Collections with respect to Principal Receivables but for the Transferor's inability to Transfer such Receivables (up to an aggregate amount equal to the amount of Principal Receivables in the Trust on such date); (B) the Transferor agrees to have such amounts applied as Collections in accordance with Article IV hereof; and (C) for only so long as all Collections and all amounts which would have constituted Collections are allocated and applied in accordance with clauses (A) and (B) above, Principal Receivables (and all amounts which would have constituted Principal Receivables but for the Transferor's inability to Transfer POOLING AND SERVICING AGREEMENT 53 47 Receivables to the Trust) that are charged off as uncollectible in accordance with this Agreement shall continue to be allocated in accordance with Article IV hereof, and all amounts that would have constituted Principal Receivables but for the Transferor's inability to Transfer Receivables to the Trust shall be deemed to be Principal Receivables for the purpose of calculating (i) the applicable Investor Percentage with respect to any Series and (ii) the Aggregate Invested Amount thereunder. If the Transferor is unable pursuant to any Requirement of Law to allocate Collections as described above, the Transferor agrees that it shall in any such event allocate, after the occurrence of such event, payments on each Account with respect to the principal balance of such Account first to the oldest principal balance of such Account and to have such payments applied as Collections in accordance with Article IV hereof. The parties hereto agree that Finance Charge Receivables, whenever created, accrued in respect of Principal Receivables that have been Transferred to the Trust, or that would have been Transferred to the Trust but for the above described inability to Transfer such Receivables, shall continue to be a part of the Trust notwithstanding any cessation of the Transfer of additional Principal Receivables to the Trust and Collections with respect thereto shall continue to be allocated and paid in accordance with Article IV. (v) DELIVERY OF COLLECTIONS. The Transferor agrees to pay to the Servicer all payments received by the Transferor in respect of the Receivables as soon as practicable after receipt thereof by the Transferor. (w) TRANSFER OF ACCOUNTS. The Transferor covenants and agrees that it will not Transfer the Accounts to any Person prior to the termination of this Agreement pursuant to Article XII. (x) INFORMATION PROVIDED TO RATING AGENCIES. The Transferor will use its best efforts to cause all information provided to any Rating Agency pursuant to this Agreement or in connection with any action required or permitted to be taken under this Agreement to be complete and accurate in all material respects. (y) TAX ELECTION. None of the Transferor, the Servicer, or the Trustee shall make or agree to the making of an election pursuant to Treasury Regulation section 301.7701-3(c) to have the trust, or a deemed arrangement among the parties to this Agreement or others, treated as an association taxable as a corporation. (z) CASH RESERVE. The Transferor will maintain at all times a cash reserve equal to at least $50,000. Section 2.06 REQUIRED DEPOSITS. If either (i) the Transferor Invested Amount on the last day of the Due Period is less than the Aggregate Minimum Transferor Invested POOLING AND SERVICING AGREEMENT 54 48 Amount or (ii) on the last Business Day of any Due Period, the sum of the aggregate amount of the Principal Receivables plus the amount on deposit in the Excess Funding Account is less than the Minimum Aggregate Principal Receivables on such date, the Transferor shall on or prior to the close of business on the 10th Business Day following the last Business Day of such Due Period (the "REQUIRED DESIGNATION DATE"), unless the Transferor Invested Amount exceeds the Aggregate Minimum Transferor Invested Amount or the sum of the aggregate amount of Principal Receivables plus the amount on deposit in the Excess Funding Account exceeds the Minimum Aggregate Principal Receivables, as the case may be, in either case as of the close of business on any day after the last Business Day of such Due Period and prior to the Required Designation Date, deposit in the Excess Funding Account immediately available funds in a sufficient amount such that after giving effect to such addition or deposit, the Transferor Invested Amount as of the close of business on the Required Designation Date is at least equal to the Aggregate Minimum Transferor Invested Amount on such date and the sum of the aggregate amount of Principal Receivables plus the amount on deposit in the Excess Funding Account equals or exceeds the Minimum Aggregate Principal Receivables on such date. Section 2.07 TRUSTEE MAY PERFORM. If the Transferor fails to perform any of its agreements or obligations under this Agreement, the Trustee may (but shall not be obligated to) itself perform, or cause performance of, such agreement or obligation, and the expenses incurred in connection therewith shall be payable by the Transferor as provided in Section 11.05. Section 2.08 NO ASSUMPTION OF LIABILITY. Nothing in this Agreement shall constitute or is intended to result in the creation or assumption by the Trust, the Trustee, any Certificateholder or any Enhancement Provider of any obligation of any Originator, the Transferor or the Servicer or any other Person to any Obligor in connection with the Receivables, the Accounts, the Cardholder Agreements or other agreement or instrument relating thereto. ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.01 ACCEPTANCE OF APPOINTMENT AND OTHER MATTERS RELATING TO THE SERVICER. POOLING AND SERVICING AGREEMENT 55 49 (a) Chargit agrees to act as the Servicer under this Agreement. The Investor Certificateholders of each Series, by their acceptance of the related Certificates, consent to Chargit acting as Servicer hereunder. (b) The Servicer shall (subject to Article X) enforce all rights and interests in, to and under the Receivables and the other Trust Assets on behalf of the Trust. The Servicer shall service and administer the Receivables and shall collect payments due under the Receivables in accordance with its customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables and in accordance with the Cardholder Guidelines and applicable laws, rules and regulations and shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing and subject to Article X, the Servicer is hereby authorized and empowered (i) to make deposits to, and to instruct the Trustee to make deposits to and withdrawals from, the Concentration Account, the Collection Accounts and the Excess Funding Account as set forth in this Agreement, (ii) to instruct the Trustee to make withdrawals and payments from, any Series Account, in accordance with the related Supplement, (iii) to instruct the Trustee in writing, as set forth in this Agreement, (iv) to execute and deliver, on behalf of the Trust for the benefit of the Beneficiaries, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable law and regulations, to commence enforcement proceedings with respect to such Receivables and (v) to make any filings, reports, notices, applications, registrations with, and to seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements. The Trustee agrees that it shall promptly follow the instructions of the Servicer to withdraw funds from the Concentration Account, the Collection Accounts, the Excess Funding Account or any Series Account and to take any action required under this Agreement or any other Transaction Document. The Trustee shall execute at the Servicer's written request such documents prepared by the Transferor and acceptable to the Trustee as may be reasonably necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. The Trustee shall, upon the written request of the Servicer, furnish the Servicer with any documents then in the Trustee's possession which are reasonably necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. (c) The Servicer shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the procedures, offices, employees and accounts used by the Servicer in connection with servicing other credit card receivables. POOLING AND SERVICING AGREEMENT 56 50 (d) The Servicer shall maintain fidelity bond coverage insuring against losses through the wrongdoing of its officers who are involved in the servicing of credit card receivables covering such actions and in such amounts as the Servicer believes to be reasonable from time to time. Section 3.02 SERVICING COMPENSATION. As compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in the immediately following paragraph, the Servicer shall be entitled to receive a monthly servicing fee in respect of any Due Period prior to the termination of the Trust pursuant to Section 12.01 (with respect to each Due Period, the "MONTHLY SERVICING FEE") which shall equal the sum of (i) the Transferor Monthly Servicing Fee (payable only out of Collections allocable to the Transferor Invested Amount) and (ii) the aggregate amount of all Investor Monthly Servicing Fees as specified in each Supplement (payable only to the extent set forth in such Supplement). The Servicer's expenses include the amounts due to the Trustee pursuant to Section 11.05 and the reasonable fees and disbursements of Independent Public Accountants and all other expenses incurred by the Servicer in connection with its activities under the Transaction Documents; PROVIDED that the Servicer shall not be liable for any liabilities, costs or expenses of the Trust, any Enhancement Provider or the Investor Certificateholders arising under any tax law, including any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith). The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Monthly Servicing Fee. Section 3.03 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SERVICER. (a) Chargit, as initial Servicer, hereby represents and warrants, and each Successor Servicer by acceptance of its appointment hereunder shall represent and warrant, (i) in the case of the initial Servicer (x) as of the date hereof and as of the Effective Date and (y) with respect to any Series, as of the Closing Date for such Series or (ii) in the case of any Successor Servicer, (x) as of the date of such acceptance and (y) with respect to any Series issued after such date, as of the Closing Date for such Series, in each case unless otherwise stated in such Supplement: (i) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Servicer (1) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (2) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (3) has all requisite corporate power and authority (including all governmental licenses, permits POOLING AND SERVICING AGREEMENT 57 51 and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (ii) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Servicer of the Transaction Documents to which it is or is to be a party, the consummation of the transactions contemplated hereby and the making of each Transfer, are within the Servicer's corporate powers, have been duly authorized by all necessary corporate action, and do not (1) contravene or violate any Requirement of Law, (2) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Servicer or any of its properties or (3) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Servicer, and no transaction contemplated hereby requires compliance on the Servicer's part with any bulk sales act or similar law. The Servicer is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (iii) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required with respect to the Servicer for (1) the due execution, delivery or performance by the Servicer of any of the Transaction Documents to which it is or is to be a party, any Transfer or the consummation of the other transactions contemplated hereby, or (2) the exercise by the Trustee of its rights under the Transaction Documents or its remedies granted under the Transaction Documents. (iv) ENFORCEABILITY. Each Transaction Document to which the Servicer is or is to be a party constitutes a legal, valid and binding obligation of the Servicer enforceable against the Servicer in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws. (v) NO LITIGATION. There is no action, suit, investigation, litigation or proceeding affecting the Servicer, pending or threatened before any Governmental Authority or arbitrator that (1) could have a Material Adverse Effect, (2) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated hereby or (3) could adversely affect the income tax attributes of the Trust. (vi) COLLECTION ACCOUNTS AND THE CONCENTRATION ACCOUNT. Specified on Schedule 3.03(a)(vi) hereto are (1) the names, addresses and ABA numbers of all the Collection Account Banks, together with the account numbers of the Collection POOLING AND SERVICING AGREEMENT 58 52 Accounts and the name of a contact person at each Collection Account Bank and (2) the name, address and ABA number of the Concentration Account Bank, together with the account number and the name of a contact person for the Concentration Account. (vii) PAYMENT INSTRUCTIONS. The Servicer has notified (or caused to be notified) the Obligor on each Receivable to make payments on such Receivable to the Servicer or to one of the Collection Accounts. (viii) PERIODIC REPORTS AND DETERMINATION DATE CERTIFICATES. Each report and certificate delivered by the Servicer pursuant to Sections 3.04, 3.05 and 3.06 shall be true and correct in all material respects as of the date such report or certificate is delivered. (ix) SERVICER DEFAULT. No Servicer Default has occurred and is continuing. (x) EARLY AMORTIZATION EVENT. No Trust Early Amortization Event has occurred and is continuing and, as of the Closing Date for any Series, no Series Early Amortization Event with respect to such Series has occurred and is continuing. The representations and warranties set forth in this Section 3.03(a) shall survive the Transfer of the Receivables to the Trust and the termination of the rights and obligations of any Servicer pursuant to Section 10.01. Upon a discovery by the Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other parties and to each Enhancement Provider, if any. (b) The Servicer hereby covenants and agrees that: (i) COLLECTIONS. (A) In the event that the Servicer receives any Collections, the Servicer agrees to hold all such Collections in trust and to deposit such Collections in a Collection Account as soon as practicable, but in no event later than three Business Days after receipt thereof. (B) In the event that any Affiliate of the Servicer receives any Collections, the Servicer agrees to deposit (or cause to be deposited) an amount equal to such Collections in a Collection Account as soon as practicable, but in no event later than three Business Days after receipt thereof. (ii) COMPLIANCE WITH REQUIREMENTS OF LAW. The Servicer will (A) duly satisfy all obligations on its part to be fulfilled under or in connection with each Receivable and the related Account in accordance with the Cardholder Guidelines, (B) POOLING AND SERVICING AGREEMENT 59 53 maintain in effect all qualifications required under any Requirement of Law in order to service properly each Receivable and the related Account in accordance with the Cardholder Guidelines and the Transaction Documents and (C) comply with all other Requirements of Law in connection with servicing each Receivable and the related Account. (iii) EXTENSION OR AMENDMENT OF RECEIVABLES. The Servicer will not extend, amend or otherwise modify (or consent or fail to object to any such extension, amendment or modification by the Transferor) the terms of any Receivable and the related Account, or amend, modify or waive (or consent or fail to object to any such amendment, modification or waiver by the Transferor) any payment term or condition of any invoice related thereto except as permitted under the Cardholder Agreements, the Cardholder Guidelines or Section 2.05(t). The Servicer will not rescind or cancel, or permit the rescission or cancellation of, any Receivable or the related Account except as ordered by a court of competent jurisdiction or other Governmental Authority. (iv) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. The Servicer will take no action which would impair the rights of any Beneficiary in any Receivable or Trust Asset, except as provided in this Agreement. (v) DEPOSITS TO CONCENTRATION ACCOUNT, ANY COLLECTION ACCOUNT OR ANY SERIES ACCOUNT. The Servicer will not deposit or otherwise credit, or cause to be so deposited or credited, or consent or fail to object to any such deposit or credit known to it, cash or cash proceeds other than Collections to the Concentration Account, any Collection Account (other than the Store Accounts) or any Series Account. (vi) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. The Servicer will take no action to cause any Receivable to be evidenced by any "instrument" (as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest in such Receivable created hereunder), except in connection with its enforcement, in which event the Transferor shall deliver such instrument to the Trustee as soon as reasonably practicable but in no event more than three Business Days after execution thereof. (vii) REPORTING REQUIREMENTS. The Servicer will: (A) within one Business Day after a Responsible Officer of the Servicer obtains Knowledge of the occurrence of a Servicer Default or an Early Amortization Event, or any event which, with the giving of notice or lapse of POOLING AND SERVICING AGREEMENT 60 54 time or both, would constitute a Servicer Default or Early Amortization Event, notify the Trustee; (B) as soon as possible and in any event within three Business Days after a Responsible Officer of the Servicer obtains Knowledge of the occurrence of a Servicer Default or any Early Amortization Event or any event which, with the giving of notice or lapse of time or both, would constitute a Servicer Default or an Early Amortization Event, furnish to the Trustee and to each Enhancement Provider the written statement of a Responsible Officer of the Servicer setting forth details of such Servicer Default or Early Amortization Event or such event and the action which the Servicer has taken and proposes to take with respect thereto; (C) as soon as possible and in any event within three Business Days after a Responsible Officer of the Servicer makes a determination that any other event, development or information is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, give written notice thereof to the Trustee, each Rating Agency and each Enhancement Provider; (D) promptly, from time to time, furnish to the Trustee and each Enhancement Provider such other information, documents, records or reports regarding the Receivables, the other Trust Assets or the condition or operations, financial or otherwise, of the Servicer as the Trustee and each Enhancement Provider may from time to time reasonably request; (E) within forty-five (45) (or, after the last calendar month in each Fiscal Year, ninety (90)) days after the end of each calendar month in each Fiscal Year, deliver to the Trustee, each Rating Agency and each Enhancement Provider the consolidated balance sheets of the Parent and its Subsidiaries as at the end of such period and the related consolidated statements of income and cash flow of the Parent and its Subsidiaries for such calendar month and for the period from the beginning of the then current Fiscal Year to the end of such calendar month, and for the corresponding period during the previous calendar year, and a comparison of the statement of the year to date earnings and cash flow to the corresponding statement for the corresponding period from the previous Fiscal Year, and the most recently prepared forecasted consolidated balance sheet and consolidated statement of earnings and cash flow of the Parent and its Subsidiaries for and as of the end of such Fiscal Year, certified by the Treasurer or the Controller of the Parent as fairly presenting the consolidated financial position of the Parent and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in POOLING AND SERVICING AGREEMENT 61 55 accordance with generally accepted accounting principles, subject to normal year end adjustments; and (F) within ninety (90) days after the end of each Fiscal Year deliver to the Trustee, each Rating Agency and each Enhancement Provider audited consolidated financial statements of the Parent and its Subsidiaries, including therein a consolidated balance sheet of the Parent and its Subsidiaries as at the end of such Fiscal Year and consolidated statements of income and cash flow of the Parent and its Subsidiaries for such Fiscal Year, reported on by Independent Public Accountants and accompanied by their related audit letter, which report and letter shall be unqualified as to scope and shall state that such financial statements fairly present the consolidated position of the Parent and its Subsidiaries as at the dates indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. The Servicer shall provide to the Trustee access to the documentation regarding the Receivables and the related Accounts in such cases where the Trustee requires such access in connection with the enforcement of the rights of any Beneficiary or is required by applicable statute or regulations to review such documentation, such access being afforded without charge and at the sole cost and expense of the Servicer but only (i) upon reasonable written request, (ii) during normal business hours, (iii) subject to normal and reasonable security and confidentiality procedures and (iv) at reasonably accessible offices in the continental United States designated by the Servicer. (viii) FURTHER ASSURANCES. (A) The Servicer agrees that from time to time, at its own expense, the Servicer will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Receivable and the Trust Assets. Without limiting the generality of the foregoing, the Servicer will: (i) mark its computer records in a manner reasonably calculated to indicate that the Trust Assets have been Transferred, in the case of any Originator, to the Transferor in accordance with the Purchase Agreements and, in the case of the Transferor, to the Trust in accordance with the Transaction Documents for the benefit of the Beneficiaries, (ii) clearly and unambiguously identify each Account in its computer or other records and all its microfiche storage files, if any, to reflect that an interest in the Receivables arising in such Account has been Transferred pursuant to this POOLING AND SERVICING AGREEMENT 62 56 Agreement; and (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments, or notices, or deliver to the Trustee such other documents, as may be necessary or desirable, or as the Trustee may reasonably request, in order to perfect and preserve the valid and perfected first priority ownership or security interest granted or purported to be granted under any Transaction Document. (B) The Servicer hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Trust Assets without the signature of the Servicer where permitted by law. A photocopy or other reproduction of any Transaction Document or any financing statement covering the Trust Assets or any part thereof shall be sufficient as a financing statement where permitted by law. (C) The Servicer will furnish to the Trustee from time to time statements and schedules further identifying and describing the Trust Assets and such other reports in connection with the Trust Assets as the Trustee may reasonably request, all in reasonable detail. (D) The Servicer shall, from time to time, execute and deliver to the Obligors any bills, statements and letters or other writings necessary to carry out the terms and provisions of any Transaction Document and to facilitate the collection of the Receivables in a manner consistent with the Cardholder Guidelines. (E) In connection with each Transfer, the Servicer agrees, on behalf of the Transferor, as an expense of the Servicer, paid out of the Transferor Monthly Servicing Fee, on or prior to the Effective Date and (x) with respect to the following clause (i), on or prior to the date of each Transfer thereafter and (y) with respect to the following clause (ii), quarterly thereafter (i) to indicate in the Account File maintained in its computer files that Receivables created in connection with the Accounts have been Transferred to the Trust pursuant to this Agreement, and (ii) to deliver to the Trustee a computer file or microfiche or written list containing a true and complete list of all such Accounts, identified by account number, Obligor name and Obligor address and setting forth the Receivable balance as of the date of such Transfer. The Servicer further agrees not to alter the file designation referenced in clause (i) of this paragraph with respect to any Account during the term of this Agreement. (ix) CHANGE CARDHOLDER AGREEMENTS OR CARDHOLDER GUIDELINES. The Servicer shall comply with and perform its servicing obligations with respect to the Receivables and the related Accounts in accordance with the related Cardholder Agreements and Cardholder Guidelines. POOLING AND SERVICING AGREEMENT 63 57 (x) NOTIFICATION OF OBLIGORS. The Servicer will notify the Obligor on each Receivable purchased by the Trust on or after the Effective Date to make payments on such Receivable either to the Servicer or to one of the Collection Accounts. (xi) MODIFICATION OF SYSTEMS. The Servicer agrees, promptly after the replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to provide the Servicer's services as Servicer or to make any calculations or reports hereunder, to give written notice of any such replacement or modification to the Trustee. (xii) SERVICER BUSINESS DAYS. No later than December 1 of each year, the Servicer shall furnish the Trustee with a list of days other than Saturday, Sunday, and any other day on which banks are required or authorized by law to close in New York City or the city in which the Corporate Trust Office is located, on which the Servicer shall be closed during the immediately succeeding calendar year, except that with respect to the calendar years 1997 and 1998, the Servicer shall furnish such list to the Trustee on or before the Effective Date. (xiii) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Servicer shall maintain and implement administrative and operating procedures (including the ability to recreate records evidencing the Receivables and the related Accounts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, microfiche, computer records and other information necessary or reasonably advisable for the collection of all the Receivables and the related Accounts. Such documents, books, microfiche, and computer records shall reflect all customary facts giving rise to the Receivables, all payments and credits with respect thereto, and the computer records shall be clearly marked to show the interests of the Trust in the Receivables and the related Accounts. The Servicer shall hold on behalf of the Trust (to the extent of its interest therein) any document evidencing or securing a Receivable and the related Account and any Cardholder Agreement related to such Receivable or such Account and necessary to the servicing of such Receivable or such Account and the collection thereof in accordance with the terms of this Agreement. Such holding by the Servicer shall be in trust and shall be deemed to be the holding thereof by the Trustee for purposes of perfecting the Trust's rights therein as provided in the UCC. (xiv) MAINTENANCE OF INSURANCE. The Servicer shall use its best efforts to maintain with a responsible company, and at its own expense, its current commercial crime insurance (including commercial fraud insurance) as is commercially available at a cost that is not generally regarded as excessive by industry standards, with coverage on all officers, employees or other Persons acting in any capacity requiring such POOLING AND SERVICING AGREEMENT 64 58 Persons to handle funds, money, documents or papers relating to the Receivables and the related Accounts. (xv) TOTAL SYSTEMS FAILURE. The Servicer shall promptly notify the Trustee and each Enhancement Provider of any Total Systems Failure and shall advise the Trustee of the estimated time required in order to remedy such Total Systems Failure and of the estimated date on which a Monthly Servicer's Report can be delivered. Until a Total Systems Failure is remedied, the Servicer will (1) furnish to the Trustee and each Enhancement Provider such periodic status reports and other information relating to such Total Systems Failure as the Trustee and each Enhancement Provider may reasonably request and (2) promptly notify the Trustee and each Enhancement Provider if the Servicer believes that such Total Systems Failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, and the action proposed to be taken in response thereto, and a revised estimate of the date on which a Monthly Servicer's Report can be delivered. The Servicer shall promptly notify the Trustee and each Enhancement Provider when a Total Systems Failure has been remedied. (xvi) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Servicer will not add (except as provided in the second sentence of Section 4.02(c)) or terminate any Collection Account Bank, or make any material change in its instructions to Obligors regarding the method by which payments are to be made in respect of Receivables. The names and addresses of all the Collection Account Banks, together with the account numbers of the Collection Accounts of the Servicer at such Collection Account Banks, shall be specified on Schedule 3.03(a)(vi) hereto. Upon the addition of any Collection Account, the Servicer shall deliver to the Trustee a new Schedule 3.03(a)(vi), and Schedule 3.03(a)(vi) hereto shall be amended in full thereby. (xvii) SERVICING AND TRUST ADMINISTRATION ACTIVITIES. The Servicer agrees that no substantial servicing activities in respect of Receivables or Trust administration activities will be conducted in any State other than New York or Ohio. Section 3.04 REPORTS AND RECORDS FOR THE TRUSTEE. (a) DAILY REPORTS. On each Business Day, the Servicer shall prepare and deliver to the Trustee via telecopier, a report (the "DAILY REPORT") setting forth (i) the Collections in respect of the Receivables processed by the Servicer on or prior to the second preceding Business Day and (ii) the amount of Receivables as of the close of business on the second preceding Business Day. POOLING AND SERVICING AGREEMENT 65 59 (b) MONTHLY SERVICER'S REPORT. Unless otherwise stated in the related Supplement with respect to any Series, on each Determination Date, the Servicer shall forward to the Trustee, the Paying Agent, any Enhancement Provider and the Rating Agencies a certificate of a Servicing Officer in the form of Exhibit A (which includes the Schedule thereto specified as such in any Supplement) setting forth (i) the aggregate amount of Collections processed during the preceding Due Period, (ii) the aggregate amount of Collections of Principal Receivables processed by the Servicer pursuant to Article IV during the preceding Due Period, (iii) the aggregate amount of Collections of Finance Charge Receivables processed by the Servicer pursuant to Article IV during the preceding Due Period, (iv) the aggregate amount of Principal Receivables and Finance Charge Receivables processed as of the end of the last day of the preceding Due Period, (v) the amounts on deposit in the Excess Funding Account and other accounts established pursuant to the related Supplements; (vi) amounts drawn on any Enhancement; (vii) amounts to be paid to an Enhancement Provider; (viii) the sum of all amounts payable to the Investor Certificateholders of each Series on the succeeding Distribution Date in respect of Certificate Principal and Certificate Interest and (ix) such other matters as are set forth in Exhibit A (such report being the "MONTHLY SERVICER'S REPORT"). The Servicer may, upon making a determination that changes to Exhibit A shall be necessary and desirable, deliver to the Trustee an Officer's Certificate to which shall be annexed the form of the related Exhibit, as so changed, so long as such changes do not serve to exclude information required by the Agreement or any Supplement. Upon the delivery of such Officer's Certificate to the Trustee, the related Exhibit, as so changed, shall for all purposes of this Agreement constitute such Exhibit. The Trustee may conclusively rely upon such Officer's Certificate in determining whether the related Exhibit, as changed, conforms to the requirements of this Agreement. Section 3.05 ANNUAL SERVICER'S CERTIFICATE. On or prior to the date of the delivery of each accountant's report pursuant to Section 3.06(a), the Servicer will deliver to the Trustee and each Enhancement Provider an Officer's Certificate substantially in the form of Exhibit C stating that (a) a review of the activities of the Servicer during the prior calendar year and of its performance under this Agreement was made under the supervision of the officer signing such certificate and (b) to the best of such officer's knowledge, based on such review, the Servicer has fully performed all its obligations under this Agreement throughout such period, or, if there has been a default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof. A copy of such certificate may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office or as set forth in any Supplement. Section 3.06 ANNUAL INDEPENDENT ACCOUNTANTS' SERVICING REPORT. (a) On or before May 1 of each Fiscal Year of the Parent, beginning with May 1, 1999, the Servicer POOLING AND SERVICING AGREEMENT 66 60 shall cause a firm of nationally recognized independent certified public accountants (who may also render other services to the Servicer, the Transferor or any Originator) to furnish a report to the Trustee and each Enhancement Provider, to the effect that such firm has made a study and evaluation, in accordance with the procedures specified in Exhibit D, of the Servicer's internal accounting controls relative to the servicing of Accounts under this Agreement and any Supplement for the prior Fiscal Year and that, on the basis of such study and evaluation, such firm is of the opinion (assuming the accuracy of any reports generated by the Servicer's third party agents) that the system of internal accounting controls in effect on the date set forth in such report, relating to servicing procedures performed by the Servicer, taken as a whole, was sufficient for the prevention and detection of errors and irregularities in amounts that would be material to the financial statements of the Parent or the assets of the Trust and that such servicing was conducted in compliance with this Agreement during the period covered by such report, except for such exceptions, errors or irregularities as such firm shall believe to be immaterial to the financial statements of the Parent and immaterial to the Trust Assets and such other exceptions, errors or irregularities as shall be set forth in such report. The Servicer shall investigate and correct such material exceptions, errors or irregularities at its own expense. A copy of such report may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office or as set forth in any Supplement. (b) On or before May 1 of each calendar year, beginning with May 1, 1999, the Servicer shall cause a firm of nationally recognized independent certified public accountants (who may also render other services to the Servicer, the Transferor or any Originator) to furnish a report to the Trustee and each Enhancement Provider, prepared using generally accepted auditing standards, to the effect that such firm has compared the mathematical calculations of each amount set forth in the monthly certificates forwarded by the Servicer pursuant to Section 3.04(b) during the prior Fiscal Year with the Servicer's computer reports which were the source of such amounts and that on the basis of such comparison, such firm is of the opinion that such amounts are in agreement, except for such exceptions as it believes to be immaterial to the accuracy of the information set forth in such certificates of the Servicer and such other exceptions as shall be set forth in such report. In the event such firm requires the Trustee to agree to the procedures performed by such firm, the Servicer shall direct the Trustee in writing to so agree; it being understood and agreed that the Trustee will deliver such letter of agreement in conclusive reliance upon the direction of the Servicer, and the Trustee makes no independent inquiry or investigation as to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. A copy of such report may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office or as set forth in any Supplement. Section 3.07 TAX TREATMENT. The parties hereto have structured this Agreement and the Investor Certificates with the intention that the Investor Certificates will qualify under applicable federal, state and local tax law as indebtedness. The Transferor, the POOLING AND SERVICING AGREEMENT 67 61 Servicer, the holder of the Exchangeable Transferor Certificate and each Investor Certificateholder agree to treat and to take no action inconsistent with the treatment of the Investor Certificates (or beneficial interest therein) as indebtedness for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income. Each Investor Certificateholder and the holder of the Exchangeable Transferor Certificate, by acceptance of its Certificate or by acquisition of a beneficial interest in a Certificate, agrees to be bound by the provisions of this Section 3.07. Section 3.08 NOTICES TO THE TRANSFEROR. In the event that Chargit is no longer acting as Servicer, any Successor Servicer appointed pursuant to Section 10.02 shall deliver or make available to the Transferor each certificate and report required to be prepared, forwarded or delivered thereafter pursuant to Sections 3.04, 3.05 and 3.06. ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.01 RIGHTS OF CERTIFICATEHOLDERS. Each Series shall represent a fractional undivided beneficial interest in the Trust, including the benefits of any Enhancement issued with respect to the related Series and the right to receive the Collections and other amounts at the times and in the amounts specified in this Article IV to be deposited in the Concentration Account, Collection Accounts or the Excess Funding Account or to be paid to the Investor Certificateholders of such Series; PROVIDED, HOWEVER, that the aggregate interest represented by such Series at any time in the Principal Receivables shall not exceed an amount equal to the applicable Series Invested Amount at such time. The Exchangeable Transferor Certificate shall represent the remaining undivided interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in this Article IV and in any Supplement to be paid to the holder of the Exchangeable Transferor Certificate; PROVIDED, HOWEVER, that the aggregate interest represented by such Exchangeable Transferor Certificate at any time in the Principal Receivables shall not exceed the Transferor Invested Amount at such time and such Exchangeable Transferor Certificate shall not represent any interest in the Concentration Account, Collection Accounts or the Excess Funding Account, except as provided in this Agreement, or the benefits of any Enhancement issued with respect to any Series, except as set forth in the related Supplement. Section 4.02 ESTABLISHMENT OF ACCOUNTS. (a) THE CONCENTRATION ACCOUNT. The Servicer, for the benefit of the Beneficiaries, shall establish and maintain in the United States, with an institution which is and POOLING AND SERVICING AGREEMENT 68 62 ontinues to be a Qualified Depository Institution which shall initially be the Trustee (the "CONCENTRATION ACCOUNT BANK"), in the name of the Trustee and on behalf of the Trust, a segregated account (the "CONCENTRATION ACCOUNT") bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Beneficiaries. The Trustee, for the benefit of the Beneficiaries, shall possess all right, title and interest in all funds on deposit from time to time in the Concentration Account and in all proceeds thereof. Without limiting the rights of the Servicer set forth in Section 4.02(b) below, the Concentration Account shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right to deduct from any funds held in the Concentration Account for any amount owed to it by the Trustee, the Trust, the Transferor, any Originator, any Certificateholder or any Enhancement Provider. Pursuant to authority granted to it hereunder, the Servicer shall have the power to instruct the Trustee or such Qualified Depository Institution to withdraw funds from the Concentration Account for the purpose of carrying out the Servicer's duties hereunder. If, at any time, the institution holding the Concentration Account ceases to be a Qualified Depository Institution, the Trustee upon written notice by the Servicer (or the Servicer on its behalf) shall promptly establish a new Concentration Account with a Qualified Depository Institution meeting the conditions specified above, transfer any cash or any investments to such new Concentration Account and, from the date such new Concentration Account is established, it shall be the "Concentration Account." (b) ADMINISTRATION OF THE CONCENTRATION ACCOUNT. Funds on deposit in the Concentration Account shall at all times be invested in Permitted Investments as directed in writing by the Servicer. All such Permitted Investments shall be held by the Trustee or Qualified Depository Institution maintaining such Concentration Account for the benefit of the Beneficiaries. Any such Permitted Investment shall mature and such funds shall be available for withdrawal on the Business Day prior to the next following Distribution Date. No such Permitted Investments shall be liquidated prior to the maturity thereof. Subject to the conditions set forth herein, the Servicer shall have the authority to instruct the Trustee with respect to the investment of such funds. At the end of each month, all interest and earnings (net of losses and investment expenses) on funds on deposit in the Concentration Account shall be treated as Collections of Finance Charge Receivables. In no event shall the Trustee be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Trustee shall have no liability in respect of losses incurred as a result of the failure of the Servicer to provide timely written investment direction. The Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of written investment direction. (c) COLLECTION ACCOUNTS. On or prior to the Effective Date, the Servicer, for the benefit of the Beneficiaries, shall establish and maintain or cause to be established and maintained in the United States in the name of the Trustee, on behalf of the Trust, with an POOLING AND SERVICING AGREEMENT 69 63 institution which is and continues to be a Qualified Depository Institution, segregated accounts in the name of the Trustee and on behalf of the Trust (each such account, together with each account referred to in the next succeeding sentence, a "COLLECTION ACCOUNT") bearing a designation clearly indicating that the funds deposited therein are held in Trust for the benefit of the Beneficiaries (except, solely with respect to the Store Accounts, to the extent described in the Intercreditor Agreement). The Servicer, for the benefit of the Beneficiaries, may establish and maintain or cause to be established and maintained in the United States in the name of the Trustee, on behalf of the Trust, with institutions which are and continue to be Qualified Depository Institutions, additional segregated accounts, for the deposit of Store Payments, in the name of the Trustee and on behalf of the Trust bearing a designation clearly indicating that the funds deposited therein are held in Trust for the benefit of the Beneficiaries (except to the extent described in the Intercreditor Agreement). Obligors will be directed to remit payments with respect to their Receivables in the manner set forth in Section 4.03. The Collection Accounts shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries (except, solely with respect to the Store Accounts, to the extent described in the Intercreditor Agreement). The Servicer shall cause the Trustee to transfer Collections to the Concentration Account in the manner set forth in Section 4.03. Each Collection Account shall be maintained with documentation and instructions in form and substance satisfactory to the Trustee. Such documentation shall provide, among other things, that available amounts shall be transferred on a daily basis to the Concentration Account. The Servicer will not (i) make any change in the name, address or ABA number of any Collection Account Bank, the account number of any Collection Account, the name, address or ABA number of any Concentration Account Bank, or the account number for any Concentration Account from that set forth in Schedule 3.03(a)(vi) hereto or (ii) materially amend any instruction to any Obligor or any instruction to or agreement with any Collection Account Bank with respect to any Collection Account unless the Trustee (if directed to do so in writing by a Majority in Interest of each outstanding Series or, if the related Supplement so provides, the Enhancement Provider for such Series) shall have given its prior consent to such change or amendment. The Servicer hereby agrees and acknowledges that it has executed and delivered to the Trustee a letter and executed acknowledgement thereto substantially in the form of Exhibit E hereto (each, a "COLLECTION ACCOUNT LETTER"), addressed to and executed by each banking institution or other Person with which a Collection Account is maintained (each such banking institution with which a Collection Account is maintained being a "COLLECTION ACCOUNT BANK"). The Servicer hereby agrees, and the Trustee hereby acknowledges, that the execution and delivery of each Collection Account Letter transfers to the Trustee all right, title and interest in the applicable Collection Account and in all monies, securities and instruments therein (except, solely with respect to the Store Accounts, to the extent described in the Intercreditor Agreement). POOLING AND SERVICING AGREEMENT 70 64 If, at any time, the institution holding any Collection Account ceases to be a Qualified Depository Institution, the Trustee upon written notice by the Servicer (or the Servicer on its behalf) shall promptly establish a new Collection Account with a Qualified Depository Institution meeting the conditions specified above, transfer any cash or any investments to such new Collection Account and, from the date such new Collection Account is established, it shall be a "Collection Account." Section 4.03 COLLECTIONS AND ALLOCATIONS. (a) COLLECTIONS. The Transferor and the Servicer hereby agree, and shall instruct all Obligors accordingly: (i) to cause all Obligors to remit payments on their Receivables directly to a Collection Account or to the Servicer; (ii) to cause all such payments to the Principal Store Account and any Collection Account other than a Store Account to be deposited in the Concentration Account within two Business Days of its receipt thereof; and (iii) to cause all such payments (other than those referred to in the preceding clause (ii)) to be deposited (A) in a Collection Account within one Business Day (or for sixty days after the Effective Date, two Business Days) of the Servicer's receipt thereof, (B) then, in the Principal Store Account within one Business Day of such deposit in such Collection Account and (C) then, in the Concentration Account, within one Business Day of such deposit in the Principal Collection Account. Notwithstanding the foregoing, unless the certificates of deposit, short-term deposits or commercial paper of the Servicer shall have a credit rating from Moody's and Standard & Poor's of P-1 and A-l+, respectively, or the long-term unsecured debt obligations of the Servicer (other than, in each case, any obligation whose rating is based on collateral or on the credit of a Person other than the Servicer) shall have a credit rating from Moody's and Standard & Poor's of at least Aa3 and AA, respectively, all amounts deposited into any Collection Account on any Business Day shall on the same Business Day be withdrawn from such Collection Account and deposited into the Concentration Account. (b) SERIES ALLOCATIONS. (i) On each Business Day, the Servicer shall instruct the Trustee in writing to allocate Collections of Principal Receivables, Collections of Finance Charge Receivables and Loss Amounts to each Series, in each case in an amount equal to the product of (A) the Investor Percentage for each such Series for the most recently ended Due Period and (B) (1) all Collections of Principal Receivables deposited in the Concentration Account on such Business Day, (2) all Collections of Finance Charge Receivables deposited in the Concentration Account on such Business Day or (3) all Loss Amounts incurred on such Business Day, as the case may be. (ii) On each Business Day, the Servicer shall instruct the Trustee in writing to allocate Collections of Principal Receivables, Collections of Finance Charge Receivables and Loss Amounts to the holder of the Exchangeable Transferor Certificate, in each case in an amount equal to the product of (A) the Transferor Percentage for the most recently ended Due POOLING AND SERVICING AGREEMENT 71 65 Period and (B) (1) all Collections of Principal Receivables deposited in the Concentration Account on such Business Day, (2) all Collections of Finance Charge Receivables deposited in the Concentration Account on such Business Day or (3) all Loss Amounts incurred on such Business Day, as the case may be. (c) ADJUSTMENTS FOR MISCELLANEOUS CREDITS AND FRAUDULENT CHARGES. With respect to each Due Period, the aggregate amount of Principal Receivables (i) which were created in respect of merchandise refused or returned by the Obligor thereunder or as to which the Obligor thereunder has asserted a counterclaim or defense, (ii) which were reduced by the Servicer by any rebate, refund, charge-back or adjustment (including Servicer errors) or (iii) which were created as a result of a fraudulent or counterfeit charge (with respect to such Due Period, the "DILUTION AMOUNT") will be allocated to each Series based upon the Investor Percentage for such Series. On the last day of each Due Period, the aggregate amount of Principal Receivables used to calculate the Transferor Invested Amount will be reduced by an amount equal to the sum of the Series Dilution Amounts for each outstanding Series for such Due Period. If such reduction would cause the Transferor Invested Amount to be less than the Aggregate Minimum Transferor Invested Amount, the Transferor shall promptly, but in no event later than 10 Business Days after such last day, make a deposit in the Excess Funding Account in immediately available funds in an amount equal to the amount by which the Transferor Invested Amount would be reduced below the Aggregate Minimum Transferor Invested Amount. (d) EXCESS FUNDING ACCOUNT. The Servicer, for the benefit of the Investor Certificateholders, shall establish and maintain in the United States in the name of the Trustee, on behalf of the Trust, a segregated trust account with an institution which is and continues to be a Qualified Depository Institution bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries (the "EXCESS FUNDING ACCOUNT"). The Trustee, for the benefit of the Beneficiaries, shall possess all right, title and interest in all funds on deposit from time to time in the Excess Funding Account and in all proceeds thereof. Without limiting the rights of the Servicer set forth in the next succeeding paragraph, the Excess Funding Account shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Excess Funding Account for any amount owed to it by the Trustee, the Trust, any Certificateholder or any Enhancement Provider. If, at any time, the institution holding the Excess Funding Account ceases to be a Qualified Depository Institution, the Trustee upon written notice by Servicer (or the Servicer on its behalf) shall promptly establish a new Excess Funding Account with a Qualified Depository Institution meeting the conditions specified above, transfer any cash or any investments to such new Excess Funding POOLING AND SERVICING AGREEMENT 72 66 Account and, from the date such new Excess Funding Account is established, it shall be the "Excess Funding Account." Funds on deposit in the Excess Funding Account shall at the direction of the Servicer be invested by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Beneficiaries. The Trustee shall maintain for the benefit of the Beneficiaries possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Excess Funding Account on any date (after giving effect to any withdrawals from the Excess Funding Account on such date) will be invested in Permitted Investments that will mature so that funds will be available at the close of business on the Distribution Date following such date. No such Permitted Investments shall be liquidated prior to maturity. On each Determination Date, the Servicer shall instruct the Trustee in writing to withdraw on the related Distribution Date from the Excess Funding Account and deposit in the Concentration Account all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Excess Funding Account, for application as Collections of Finance Charge Receivables (allocable to each Series PRO RATA based on the Investor Percentage for each Series until paid in full) with respect to the prior Due Period. Interest (including reinvested interest) and other investment income and earnings on funds on deposit in the Excess Funding Account shall not be considered part of the amount on deposit in such Excess Funding Account for purposes of this Agreement. On any Determination Date on which no Series is in an Amortization Period or an Early Amortization Period, the Servicer shall determine the amount by which the Transferor Invested Amount exceeds the Aggregate Minimum Transferor Invested Amount on such date and shall instruct the Trustee in writing to withdraw such amount from the Excess Funding Account, until the amount on deposit in the Excess Funding Account is reduced to zero, on the related Distribution Date and pay such amount to the holder of the Exchangeable Transferor Certificate; PROVIDED that such allocation shall be subject to Section 4.03(g). On any Determination Date on which one or more Series is in an Amortization Period or an Early Amortization Period, the Servicer shall determine the aggregate amount of Principal Shortfalls, if any, with respect to each such Series that is a Principal Sharing Series (after giving effect to the allocation and payment provisions in the Supplement with respect to each such Series), and the Servicer shall instruct the Trustee in writing to withdraw such amount from the Excess Funding Account on the succeeding Distribution Date and allocate such amount among each such Series as Shared Principal Collections as specified in each related Supplement. (e) SHARED PRINCIPAL COLLECTIONS. On each Distribution Date, (i) the Servicer shall allocate Shared Principal Collections to each Principal Sharing Series in a Group, PRO RATA, in proportion to the Principal Shortfalls, if any, with respect to each such Series and (ii) the Servicer shall instruct the Trustee in writing to withdraw from the Concentration Account or the Excess Funding Account and the Servicer shall pay to the holder POOLING AND SERVICING AGREEMENT 73 67 of the Exchangeable Transferor Certificate an amount equal to the excess, if any, of (x) the aggregate amount for all such Series of Collections of Principal Receivables that the related Supplements specify are to be treated as "SHARED PRINCIPAL COLLECTIONS" for such Distribution Date over (y) the aggregate amount for all such Series that the related Supplements specify are "Principal Shortfalls" for such Distribution Date (the "PRINCIPAL SHORTFALLS"); PROVIDED, HOWEVER, that such amounts shall be paid to the holder of the Exchangeable Transferor Certificate only to the extent the Transferor Invested Amount for such Determination Date (determined after giving effect to any Principal Receivables Transferred to the Trust on such date) exceeds the Aggregate Minimum Transferor Invested Amount; and PROVIDED FURTHER that, if on any Distribution Date the Transferor Invested Amount is less than or equal to the Aggregate Minimum Transferor Invested Amount, the Servicer shall deposit in the Excess Funding Account any Shared Principal Collections then on deposit in the Concentration Account that otherwise would be distributed to the holder of the Exchangeable Transferor Certificate. (f) SHARED EXCESS FINANCE CHARGE COLLECTIONS. On each Distribution Date, (i) the Servicer shall allocate Shared Excess Finance Charge Collections with respect to the Series in a Group to each Series in such Group, PRO RATA, in proportion to the Finance Charge Shortfalls, if any, with respect to each such Series and (ii) the Servicer shall instruct the Trustee in writing to withdraw from the Concentration Account and the Servicer shall pay to the holder of the Exchangeable Transferor Certificate an amount equal to the excess, if any, of (x) the aggregate amount for all outstanding Series in a Group of the amounts that the related Supplements specify are to be treated as "SHARED EXCESS FINANCE CHARGE COLLECTIONS" for such Distribution Date over (y) the aggregate amount for all outstanding Series in such Group that the related Supplements specify are "Finance Charge Shortfalls" for such Distribution Date (the "FINANCE CHARGE SHORTFALLS"); PROVIDED, HOWEVER, that such payment shall be subject to Section 4.03(g); and PROVIDED FURTHER that the sharing of Shared Excess Finance Charge Collections among Series in a Group will continue only until such time, if any, at which the Transferor shall deliver to the Trustee an Officer's Certificate to the effect that, in the reasonable belief of the Transferor or its counsel, the continued sharing of Shared Excess Finance Charge Collections among Series in any Group would have adverse regulatory implications with respect to the Transferor or any Originator. Following the delivery by the Transferor of such an Officer's Certificate to the Trustee there will not be any further sharing of such Shared Excess Finance Charge Collections among Series in any Group. POOLING AND SERVICING AGREEMENT 74 68 ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS Distributions shall be made to, and reports shall be provided to, Certificateholders of each Series as set forth in the applicable Supplement. ARTICLE VI THE CERTIFICATES Section 6.01 CERTIFICATES. The Investor Certificates of each Series may be issued in fully registered form (for purposes of Section 163(f) of the Code) ("REGISTERED CERTIFICATES") and shall be substantially in the form specified in the related Supplement. The Exchangeable Transferor Certificate shall be substantially in the form of Exhibit B hereto. The Investor Certificates and the Exchangeable Transferor Certificate shall, upon issue pursuant hereto or to Section 6.09 or Section 6.10, be executed and delivered by the Transferor to the Trustee for authentication and redelivery as provided in Sections 2.01 and 6.02. Any Investor Certificate shall be issuable in a minimum denomination of $5,000,000 and in integral multiples of $1,000 in excess thereof, unless otherwise specified in any Supplement, and shall be issued upon original issuance in an aggregate original principal amount equal to the Initial Series Invested Amount for the related Series. The Exchangeable Transferor Certificate shall be initially issued as a single certificate to the Transferor. Each Certificate shall be executed by manual or facsimile signature on behalf of the Trustee by a duly authorized signatory. Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein, executed by or on behalf of the Trustee by the manual or facsimile signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Section 6.02 AUTHENTICATION OF CERTIFICATES. The Trustee shall authenticate and deliver any Series of Investor Certificates, upon the written order of the Transferor, to such POOLING AND SERVICING AGREEMENT 75 69 Person as shall be designated by the Transferor, against payment to the Transferor of the applicable Initial Series Invested Amount (net of any discount) in accordance with the Transaction Documents. Upon the receipt of such payment and the issuance of the Investor Certificates, such Investor Certificates shall be fully paid and non-assessable. The Trustee shall authenticate and deliver the Exchangeable Transferor Certificate to the Transferor simultaneously with the initial Transfer to the Trust of Receivables. Upon an Exchange as provided in Section 6.09 and the satisfaction of the applicable conditions specified therein, the Trustee shall authenticate and deliver the Investor Certificates of additional Series (with the designation provided in the related Supplement), upon the order of the Transferor, to the persons designated in such Supplement. Upon the order of the Transferor, the Certificates of any Series shall be duly authenticated by or on behalf of the Trustee, in authorized denominations equal to (in the aggregate) the Initial Series Invested Amount of such Series. Section 6.03 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (the "TRANSFER AGENT AND REGISTRAR"), in accordance with the provisions of Section 11.16, a register (the "CERTIFICATE REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Investor Certificates of each Series (unless otherwise provided in the related Supplement) and of transfers and exchanges of the Investor Certificates as herein provided. The Trustee is hereby initially appointed Transfer Agent and Registrar for the purposes of registering the Investor Certificates and transfers and exchanges of the Investor Certificates as herein provided. Any reference in this Agreement to the Transfer Agent and Registrar shall include any co-transfer agent and co-registrar. The provisions of Sections 7.04, 11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its role as Transfer Agent and Registrar, for so long as the Trustee shall act as Transfer Agent and Registrar. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Servicer. In the event that the Trustee shall no longer be the Transfer Agent and Registrar, the Trustee shall appoint a successor Transfer Agent and Registrar. The Trustee may revoke such appointment, or any subsequent appointment, and remove the Transfer Agent and Registrar if the Trustee determines in its sole discretion that the Transfer Agent and Registrar has failed to perform its obligations under this Agreement in any material respect. The Transfer Agent and Registrar shall be permitted to resign as Transfer Agent and Registrar upon 30 days' notice to the Transferor, the Servicer and the Trustee. No resignation, revocation or removal under this Section 6.03(a) shall be effective, and the Transfer Agent and Registrar shall continue to perform its duties as Transfer Agent and Registrar until, the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to the Transferor and such successor has accepted such appointment. POOLING AND SERVICING AGREEMENT 76 70 Upon surrender for registration of transfer of any Certificate at any office or agency of the Transfer Agent and Registrar, the Transferor shall execute and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates in authorized denominations of like aggregate Undivided Trust Interests. At the option of an Investor Certificateholder, Registered Certificates may be exchanged for other Registered Certificates of the same Series in authorized denominations of like aggregate Undivided Trust Interests in the Trust, upon surrender of the Registered Certificates to be exchanged at any office or agency of the Transfer Agent and Registrar maintained for such purpose. Whenever any Investor Certificates of any Series are so surrendered for exchange, the Transferor shall execute, and the Trustee shall authenticate and (unless the Transfer Agent and Registrar is different than the Trustee, in which case the Transfer Agent and Registrar shall) deliver, the Investor Certificates of such Series which the Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder thereof or his attorney-in-fact duly authorized in writing. The preceding provisions of this Section 6.03 notwithstanding, the Trustee or the Transfer Agent and Registrar, as the case may be, shall not be required to register the transfer of or exchange any Investor Certificate of any Series for a period of 15 days preceding the due date for any payment with respect to the Investor Certificates of such Series. Unless otherwise provided in the related Supplement, no service charge shall be made for any registration of transfer or exchange of Certificates, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. All Investor Certificates surrendered for registration of transfer and exchange shall be canceled by the Transfer Agent and Registrar and disposed of in a manner satisfactory to the Trustee. The Transferor shall execute and deliver to the Trustee or the Transfer Agent and Registrar, as applicable, Registered Certificates in such amounts and at such times as are necessary to enable the Trustee to fulfill its responsibilities under this Agreement and the Certificates. POOLING AND SERVICING AGREEMENT 77 71 (b) Except as provided in Section 6.09 or in any Supplement, in no event shall the Exchangeable Transferor Certificate or any interest therein be transferred hereunder, in whole or in part to a person other than the Transferor or an Affiliate of the Transfer- or, unless the Transferor shall have consented in writing to such transfer and unless the Trustee shall have received a Tax Opinion. (c) (i) Registration of transfer of Investor Certificates shall be effected only if such transfer (x) is made pursuant to an effective registration statement under the Securities Act, or is exempt from the registration requirements under the Securities Act, and (y) is made to a Person which is not an employee benefit plan, trust or account, including an individual retirement account, that is subject to ERISA or that is described in Section 4975(e)(1) of the Code or an entity whose underlying assets include plan assets by reason of a plan's investment in such entity (a "BENEFIT PLAN"). In the event that registration of a transfer is to be made in reliance upon an exemption from the registration requirements under the Securities Act, the transferor or the transferee shall deliver, at its expense, to the Transferor, the Servicer and the Trustee, an investment letter from the transferee, substantially in the form of the investment and ERISA representation letter attached hereto as Exhibit F, and no registration of transfer shall be made until such letter is so delivered. Whenever an Investor Certificate is presented to the Transfer Agent and Registrar for registration of transfer, the Transfer Agent and Registrar shall promptly seek instructions from the Servicer regarding such transfer and shall be entitled to receive instructions signed by a Servicing Officer prior to registering any such transfer. The Transferor hereby agrees to indemnify the Transfer Agent and Registrar and the Trustee and its officers, directors, employees and agents and to hold each of them harmless against any loss, liability or expense incurred without gross negligence or bad faith on their part arising out of or in connection with actions taken or omitted by them in relation to any such instructions furnished pursuant to this clause (i). This provision shall survive the discharge of this Agreement or the earlier resignation or removal of the Trustee. (ii) If so requested by the Transferor, the Trustee will make available to any prospective purchaser of Investor Certificates who so requests, a copy of a letter provided to the Trustee by or on behalf of the Transferor relating to the transferability of any Series to a Benefit Plan. (d) The Transfer Agent and Registrar shall maintain at its expense in the Borough of Manhattan, the City of New York (and subject to this Section 6.03, if specified in the related Supplement for any Series, any other city designated in such Supplement) an office or offices or an agency or agencies where Investor Certificates of such Series may be surrendered for registration of transfer or exchange. POOLING AND SERVICING AGREEMENT 78 72 Section 6.04 MUTILATED, DESTROYED, OR STOLEN CERTIFICATES. If (a) any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of written notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Transferor shall execute and the Trustee shall authenticate and (unless the Transfer Agent and Registrar is different from the Trustee, in which case the Transfer Agent and Registrar shall) deliver (in compliance with applicable law), in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Undivided Trust Interest. In connection with the issuance of any new Certificate under this Section 6.04, the Trustee or the Transfer Agent and Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 6.04 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.05 PERSONS DEEMED OWNERS. Prior to due presentation of a Registered Certificate for registration of transfer, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the Person in whose name any Registered Certificate is registered as the owner of such Registered Certificate for the purpose of receiving distributions pursuant to any Supplement and for all other purposes whatsoever; and in any such case neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary; PROVIDED, HOWEVER, for purposes of voting or the giving of any request, demand, authorization, direction, notice, consent or waiver hereunder, Investor Certificates owned by any Originator, the Transferor, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be fully protected in conclusively relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Investor Certificates which a Responsible Officer in the Corporate Trust Office of the Trustee knows to be so owned shall be so disregarded. Investor Certificates so owned that have been pledged in good faith shall not be disregarded as outstanding, if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Investor Certificates and that the pledgee is not any Originator, the Transferor, the Servicer or an Affiliate thereof. Section 6.06 APPOINTMENT OF PAYING AGENT. POOLING AND SERVICING AGREEMENT 79 73 (a) The Paying Agent shall make distributions to Investor Certificateholders from the appropriate account or accounts maintained for the benefit of Investor Certificateholders as specified in any Supplement. Any Paying Agent shall have the revocable power to withdraw funds from such appropriate account or accounts for the purpose of making distributions referred to above and shall report such withdrawals to the Trustee. The Trustee (or the Servicer if the Trustee is the Paying Agent) may revoke such power and remove the Paying Agent, if the Trustee (or the Servicer if the Trustee is the Paying Agent) determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect or for other good cause. The Paying Agent shall initially be the Trustee. The Trustee shall be permitted to resign as Paying Agent upon 30 days' written notice to the Servicer. In the event that the Trustee shall no longer be the Paying Agent, the Trustee shall appoint a successor to act as Paying Agent who shall be acceptable to the Transferor and the Trustee. The provisions of Sections 11.01, 11.02 and 11.03 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. The Paying Agent (other than the Trustee) shall be permitted to resign as Paying Agent upon 30 days' notice to the Transferor, the Servicer and the Trustee. No resignation, revocation or removal under this Section 6.06(a) shall be effective, and the Paying Agent shall continue to perform its duties as Paying Agent until, the Trustee has appointed a successor Paying Agent reasonably acceptable to the Transferor and such successor has accepted such appointment. (b) The Trustee shall cause the Paying Agent (other than itself) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Investor Certificateholders, and shall agree, and if the Trustee is the Paying Agent it hereby agrees, that it shall comply with all requirements of the Code regarding the withholding by the Trustee of payments in respect of federal income taxes due from Certificateholders (consistent with the treatment of the Investor Certificates as debt instruments for federal income tax purposes). Section 6.07 ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES. The Trustee shall furnish or cause to be furnished by the Transfer Agent and Registrar to the Servicer or the Paying Agent, within five Business Days after receipt by the Trustee of a request therefor from the Servicer or the Paying Agent, respectively, in writing, a list in such form as the Servicer or the Paying Agent may reasonably require, of the names and addresses of the Registered Certificateholders as of the most recent Record Date. Unless otherwise provided in the related Supplement, holders of Investor Certificates evidencing Undivided Trust Interests aggregating not less than 10% of the Undivided Trust Interest of any Series (the "APPLICANTS") may apply in writing to the Trustee, and if such application states that the Applicants desire to communicate with other Investor Certificateholders of any Series with POOLING AND SERVICING AGREEMENT 80 74 respect to their rights under any Transaction Document and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Registered Certificateholders of such Series or all outstanding Series, as applicable, held by the Trustee and shall give the Servicer notice that such request has been made, within five Business Days after the receipt of such application. The Trustee shall keep in as current a form as is reasonably practicable the most recent list available to it of Certificateholders. Every Registered Certificateholder, by receiving and holding a Registered Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Registered Certificateholders hereunder, regardless of the source from which such information was obtained. Section 6.08 AUTHENTICATING AGENT. (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Transferor. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Transferor. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Transferor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or the Transferor, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and the Transferor. POOLING AND SERVICING AGREEMENT 81 75 (d) The Trustee agrees to pay each authenticating agent from time to time reasonable compensation for its services under this Section 6.08, and the Trustee shall be entitled to be reimbursed and the Servicer shall reimburse the Trustee for such reasonable payments actually made, subject to the provisions of Section 11.05. (e) The provisions of Sections 7.04, 11.01, 11.02, 11.03 and 11.05 shall be applicable to any authenticating agent. (f) Pursuant to an appointment made under this Section 6.08, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the certificates described in the Pooling and Servicing Agreement, dated as of December 30, 1997, among The El-Bee Chargit Corp., The El-Bee Receivables Corp. and Bankers Trust Company. ---------------------------- as Authenticating Agent for the Trustee, By: ------------------------- Authorized Officer Section 6.09 TENDER OF EXCHANGEABLE TRANSFEROR CERTIFICATE. (a) Upon any Exchange (as defined below) the Trustee shall issue to the holder of the Exchangeable Transferor Certificate under Section 6.01, for execution and redelivery to the Trustee for authentication under Section 6.02, one or more new Series of Investor Certificates. Any such Series of Investor Certificates shall be substantially in the form specified in the related Supplement and shall bear, upon its face, the designation for the Series to which it belongs, as selected by the Transferor. Except as specified in any Supplement for a related Series, all Series shall rank PARI PASSU and be equally and ratably entitled as provided herein to the benefits hereof (except that the Enhancement and any Series Accounts provided for any Series shall not be available for any other Series) without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the related Supplement. POOLING AND SERVICING AGREEMENT 82 76 (b) The holder of the Exchangeable Transferor Certificate may tender the Exchangeable Transferor Certificate to the Trustee in exchange for (i) one or more newly issued Series of Investor Certificates and (ii) a reissued Exchangeable Transferor Certificate (any such tender, a "TRANSFEROR EXCHANGE"). In addition, to the extent permitted for any Series of Investor Certificates as specified in the related Supplement, the Investor Certificateholders of such Series may tender their Investor Certificates and the holder of the Exchangeable Transferor Certificate may tender the Exchangeable Transferor Certificate to the Trustee pursuant to the terms and conditions set forth in such Supplement in exchange for (i) one or more newly issued Series of Investor Certificates and (ii) a reissued Exchangeable Transferor Certificate (an "INVESTOR EXCHANGE"). The Transferor Exchange and Investor Exchange are referred to collectively herein as an "EXCHANGE." The holder of the Exchangeable Transferor Certificate may perform an Exchange by notifying the Trustee in writing at least five days in advance (an "EXCHANGE NOTICE") of the date upon which the Exchange is to occur (an "EXCHANGE DATE"). Any Exchange Notice shall state the designation of any Series to be issued on the Exchange Date and, with respect to each such Series: (a) its Initial Series Invested Amount (or the method for calculating such Initial Series Invested Amount), which at any time may not be greater than the current principal amount of the Exchangeable Transferor Certificate at such time, (b) its Certificate Rate (or the method for allocating interest payments or other cash flows to such Series), if any, and (c) the Enhancement Provider, if any, with respect to such Series. On the Exchange Date, the Trustee shall authenticate and deliver any such Series of Investor Certificates only upon delivery to it of the following: (a) a Supplement satisfying the criteria set forth in Section 6.09(c) executed by the Transferor and specifying the Principal Terms of such Series, (b) the applicable Enhancement, if any, (c) the agreement, if any, pursuant to which the Enhancement Provider agrees to provide the Enhancement, if any, (d) written confirmation that the Rating Agency Condition has been satisfied with respect to the Exchange, (e) an Officer's Certificate of the Transferor that on the Exchange Date, after giving effect to the Exchange, the Transferor Invested Amount will be at least equal to the Aggregate Minimum Transferor Invested Amount and the sum of the aggregate amount of Principal Receivables plus the amount on deposit in the Excess Funding Account will be at least equal to the Minimum Aggregate Principal Receivables and such Exchange will not result in the occurrence of an Early Amortization Event and is not reasonably expected to result in such an occurrence, and (f) the existing Exchangeable Transferor Certificate or applicable Investor Certificates, as the case may be. If any Series is outstanding, it is a condition to the issuance of any newly created Series of Investor Certificates that (A) such issuance will not result in the occurrence of an Early Amortization Event, (B) the Transferor shall have delivered to the Trustee, each Rating Agency and any Enhancement Provider an Opinion of Counsel to the effect that such Issuance (1) has been, or need not be, registered under the Securities Act and will not result in the requirement that any other Series not registered under the Securities Act be so registered (unless the Transferor has elected, in its sole discretion, to register such Certificates), (2) will not result in the Trust becoming subject to registration as an investment company under the Investment Company Act and (3) will not require this POOLING AND SERVICING AGREEMENT 83 77 Agreement or the related Supplement to be qualified under the Trust Indenture Act of 1939, as amended (unless the Transferor has elected, in its sole discretion, to so qualify the Agreement or the related Supplement) and (C) the Transferor shall have delivered to the Trustee, each Rating Agency and any Enhancement Provider a Tax Opinion, dated the date of such issuance, with respect to such issuance. Upon satisfaction of such conditions, the Trustee shall cancel the existing Exchangeable Transferor Certificate or applicable Investor Certificates, as the case may be, and issue, as provided above, such Series of Investor Certificates and a new Exchangeable Transferor Certificate, dated the Exchange Date. There is no limit to the number of Exchanges that may be performed under this Agreement. (c) In conjunction with an Exchange, the parties hereto shall execute a Supplement, which shall specify the relevant terms with respect to any newly issued Series of Investor Certificates, which may include: (i) its name or designation, (ii) an Initial Series Invested Amount and Series Invested Amount or the method of calculating the Initial Series Invested Amount or the Series Invested Amount, as the case may be, (iii) the Certificate Rate (or formula for the determination thereof), (iv) the Closing Date, (v) the rating agency or agencies rating such Series, (vi) the interest payment date or dates and the date or dates from which interest shall accrue, (vii) the method of allocating Collections with respect to Principal Receivables, Finance Charge Receivables and Loss Amounts for such Series and the method by which the principal amount of Investor Certificates of such Series shall amortize or accrete, (viii) the names of any accounts to be used by such Series and the terms governing the operation of any such accounts, (ix) the Investor Monthly Servicing Fee, (x) the Aggregate Minimum Transferor Invested Amount (if any), (xi) the Enhancement Provider, if applicable, and the terms of any Enhancement with respect to such Series, (xii) the base rate applicable to such Series, (xiii) the terms on which the Certificates of such Series may be repurchased or remarketed to other investors, (xiv) the Series Termination Date, (xv) any deposit into any account provided for such Series, (xvi) the priority of such Series with respect to any other Series, (xvii) the rights, if any, of the holder of the Exchangeable Transferor Certificate that have been transferred to the holders of such Series, (xix) the Pool Factor, (xx) the Minimum Aggregate Principal Receivables, (xxi) whether such Series will be part of a Group, and (xxii) any other relevant terms (including whether or not such Series will be pledged as collateral for the issuance of any other securities, including commercial paper) (all such terms, the "PRINCIPAL TERMS" of such Series). The terms of such Supplement may modify or amend the terms of this Agreement solely as applied to such new Series. Section 6.10 UNCERTIFICATED CLASSES. Notwithstanding anything to the contrary contained in this Article VI or in Article XII, unless otherwise specified in any Supplement, any provisions contained in this Article VI and in Article XII relating to the registration, form, execution, authentication, delivery, presentation, cancellation and surrender of Certificates shall not be applicable to any uncertificated Certificates. POOLING AND SERVICING AGREEMENT 84 78 ARTICLE VII OTHER MATTERS RELATING TO THE TRANSFEROR Section 7.01 LIABILITY OF THE TRANSFEROR. The Transferor shall be liable hereunder only to the extent of the obligations specifically undertaken by it in its capacity as Transferor. Section 7.02 OBLIGATIONS NOT ASSIGNABLE. The obligations of the Transferor hereunder shall not be assignable nor shall any Person succeed to the obligations of the Transferor hereunder. Section 7.03 LIMITATION ON LIABILITY. The directors, officers, employees or agents of the Transferor shall not be under any liability to the Trust, the Trustee, the Certificateholders, any Enhancement Provider or any other Person for any action taken or for refraining from the taking of such action in such capacities pursuant to this Agreement or for any obligation or covenant under this Agreement; PROVIDED, HOWEVER, that this provision shall not protect the officers, directors, employees, or agents of the Transferor against any liability which would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence in the performance of their duties or by reason of reckless disregard of obligations and duties hereunder. The Transferor and any director, officer, employee or agent may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person respecting any matters arising hereunder. Section 7.04 INDEMNIFICATION OF THE TRUSTEE, THE CERTIFICATEHOLDERS, ANY PROGRAM AGENT AND ANY ENHANCEMENT PROVIDER. Without limiting any other rights which the Trustee, the Certificateholders (other than the Transferor and its Affiliates), any Program Agent or any Enhancement Provider and their respective assignees and their respective officers, directors, employees, agents and affiliates (each, an "INDEMNIFIED PARTY" and collectively the "INDEMNIFIED PARTIES") may have hereunder or under applicable law, the Transferor hereby agrees to indemnify each Indemnified Party from and against any and all claims, damages, losses and liabilities and related costs and expenses (including reasonable attorneys' fees and disbursements) (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of, relating to or resulting from any Transaction Document, the activities of the Trustee in connection herewith, the Transferor's use of proceeds of Transfers of Receivables or reinvestments of Collections, the interest Transferred hereunder in Trust Assets, or in respect of any Receivable or any Account or Cardholder Agreement (excluding however (a) Indemnified Amounts to the POOLING AND SERVICING AGREEMENT 85 79 extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) except as otherwise specifically provided in any Transaction Document, recourse for uncollectible Receivables or (c) except as otherwise specifically provided in any Transaction Document, any federal, state, foreign or local income or franchise taxes or any other tax imposed on or measured by income (or any interest, penalty, or addition to tax with respect thereto or arising from a failure to comply therewith) incurred by such Indemnified Party arising out of or as a result of this Agreement or the interest Transferred hereunder in Trust Assets). Without limiting or being limited by the foregoing, the Transferor shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts arising out of, relating to or resulting from: (i) reliance on any representation, warranty or covenant made or statement made or deemed made by the Transferor or any of its Affiliates (or any of their respective Responsible Officers) under or in connection with any Transaction Document which shall have been incorrect when made or deemed made or which the Transferor shall have failed to perform; (ii) the failure by the Transferor to comply with any Transaction Document or any applicable Requirement of Law with respect to any Trust Asset or related Cardholder Agreement, or the failure of any Receivable, or any Account or the related Cardholder Agreement to conform to any requirement with respect thereto under any Transaction Document or any Requirement of Law; (iii) the failure to vest in the Trustee on behalf of the Trust for the benefit of the Beneficiaries either a perfected first priority undivided percentage ownership interest or a perfected first priority security interest in all Receivables and other Trust Assets, free and clear of any Lien; (iv) the failure to have filed, or any delay in filing, any financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws that are necessary for perfection or first priority of the ownership or security interest created by this Agreement or any Purchase Agreement; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of an Obligor) of an Obligor to the payment of any Receivable in, or purporting to be in, the Trust Assets (including a defense based on such Receivable, the related Account or the related Cardholder Agreement not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise, services or insurance related to such POOLING AND SERVICING AGREEMENT 86 80 Receivable or the furnishing or failure to furnish such merchandise, services or insurance; (vi) any products liability claim or other claim allegedly arising out of or in connection with merchandise, services or insurance the sale of which gave rise to any Receivable or any credit, administration or other activity in connection with any Cardholder Agreement; (vii) any failure by the Transferor or any Affiliate of the Transferor to perform its duties or obligations in accordance with the provisions of any Transaction Document, including any failure to so perform in connection with servicing, administering or collecting any Receivable; (viii) any commingling of Collections at any time with other funds; (ix) any investigation, litigation or proceeding related to any Transaction Document or the use of proceeds or reinvestments of proceeds by the Transferor, the Servicer or the Parent of Transfers of Receivables or the ownership of or security interest in Trust Assets or in respect of any Receivable, Account or Cardholder Agreement; (x) any taxes, including sales, excise, intangibles, value added, personal property and similar taxes, payable with respect to the Receivables or the Accounts; (xi) any federal, state, foreign or local income or franchise tax, or any other tax imposed on or measured by reference to income, or any interest, penalty or addition to tax with respect thereto or arising from a failure to comply therewith, imposed upon the Trust, the assets of the Trust or the Trustee as a result of its acting in its capacity as trustee hereunder, EXCEPT with respect to fees or other compensation received by the Trustee; (xii) Any Receivable classified as an "Eligible Receivable" by the Transferor or the Servicer in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of Eligible Receivable; or (xiii) Any Account classified as an "Eligible Account" by the Transferor or the Servicer in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of Eligible Account. POOLING AND SERVICING AGREEMENT 87 81 Any Indemnified Amounts due hereunder shall be payable within fifteen Business Days of submission of a claim by the Indemnified Party which describes in reasonable detail the basis for such claim. The rights of the Indemnified Parties under this Section 7.04 shall survive the collection of Receivables, the termination of the Trust, the payment of all amounts otherwise payable hereunder, the discharge of this Agreement and the resignation or removal of the Trustee. ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.01 LIABILITY OF THE SERVICER. The Servicer shall be liable hereunder only to the extent of the obligations specifically undertaken by the Servicer in such capacity herein. Section 8.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF, THE SERVICER. The Servicer shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which the Servicer is merged or which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be, if the Servicer is not the surviving entity, a corporation organized and existing under the laws of the United States of America or any State thereof and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee in form satisfactory to the Trustee, the performance of every covenant and obligation of the Servicer hereunder; (ii) the Servicer shall have delivered to the Trustee an Officer's Certificate of the Servicer, upon which the Trustee may conclusively rely, that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 8.02 and that all conditions precedent herein provided relating to such transaction have been complied with and an Opinion of Counsel, upon which the Trustee may conclusively rely, that such supplemental agreement is legal, valid and binding with respect to the Servicer; (iii) the Servicer shall have given at least 10 Business Days' prior notice to the Rating Agencies and the Trustee of such consolidation, merger, conveyance or transfer; POOLING AND SERVICING AGREEMENT 88 82 (iv) the Rating Agency Condition shall have been satisfied with respect to such assignment and succession; (v) the corporation formed by such consolidation or into which the Servicer is merged or which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall have all licenses and approvals of Governmental Authorities required to service the Receivables; and (vi) if the Person described in clause (i) is not an Affiliate of the Servicer, the Trustee shall have consented in writing to such consolidation, merger, conveyance or transfer. Section 8.03 LIMITATION ON LIABILITY. The directors, officers, employees or agents of the Servicer shall not be under any liability to the Trust, the Trustee, the Certificateholders, any Enhancement Provider or any other Person for any action taken or for refraining from the taking of such action in such capacities pursuant to this Agreement or for any obligation or covenant under this Agreement; PROVIDED, HOWEVER, that this provision shall not protect the directors, officers, employees and agents of the Servicer against any liability that would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Servicer may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person (other than the Servicer or any Affiliate thereof) respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to service the Receivables in accordance with this Agreement which in its reasonable opinion may involve it in any expense or liability. Section 8.04 SERVICER INDEMNIFICATION. The Servicer hereby agrees to indemnify each Indemnified Party from and against Indemnified Amounts awarded against or incurred by any of them (excluding however (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party and (b) recourse (except as otherwise specifically provided in any Transaction Document) for uncollectible Receivables) arising out of, relating to or resulting from: (i) reliance on any representation, warranty or covenant made or statement made or deemed made by the Servicer (or any of its Responsible Officers) under or in connection with any Transaction Document which shall have been incorrect when made or deemed made or which the Transferor shall have failed to perform; POOLING AND SERVICING AGREEMENT 89 83 (ii) the failure by the Servicer to comply with any Transaction Document or any applicable Requirement of Law with respect to any Receivable, Account, Trust Asset or related Cardholder Agreement; (iii) any failure by the Servicer to perform its duties or obligations in accordance with the provisions of any Transaction Document, including any failure to so perform in connection with servicing, administering or collecting any Receivable or Account; or (iv) any commingling of Collections at any time with other funds. Any Indemnified Amounts due hereunder shall be payable within fifteen Business Days of submission of a claim by the Indemnified Party which describes in reasonable detail the basis for such claim. The rights of the Indemnified Parties under this Section 8.04 shall survive the collection of all Receivables, the termination of the Trust, the payment of all amounts otherwise due hereunder, the discharge of this Agreement and the resignation or removal of the Trustee. Section 8.05 THE SERVICER NOT TO RESIGN. The Servicer shall not resign from the obligations and duties hereby imposed on it except upon a determination by the Servicer that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law. No such resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.02 hereof. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Trustee. The Trustee shall give prompt notice to each Rating Agency and Enhancement Provider upon the appointment of a Successor Servicer. If the Trustee is unable within 120 days of the date of such determination to appoint a Successor Servicer, the Trustee shall serve as Successor Servicer hereunder. Section 8.06 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE RECEIVABLES. Subject to the terms of any Supplement, the Servicer shall provide to the Trustee and each Enhancement Provider access to the documentation regarding the Accounts and the Receivables in such cases where the Trustee or any Enhancement Provider is required in connection with the enforcement of the rights of the Investor Certificateholders or any Enhancement Provider, or by applicable statutes or regulations, to review such documen- tation, such access being afforded without charge but only (i) upon reasonable request, (ii) during the Servicer's normal business hours, (iii) subject to normal and reasonable security and confidentiality procedures and (iv) at offices designated by the Servicer. Nothing in this Section 8.06 shall derogate from the obligation of any Originator, the Transferor, the Trustee, POOLING AND SERVICING AGREEMENT 90 84 the Servicer or any Enhancement Provider to observe any applicable law prohibiting disclosure of information regarding the Obligors and the failure of the Servicer to provide access as provided in this Section 8.06 as a result of such obligations shall not constitute a breach of this Section 8.06. Section 8.07 DELEGATION OF DUTIES. In the ordinary course of business, the Servicer may at any time delegate any duties hereunder to any Person who agrees to conduct such duties in accordance with the Cardholder Guidelines. Any such delegations shall not relieve the Servicer of its liability and responsibility with respect to such duties, and shall not constitute a resignation within the meaning of Section 8.05 hereof. Section 8.08 EXAMINATION OF RECORDS. The Servicer shall clearly and unambiguously identify each Account in its computer or other records to reflect that the Receivables arising in such Account and other Trust Assets have been Transferred to the Trust pursuant to this Agreement. The Servicer shall, prior to the sale or transfer to a third party of any receivable held in its custody, examine its computer and other records to determine that such receivable is not a Receivable. ARTICLE IX EARLY AMORTIZATION EVENTS Section 9.01 TRUST EARLY AMORTIZATION EVENTS. If any one of the following events (each, a "TRUST EARLY AMORTIZATION EVENT") shall occur: (a) any failure by the Transferor or the Servicer to make any payment, transfer or deposit required to be paid, effected or made by it hereunder within two Business Days after the same shall become due; or (b) any representation or warranty, certification or written statement made or deemed made by the Transferor or the Servicer under or in connection with this Agreement, or in any statement, record, certificate, financial statement or other document delivered pursuant to this Agreement, or in connection with this Agreement, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) the Transferor shall fail to observe or perform any covenant or agreement applicable to it contained in any Transaction Document, if such failure shall remain unremedied for two days; or POOLING AND SERVICING AGREEMENT 91 85 (d) an Insolvency Event shall occur with respect to any Originator, the Transferor, the Servicer, the Parent or the Trust; or (e) the Securities and Exchange Commission or other regulatory body having jurisdiction shall reach a final determination that the Transferor or the Trust is an "investment company" within the meaning of the Investment Company Act; or (f) any Originator for any reason shall become unable or shall cease to transfer Receivables to the Transferor pursuant to a Purchase Agreement; or the Transferor shall become unable for any reason to Transfer Receivables to the Trust in accordance with the provisions of this Agreement; or (g) the Trust at any time receives a final determination that the Trust will be treated as an association (or publicly traded partnership) taxable as a corporation for federal income tax purposes; or (h) any of the Parent, the Transferor, the Servicer or any Originator shall fail to pay principal in respect of any Indebtedness of the Parent, the Transferor, the Servicer or any Originator (as the case may be) that is outstanding (i) in a principal amount, either individually or in the aggregate, of at least $5,000,000, (ii) in the case of the Transferor, in any amount (but excluding, in each case, Indebtedness outstanding under any Transaction Document) or (iii) in the case of any Indebtedness owing by the Parent under the Credit Agreement, in any amount, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate the maturity of such Indebtedness or otherwise to cause such Indebtedness to mature; or any such Indebtedness shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (i) the amount on deposit in the Excess Funding Account exceeds at any time an amount equal to 30% of the aggregate amount of Principal Receivables in the Trust Assets at such time; then, if any of the events set forth in paragraph (d) or (f) above shall have occurred, a "Trust Early Amortization Event" with respect to all Series shall occur without any notice, demand, protest or other requirement of any kind immediately upon the occurrence of such event, and, if any of the events set forth in any other paragraph above shall have occurred, the Trustee POOLING AND SERVICING AGREEMENT 92 86 may (and, if directed to do so by a Majority in Interest of any outstanding Series or, if the related Supplement so provides, the Enhancement Provider for such Series, shall), by notice to the Transferor, the Servicer, and each Enhancement Provider, declare that a "Trust Early Amortization Event" shall occur as of the date set forth in such notice. Upon the occurrence of a Trust Early Amortization Event, additional Receivables will not be Transferred to the Trust. The Trustee shall be deemed to have knowledge of a Trust Early Amortization Event only if a Responsible Officer of the Trustee has actual knowledge or if a Responsible Officer of the Trustee has received written notice thereof. A Majority in Interest of each outstanding Series (or, if so specified in the related Supplement, each Enhancement Provider for such Series) may, on behalf of all Certificateholders, waive any default (other than a default described in paragraph (d) or (f) above) by the Transferor or the Servicer in the performance of their obligations hereunder and its consequences, except the failure to make any distributions or payments required to be made to Certificateholders or to make any required deposits of any amounts to be so distributed or paid. Certificateholders of Certificates evidencing 67% or more of the Aggregate Invested Amount of each outstanding Series (or, if so specified in the related Supplement, each Enhancement Provider for such Series) may, on behalf of all Certificateholders, waive any default described in paragraph (d) or (f) above and its consequences. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Section 9.02 ADDITIONAL RIGHTS UPON THE OCCURRENCE OF ANY TRUST EARLY AMORTIZATION EVENT. (a) Upon the occurrence and during the continuance of any Trust Early Amortization Event, in addition to all other rights and remedies under this Agreement or otherwise and all other rights and remedies provided under the UCC of the State of New York and other applicable laws (which rights shall be cumulative), each of the Servicer, at the direction of the Trustee, and the Trustee may exercise any and all rights and remedies of the Transferor under or in connection with the Purchase Agreements, including any and all rights of the Transferor to demand or otherwise require payment of any amount under, or performance of any provision of, the Purchase Agreements. Further, the Trustee may exercise any and all rights and remedies under the Parent Undertaking Agreement. (b) If an Insolvency Event with respect to the Transferor occurs, the Transferor shall immediately cease to Transfer Principal Receivables to the Trust and shall promptly give written notice of such event to the Trustee, who shall, within two Business Days, forward such notice to the Certificateholders, each Rating Agency, each Program Agent, each Enhancement Provider and the Servicer. Notwithstanding any cessation of the Transfer to the Trust of additional Principal Receivables, Finance Charge Receivables, whenever created, accrued in respect of Principal Receivables which have been Transferred to the Trust, shall continue to be a part of the Trust Assets, and Collections with respect thereto POOLING AND SERVICING AGREEMENT 93 87 shall continue to be allocated and paid in accordance with Article IV and any Supplement. Unless, within 15 Business Days after the date of the notice provided for above, the Trustee receives written instructions from a Majority in Interest of each outstanding Series (or, if so specified in the related Supplement, the Enhancement Provider for the Series) instructing the Trustee not to sell, dispose of or liquidate the Receivables, the Trustee or its agent shall promptly proceed to sell, dispose of, or otherwise liquidate the Receivables in a commercially reasonable manner and on commercially reasonable terms; PROVIDED, HOWEVER, that, if the amount available to the Trust for distribution after such sale, disposition or liquidation would be less than the aggregate unpaid Aggregate Invested Amount of the Investor Certificates plus any amount required to be deposited in any Reserve Account pursuant to any Supplement through the Distribution Date next succeeding the date of such sale, the Trustee or its agent shall not proceed with such sale, disposition or liquidation unless a Majority in Interest of each outstanding Series (or, if so specified in the related Supplement, the Enhancement Provider for such Series) shall have consented in writing thereto. The proceeds from such sale, disposition or liquidation of the Receivables shall be treated as Collections on the Receivables and shall be allocated and distributed in accordance with the terms of the Transaction Documents after being deposited in the Concentration Account; PROVIDED that the amount of such proceeds shall be determined by the Servicer based on the average allocation of Collections as Collections of Finance Charge Receivables or as Collections of Principal Receivables with respect to each of the three Distribution Dates immediately preceding the date of such distribution, as evidenced by a certificate delivered by the Servicer to the Trustee. Unless the Trustee receives written instructions from Investor Certificateholders and Enhancement Providers as provided in Section 9.02(a) above, on the day following the last Distribution Date in the Due Period during which such proceeds are distributed to the Investor Certificateholders of each Series, the Trust shall terminate. (c) The Trustee may appoint an agent or agents to assist with its responsibilities pursuant to this Article IX with respect to competitive bids. ARTICLE X SERVICER DEFAULTS Section 10.01 SERVICER DEFAULTS. If any one of the following events (a "SERVICER DEFAULT") shall occur and be continuing: (a) any failure by the Servicer to make any payment, transfer or deposit, or, if applicable, to give instructions or notice to the Trustee to make such payment, transfer or deposit, or to give notice to the Trustee as to any action to be taken under POOLING AND SERVICING AGREEMENT 94 88 any Enhancement Agreement, or to provide a Monthly Servicer's Report to the Trustee, in each case, within two Business Days after the same shall become due; or (b) the Servicer shall fail to observe or perform any other covenant or agreement applicable to it contained herein, which failure continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee or an Enhancement Provider, or to the Servicer and the Trustee by holders of Investor Certificates evidencing not less than 25% of the Series Invested Amount of any Series or an Enhancement Provider; or (c) any representation, warranty or certification made or deemed made by the Servicer under or in connection with any Transaction Document, or in any certificate or information delivered pursuant to or in connection with any Transaction Document shall prove to have been incorrect on or as of the date made or deemed made, which continues to be incorrect for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee or an Enhancement Provider, or to the Servicer and the Trustee by holders of Investor Certificates evidencing not less than 25% of the Series Invested Amount of any Series or an Enhancement Provider; or (d) an Insolvency Event shall occur with respect to the Servicer; or (e) the Servicer assigns its duties under this Agreement, except as specifically permitted by Section 8.02; or (f) The Servicer shall at any time fail to have Consolidated Tangible Net Worth of at least $250,000; then, so long as such Servicer Default shall not have been remedied, either the Trustee, or the holders of Investor Certificates evidencing Undivided Trust Interests aggregating more than 66 2/3% of the Aggregate Invested Amount, by notice then given in writing to the Servicer (and to the Trustee if given by the Investor Certificateholders) (a "SERVICER TERMINATION NOTICE"), may terminate all of the rights and obligations of the Servicer as Servicer under this Agreement. The Trustee shall promptly notify any Enhancement Provider of any such Servicer Default of which a Responsible Officer of the Trustee has actual Knowledge. After receipt by the Servicer of such Servicer Termination Notice, and on the date that a Successor Servicer accepts its appointment as such by the Trustee pursuant to Section 10.02, all authority and power of the Servicer under this Agreement shall pass to and be vested in a Successor Servicer; and, without limitation, the Trustee is hereby authorized and POOLING AND SERVICING AGREEMENT 95 89 empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights and obligations. The Servicer agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder including the transfer to such Successor Servicer of all authority of the Servicer to service the Receivables provided for under this Agreement, including all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer, in the Concentration Account, any Collection Account, the Excess Funding Account or any Series Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer in enforcing all rights to Insurance Proceeds applicable to the Trust. The Servicer shall promptly transfer its electronic records or electronic copies thereof relating to the Receivables, the Accounts and the other Trust Assets to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Receivables, the Accounts and the other Trust Assets in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 10.01 shall require the Servicer to disclose to the Successor Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interests. The Servicer shall, on the date of any servicing transfer, transfer all of its rights and obligations under any Enhancement with respect to any Series to the Successor Servicer. Notwithstanding the foregoing, a delay in or failure of performance referred to in Section 10.01(a) or (b), for a cumulative period of five Business Days shall not constitute a Servicer Default if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion, riot or sabotage, epidemics, landslides, lightning, fire, hurricanes, tornadoes, earthquakes, nuclear disasters or meltdowns, floods, power outages or similar causes. The preceding sentence shall not relieve the Servicer from using its best efforts to perform its obligations in a timely manner in accordance with the terms of this Agreement and the Servicer shall provide the Trustee, any Enhancement Provider and the Transferor with an Officer's Certificate giving prompt notice of such failure or delay by it, together with a description of the cause of such failure or delay and its efforts so to perform its obligations. Section 10.02 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. POOLING AND SERVICING AGREEMENT 96 90 (a) On and after the occurrence of a Servicer Default pursuant to Section 10.01 or a resignation of the Servicer pursuant to Section 8.05, the Servicer shall continue to perform all servicing functions under this Agreement until the date of the acceptance by a Successor Servicer of its appointment as such hereunder. The Trustee shall notify each Rating Agency of such removal of the Servicer. The Trustee shall, as promptly as possible after the giving of a Servicer Termination Notice appoint a successor servicer (the "SUCCESSOR SERVICER"), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. Each Enhancement Provider and a Majority In Interest of all Series, if any, must consent in writing to any Successor Servicer. The Trustee may obtain bids from any potential successor servicer. If (i) the Trustee is unable to obtain any bids from any potential successor servicer, and (ii) the Servicer delivers to the Trustee an Officer's Certificate to the effect that it cannot in good faith cure the Servicer Default which gave rise to a transfer of servicing, and if the Trustee is legally unable to act as Successor Servicer, then the Trustee shall notify each Investor Certificateholder and any Enhancement Provider of the proposed sale of the Receivables and shall provide each Enhancement Provider an opportunity to bid on the Receivables and shall offer the Transferor the right of first refusal to purchase the Receivables on terms equivalent to the best purchase offer as determined by the Trustee, but in no event less than an amount equal to the Aggregate Invested Amount on the date of such purchase PLUS all interest accrued but unpaid on all of the outstanding Investor Certificates at the applicable Certificate Rate, and all fees and expenses under any Supplement due but unpaid through the date of such purchase; PROVIDED, HOWEVER, that if the short-term deposits or long-term unsecured debt obligations of the Transferor (or, if neither such deposits nor such obligations of the Transferor are rated by Moody's, then of the Parent so long as the Parent shall be the beneficial owner of at least a majority of the Voting Stock of the Transferor) are not rated at the time of such purchase at least P-3 or Baa-3, respectively, by Moody's, no such purchase by the Transferor shall occur unless the Transferor shall deliver an Opinion of Counsel reasonably acceptable to the Trustee that such purchase would not constitute a fraudulent conveyance of the Transferor. The proceeds of such sale shall be deposited in the Concentration Account for distribution to the Investor Certificateholders of each outstanding Series, pursuant to Section 12.03 of this Agreement. Notwithstanding the above, the Trustee may petition a court of competent jurisdiction to appoint as the Successor Servicer hereunder any established financial institution having a combined capital and surplus of not less than $50,000,000, and whose regular business includes the servicing of credit card receivables. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. Any Successor Servicer, by its acceptance of its appointment, will automatically agree to be bound by the terms and provisions of each Supplement and Enhancement. POOLING AND SERVICING AGREEMENT 97 91 (c) In connection with such appointment and assumption, the Trustee shall be entitled to such compensation, or may make such arrangements for the compensation of the Successor Servicer out of Collections, as it and such Successor Servicer shall agree; PROVIDED, HOWEVER, that no such compensation shall be in excess of the Monthly Servicing Fee permitted to the Servicer pursuant to Section 3.02. The holder of the Exchangeable Transferor Certificate agrees that if the Servicer is terminated hereunder, it will agree to deposit a portion of the Collections in respect of Finance Charge Receivables that it is entitled to receive pursuant to Article IV to pay its share of the compensation of the Successor Servicer. (d) All authority and power granted to the Successor Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.01 and shall pass to and be vested in the Transferor and, without limitation, the Transferor is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer agrees to cooperate with the Transferor in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer its electronic records relating to the Receivables to the Transferor in such electronic form as the Transferor may reasonably request and shall transfer all other records, correspondence and documents to the Transferor in the manner and at such times as the Transferor shall reasonably request. To the extent that compliance with this Section 10.02 shall require the Successor Servicer to disclose to the Transferor information of any kind which the Successor Servicer deems to be confidential, the Transferor shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall deem necessary to protect its interests. (e) If the Servicer is removed or resigns in accordance with the provisions hereof and is replaced by a Successor Servicer, the Servicer shall pay to such Successor Servicer from time to time all costs and expenses arising in connection with the transfer of all of the duties and obligations of the Servicer under the Transaction Documents to such Successor Servicer Section 10.03 NOTIFICATION OF SERVICER DEFAULT AND SUCCESSOR SERVICER. Within two Business Days after the Servicer becomes aware of any Servicer Default, the Servicer shall give prompt written notice thereof to the Trustee, each Rating Agency and each Enhancement Provider. Upon any termination or appointment of a Successor Servicer pursuant to this Article X, the Trustee shall give prompt written notice thereof to each Rating Agency and each Enhancement Provider. POOLING AND SERVICING AGREEMENT 98 92 Section 10.04 WAIVER OF PAST DEFAULTS. Except as otherwise provided in Section 9.01, the holders of Investor Certificates evidencing Undivided Trust Interests aggregating not less than 66 2/3% of the Series Invested Amount of any Series outstanding adversely affected by a default by the Servicer or the Transferor in the performance of its obligations hereunder may waive such default and its consequences on behalf of such Series, except a default in the failure to make any required deposits or payment of interest or principal relating to such Series pursuant to Article IV which default does not result from the failure of the Paying Agent to perform its obligations to make any required deposits or payments of interest and principal in accordance with Article IV. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. ARTICLE XI THE TRUSTEE Section 11.01 DUTIES OF TRUSTEE. (a) The Trustee, prior to the occurrence of any Servicer Default of which it has actual knowledge and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and each Supplement. If a Responsible Officer of the Trustee has received written notice that a Servicer Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Subject to Section 11.01(a), no provision of this Agreement shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own negligent failure to act or its own willful misconduct; PROVIDED, HOWEVER, that: (i) the Trustee shall not be personally liable for an error of judgment made in good faith by any Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of a Majority in Interest of any Series, relating to the time, method and place POOLING AND SERVICING AGREEMENT 99 93 of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, in relation to the related Series under any Transaction Document; and (iii) the Trustee shall not be charged with knowledge of any failure by the Servicer referred to in Section 10.01 unless a Responsible Officer of the Trustee obtains Knowledge of such failure or the Trustee receives written notice of such failure from the Servicer or any holders of Investor Certificates evidencing Undivided Trust Interests aggregating not less than 10% of the Series Invested Amount of any Series adversely affected thereby or any Enhancement Provider. (c) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties under any Transaction Document, or in the exercise of any of its rights or powers, unless indemnity satisfactory to it against such risk or liability is reasonably assured and provided to it, and none of the provisions contained in any Transaction Document shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under any Transaction Document except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement or any Supplement. (d) Except for actions expressly authorized by this Agreement and not prohibited by any Supplement, the Trustee shall take no action reasonably likely to impair the interests of the Trust in any Receivable now existing or hereafter created or to impair the value of any Receivable now existing or hereafter created. (e) Except as expressly provided in this Agreement and each Supplement, the Trustee shall have no power to vary the corpus of the Trust including the power to (i) accept any substitute obligation for a Receivable initially assigned to the Trust under Section 2.01 hereof, (ii) add any other investment, obligation or Security to the Trust, (iii) withdraw from the Trust any Receivables, except for a withdrawal permitted under Section 9.02, 10.02, 12.01 or 12.02 or Article IV or Sections 2.04(d) or 2.04(e), or (iii) Transfer any interest in Receivables. (f) In the event that the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, the Trustee shall be obligated promptly to perform such obligation, duty or agreement in the manner so required. POOLING AND SERVICING AGREEMENT 100 94 (g) If the Transferor has agreed to transfer any of its credit card receivables (other than the Receivables) to another Person, upon the written request of the Transferor, the Trustee shall enter into such intercreditor agreements with the transferee of such receivables as are customary and necessary to identify separately the rights, if any, of the Trust and such other Person in the Transferor's credit card receivables; PROVIDED, that the Trustee shall not be required to enter into any intercreditor agreement which could adversely affect the interests of any Beneficiary, and, upon the request of the Trustee, any Certificateholder or any Enhancement Provider, the Transferor shall deliver to it an Opinion of Counsel and an Officer's Certificate on any matters relating to such intercreditor agreement, reasonably requested by the Trustee, such Certificateholder or such Enhancement Provider and the Trustee may conclusively rely on such Opinion of Counsel and such Officer's Certificate. (h) The Trustee shall notify each Enhancement Provider of any Early Amortization Event of which a Responsible Officer has actual knowledge, promptly upon obtaining such knowledge. Section 11.02 CERTAIN MATTERS AFFECTING THE TRUSTEE. Except as otherwise provided in Section 11.01 or in any Supplement: (a) the Trustee may conclusively rely on and shall be fully protected in acting, or in refraining from acting, in accord with any written assignment of Receivables in connection with the initial report, the Monthly Servicer's Report, the annual Servicer's certificate, the monthly payment instructions, the monthly Certificateholder's statement, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; PROVIDED, that if Chargit is not the Servicer at the time the Trustee receives any such paper or document, the Trustee shall provide a copy of such document to the Transferor; (b) the Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, any Supplement or any Enhancement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Investor Certificateholders unless such Investor Certificateholders shall have offered and provided to the Trustee reasonable security or POOLING AND SERVICING AGREEMENT 101 95 indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of any Servicer Default (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement or any Supplement and to use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of its own affairs; (d) the Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement or any Supplement; (e) the Trustee shall not be bound to make any investigation into the facts of matters stated in any written assignment of Receivables in connection with the initial report, the Monthly Servicer's Report, the annual Servicer's certificate, the monthly payment instructions and notification to the Trustee, the monthly Certificateholder's statement, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by holders of Investor Certificates evidencing Undivided Trust Interests aggregating more than 50% of the Series Invested Amount or by the Enhancement Provider for any Series, in each case that such Person could be adversely affected thereby if the Trustee does not perform such acts; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or a nominee to the extent not otherwise prohibited by any Supplement, and the Trustee shall not be responsible for any misconduct, negligence or supervision on the part of any such agent, attorney, custodian or nominee appointed with reasonable care by it hereunder; and (g) except as may be required by Section 11.0l(a), the Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects or the compliance by the Transferor with its representations and warranties or for any other purpose. (h) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. Whenever in the administration of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, the Trustee (unless other evidence in respect POOLING AND SERVICING AGREEMENT 102 96 thereof is specifically prescribed herein) may, in the absence of any negligence or bad faith on the part of the Trustee, request and conclusively rely on an Officer's Certificate. Section 11.03 TRUSTEE NOT LIABLE FOR RECITALS IN CERTIFICATES. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 11.15, the Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee in its individual capacity shall not be accountable for the use or application by the Transferor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Transferor in respect of the Receivables or deposited in or withdrawn from the Concentration Account, any Collection Account, the Excess Funding Account or any Series Account (or any other account hereafter established to effectuate the transactions contemplated by the terms of this Agreement) by the Servicer. Section 11.04 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or any other capacity may become the owner or pledgee of Investor Certificates with the same rights as it would have if it were not the Trustee. Section 11.05 THE SERVICER TO PAY TRUSTEE'S FEES AND EXPENSES. The Servicer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it, and by its agents, attorneys, custodians and nominees, in the execution of the Trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Servicer shall pay or reimburse the Trustee (without reimbursement from the Concentration Account, any Collection Account the Excess Funding Account, any Series Account or otherwise) upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Agreement except any such expense, disbursement or advance as may arise from its own gross negligence or willful misconduct and except as provided in the following sentence. If the Trustee is appointed Successor Servicer pursuant to Section 10.02, the provisions of this Section 11.05 shall not apply to expenses, disbursements and advances made or incurred by the Trustee in its capacity as Successor Servicer. The obligations of the Servicer under this Section 11.05 shall survive the termination of the Trust, the resignation or removal of the Trustee and the termination of this Agreement. POOLING AND SERVICING AGREEMENT 103 97 Section 11.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder (or, alternatively, a Person which is the direct or indirect parent corporation of the Trustee) shall at all times be a corporation organized and doing business under the laws of the United States of America or any State thereof, authorized under such laws to exercise corporate trust powers, having a long-term unsecured debt rating of at least Baa2 by Moody's and BBB- by Standard & Poor's, having a combined capital and surplus of at least $500,000,000 and subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.06, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.06, the Trustee shall resign immediately in the manner and with the effect specified in Section 11.07. Section 11.07 RESIGNATION OR REMOVAL OF TRUSTEE. (a) The Trustee may at any time resign and be discharged from the Trust hereby created by giving written notice thereof to the Transferor, the Servicer, each Program Agent, each Enhancement Provider and the Rating Agencies. Upon receiving such notice of resignation, the Servicer shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, the resigning Trustee, upon notice to the Transferor and the Servicer may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 11.06 hereof and shall fail to resign after written request therefor by the Transferor or the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged as bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Transferor or the Servicer may, but shall not be required to, upon 10 days' prior written notice to the others, remove the Trustee and then the Servicer shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. Any such appointment shall be subject to the prior written consent of the Servicer, each Program Agent and each Enhancement Provider. (c) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 11.07 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 11.08 POOLING AND SERVICING AGREEMENT 104 98 hereof and any liability of the Trustee arising hereunder shall survive such appointment of a successor trustee. Section 11.08 SUCCESSOR TRUSTEE. (a) Any successor trustee appointed as provided in Section 11.07 hereof shall execute, acknowledge and deliver to the Transferor, the Servicer and its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents and statements held by it hereunder, and the Transferor and the predecessor Trustee shall execute and deliver such instruments required or contemplated hereunder or under any Supplement and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. Thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder and under each Supplement, with like effect as if originally named as Trustee herein and therein. (b) No successor trustee shall accept appointment as provided in this Section 11.08 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 11.06 hereof and all amounts owing to the predecessor trustee shall have been paid. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.08, such successor trustee shall mail notice of such succession hereunder to each Rating Agency and Enhancement Provider and to all Investor Certificateholders at their addresses as shown in the Certificate Register. Section 11.09 MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.06 hereof, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. POOLING AND SERVICING AGREEMENT 105 99 Section 11.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a) Notwithstanding any other provisions of this Agreement or any Supplement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Investor Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 11.06 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.08 hereof. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or POOLING AND SERVICING AGREEMENT 106 100 property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 11.11 TAX RETURNS. In the event the Trust shall be required to file tax returns, the Trustee, as soon as practicable after it is made aware of such requirement, shall prepare or cause to be prepared any tax returns required to be filed by the Trust and, to the extent possible, shall file such returns at least five days before such returns are due to be filed. The costs and expenses associated with the preparation of such tax returns shall be payable by the Servicer pursuant to Section 11.05 hereof. The Trustee is hereby authorized to sign any such return on behalf of the Trust. The Servicer shall also prepare or cause to be prepared all tax information required by law to be distributed to Certificateholders and shall deliver such information to the Trustee at least five days prior to the date it is required by law to be distributed to Certificateholders. The Servicer, upon request, shall furnish the Trustee with all such information known to the Servicer as may be reasonably required in connection with the preparation of all tax returns of the Trust. In no event shall the Trustee be liable for any liabilities, costs or expenses of the Trust or the Investor Certificateholders arising under any tax law, including federal, state, local or foreign income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith). Section 11.12 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF CERTIFICATES. All rights of action and claims under this Agreement or any Series may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee or agent. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of any Series in respect of which such judgment has been obtained. POOLING AND SERVICING AGREEMENT 107 101 Section 11.13 SUITS FOR ENFORCEMENT. (a) If a Servicer Default shall occur and be continuing, the Trustee, in its discretion may, for the equal and ratable benefit of the Investor Certificateholders (in accordance with their Series Invested Amounts), subject to the provisions of Sections 10.01 and 11.14, proceed to protect and enforce its rights and the rights of the Investor Certificateholders of any Series under this Agreement or any Supplement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any Supplement, or in aid of the execution of any power granted in this Agreement or any Supplement, or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Investor Certificateholders of any Series. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Beneficiary any plan of reorganization, arrangement, adjustment or composition affecting any interests in the Receivables or the rights of any owner thereof, or to authorize the Trustee to vote in respect of the claim of any Beneficiary in any such proceeding. Section 11.14 RIGHTS OF INVESTOR CERTIFICATEHOLDERS TO DIRECT TRUSTEE. A Majority in Interest of the Aggregate Invested Amount (or with respect to any remedy, trust or power that does not relate to all Series, a Majority in Interest of all Series to which such remedy, trust or power relates) shall have the right to direct the Trustee (i) with respect to the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, and (ii) to exercise any right, remedy or power provided to Investor Certificateholders of a Series pursuant to the related Supplement, and the Trustee shall so act; PROVIDED, HOWEVER, that, subject to Section 11.01, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Investor Certificateholders not parties to such direction; and PROVIDED, FURTHER, that nothing in this Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of such holders of Investor Certificates. Section 11.15 REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE. The Trustee, in its individual capacity, represents and warrants that: (a) the Trustee is a banking corporation duly organized, validly existing and in good standing under the laws of the State of New York, and has the power to own its assets and to transact the business in which it is presently engaged; POOLING AND SERVICING AGREEMENT 108 102 (b) the Trustee has full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and (c) this Agreement has been duly executed and delivered by the Trustee and constitutes a legal, valid and binding obligation of the Trustee enforceable against the Trustee in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and except as such enforceability may be limited by general principles of equity, whether considered in a suit at law or in equity). Section 11.16 MAINTENANCE OF OFFICE OR AGENCY. The Trustee shall maintain at its expense in New York, New York an office or offices, or agency or agencies, where notices and demands to or upon the Trustee in respect of the Certificates and this Agreement may be served. The Trustee initially appoints the Corporate Trust Office, as its office for such purposes. The Trustee shall give prompt written notice to the Servicer, Certificateholders and each Enhancement Provider of any change in the location of the Certificate Register or any such office or agency. ARTICLE XII TERMINATION Section 12.01 TERMINATION OF TRUST. (a) The Trust and the respective obligations and responsibilities of the Transferor, the Servicer and the Trustee created hereby (other than the obligation of the Trustee to make payments to Certificateholders as hereinafter set forth) shall terminate, except with respect to the duties described in Sections 7.04, 8.04, 11.05 and 12.03(b), on the Trust Termination Date; PROVIDED, HOWEVER, that the Trust shall not terminate on the date specified in clause (b)(i) of the definition of "Trust Termination Date" if each of the Servicer and the holder of the Exchangeable Transferor Certificate notify the Trustee in writing, not later than 5 Business Days preceding such date, that they desire that the Trust not terminate on such date, which notice (such notice, a "TRUST EXTENSION") shall specify the date on which the Trust shall terminate (such date, the "EXTENDED TRUST TERMINATION DATE"); PROVIDED, HOWEVER, that the Extended Trust Termination Date shall be not later than December 30, 2017. The Servicer and the holder of the Exchangeable Transferor Certificate may, on any date following the Trust Extension, so long as no Series is outstanding, deliver a notice in writing to the Trustee changing the Extended Trust Termination Date. POOLING AND SERVICING AGREEMENT 109 103 (b) In the event that (i) the Trust has not terminated by the last Distribution Date occurring in the second month preceding the Trust Termination Date, and (ii) (A) the Series Invested Amount and, if applicable, the Enhancement Invested Amount of any Series (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal on any Series of Certificates to be made on the related Distribution Date during such month pursuant to Article IV or any Supplement) are greater than zero or (B) Loss Amounts allocated to any Series to the extent such amounts can be reimbursed pursuant to the related Supplement remain unreimbursed, or (C) any party to a Supplement is owed accrued interest, fees or expenses, then the Servicer shall sell within 30 days after such Distribution Date all the Receivables. The proceeds of any sale shall be treated as Collections on the Receivables and shall be allocated and distributed in accordance with Article IV and each Supplement; PROVIDED, HOWEVER, that the amount of such proceeds which are allocable to Finance Charge Receivables and the amount of such proceeds which are allocable to Principal Receivables shall be determined by the Servicer based on the average allocation of Collections as Collections of Finance Charge Receivables or as Collections of Principal Receivables with respect to each of the three Distribution Dates immediately preceding the date of such distribution, as evidenced by a certificate delivered by the Servicer to the Trustee. During such thirty day period, the Servicer shall continue to collect payments on the Receivables and allocate and deposit such payments in accordance with the provisions of Article IV. (c) All principal, interest, fees and expenses with respect to any Series shall be due and payable no later than the applicable Series Termination Date. Unless otherwise provided in a Supplement, in the event that the Series Invested Amount and, if applicable, the Enhancement Invested Amount of any Series is greater than zero on its Series Termination Date (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal, interest and fees to be made on such Series on such date), the Trustee will sell or cause to be sold all the Receivables, and allocate and distribute all the proceeds of such sale in accordance with Article IV and each Supplement. Any proceeds of such sale in excess of the amounts described in the preceding sentence shall be paid to the holder of the Exchangeable Transferor Certificate. Upon such Series Termination Date with respect to the applicable Series, final payment of all amounts allocable to any Investor Certificates or, if applicable, Enhancement Invested Amounts of such Series shall be made in the manner provided in Section 12.03. Section 12.02 OPTIONAL PURCHASE. (a) If so provided in any Supplement, the Transferor may, but shall not be obligated to, cause a final distribution to be made in respect of the related Series on a Distribution Date specified in such Supplement by depositing into the Collection Account or the applicable Series Account, not later than the Business Day prior to such Distribution Date, for application in accordance with Section 12.03, the amount specified in such Supplement. POOLING AND SERVICING AGREEMENT 110 104 (b) The amount deposited pursuant to Section 12.02(a) shall be paid on the related Distribution Date to the Investor Certificateholders of the related Series pursuant to Section 12.03. All Certificates of a Series which are to be redeemed by the Trust pursuant to Section 12.02(a) shall be canceled by the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Transferor. The Series Invested Amount of each Series which is redeemed by the Trust pursuant to Section 12.02(a) shall, for the purposes of the definition of "Transferor Invested Amount," be deemed to be equal to zero on the Distribution Date following the making of the deposit, and the Transferor Invested Amount shall thereupon be deemed to have been increased by the Series Invested Amount of such Series. Section 12.03 FINAL PAYMENT WITH RESPECT TO ANY SERIES. (a) Written notice of any termination, specifying the Distribution Date upon which the Investor Certificateholders of any Series may surrender their Certificates for payment of the final distribution with respect to such Series and cancellation, shall be given (subject to at least two Business Days' prior notice from the Servicer to the Trustee) by the Trustee to Investor Certificateholders of such Series mailed not later than the fifth day of the month of such final distribution (or in the manner provided by the Supplement relating to such Series) specifying (i) the Distribution Date (which shall be the Distribution Date in the month (x) in which the deposit is made pursuant to Section 2.04(e), 9.02(b), 10.02(a), or 12.02(a) of this Agreement or such other section as may be specified in the related Supplement, or (y) in which the related Series Termination Date occurs) upon which final payment of such Investor Certificates will be made upon presentation and surrender of such Investor Certificates at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent (if not the Trustee) at the time such notice is given to such Investor Certificateholders. (b) Notwithstanding the termination of the Trust pursuant to Section 12.01(a) or the occurrence of the Series Termination Date with respect to any Series, all funds then on deposit in any Collection Account, the Concentration Account, the Excess Funding Account or any Series Account applicable to the related Series shall continue to be held in trust for the benefit of the Investor Certificateholders of the related Series, and the Paying Agent or the Trustee shall pay such funds to the Certificateholders of the related Series upon surrender of their Certificates. In the event that all of the Investor Certificateholders of any Series shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders of such Series upon receipt of the appropriate records from the Transfer Agent and Registrar to surrender their Certificates for cancellation and receive the POOLING AND SERVICING AGREEMENT 111 105 final distribution with respect thereto. The Trustee and the Paying Agent shall pay to the Transferor upon written request any funds held by them for the payment of principal or interest which remains unclaimed for two years. After payment to the Transferor, Investor Certificateholders entitled to such funds may seek recovery only from the Transferor as general creditors unless an applicable abandoned property law designates another Person. (c) All Certificates surrendered for payment of the final distribution with respect to such Certificates and cancellation shall be canceled by the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Transferor. Section 12.04 TERMINATION OF RIGHTS OF HOLDER OF EXCHANGEABLE TRANSFEROR CERTIFICATE. Upon the termination of the Trust pursuant to Section 12.01, and after payment of all amounts due hereunder or under any other Transaction Document on or prior to such termination and the surrender of the Exchangeable Transferor Certificate, the Trustee shall execute a written reconveyance substantially in the form of Exhibit G pursuant to which it shall reconvey to the holder of the Exchangeable Transferor Certificate (without recourse, representation or warranty) all Trust Assets, except for amounts held by the Trustee pursuant to Section 12.03(b). The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, representation or warranty, as shall be reasonably requested by the holder of the Exchangeable Transferor Certificate to vest in such holder all right, title and interest which the Trust had in the Receivables. Section 12.05 DEFEASANCE. Notwithstanding anything to the contrary in this Agreement or any Supplement: (a) The Transferor and any Affiliate of Transferor that is a holder of the Exchangeable Transferor Certificate may at Transferor's option be discharged from its obligations hereunder with respect to any Series or all outstanding Series (the "DEFEASED SERIES") on the date the applicable conditions set forth in Section 12.05(c) are satisfied (a "DEFEASANCE"); PROVIDED, HOWEVER, that the following rights, obligations, powers, duties and immunities shall survive with respect to the Defeased Series until otherwise terminated or discharged hereunder: (i) the rights of the holders of Investor Certificates of the Defeased Series to receive, solely from the trust fund provided for in Section 12.05(c), payments in respect of principal of and interest on such Investor Certificates when such payments are due; (ii) the right of any Beneficiary to the payment of indemnities and any other amount due to it under any Transaction Document; (iii) the Transferor's obligations with respect to such Certificates under Sections 6.03 and 6.04; (iv) the rights, powers, trusts, duties, and immunities of the Trustee, the Paying Agent and the Registrar hereunder (including, without limitation, Section 7.04 hereof); and (v) this Section 12.05. POOLING AND SERVICING AGREEMENT 112 106 (b) Subject to Section 12.05(c), the Transferor at its option may cause Collections allocated to the Defeased Series and available to purchase Principal Receivables to be applied to purchase Permitted Investments rather than Principal Receivables. (c) The following shall be the conditions to Defeasance under Section 12.05(a): (i) The Transferor irrevocably shall have deposited or caused to be deposited with the Trustee (such deposit to be made from other than the funds of the Transferor or any Affiliate of the Transferor's funds), under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust for making the payments described below, (A) Dollars in an amount, or (B) Permitted Investments which through the scheduled payment of principal and interest in respect thereof will provide, not later than the due date of payment thereon, money in an amount, or (C) a combination thereof, in each case sufficient to pay and discharge, and which shall be applied by the Trustee to pay and discharge, all remaining scheduled interest and principal payments on all outstanding Investor Certificates of the Defeased Series on the dates scheduled for such payments in this Agreement and the applicable Supplements and all amounts owing to the Enhancement Providers with respect to the Defeased Series; (ii) prior to its first exercise of its right pursuant to this Section 12.05 with respect to a Defeased Series to substitute money or Permitted Investments for Receivables, if any Series of Investor Certificates are outstanding that were characterized as debt at the time of their issuance, the Transferor shall have delivered to the Trustee a Tax Opinion with respect to such deposit and termination of obligations and (in any case) an Opinion of Counsel to the effect that such deposit and termination of obligations will not result in the Trust being required to register as an "investment company" within the meaning of the Investment Company Act; (iii) the Transferor shall have delivered to the Trustee and any Enhancement Provider an Officer's Certificate of the Transferor stating the Transferor reasonably believes that such deposit and termination of obligations will not, based on the facts known to such officer at the time of such certification, then cause an Early Amortization Event or any event that with the giving of notice or the lapse of time would constitute an Early Amortization Event; and (iv) the Rating Agency Condition shall have been satisfied and the Transferor POOLING AND SERVICING AGREEMENT 113 107 shall have delivered copies of such written notice to the Servicer and the Trustee. ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.01 AMENDMENT. (a) This Agreement or any Supplement may be amended in writing from time to time by the Servicer, the Transferor, the holder of the Exchangeable Transferor Certificate and the Trustee, without the consent of any Investor Certificateholder; PROVIDED that such action shall not, as evidenced by an Opinion of Counsel for the Transferor addressed and delivered to the Trustee, adversely affect in any material respect the interests of any Beneficiary; PROVIDED, FURTHER, that the Rating Agency Condition shall have been satisfied with respect to such amendment. (b) This Agreement or any Supplement may also be amended in writing from time to time by the Servicer, the Transferor, the holder of the Exchangeable Transferor Certificate and the Trustee, with the consent of the holders of Investor Certificates evidencing Undivided Trust Interests aggregating not less than 66 2/3% of the Series Invested Amount, of each outstanding Series adversely affected by such amendment for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or any Supplement or modifying in any manner the rights of Investor Certificateholders of any outstanding Series; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions that are required to be made on any Investor Certificates of any such Series without the consent of each Investor Certificateholder of such Series affected thereby, (ii) change the definition of or the manner of calculating the Series Invested Amount, the Loss Amount or the Investor Percentage without the consent of each Investor Certificateholder of all Series adversely affected thereby, or (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each Investor Certificateholder of each Series adversely affected thereby. Any amendment to be effected pursuant to this Article XIII shall be deemed to affect adversely all outstanding Series, other than any Series with respect to which such action shall not, as evidenced by an Opinion of Counsel as described in Section 13.01(a), adversely affect in any material respect the interests of such Series. The Trustee may, but shall not be obligated to, enter into any such Amendment which affects the Trustee's rights, duties or immunities under this Agreement or otherwise. POOLING AND SERVICING AGREEMENT 114 108 (c) Notwithstanding anything in this Section 13.01 to the contrary, the Supplement with respect to any Series may be amended on the terms and in accordance with the procedures provided in such Supplement. (d) Promptly after the execution of any such amendment, the Servicer shall furnish notification of the substance of such amendment to each Investor Certificateholder of each Series adversely affected thereby, each Enhancement Provider, and each Rating Agency. (e) It shall not be necessary for the consent of Investor Certificateholders under this Section 13.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. (f) Any Supplement executed and delivered pursuant to Section 6.09, executed in accordance with the provisions hereof, shall not be considered an amendment to this Agreement for the purpose of Sections 13.01(a) and (b). (g) In connection with any amendment, the Trustee may request an Opinion of Counsel from the Transferor or Servicer to the effect that the amendment complies with all requirements of this Agreement. Section 13.02 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholders or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) Except as set forth in this Agreement or any Supplement, no Certificateholder shall have any right to vote or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association, nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement or any Supplement pursuant to any provision hereof or thereof. (c) No Investor Certificateholder shall have any right by virtue of any provisions of this Agreement or any Supplement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement or any Supplement, unless POOLING AND SERVICING AGREEMENT 115 109 such Investor Certificateholder previously shall have made, and unless the holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount of all Certificates (or, with respect to any such action, suit or proceeding that does not relate to all Series, 50% of the Aggregate Invested Amount of all Series to which such action, suit or proceeding relates), shall have made, a request in writing to the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 30 days after such request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Investor Certificateholder with every other Certificateholder and the Trustee, that no one or more Investor Certificateholders shall have the right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement or any Supplement to affect, disturb or prejudice the rights of any other Investor Certificateholder, or to obtain or seek to obtain priority over or preference to any other such Investor Certificateholder, or to enforce any right under this Agreement or any Supplement, except in the manner herein provided and for the equal, ratable and common benefit of all Investor Certificateholders except as otherwise expressly provided in this Agreement or any Supplement with respect to any Enhancement applicable to any Series. For the protection and enforcement of the provisions of this Section 13.02, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. (d) No Certificateholder shall have the right to sell, assign or transfer any interest in any Principal Receivables or Finance Charge Receivables except in connection with any sale, assignment or transfer of Investor Certificates by such Certificateholder in accordance with the Transaction Documents. Section 13.03 GOVERNING LAW, ETC. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE TRUSTEE ON BEHALF OF THE TRUST IN THE TRUST ASSETS IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive general jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or POOLING AND SERVICING AGREEMENT 116 110 proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. (d) WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Agreement, any other Transaction Document or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto and the liquidity providers or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. Section 13.04 NOTICES. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at, sent by facsimile to, sent by courier or mailed by registered mail, return receipt requested, to (a) in the case of the Transferor, 3155 El-Bee Road, Dayton, Ohio 45349; Attention: President, (b) in the case of the Servicer, 3155 El-Bee Road, Dayton, Ohio 45349; Attention: President, (c) in the case of the Trustee, the Corporate Trust Office, (d) in the case of the Enhancement Provider for a particular Series, the address, if any, specified in the related Supplement, (e) in the case of the Program Agent for a particular Series, the address, if any, specified in the related Supplement, or (f) in the case of the Rating Agency for a particular Series, the address, if any, specified in the related Supplement. POOLING AND SERVICING AGREEMENT 117 111 Unless otherwise provided with respect to any Series in the related Supplement, any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 13.05 SEVERABILITY OF PROVISIONS. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or rights of the Certificateholders thereof hereunder. Section 13.06 ASSIGNMENT. Notwithstanding anything to the contrary contained herein, except as provided in Section 8.02, this Agreement may not be assigned by the Transferor or the Servicer without the prior written consent of the holders of Investor Certificates evidencing Undivided Trust Interests aggregating not less than 66 2/3% of the Series Invested Amount of each Series on a Series by Series basis. Section 13.07 CERTIFICATES NON-ASSESSABLE AND FULLY PAID. It is the intention of the parties to this Agreement that the Certificateholders shall not be personally liable for obligations of the Trust, that the Undivided Trust Interests represented by the Certificates shall be non-assessable for any losses or expenses of the Trust or for any reason whatsoever, and that Certificates upon authentication thereof by the Trustee pursuant to Sections 2.01 and 6.02 are and shall be deemed fully paid. Section 13.08 FURTHER ASSURANCES. The Transferor and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. Section 13.09 NON-PETITION COVENANT. Notwithstanding any prior termination of this Agreement, the Servicer, the Enhancement Provider, any holder of the Exchangeable Transferor Certificate, the Trustee and the Transferor, shall not, prior to the date which is one year and one day after the last day on which any Investor Certificate shall have been outstanding, acquiesce, petition or otherwise invoke or cause the Trust or the Transferor to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Transferor under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, POOLING AND SERVICING AGREEMENT 118 112 sequestrator or other similar official of the Trust or the Transferor or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Trust or the Transferor. Section 13.10 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of any Beneficiary, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, and privileges provided by law. Section 13.11 COUNTERPARTS. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. Section 13.12 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the parties hereto, the Certificateholders and, to the extent provided herein, in the related Supplement or in any other Transaction Document, any Enhancement Provider or other Beneficiary named therein, and their respective successors and permitted assigns. Except as otherwise provided in this Article XIII, no other Person shall have any right or obligation hereunder. Section 13.13 ACTIONS BY CERTIFICATEHOLDERS. (a) Whenever in this Agreement a provision is made that an action may be taken or a notice, demand or instructions given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholder, unless such provision requires a specific percentage of Investor Certificateholders. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. Section 13.14 RULE 144A INFORMATION. For so long as any of the Investor Certificates of any Series are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, each of the Transferor, the Servicer, the Trustee and the Enhancement Provider for such Series agree to cooperate with each other to provide to any Investor POOLING AND SERVICING AGREEMENT 119 113 Certificateholders of such Series and to any prospective purchaser of Certificates designated by such an Investor Certificateholder upon the request of such Investor Certificateholder or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the Securities Act. Section 13.15 MERGER AND INTEGRATION. Except as specifically stated otherwise herein, this Agreement, together with the other Transaction Documents, sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by the Transaction Documents. This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 13.16 HEADINGS. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. POOLING AND SERVICING AGREEMENT 120 Section 13.17 INCONSISTENT PROVISIONS. To the extent that any provision in any Supplement or in any certificate or document delivered in connection with any Supplement is inconsistent with any provision under this Agreement, or in any circumstance in which it is unclear whether such Supplement or this Agreement shall control, the provisions contained in such Supplement (or such certificate or other document) shall control with respect to the related Series. IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. THE EL-BEE RECEIVABLES CORPORATION By: --------------------------------- Name: Title: THE EL-BEE CHARGIT CORP. By: --------------------------------- Name: Title: BANKERS TRUST COMPANY, as Trustee By: --------------------------------- Name: Title: POOLING AND SERVICING AGREEMENT 121 EXHIBIT A FORM OF MONTHLY SERVICER'S REPORT POOLING AND SERVICING AGREEMENT 122 EXHIBIT B FORM OF EXCHANGEABLE TRANSFEROR CERTIFICATE , 1997 -------------- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT. THE HOLDER HEREOF AGREES FOR THE BENEFIT OF THE TRUST THAT THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO THE EXTENT PERMITTED IN THE TRANSACTION DOCUMENTS. ELDER-BEERMAN MASTER TRUST EXCHANGEABLE TRANSFEROR CERTIFICATE THIS CERTIFICATE REPRESENTS AN UNDIVIDED INTEREST IN CERTAIN ASSETS OF THE ELDER-BEERMAN MASTER TRUST the corpus of which consists primarily of certain receivables generated from time to time by The Elder-Beerman Stores Corp. (the "COMPANY") which are then purchased by The El-Bee Chargit Corp. ("CHARGIT") (together, the "ORIGINATORS") and then purchased by The El-Bee Receivables Corporation, a Delaware corporation (the "TRANSFEROR") from the Originators, which in turn transfers and assigns such receivables to the Elder-Beerman Master Trust pursuant to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, Chargit, as Servicer, and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as POOLING AND SERVICING AGREEMENT 123 B-2 defined therein). This Certificate does not represent any recourse obligation of, and is not guaranteed by, the Transferor, the Company, Chargit or any Affiliate of any of them. This certifies that THE EL-BEE RECEIVABLES CORPORATION is the registered owner of the fractional undivided interest (the "TRANSFEROR INTEREST") in the assets of the Elder-Beerman Master Trust (the "TRUST") not represented by the Investor Certificates pursuant to the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual or facsimile signature, this Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement or be valid for any purpose. The corpus of the Trust consists of (i) a portfolio of Receivables arising in connection with Accounts identified under the Pooling and Servicing Agreement from time to time, (ii) funds collected or to be collected from Obligors in respect of the Receivables, (iii) all funds which are from time to time on deposit in the Concentration Account, the Collection Accounts, and any other account or accounts held for the benefit of Certificateholders and (iv) all other assets and interests constituting the Trust Assets. This Certificate is issued under and is subject to the terms, provisions and conditions of the Transaction Documents. Although a summary of certain provisions of the Transaction Documents is set forth below, this Certificate does not purport to summarize the Transaction Documents and is qualified in its entirety by the terms and provisions of the Transaction Documents, and reference is made to the Transaction Documents for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee, the Servicer and the other parties bound by the Transaction Documents. This Certificate is the Exchangeable Transferor Certificate, which represents an interest in the Trust, including the right to receive Collections and other amounts at the times and in the amounts specified in the Transaction Documents to be paid to the holder of the Exchangeable Transferor Certificate. In addition to this Certificate, Investor Certificates are being issued to investors pursuant to the Transaction Documents, which will represent the interests of Investor Certificateholders in the Trust. This Certificate shall not represent any interest in the Concentration Account, any Collection Account, or other account or Trust Asset except as provided in the Transaction Documents. Subject to certain conditions in the Transaction Documents, the obligations created by the Transaction Documents and the Trust created thereby shall terminate upon the earlier of (i) the Trust Termination Date or the Extended Trust Termination Date, as applicable, and (ii) the Termination Date of the last outstanding Series of Certificates. POOLING AND SERVICING AGREEMENT 124 B-3 By its acceptance of this Exchangeable Transferor Certificate, the holder hereof agrees that it will take no action with respect to such holder's rights under the Transaction Documents that would violate the terms of the Transaction Documents. Upon termination of the Trust pursuant to Article XII of the Pooling and Servicing Agreement, subject to the provisions of the Transaction Documents, payment in full of the Investor Certificateholders and the surrender of this Certificate, the Trustee shall assign and convey to the holder of the Exchangeable Transferor Certificate (without recourse, representation or warranty (except for the representation that each Receivable and all other Trust Assets will be free and clear of all Liens)) all right, title and interest of the Trust in the Trust Assets, whether then existing or thereafter created, including the Receivables and all proceeds thereof, except for amounts held by the Trustee pursuant to Section 12.03(b) of the Pooling and Servicing Agreement. The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, as shall be reasonably requested by the Transferor to vest in the Transferor all right, title and interest which the Trust has in the Trust Assets. IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly executed. Dated: ________ __, ___ THE EL-BEE RECEIVABLES CORPORATION By: -------------------------------- Name: Title: POOLING AND SERVICING AGREEMENT 125 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Certificates described in the within-mentioned Pooling and Servicing Agreement. Dated __________ __, 1997 BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: ______________________ OR By: ______________________________ Authorized Signer Authenticating Agent for the Trustee By: ______________________________ Authorized Signer POOLING AND SERVICING AGREEMENT 126 EXHIBIT C FORM OF ANNUAL SERVICER'S CERTIFICATE The undersigned, a duly authorized officer of The El-Bee Chargit Corp. (the "SERVICER"), as Servicer pursuant to the Pooling and Servicing Agreement, dated as of December 30, 1997 (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as defined therein) by and among The El-Bee Receivables Corporation, as Transferor, the Servicer, and Bankers Trust Company, as Trustee, does hereby certify that: 1. ______________ is, as of the date hereof, the Servicer under the Pooling and Servicing Agreement. 2. The undersigned is duly authorized pursuant to the Pooling and Servicing Agreement to execute and deliver this Certificate to the Trustee and each Enhancement Provider. 3. This Certificate is delivered pursuant to Section 3.05 of the Pooling and Servicing Agreement. 4. A review of the activities of the Servicer during the prior calendar year and its performance under the Pooling and Servicing Agreement was conducted under my supervision. 5. Based on such review, the Servicer has, to the best of my knowledge, fully performed all its obligations under all of the Transaction Documents throughout such period and no default in the performance of such obligations has occurred or is continuing except as set forth in paragraph 6 below. 6. The following is a description of each default in the performance of the Servicer's obligations under the provisions of any of the Transaction Documents, known to us to have been made during such period, which sets forth in detail (i) the nature of each such default, (ii) the action taken by the Servicer, if any, to remedy each such default and (iii) the current status of each such default: POOLING AND SERVICING AGREEMENT 127 C-2 [If applicable, insert "None."] IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this ____ day of _________, ______. By: ________________________ Name: Title: POOLING AND SERVICING AGREEMENT 128 EXHIBIT D FORM OF ANNUAL INDEPENDENT ACCOUNTANT'S SERVICING REPORT POOLING AND SERVICING AGREEMENT 129 EXHIBIT E-1 FORM OF COLLECTION ACCOUNT LETTER [Date] [Bank] [Address] Attention: _________ Ladies and Gentlemen: Reference is made to collection account no. _________ into which certain monies, instruments and other properties are deposited from time to time (the "COLLECTION ACCOUNT") maintained with [Bank] ("YOU" or the "BANK") by The El-Bee Chargit Corp. and The Elder-Beerman Stores Corp. (together being the "CUSTOMER"). The Customer and certain of its affiliates have entered into a transaction pursuant to which the Collection Account and the other Account Collateral (as defined below) are to be transferred to Bankers Trust Company, as trustee (the "TRUSTEE") for The Elder-Beerman Master Trust, established pursuant to a Pooling and Servicing Agreement (the "POOLING AND SERVICING AGREEMENT"), dated as of December 30, 1997, among The El-Bee Receivables Corporation, as transferor (the "TRANSFEROR"), The El-Bee Chargit Corp., as servicer (the "SERVICER"), and the Trustee (the "RECEIVABLES TRANSACTION"). It is a condition precedent to the Receivables Transaction that you execute and deliver this Collection Account Letter. Terms defined in the Pooling and Servicing Agreement, unless otherwise defined herein, are used herein as therein defined. Pursuant to the Transaction Documents, the Customer and certain of its affiliates have granted to the Trustee, for the benefit of the Beneficiaries, a security interest in certain property of the Customer, including, among other things, the following (the "ACCOUNT COLLATERAL"): the Collection Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such Collection Account, all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral and all proceeds of any and all of the foregoing Account Collateral and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Trustee is POOLING AND SERVICING AGREEMENT 130 E-2 the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Account Collateral and (ii) cash. It is a condition to the continued maintenance of the Collection Account with you that you agree to this Collection Account Letter. You hereby agree that the Trustee, for the benefit of the Beneficiaries, possesses all right, title and interest in and to the Collection Account and all Account Collateral now or hereinafter on deposit in the Collection Account and further agree that all funds in the Collection Account shall be transferred to the Trustee on behalf of the Trust in accordance with the instructions set forth herein. You also agree that the Trustee shall have full and irrevocable right, power and authority to demand, collect, withdraw, receive or sue for all amounts now or hereafter on deposit in the Collection Account and at its discretion to take any other action which it deems necessary or appropriate to protect its interest, on behalf of the Beneficiaries, in the Collection Account. Except as provided in paragraph (i) below, the Collection Accounts shall not be subject to deductions, set-off, banker's liens or any other right in favor of any person or entity other than the Trustee, the Trust or the other Beneficiaries referred to in the Pooling and Servicing Agreement. By signing this Collection Account Letter you acknowledge that, as of the date hereof, you have received no notice of any other pledge or assignment of the Collection Account. Further, you hereby agree with the Trustee as follows: (a) Notwithstanding anything to the contrary in the Collection Account and all or any other agreement relating to the Collection Account, the Collection Account is and will be, subject to the terms and conditions of the Transaction Documents, maintained solely for the benefit of the Trustee, will be entitled "Bankers Trust Company, as Trustee, Re: The Elder-Beerman Master Trust" and will be subject to written instructions only from an authorized officer of the Trustee. The Collection Account and all of the Account Collateral shall be in the sole dominion and control of the Trustee, and the Customer shall have no control thereover. (b) You will collect mail from the Collection Account on each Business Day at times which coincide with the delivery of mail thereto. (c) You will follow your usual operating procedures for the handling of any remittance received in the Collection Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees, etc. POOLING AND SERVICING AGREEMENT 131 E-3 (d) You will endorse and process all eligible checks and other remittance items not covered by paragraph (c) and deposit such checks and remittance items in the Collection Account. (e) You will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Customer (with a copy of the notification of return to the Trustee). The Customer shall indemnify you for the uncollected amounts of any such items. (f) You will maintain a record of all checks and other remittance items received in the Collection Account and, in addition to providing the Customer with photostats, vouchers, enclosures, etc. of such checks and remittance items on a daily basis, furnish to the Trustee a monthly statement of the Collection Account to: Bankers Trust Company, as Trustee, Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group/Structured Finance Team, with a copy to the Customer. (g) You will transfer, in available funds, on each Business Day, all funds on deposit in the Collection Account to the following account (the "CONCENTRATION ACCOUNT"): ABA Number: 021001033 Bankers Trust Company Four Albany Street New York, New York 10006 Account Name: BTCO f/a/o Elder-Beerman Concentration Account Account Number: 01419647 Reference: Elder-Beerman Concentration Account Attention: Structured Finance Team or to such other account as the Trustee may from time to time designate in writing. (h) Subject to paragraph (i) below, all transfers referred to in paragraph (g) above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Trustee for any reason any such payment once made. (i) All customary service charges and fees with respect to the Collection Account shall be debited to the Collection Account, together with any items deposited to the Collection Account which are returned unpaid. In the event insufficient funds POOLING AND SERVICING AGREEMENT 132 E-4 remain in such Collection Account to cover such customary service charges and fees, the Customer shall pay and indemnify you for the amounts of such customary service charges and fees. (j) The Trustee shall be entitled to exercise any and all rights of the Customer in respect of the Collection Account in accordance with the terms of the Transaction Documents, and the undersigned shall comply in all respects with such exercise. The Collection Account Letter shall be binding upon and shall inure to the benefit of you, the Customer, the Trustee, the Program Agent, the Beneficiaries and their respective successors, transferees and assigns. You may terminate the Collection Account Letter only upon thirty days' prior written notice to the Customer and the Trustee. The Trustee may terminate this Collection Account Letter upon ten days' prior written notice to you and the Customer. Upon such termination you shall close the Collection Account and transfer all funds in the Collection Account to the Concentration Account. After any such termination, you shall nonetheless remain obligated promptly to transfer to the Concentration Account or to the Trustee all funds and other property received in respect of the Collection Account. This Collection Account Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Collection Account Letter by telecopier shall be effective as delivery of a manually executed counterpart of this Collection Account Letter. This Collection Account Letter supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed and agreed upon by the Trustee, the Customer and you. Upon acceptance of this Collection Account Letter it will be the valid and binding obligation of the Customer, the Trustee and you, in accordance with its terms. POOLING AND SERVICING AGREEMENT 133 THIS COLLECTION ACCOUNT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF OHIO. Very truly yours, THE ELDER-BEERMAN STORES CORP. By: ___________________________ Name: Title: THE EL-BEE CHARGIT CORP. By: ___________________________ Name: Title: BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: ___________________________ Name: Title: POOLING AND SERVICING AGREEMENT 134 Acknowledged and agreed to as of the date first above written: [BANK] By: ---------------------------- Name: Title: POOLING AND SERVICING AGREEMENT 135 EXHIBIT E-2 FORM OF COLLECTION ACCOUNT LETTER (PRINCIPAL STORE ACCOUNT ONLY) POOLING AND SERVICING AGREEMENT 136 EXHIBIT E-3 FORM OF COLLECTION ACCOUNT LETTER (OTHER STORE ACCOUNTS ONLY) POOLING AND SERVICING AGREEMENT 137 EXHIBIT F FORM OF REPRESENTATION LETTER (RULE 144A) [Date] Bankers Trust Company Four Albany Street New York, New York 10006 The El-Bee Receivables Corporation 3155 El-Bee Road Dayton, Ohio 45349 Re: Elder-Beerman Master Trust, [ ]% Floating Rate Certificates, Series [ ] Ladies and Gentlemen: In connection with our acquisition of the Certificates referred to above (the "CERTIFICATES"), we certify that (a) we understand that the Certificates are not being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or any state securities laws and are being transferred to us in a transaction that is exempt from the registration requirements of the Securities Act and any such laws, (b) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of investment in the Certificates, (c) we have had the opportunity to ask questions of and receive answers from [___________] concerning the purchase of the Certificates and all matters relating thereto or any additional information deemed necessary to our decision to purchase the Certificates, (d) we are not (i) an employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, (ii) a plan (as defined in Section 4975(e)(1) of the Internal Revenue Code) or (iii) an entity whose underlying assets include "plan assets" under Department of Labor Regulation 29 C.F.R. Section 2510.3-101, (e) we have not, nor has anyone acting on our behalf, offered, transferred, pledged, sold or otherwise disposed of the Certificates, any interest in the Certificates or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Certificates, any interest in the Certificates or any other similar security from, or otherwise approached or negotiated with respect to the Certificates, any interest in the Certificates or any other similar security with, POOLING AND SERVICING AGREEMENT 138 F-2 any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Certificates under the Securities Act or that would render the disposition of the Certificates a violation of Section 5 of the Securities Act or require registration pursuant thereto, nor will we act, nor have we authorized or will we authorize any person to act, in such manner with respect to the Certificates, and (f) we are a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act and are acquiring such Certificates in compliance with all applicable requirements of Rule 144A and the Securities Act. We are aware that the sale to us is being made in reliance on Rule 144A. We are acquiring the Certificates for our own account or for resale pursuant to Rule 144A, and we understand that the Certificates may be resold, pledged or transferred only (a) upon delivery of a certificate to substantially the same effect as this letter and (b) (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A or (ii) pursuant to another exemption from registration under the Securities Act. Very truly yours, [NAME OF INSTITUTION] By: ------------------------------- Name: Title: POOLING AND SERVICING AGREEMENT 139 FORM OF REPRESENTATION LETTER (NON-RULE 144A) [Date] Bankers Trust Company Four Albany Street New York, New York 10006 The El-Bee Receivables Corporation 3155 El-Bee Road Dayton, Ohio 45349 Re: Elder-Beerman Master Trust, [ ]% Floating Rate Certificates, Series [ ] Ladies and Gentlemen: In connection with our acquisition of the Certificates referred to above (the "CERTIFICATES"), we certify that (a) we understand that the Certificates are not being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT") or any state securities laws, and are being transferred to us in a transaction that is exempt from the registration requirements of the Securities Act and any such laws, (b) we are an "accredited investor," as defined in Regulation D under the Securities Act, and have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of investment in the Certificates, (c) we have had the opportunity to ask questions of and receive answers from [_______________] concerning the purchase of the Certificates and all matters relating thereto or any additional information deemed necessary to our decision to purchase the Certificates, (d) we are not (i) an employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, (ii) a plan (as defined in Section 4975(e)(1) of the Internal Revenue Code) or (iii) an entity whose underlying assets include "plan assets" under Department of Labor Regulation 29 C.F.R. Section 2510.3-101, (e) we are acquiring the Certificates for investment for our own account and not with a view to any distribution of such Certificates (but without prejudice to our right at all times to sell or otherwise dispose of the Certificates in accordance with clause (g) below), (f) we have not, nor has anyone acting on our behalf, offered, transferred, pledged, sold or otherwise disposed of the Certificates, any interest in the Certificates or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Certificates, any interest in the Certificates or any other similar security from, or otherwise approached or negotiated with respect to the Certificates, any interest in the Certificates or any other similar security with, any person in any manner, or made any general solicitation by means of general POOLING AND SERVICING AGREEMENT 140 2 advertising or in any other manner, or taken any other action, that would constitute a distribution of the Certificates under the Securities Act or that would render the disposition of the Certificates a violation of Section 5 of the Securities Act or require registration pursuant thereto, nor will we act, nor have we authorized or will we authorize any person to act, in such manner with respect to the Certificates, and (g) we will not sell, transfer or otherwise dispose of any Certificates unless (1) such sale, transfer or other disposition is made pursuant to an effective registration statement under the Securities Act or is exempt from such registration requirements, (2) the purchaser or transferee of such Certificate has executed and delivered to you a certificate to substantially the same effect as this letter, and (3) the purchaser or transferee has otherwise complied with any conditions for transfer set forth in the Pooling and Servicing Agreement. Very truly yours, [NAME] By: ------------------------------ Name: Title: POOLING AND SERVICING AGREEMENT 141 EXHIBIT G FORM OF RECONVEYANCE OF RECEIVABLES RECONVEYANCE of RECEIVABLES, dated as of __________ __, ____ (the "RECONVEYANCE") by and among Bankers Trust Company, as Trustee (the "TRUSTEE") and the holder of the Exchangeable Transferor Certificate pursuant to the Pooling and Servicing Agreement referred to below (the "TRANSFEREE"). W I T N E S S E T H: WHEREAS, The El-Bee Receivables Corporation, a Delaware corporation, as Transferor, The El-Bee Chargit Corp., as Servicer, and the Trustee, are parties to the Pooling and Servicing Agreement, dated as of December 30, 1997, (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as defined therein); WHEREAS, pursuant to the Pooling and Servicing Agreement, the Transferee wishes to cause the Trustee to transfer all of the Receivables and proceeds thereof, whether now existing or hereafter created, from the Trustee to the Transferee pursuant to the terms of Section 12.04 of the Pooling and Servicing Agreement upon termination of the Trust pursuant to Article XII of the Pooling and Servicing Agreement; WHEREAS, the Trustee is willing to transfer the Receivables subject to the terms and conditions hereof; NOW, THEREFORE, the Transferee and the Trustee hereby agree as follows: Section 1. DEFINED TERMS. Wherever used in this Reconveyance, the following term shall have the following meaning: "RECONVEYANCE DATE" means _________ __, ____. Section 2. RETURN OF LISTS OF ACCOUNTS. The Trustee shall deliver to the POOLING AND SERVICING AGREEMENT 142 Transferee, not later than three Business Days after the Reconveyance Date, each and every computer file or microfiche or written list of Accounts delivered to the Trustee pursuant to the terms of the Pooling and Servicing Agreement. Section 3. RECONVEYANCE OF RECEIVABLES. (a) The Trustee does hereby convey to the Transferee (without recourse, representation or warranty) all right, title and interest of the Trustee in the Receivables, whether now existing or hereafter created, all moneys due or to become due with respect thereto, all Recoveries and Insurance Proceeds relating to such Receivables, all rights, remedies, powers and privileges of the Trustee with respect to the Receivables and all proceeds of the foregoing, except for amounts held by the Trustee pursuant to Section 12.03(b) of the Pooling and Servicing Agreement. (b) The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, as shall be reasonably requested by the Transferee to vest in such Transferee all right, title and interest which the Trustee had in the Receivables. Section 4. COUNTERPARTS. This Reconveyance may be executed in two or more counterparts (and by different parties hereto in separate counterparts), each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Reconveyance by telecopier shall be effective as delivery of a manually executed counterpart of this Reconveyance. Section 5. GOVERNING LAW. This Reconveyance shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the undersigned have caused this Reconveyance to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. BANKERS TRUST COMPANY, as Trustee By: _______________________ Name: Title: POOLING AND SERVICING AGREEMENT 143 G-3 [HOLDER OF THE EXCHANGEABLE TRANSFEROR CERTIFICATE] By: ________________________ Name: Title: POOLING AND SERVICING AGREEMENT EX-10.A.II 4 EXHIBIT 10(A)(II) 1 Exhibit 10(a)(ii) EXECUTION COPY ================================================================================ ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT Dated as of December 30, 1997 Among THE EL-BEE RECEIVABLES CORPORATION, AS TRANSFEROR, THE EL-BEE CHARGIT CORP., AS SERVICER, and BANKERS TRUST COMPANY, AS TRUSTEE ================================================================================ SERIES 1997-1 SUPPLEMENT 2 TABLE OF CONTENTS
ARTICLE I DESIGNATION Section 1.01. Designation............................................................................. 1 ARTICLE II DEFINITIONS Section 2.01. Definitions............................................................................. 2 ARTICLE III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 3.01. Revolving Period Daily Principal Allocations............................................ 21 Section 3.02. Allocation of Collections of Principal Receivables...................................... 22 Section 3.03. Allocation of Collections of Finance Charge Receivables................................. 23 Section 3.04. Excess Spread........................................................................... 26 Section 3.05. Investor Charge-Offs.................................................................... 27 Section 3.06. Spread Account.......................................................................... 29 Section 3.07. Reserve Account......................................................................... 29 Section 3.08. Interest Rate Swaps and Caps............................................................ 30 ARTICLE IV DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS Section 4.01. Servicer Deposits....................................................................... 32 Section 4.02. Distributions........................................................................... 32 Section 4.03. Annual Certificateholders' Tax Statement................................................ 33 Section 4.04. Transferor's or Servicer's Failure to Make a Deposit or Payment........................................................................... 34
SERIES 1997-1 SUPPLEMENT 3 ii ARTICLE V COVENANTS Section 5.01. Covenants of the Servicer............................................................... 34 Section 5.02. Covenants of the Transferor............................................................. 35 ARTICLE VI SERIES 1997-1 EARLY AMORTIZATION EVENTS Section 6.01. Series Early Amortization Events........................................................ 35 Section 6.02. Trustee's Monitoring Obligations........................................................ 38 ARTICLE VII MISCELLANEOUS Section 7.01. Reassignment and Transfer Terms......................................................... 38 Section 7.02. Assignment by CRC and Liquidity Providers............................................... 38 Section 7.03. No Assignability by Transferor and Servicer; Transferor's Liability......................................................................... 39 Section 7.04. Ratification of Pooling and Servicing Agreement......................................... 39 Section 7.05. Amendments.............................................................................. 39 Section 7.06. No Obligations under Swap Agreement..................................................... 39 Section 7.07. Counterparts............................................................................ 39 Section 7.08. Governing Law, Etc...................................................................... 39 Section 7.09. No Petition............................................................................. 40
SERIES 1997-1 SUPPLEMENT 4 iii EXHIBITS Exhibit A-1 Form of Class A Certificate Exhibit A-2 Form of Collateral Investor Certificate Exhibit A-3 Form of Subordinated Transferor Certificate Exhibit B Form of Swap Agreement Exhibit C Form of Cap Agreement SERIES 1997-1 SUPPLEMENT 5 This is the SERIES 1997-1 SUPPLEMENT, dated as of December 30, 1997 (this "SUPPLEMENT"), among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Transferor (the "TRANSFEROR"), THE EL-BEE CHARGIT CORP., an Ohio corporation, as Servicer (the "SERVICER"), and Bankers Trust Company, a New York banking corporation, as Trustee (the "TRUSTEE"), to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, the Servicer and the Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"). All capitalized terms not otherwise defined herein are used herein as defined in the Pooling and Servicing Agreement. Pursuant to Section 6.09 of the Pooling and Servicing Agreement, the Transferor, the Servicer and the Trustee may at any time and from time to time enter into a supplement to the Pooling and Servicing Agreement for the purpose of authorizing the delivery of one or more Series of Certificates by the Trustee to the Transferor for the execution and redelivery to the Trustee for authentication. Pursuant to this Supplement, the Transferor and the Trustee shall create a new Series of Investor Certificates and shall specify the Principal Terms thereof. ARTICLE I DESIGNATION Section 1.01. DESIGNATION. (a) There is hereby created a Series of Investor Certificates to be issued in three classes pursuant to the Pooling and Servicing Agreement and this Series Supplement and to be known together as the "SERIES 1997-1 CERTIFICATES". The three classes shall be designated the Class A Floating Rate Certificates, Series 1997-1 (the "CLASS A CERTIFICATES"), the Collateral Investor Certificates, Series 1997-1 (the "COLLATERAL INVESTOR CERTIFICATES") and the Subordinated Transferor Certificate, Series 1997-1 (the "SUBORDINATED TRANSFEROR CERTIFICATE"). The Class A Certificates, the Collateral Investor Certificates and the Subordinated Transferor Certificate shall be substantially in the form of Exhibits A-1, A-2 and A-3 hereto, respectively. (b) Series 1997-1 shall be included in Group One and shall be a Principal Sharing Series. Series 1997-1 shall not be subordinated to any other Series. SERIES 1997-1 SUPPLEMENT 6 2 (c) The Class A Certificates, Collateral Investor Certificates and the Subordinated Transferor Certificate shall be delivered in fully registered form as provided in Section 6.02 of the Pooling and Servicing Agreement. The Transferor shall execute and deliver the Series 1997-1 Certificates to the Trustee for authentication in accordance with Section 6.01 of the Pooling and Servicing Agreement. The Trustee shall deliver the Series 1997-1 Certificates when authenticated in accordance with Section 6.02 of the Pooling and Servicing Agreement. (d) The Collateral Investor Certificateholder shall be entitled to the benefits of the Transaction Documents upon payment by the Collateral Investor Certificateholder of amounts owing by it on the Closing Date pursuant to the Series 1997-1 Loan Agreement. (e) The Subordinated Transferor Certificate shall be retained by the Transferor. ARTICLE II DEFINITIONS Section 2.01. DEFINITIONS. (a) In the event that any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Pooling and Servicing Agreement, the terms and provisions of this Supplement shall govern with respect to this Series. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in this Section 2.01, and accounting terms partially defined in this Section 2.01 to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained herein shall control. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Supplement shall refer to this Supplement as a whole and not to any particular provision of this Supplement; and the term "including" means "including without limitation". SERIES 1997-1 SUPPLEMENT 7 3 (d) Unless otherwise stated in this Supplement, in the computation of a period of time from a specified date to a later specified date the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". (e) Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms: "ADJUSTED EURODOLLAR RATE" means, for any Interest Period, an interest rate per annum equal to the rate per annum obtained by dividing (i) the rate per annum at which deposits in Dollars are offered by the principal office of Citibank, N.A. in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such period in an amount substantially equal to the amount to which the "Adjusted Eurodollar Rate" is to be applied and for a period equal to such Interest Period by (ii) a percentage equal to 100% minus the Eurodollar Reserve Percentage (as defined below) for such period. "EURODOLLAR RESERVE PERCENTAGE" means, for any period, the reserve percentage applicable two Business Days before the first day of such period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such period during which any such percentage shall so be applicable) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for Citibank, N.A. with respect to liabilities or assets consisting of or including "eurocurrency liabilities" as that term is used in Regulation D, as in effect from time to time, of the Board of Governors of the Federal Reserve System (or with respect to any other category of liabilities that includes deposits by reference to which the Adjusted Eurodollar Rate is determined) having a term equal to such period. "ALTERNATE BASE RATE" means, for any Interest Period, a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of: (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York from time to time as Citibank, N.A.'s base rate; (ii) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (A) 1/2 of 1% per annum, PLUS (B) the rate obtained by dividing (1) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of SERIES 1997-1 SUPPLEMENT 8 4 major United States money market banks, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day on the next succeeding Business Day) for the three- week period ending on the previous Friday by Citibank, N.A. on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank, N.A. from three certificate of deposit dealers of recognized standing selected by Citibank, N.A., by (2) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank, N.A. with respect to liabilities consisting of or including (among other liabilities) three-month Dollar non-personal time deposits in the United States, PLUS (C) the average during such three-week period of the annual assessment rates estimated by Citibank, N.A. for determining the then current annual assessment payable by Citibank, N.A. to the FDIC (or any successor) for insuring Dollar deposits of Citibank, N.A. in the United States; and (iii) 1/2 of 1% per annum above the fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "AMORTIZATION DATE" means the last day of the 36th month following the month in which the Closing Date for Series 1997-1 shall have occurred. "AMORTIZATION PERIOD" means the period commencing upon the occurrence of the Amortization Date and ending upon the payment in full to the Series 1997-1 Certificateholders of the Series Invested Amount, all accrued and unpaid interest thereon and all other amounts owed to such Series 1997-1 Certificateholders under any Transaction Document. "ASSIGNEE RATE" means, for any Interest Period, an interest rate per annum equal to the Adjusted Eurodollar Rate PLUS 1.50%; PROVIDED, HOWEVER, that, if (x) it shall become unlawful for Citibank, N.A. to obtain funds in the London interbank market in order SERIES 1997-1 SUPPLEMENT 9 5 to purchase, fund or maintain its initial investment in the Class A Certificates or any Increase hereunder, or deposits in dollars (in the applicable amounts) are not being offered by Citibank, N.A. in the London interbank market, or (y) Citibank, N.A. is unable to establish the Adjusted Eurodollar Rate for any applicable period due to circumstances affecting the London interbank market generally, or (z) a Series 1997-1 Majority in Interest of the Class A Certificateholders or the Collateral Investor Certificateholders notifies the Transferor and the Program Agent of their determination that the Adjusted Eurodollar Rate will not adequately reflect the cost of funding or maintaining the Class A Invested Amount or Collateral Invested Amount, respectively (until a Series 1997-1 Majority in Interest of such Class A Certificateholders or Collateral Investor Certificateholders, as applicable, shall have notified the Transferor and the Program Agent that such Series 1997-1 Majority in Interest has determined that the Adjusted Eurodollar Rate will adequately reflect such cost), then, in each case, the Assignee Rate shall be the Alternate Base Rate in effect from time to time PLUS 1/2 of 1%; PROVIDED FURTHER that following the occurrence and during the continuation of an Early Amortization Period, the "Assignee Rate" shall be the applicable interest rate per annum determined pursuant to the provisions set forth above PLUS 1/2 of 1% per annum. "AVAILABLE PRINCIPAL COLLECTIONS" means, with respect to any Distribution Date, the sum of (i) the portion of all Collections of Principal Receivables allocated to Series 1997-1 pursuant to Section 4.03(b) of the Pooling and Servicing Agreement for the most recently ended Due Period, (ii) any Series 1997-1 Shared Principal Collections for such Distribution Date and (iii) any other amounts which, pursuant to Article III hereof, are to be treated as "Available Principal Collections" for such Distribution Date. "BREAKAGE COSTS" means (a) with respect to CRC and for each reduction of the Series Invested Amount other than on a Distribution Date, the amount, if any, by which (i) the additional interest at the applicable Certificate Rate (calculated without taking into account any breakage costs) which would have accrued on an amount equal to the amount of such reduction of the Series Invested Amount from the time of such reduction to the Distribution Date next succeeding such reduction exceeds (ii) the income received by CRC to the Distribution Date next succeeding such reduction from investing the proceeds of such reduction of the Series Invested Amount or (b) with respect to a Liquidity Provider or Collateral Investor, as the case may be, and for each reduction of the Series Invested Amount other than on a Distribution Date, an amount equal to the sum of (i) the additional interest at the applicable Certificate Rate (calculated without taking into account any breakage costs) which would have accrued on an amount equal to the amount of such reduction of the Series Invested Amount, or its PRO RATA portion thereof, from the time of such reduction through the last day of the period for which the Adjusted Eurodollar Rate has been set MINUS (ii) the income received by such Liquidity Provider or Collateral Investor, as the case may be, through the last day of such period from investing the proceeds of such reductions of the Series Invested Amount, or its PRO RATA portion SERIES 1997-1 SUPPLEMENT 10 6 of such proceeds, PLUS (iii) any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Liquidity Provider or Collateral Investor, as the case may be, to fund or maintain its share of the Series Invested Amount; PROVIDED that, if the Assignee Rate at the time of such reduction is determined by reference to the Alternate Base Rate, then the amount under this clause (b) shall be deemed to be zero. "CAP AGREEMENT" means the interest rate cap agreement dated December 30, 1997 between the Parent and the Cap Provider, for the benefit of the Class A Certificateholders and the Collateral Investor Certificateholders (together with the Payment Letter dated the Closing Date, from the Parent to the Cap Provider), in substantially the form attached hereto as Exhibit C, or any Replacement Cap Agreement therefor. "CAP PAYMENT" means, with respect to any Distribution Date, the payment made by the Cap Provider to the Trust, on or prior to the Deposit Date, pursuant to the Cap Agreement. "CAP PROVIDER" means Citibank, N.A., or any successor or assign thereto appointed as provided in the Cap Agreement, in its individual capacity pursuant to the Cap Agreement, or if any Replacement Cap Agreement is obtained therefor pursuant to Section 3.08, the Replacement Cap Provider. "CERTIFICATE RATE" means, as applicable, the Class A Certificate Rate, the Collateral Investor Certificate Rate or the Subordinated Transferor Certificate Rate. "CLASS A AVAILABLE FUNDS" means, with respect to any Distribution Date, an amount equal to the sum of (a) the product of (i) the Class A Floating Allocation for the most recently ended Due Period and (ii) an amount equal to (A) the aggregate amount of Collections of Finance Charge Receivables allocated to Series 1997-1 pursuant to Section 4.03(b) of the Pooling and Servicing Agreement for the most recently ended Due Period PLUS (B) any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement LESS (C) the aggregate amount of such Collections of Finance Charge Receivables allocated pursuant to Section 3.03(a) for such Distribution Date and (b) an amount equal to the product of the Swap Payment with respect to such Distribution Date and the Class A Swap Allocation with respect to such Distribution Date. "CLASS A CERTIFICATE RATE" means (a) unless the Program Agent notifies the Transferor and the Servicer that the Class A Invested Amount, or a portion thereof, will not be funded by the issuance of CP Notes, the CP Rate; or (b) to the extent the Program Agent has provided such notice, a per annum rate equal to the Assignee Rate. SERIES 1997-1 SUPPLEMENT 11 7 "CLASS A CERTIFICATEHOLDER" means any Person in whose name a Class A Certificate is registered in the Certificate Register. "CLASS A CERTIFICATES" shall have the meaning specified in Section 1.01(a) hereof. "CLASS A EXPECTED FINAL PAYMENT DATE" means the March 20, 2001 Distribution Date. "CLASS A FLOATING ALLOCATION" means, with respect to any Due Period, the percentage equivalent of a fraction, the numerator of which is the Class A Invested Amount as of the close of business on the last day of the most recently ended Due Period and the denominator of which is equal to the Series Invested Amount as of the close of business on such last day; PROVIDED, HOWEVER, that, with respect to the initial Due Period, the Class A Floating Allocation shall mean the percentage equivalent of a fraction, the numerator of which is the Class A Initial Series Invested Amount and the denominator of which is the Initial Series Invested Amount. "CLASS A INITIAL SERIES INVESTED AMOUNT" means the aggregate initial principal amount of the Class A Certificates, which is $117,000,000. "CLASS A INVESTED AMOUNT" means, at any time, an amount equal to (a) the Class A Initial Series Invested Amount, PLUS (b) the aggregate amount of Increases after the Closing Date, MINUS (c) the aggregate amount of Collections of Principal Receivables previously allocated under Section 3.02(b)(i), and distributed under Section 4.02(c) to Class A Certificateholders MINUS (d) the excess, if any, of the aggregate amount of Class A Investor Charge-Offs prior to such time over the aggregate cumulative amount allocated in respect of Class A Investor Charge-Offs pursuant to Section 3.04(d) prior to such time; PROVIDED, HOWEVER, that the Class A Invested Amount may not be reduced below zero. "CLASS A INVESTOR CHARGE-OFF" shall have the meaning specified in Section 3.05(a). "CLASS A INVESTOR LOSS AMOUNT" means, with respect to each Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the most recently ended Due Period and (b) the Class A Floating Allocation applicable for such Due Period. "CLASS A MONTHLY INTEREST" means, with respect to any Distribution Date, an amount equal to: SERIES 1997-1 SUPPLEMENT 12 8 [ CR X IA X IP ] + [ DA + [ (CR + 2.0%) X DA X IP ] ] ------------ --------------------- YR YR wherein: CR = the Class A Certificate Rate in effect on the day immediately preceding such Distribution Date. IA = with respect to the initial Distribution Date, the Class A Initial Series Invested Amount or, with respect to any other Distribution Date the Class A Invested Amount determined as of the day immediately preceding such Distribution Date. IP = the number of days in the period from and including the immediately preceding Distribution Date to but excluding the current Distribution Date. DA = with respect to the initial Distribution Date, zero or, with respect to any other Distribution Date, the amount of any portion of the Class A Monthly Interest with respect to each prior Distribution Date which has not been distributed to the Class A Certificateholders. YR = 360, or, if the Class A Certificate Rate in effect on the day immediately preceding such Distribution Date is based on the Alternate Base Rate, 365. "CLASS A MONTHLY SERVICING FEE" means, with respect to any Distribution Date, the product of (i) the Investor Monthly Servicing Fee for such Distribution Date and (ii) the Class A Floating Allocation with respect to the most recently ended Due Period. "CLASS A REQUIRED AMOUNT" means, with respect to any Distribution Date, the amount, if any, by which (a) the sum of (i) the Class A Monthly Interest for such Distribution Date, PLUS (ii) the Class A Monthly Servicing Fee for such Distribution Date, PLUS (iii) the Class A Monthly Servicing Fee, if any, due but not paid on any prior Distribution Date, PLUS (iv) the Class A Investor Loss Amount, if any, for such Distribution Date, exceeds (b) the aggregate amount of the Class A Available Funds allocated to the Class A Certificateholders pursuant to Section 3.03 in respect thereof on such Distribution Date. "CLASS A SWAP ALLOCATION" means, with respect to any Distribution Date, a fraction the numerator of which is the Class A Invested Amount as of the close of business on the last day of the most recently ended Due Period and the denominator of which is equal to SERIES 1997-1 SUPPLEMENT 13 9 the sum of the Class A Invested Amount and the Collateral Invested Amount, in each case as of the close of business on such last day. "CLOSING DATE" means, with respect to Series 1997-1, December 30, 1997. "COLLATERAL INVESTED AMOUNT" means, at any time, an amount equal to (a) the Collateral Investor Initial Series Invested Amount, MINUS (b) the aggregate amount of Collections of Principal Receivables previously allocated under Section 3.02(b)(ii), and distributed under Section 4.02(d) to Collateral Investor Certificateholders, MINUS (c) the aggregate amount of Collateral Investor Charge-Offs prior to such time, MINUS (d) the aggregate amount of Reallocated Collateral Investor Principal Collections prior to such time, MINUS (e) without duplication with the foregoing clause (c), an amount equal to the amount by which the Collateral Invested Amount has been reduced prior to such time pursuant to Section 3.05, PLUS (f) the aggregate amounts allocated pursuant to Section 3.04(f) with respect to amounts deducted pursuant to the foregoing clauses (c), (d) and (e) and distributed in respect thereof prior to such time; PROVIDED, HOWEVER, that the Collateral Invested Amount may not be reduced below zero or increased above the Collateral Investor Initial Series Invested Amount. "COLLATERAL INVESTOR AVAILABLE FUNDS" means, with respect to any Distribution Date, an amount equal to the sum of (a) the product of (i) the Collateral Investor Floating Allocation for the most recently ended Due Period and (ii) an amount equal to (A) the aggregate amount of Collections of Finance Charge Receivables allocated to Series 1997-1 pursuant to Section 4.03(b) of the Pooling and Servicing Agreement for the most recently ended Due Period PLUS (B) any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement LESS (C) the aggregate amount of such Collections of Finance Charge Receivables allocated pursuant to Section 3.03(a) hereof for such Distribution Date and (b) an amount equal to the product of the Swap Payment with respect to such Distribution Date and the Collateral Investor Swap Allocation with respect to such Distribution Date. "COLLATERAL INVESTOR CERTIFICATEHOLDER" means any Person in whose name a Collateral Investor Certificate is registered in the Certificate Register. "COLLATERAL INVESTOR CERTIFICATE RATE" means the Assignee Rate. "COLLATERAL INVESTOR CERTIFICATES" shall have the meaning specified in Section 1.01(a) hereof. "COLLATERAL INVESTOR CHARGE-OFF" shall have the meaning specified in Section 3.05(b). SERIES 1997-1 SUPPLEMENT 14 10 "COLLATERAL INVESTOR EXPECTED FINAL PAYMENT DATE" means December 30, 2001. "COLLATERAL INVESTOR FLOATING ALLOCATION" means, with respect to any Due Period, the percentage equivalent of a fraction, the numerator of which is the Collateral Invested Amount as of the close of business on the last day of the most recently ended Due Period and the denominator of which is equal to the Series Invested Amount as of the close of business on such last day; PROVIDED, HOWEVER, that, with respect to the first Due Period, the Collateral Investor Floating Allocation shall mean the percentage equivalent of a fraction, the numerator of which is the Collateral Investor Initial Series Invested Amount and the denominator of which is the Initial Series Invested Amount. "COLLATERAL INVESTOR INITIAL SERIES INVESTED AMOUNT" means the aggregate initial principal amount of the Collateral Investor Certificates, which is $8,000,000. "COLLATERAL INVESTOR LOSS AMOUNT" means, with respect to each Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the most recently ended Due Period and (b) the Collateral Investor Floating Allocation applicable for such Due Period. "COLLATERAL INVESTOR MONTHLY INTEREST" means, with respect to any Distribution Date, an amount equal to: [ CR X IA X IP ] + [ DA + [ (CR + 2.0%) X DA X IP ] ] ------------ --------------------- YR YR wherein: CR = the Collateral Investor Certificate Rate in effect on the day immediately preceding such Distribution Date. IA = with respect to the initial Distribution Date, the Collateral Investor Initial Series Invested Amount or, with respect to any other Distribution Date the Collateral Invested Amount determined as of the day immediately preceding such Distribution Date. IP = the number of days in the period from and including the immediately preceding Distribution Date to but excluding the current Distribution Date. SERIES 1997-1 SUPPLEMENT 15 11 DA = with respect to the initial Distribution Date, zero or, with respect to any other Distribution Date, the amount of any portion of the Collateral Investor Monthly Interest with respect to each prior Distribution Date which has not been distributed to the Collateral Investor Certificateholders. YR = 360, or, if the Collateral Investor Certificate Rate in effect on the day immediately preceding such Distribution Date is based on the Alternate Base Rate, 365. "COLLATERAL INVESTOR MONTHLY SERVICING FEE" means, with respect to any Distribution Date, the product of (i) the Investor Monthly Servicing Fee for such Distribution Date and (ii) the Collateral Investor Floating Allocation with respect to the most recently ended Due Period. "COLLATERAL INVESTOR REQUIRED AMOUNT" means, with respect to any Distribution Date, the amount, if any, by which (a) the sum of (i) the Collateral Investor Monthly Interest for such Distribution Date, PLUS (ii) the Collateral Investor Monthly Servicing Fee for such Distribution Date, PLUS (iii) the Collateral Investor Monthly Servicing Fee, if any, due but not paid on any prior Distribution Date, PLUS (iv) the Collateral Investor Loss Amount, if any, for such Distribution Date, exceeds (b) the aggregate amount of the Collateral Investor Available Funds allocated to the Collateral Investor Certificateholders pursuant to Section 3.03 in respect thereof on such Distribution Date. "COLLATERAL INVESTOR SWAP ALLOCATION" means, with respect to any Distribution Date, a fraction the numerator of which is the Collateral Invested Amount as of the close of business on the last day of the most recently ended Due Period and the denominator of which is equal to the sum of the Class A Invested Amount and the Collateral Invested Amount, in each case as of the close of business on such last day. "CP NOTE" means any promissory note issued by CRC or any other securitization company administered by Citicorp North America, Inc., which is an assignee of CRC under the Transaction Documents. "CP RATE" means, with respect to CRC and any other securitization company administered by Citicorp North America, Inc., which is an assignee of CRC under the Transaction Documents, for each Interest Period, the per annum rate equivalent to the weighted average of the per annum rates paid or payable by CRC or such other company from time to time as interest on or otherwise (by means of interest rate hedges or otherwise) with respect to those CP Notes issued by CRC or such other company that are allocated, in whole SERIES 1997-1 SUPPLEMENT 16 12 or in part, by the Program Agent (on behalf of CRC or such other company) to fund the purchase or maintenance of the Class A Invested Amount during such Interest Period, as determined by the Program Agent (on behalf of CRC and any such company) and reported to the Transferor and the Servicer, which rates shall reflect and give effect to the commissions of placement agents and dealers with respect to such CP Notes, to the extent such commissions are allocated, in whole or in part, to such CP Notes by the Program Agent (on behalf of CRC and any such company); PROVIDED, HOWEVER, that, if any component of such rate is a discount rate, in calculating the "CP Rate" for such Interest Period, the Program Agent shall for such component use the rate resulting from converting such discount rate to an interest-bearing equivalent rate per annum. "CRC" means Corporate Receivables Corporation, a California corporation. "CUMULATIVE PRINCIPAL SHORTFALL" means, as of any Distribution Date during the Amortization Period or Early Amortization Period, the sum of the Principal Shortfalls for each Series in Group One that is a Principal Sharing Series. "DEPOSIT DATE" means, with respect to any Distribution Date, the Business Day immediately preceding such Distribution Date. "DILUTED RECEIVABLE" means that portion (and only that portion) of any Receivable which is reduced or cancelled as a result of (i) any failure by any Originator to deliver any merchandise or provide any services or otherwise to perform under the underlying Cardholder Agreement or invoice, (ii) any change in the terms of, or cancellation of, a Cardholder Agreement or invoice or any other adjustment which reduces the amount payable by the Obligor on the related Receivable or Account or (iii) any set-off by an Obligor in respect of any claim by such Obligor as to amounts owed by it on the related Receivable or Account; PROVIDED that Diluted Receivables are calculated assuming that all chargebacks are resolved in the Obligor's favor and do not include contractual adjustments to the amount payable by an Obligor that are eliminated from the Receivables balance sold to the Trust through a reduction in the Purchase Price for the related Receivable. "DILUTION RATIO" means, as of any date, the fraction (i) the numerator of which is an amount equal to the Dilution Amount for the Due Period most recently ended and (ii) the denominator of which is the aggregate outstanding balance of all Principal Receivables in the Trust Assets on the last day of the Due Period immediately preceding such most recently ended Due Period; PROVIDED, HOWEVER, that, with respect to any date during the initial Due Period, such denominator shall be the aggregate outstanding balance of all Principal Receivables of the Originators on November 29, 1997. SERIES 1997-1 SUPPLEMENT 17 13 "DISTRIBUTION DATE" shall have the meaning specified in the Pooling and Servicing Agreement, and the initial Distribution Date shall be February 20, 1998. "EARLY AMORTIZATION PERIOD" means the period commencing at the close of business on the Business Day immediately preceding the day on which a Series Early Amortization Event with respect to Series 1997-1 occurs and ending on the Series 1997-1 Termination Date. "ENHANCEMENT PROVIDER" shall not be applicable to this Series 1997-1. "EXCESS SPREAD" means with respect to any Distribution Date, the sum of the amounts with respect to such Distribution Date, if any, constituting Excess Spread pursuant to Sections 3.03(b)(iv), 3.03(c)(iv) and 3.03(d)(ii). "EXCESS SPREAD PERCENTAGE" means, as of any date of determination, the Portfolio Yield on such date MINUS the sum of (i) the Class A Certificate Rate in effect on such date multiplied by a fraction the numerator of which is equal to the Class A Invested Amount on such date and the denominator of which is equal to the sum of the Class A Invested Amount and the Collateral Invested Amount on such date, (ii) the Collateral Investor Certificate Rate in effect on such date multiplied by a fraction the numerator of which is equal to the Collateral Invested Amount on such date and the denominator of which is equal to the sum of the Class A Invested Amount and the Collateral Invested Amount on such date and (iii) the Series Servicing Fee Percentage. "FINANCE CHARGE SHORTFALL" means, with respect to Series 1997-1, for any Distribution Date, the excess, if any, of the full amount required to be allocated pursuant to Sections 3.03 and 3.04 on such Distribution Date over the amount not allocated pursuant to such Sections. "GROUP ONE" means Series 1997-1, and each other Series specified in the related Supplement to be included in Group One. "INCREASE" means the amount of each increase in the Class A Invested Amount pursuant to the terms of the Certificate Purchase Agreement relating to Series 1997-1. "INITIAL SERIES INVESTED AMOUNT" the sum of the Class A Initial Series Invested Amount, the Collateral Investor Initial Series Invested Amount and the Subordinated Transferor Initial Invested Amount. SERIES 1997-1 SUPPLEMENT 18 14 "INTEREST PERIOD" means, with respect to any Distribution Date, (i) with respect to the CP Rate and the Alternate Base Rate, the period from the Closing Date to the first Distribution Date after the Closing Date and thereafter a period from each Distribution Date to the next succeeding Distribution Date, and (ii) with respect to the Adjusted Eurodollar Rate, the period from the Closing Date to the first Distribution Date after the Closing Date and thereafter a period from each Distribution Date to the first or, upon the request of the Transferor and with the consent of the Program Agent, second or third next succeeding Distribution Date. "INTEREST RATE PROTECTION AGREEMENT" means each of the Swap Agreement and the Cap Agreement. "INVESTOR CERTIFICATEHOLDER" means (a) with respect to the Class A Certificates, any Class A Certificateholder, (b) with respect to the Collateral Investor Certificates, any Collateral Investor Certificateholder, and (c) with respect to the Subordinated Transferor Certificate, any Subordinated Transferor Certificateholder. "INVESTOR CERTIFICATES" means the Class A Certificates, the Collateral Investor Certificates and the Subordinated Transferor Certificate. "INVESTOR LOSS AMOUNT" means, with respect to any Distribution Date, the portion of the Loss Amounts allocated to Series 1997-1 pursuant to Section 4.03(b) of the Pooling and Servicing Agreement for the related Due Period. "INVESTOR MONTHLY SERVICING FEE" means, with respect to any Distribution Date, an amount equal to one-twelfth of the product of (i) the Series Servicing Fee Percentage and (ii) the Series Invested Amount as of the last day of the most recent Due Period preceding such Distribution Date; PROVIDED, HOWEVER, that with respect to the initial Distribution Date, the Investor Monthly Servicing Fee shall be equal to $226,667. "LIQUIDITY PROVIDER" means any liquidity provider specified in the Certificate Purchase Agreement for Series 1997-1 and any of its successors and assigns. "NET LOSS PERCENTAGE" means at any date, the amount equal to, in percentage terms, the aggregate outstanding balance of the Principal Receivables relating to all Accounts which any Originator or the Servicer has charged off pursuant to the Cardholder Guidelines (net of Recoveries) during the Due Period most recently ended DIVIDED BY an amount equal to the aggregate outstanding balance of all Principal Receivables in the Trust Assets on the last day of the Due Period immediately preceding such most recently ended Due Period; PROVIDED, HOWEVER, that, with respect to any date during the initial Due Period, such aggregate SERIES 1997-1 SUPPLEMENT 19 15 outstanding balance shall be the aggregate outstanding balance of all Principal Receivables of the Originators on November 29, 1997. "PORTFOLIO YIELD" means, with respect to any Due Period, the annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the sum of (i) the product of the Floating Allocation Percentage for such Due Period and the aggregate amount of Collections of Finance Charge Receivables for such Due Period, (ii) any Series 1997-1 Shared Excess Finance Charge Collections for the related Distribution Date, (iii) the aggregate amount of interest or other proceeds earned on amounts on deposit in any Series Account during such Due Period and (iv) the aggregate amount of Swap Payments received by the Trust during such Due Period, such sum to be calculated on a cash basis after subtracting the Investor Loss Amount for such Due Period, and the denominator of which is the Series Invested Amount as of the last day of the preceding Due Period (or with respect to the initial Due Period, the Initial Series Invested Amount). "PRINCIPAL COLLECTION ACCOUNT" shall have the meaning specified in Section 3.09. "PRINCIPAL SHORTFALL" means, on any Distribution Date during the Amortization Period or the Early Amortization Period, the amount by which the Series Invested Amount exceeds the Available Principal Collections for such Distribution Date. "PROGRAM AGENT" means Citicorp North America, Inc., in its capacity as agent for CRC. "PROGRAM AGENT'S ACCOUNT" shall have the meaning specified in the Certificate Purchase Agreement for Series 1997-1. "RATING AGENCY" means Moody's and Standard & Poor's. "REALLOCATED COLLATERAL INVESTOR PRINCIPAL COLLECTIONS" means, with respect to any Distribution Date, the aggregate amount of Available Principal Collections allocated in accordance with Sections 3.02(a)(i) and 3.02(a)(ii) and distributed accordingly on such Distribution Date, LESS the aggregate amount of Reallocated Subordinated Transferor Principal Collections on such Distribution Date. "REALLOCATED SUBORDINATED TRANSFEROR PRINCIPAL COLLECTIONS" means, with respect to any Distribution Date, the aggregate amount of Available Principal Collections allocated in accordance with Sections 3.02(a)(i) and 3.02(a)(ii) on such Distribution Date in an amount not to exceed the lesser of (a) the product of (i) the Subordinated Transferor Floating SERIES 1997-1 SUPPLEMENT 20 16 Allocation with respect to the most recently ended Due Period, and (ii) the amount of Available Principal Collections with respect to such Distribution Date and (b) the Subordinated Transferor Invested Amount on such Distribution Date. "REPLACEMENT CAP AGREEMENT" means any replacement interest rate cap agreement between the Trust and the Replacement Cap Provider having substantially similar terms and conditions to the Cap Agreement (including the Payment Letter referred to in the definition thereof) it replaces. "REPLACEMENT CAP PROVIDER" means the replacement cap provider named in the Replacement Cap Agreement. "REPLACEMENT SWAP AGREEMENT" means any replacement interest rate swap agreement between the Parent and the Replacement Swap Provider having substantially similar terms and conditions to the Swap Agreement (including the Payment Letter referred to in the definition thereof) it replaces. "REPLACEMENT SWAP PROVIDER" means the replacement swap provider named in the Replacement Swap Agreement. "RESERVE ACCOUNT" shall have the meaning specified in Section 3.07. "RESERVE ACCOUNT REQUIRED BALANCE" means $700,000. "REVOLVING PERIOD" means the period from and including the Closing Date to, but not including, the earlier of (i) the day the Amortization Period commences or (ii) the day any Early Amortization Period commences. "SERIES DISCOUNT FACTOR" means, for this Series 1997-1, with respect to any date of determination, an amount (expressed as a percentage) determined in accordance with the following formula: [[PY- (BR + 1% )] / TR] * FAP wherein: BR = The sum (expressed as a percentage) of (a) the sum of (i) a fraction, the numerator of which is the product of the Class A Certificate Rate for the most recently ended Due Period and the Class A Invested Amount as of the last day of such Due Period, and the denominator of which is the Series Invested Amount as of such last day, (ii) a fraction, the numerator of which is the product of the Collateral SERIES 1997-1 SUPPLEMENT 21 17 Investor Certificate Rate for the most recently ended Due Period and the Collateral Invested Amount as of the last day of such Due Period, and the denominator of which is the Series Invested Amount as of such last day and (iii) a fraction, the numerator of which is the product of the Subordinated Transferor Certificate Rate for the most recently ended Due Period and the Subordinated Transferor Invested Amount as of the last day of such Due Period, and the denominator of which is the Series Invested Amount as of such last day and (b) the Series Servicing Fee Percentage per annum in effect on such date. PY = The Portfolio Yield for such Series for the most recently ended Due Period. TR = The annualized average (expressed as a percentage) of, for each of the three Due Periods most recently ended on or before such date, a fraction the numerator of which is the aggregate principal amount (measured for each Receivable at the time of acquisition) of all Receivables that were acquired by the Trust during each such Due Period and the denominator of which is the aggregate outstanding principal balance of all Receivables as of the last day of each such Due Period. FAP = The Floating Allocation Percentage for such Series for the most recently ended Due Period. "SERIES INVESTED AMOUNT" means, on any date of determination and with respect to Series 1997-1, an amount equal to the sum of (a) the Class A Invested Amount, (b) the Collateral Invested Amount and (c) the Subordinated Transferor Invested Amount, each as of such date. "SERIES 1997-1" means the Series of the Elder-Beerman Master Trust represented by the Series 1997-1 Certificates. "SERIES 1997-1 CERTIFICATEHOLDER" means any Person in whose name a Series 1997-1 Certificate is registered in the Certificate Register. "SERIES 1997-1 CERTIFICATES" means the Class A Certificates, the Collateral Investor Certificates and the Subordinated Transferor Certificate. SERIES 1997-1 SUPPLEMENT 22 18 "SERIES 1997-1 LOAN AGREEMENT" means the agreement among the Transferor, the Servicer, the Trustee and the Collateral Investor Certificateholder, dated as of the Closing Date, as amended, supplemented or otherwise modified from time to time. "SERIES 1997-1 MAJORITY IN INTEREST" means, with respect to either the Class A Certificateholders or the Collateral Investor Certificateholders, the holders of Certificates evidencing 51% or more of the aggregate Class A Invested Amount or Collateral Invested Amount, respectively. "SERIES 1997-1 MONTHLY PROGRAM FEES" means, with respect to any Distribution Date, an amount equal to the fees accrued and payable on such Distribution Date pursuant to the Fee Letter. "SERIES 1997-1 MONTHLY TRUSTEE'S FEE" means, with respect to any Distribution Date, the amount agreed upon from time to time by the Trustee, the Servicer and the Program Agent as the fee accrued and payable on such Distribution Date to the Trustee with respect to the Agreement and this Supplement. "SERIES 1997-1 SHARED EXCESS FINANCE CHARGE COLLECTIONS" means the portion of Shared Excess Finance Charge Collections allocated to Series 1997-1 pursuant to Section 4.03(f) of the Pooling and Servicing Agreement. "SERIES 1997-1 SHARED PRINCIPAL COLLECTIONS" means the portion of Shared Principal Collections allocated to Series 1997-1 pursuant to Sections 4.03(d) and 4.03(e) of the Pooling and Servicing Agreement. "SERIES 1997-1 TERMINATION DATE" means the earliest to occur of (i) the Distribution Date on which all amounts payable in respect of the Series 1997-1 Certificates have been paid in full, (ii) the April 20, 2005 Distribution Date or (iii) the date of termination of the Trust pursuant to Section 12.01 of the Pooling and Servicing Agreement. "SERIES SERVICING FEE PERCENTAGE" means 2.0%. "SHARED EXCESS FINANCE CHARGE COLLECTIONS" means, with respect to any Distribution Date, the amount specified in Section 3.04(o) as constituting "Shared Excess Finance Charge Collections." "SHARED PRINCIPAL COLLECTIONS" means, with respect to any Distribution Date, the aggregate amounts allocated to the Investor Certificates pursuant to Section 3.02(b)(iv) to be treated as "Shared Principal Collections." SERIES 1997-1 SUPPLEMENT 23 19 "SPREAD ACCOUNT" shall have the meaning specified in Section 3.06. "SUBORDINATED TRANSFEROR AVAILABLE FUNDS" means, with respect to any Distribution Date, an amount equal to (a) the product of the Subordinated Transferor Floating Allocation for the most recently ended Due Period and (b) an amount equal to (A) Collections of Finance Charge Receivables allocated to Series 1997-1 pursuant to Section 4.03(b) of the Pooling and Servicing Agreement for the most recently ended Due Period PLUS (B) any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement LESS (C) the amount of such Collections of Finance Charge Receivables allocated pursuant to Section 3.03(a) hereof for such Distribution Date. "SUBORDINATED TRANSFEROR CERTIFICATEHOLDER" means any person in whose name a Subordinated Transferor Certificate is registered in the Certificate Register. "SUBORDINATED TRANSFEROR CERTIFICATE RATE" means a per annum rate equal to 0.25% per annum in excess of the Collateral Investor Certificate Rate. "SUBORDINATED TRANSFEROR CERTIFICATE" shall have the meaning specified in Section 1.01(a) hereof. "SUBORDINATED TRANSFEROR CHARGE-OFF" shall have the meaning specified in Section 3.05(c) hereof. "SUBORDINATED TRANSFEROR FLOATING ALLOCATION" means, with respect to any Due Period, the percentage equivalent of a fraction, the numerator of which is the Subordinated Transferor Invested Amount as of the close of business on the last day of the most recently ended Due Period and the denominator of which is equal to the Series Invested Amount as of the close of business on such last day; PROVIDED, HOWEVER, that, with respect to the first Due Period, the Subordinated Transferor Floating Allocation shall mean the percentage equivalent of a fraction, the numerator of which is the Subordinated Transferor Initial Invested Amount and the denominator of which is the Initial Series Invested Amount. "SUBORDINATED TRANSFEROR INITIAL INVESTED AMOUNT" means the aggregate initial principal amount of the Subordinated Transferor Invested Amount, which is $8,000,000. "SUBORDINATED TRANSFEROR INTEREST MONTHLY SERVICING FEE" means, with respect to any Distribution Date, the product of (i) the Investor Monthly Servicing Fee for such Distribution Date and (ii) the Subordinated Transferor Floating Allocation for the most recently ended Due Period. SERIES 1997-1 SUPPLEMENT 24 20 "SUBORDINATED TRANSFEROR INVESTED AMOUNT" means, at any time, an amount equal to (a) the Subordinated Transferor Initial Invested Amount, MINUS (b) the aggregate amount of Collections of Principal Receivables previously allocated under Section 3.02(b)(iii), and distributed under Section 4.02(e) to the Subordinated Transferor Certificateholders, MINUS (c) the aggregate amount of Subordinated Transferor Charge-Offs prior to such time, MINUS (d) the aggregate amount of Reallocated Subordinated Transferor Principal Collections prior to such time, MINUS (e) without duplication with the foregoing clause (c), an amount equal to the amount by which the Subordinated Transferor Invested Amount has been reduced prior to such time pursuant to Section 3.05, PLUS (f) the aggregate amounts allocated pursuant to Section 3.04(m) with respect to amounts deducted pursuant to the foregoing clauses (c), (d) and (e) and distributed in respect thereof prior to such time; PROVIDED, HOWEVER, that the Subordinated Transferor Invested Amount may not be reduced below zero or increased above the Subordinated Transferor Initial Invested Amount. "SUBORDINATED TRANSFEROR LOSS AMOUNT" means, with respect to any Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the most recently ended Due Period and (b) the Subordinated Transferor Floating Allocation applicable for such Due Period. "SUBORDINATED TRANSFEROR MONTHLY INTEREST" means, with respect to any Distribution Date, an amount equal to: ] CR X IA X IP + DA + (CR + 2.0%) X DA X IP ]] ------------ --------------------- YR YR wherein: CR = the Subordinated Transferor Certificate Rate in effect on the day immediately preceding such Distribution Date. IA = with respect to the initial Distribution Date, the Subordinated Transferor Initial Invested Amount or, with respect to any other Distribution Date the Subordinated Transferor Invested Amount determined as of the day immediately preceding such Distribution Date. IP = the number of days in the period from and including the immediately preceding Distribution Date to but excluding the current Distribution Date. SERIES 1997-1 SUPPLEMENT 25 21 DA = with respect to the initial Distribution Date, zero or, with respect to any other Distribution Date, the amount of any portion of the Subordinated Transferor Monthly Interest with respect to each prior Distribution Date which has not been distributed to the Subordinated Transferor Certificateholders. YR = 360, or, if the Subordinated Transferor Certificate Rate in effect on the day immediately preceding such Distribution Date is based on a Collateral Investor Certificate Rate which is in turn based on the Alternate Base Rate, 365. "SWAP AGREEMENT" means the interest rate swap agreement dated December 30, 1997 between the Parent and the Swap Provider, for the benefit of the Class A Certificateholders and the Collateral Investor Certificateholders, together with the Payment Letter dated the Closing Date, from the Parent to the Swap Provider, in each case in substantially the form attached hereto as Exhibit B, or any Replacement Swap Agreement therefor. "SWAP PAYMENT" means, with respect to any Distribution Date, the sum of (a) the payment made by the Swap Provider to the Trust, if any, on or prior to the Deposit Date, pursuant to the Swap Agreement (so long as such amount is positive) and (b) the Cap Payment for such Distribution Date. "SWAP PROVIDER" means Citibank, N.A., or any successor or assign thereto appointed as provided in the Swap Agreement, in its individual capacity pursuant to the Swap Agreement, or if any Replacement Swap Agreement is obtained therefor pursuant to Section 3.08, the Replacement Swap Provider. SERIES 1997-1 SUPPLEMENT 26 22 ARTICLE III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 3.01. REVOLVING PERIOD DAILY PRINCIPAL ALLOCATIONS. (a) On any Business Day, prior to the making of any allocations, distributions or deposits pursuant to Sections 3.01(b) and 3.02 below, if any Swap Agreement or Cap Agreement shall cease to be in full force and effect on or prior to such Business Day, the Program Agent may instruct the Trustee in writing to, and the Trustee shall, for the purpose of obtaining a Replacement Swap Agreement or Replacement Cap Agreement, as the case may be, allocate and distribute all Collections of Principal Receivables deposited in the Concentration Account on such Business Day and any credit balance remaining in the Principal Collection Account in accordance with such written instructions, up to the amount required to obtain such Replacement Swap Agreement or Replacement Cap Agreement. (b) On each Business Day during the Revolving Period, the Servicer shall instruct the Trustee by the Daily Report to, and the Trustee shall, with respect to all Collections of Principal Receivables deposited in the Concentration Account on such Business Day and the credit balance remaining in the Principal Collection Account: (i) allocate and distribute to the holder of the Exchangeable Transferor Certificate, such Collections of Principal Receivables and, to the extent such Collections of Principal Receivables are insufficient, the credit balance in the Principal Collection Account, up to an aggregate amount equal to the aggregate outstanding balance of all Principal Receivables Transferred to the Trust on the immediately preceding Business Day; (ii) allocate to and deposit in the Principal Collection Account any remaining balance of such Collections of Principal Receivables. Section 3.02. ALLOCATION OF COLLECTIONS OF PRINCIPAL RECEIVABLES. (a) On each Distribution Date during the Revolving Period, after the allocations required to be made pursuant to Sections 3.03 and 3.04 for such Distribution Date shall have been made, the Servicer shall instruct the Trustee by the Monthly Servicer's Report to, and the Trustee shall, allocate the Available Principal Collections for such Distribution Date in the following priority: (i) to the Class A Certificateholders, in the order of priority and up to the amounts specified in Sections 3.03(b)(i), (ii) and (iii) below, but in an aggregate SERIES 1997-1 SUPPLEMENT 27 23 amount not to exceed an amount equal to the lesser of (x) the product of (1) the sum of the Collateral Investor Floating Allocation and the Subordinated Transferor Floating Allocation, in each case for the most recently ended Due Period, and (2) such Available Principal Collections and (y) the sum of the Collateral Invested Amount and the Subordinated Transferor Invested Amount, in each case, on such Distribution Date; (ii) any remaining balance to the Collateral Investor, in the order of priority and up to the amounts specified in Sections 3.03(c)(i), (ii) and (iii) below, but in an aggregate amount not to exceed an amount equal to the lesser of (A) an amount equal to the sum of (i) the product of (x) the Subordinated Transferor Floating Allocation for the most recently ended Due Period and (y) such Available Principal Collections LESS (ii) the amount allocated to the Class A Certificateholders pursuant to Section 3.02(a)(i) above on such Distribution Date and (B) the Subordinated Transferor Invested Amount on such Distribution Date; and (iii) any remaining balance shall be allocated to the holder of the Exchangeable Transferor Certificate; PROVIDED, HOWEVER, that in no event shall the amount allocated to the holder of the Exchangeable Transferor Certificate pursuant to this Section 3.02(a)(iii) be greater than the Transferor Interest on such Distribution Date. (b) On each Distribution Date during the Amortization Period or Early Amortization Period, the Servicer shall instruct the Trustee by the Monthly Servicer's Report to, and the Trustee shall, allocate the Available Principal Collections for such Distribution Date, PLUS an amount equal to the credit balance in the Principal Collection Account, PLUS an amount equal to the credit balance in the Reserve Account, in the following priority: (i) to the Class A Certificateholders, until the Class A Invested Amount shall be reduced to zero; (ii) any remaining balance, to the Collateral Investor Certificateholders, until the Collateral Invested Amount shall be reduced to zero; (iii) any remaining balance, to the Subordinated Transferor Certificateholders, until the Subordinated Transferor Invested Amount shall be reduced to zero; (iv) any remaining balance or, if less, an amount equal to the product of (1) a fraction, the numerator of which is equal to such Available Principal Collections SERIES 1997-1 SUPPLEMENT 28 24 and the denominator of which is equal to the sum of the Available Principal Collections for each Series (including this Series 1997-1) in Group One that is a Principal Sharing Series for the most recently ended Due Period and (2) the Cumulative Principal Shortfall for such Distribution Date, shall be treated as "Shared Principal Collections" and allocated to Series in Group One which are Principal Sharing Series other than this Series 1997-1; and (v) any remaining balance, to the holder of the Exchangeable Transferor Certificate. Section 3.03. ALLOCATION OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES. On each Distribution Date, the Servicer shall instruct the Trustee by the Monthly Servicer's Report to, and the Trustee shall allocate all Collections of Finance Charge Receivables (including any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement) for the most recently ended Due Period, any Swap Payment for such Distribution Date and, where specified below, the credit balance in each of the Reserve Account and, with respect to Section 3.03(c) below, the Spread Account in the following priority: (a) an amount equal to all such Collections of Finance Charge Receivables for the most recently ended Due Period PLUS, to the extent such amount is insufficient to make the allocations provided for in clauses (i) and (ii) of this Section 3.03(a), an amount equal to the lesser of such insufficiency or the credit balance in the Reserve Account, in the following priority: (i) to the Trustee, up to an amount equal to the Series 1997-1 Monthly Trustee's Fee for such Distribution Date; (ii) any remaining balance to the Program Agent, up to an amount equal to the Series 1997-1 Monthly Program Fees for such Distribution Date; and (iii) any remaining balance to be allocated as provided in Sections 3.03(b), 3.03(c) and 3.03(d) below, (b) a portion of such Collections of Finance Charge Receivables (including any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement) and of any Swap Payment for such Distribution Date equal to the Class A Available Funds for the most recently ended Due Period, PLUS to the extent such amount is insufficient to make the allocations provided for in clauses (i), (ii) and (iii) of this Section 3.03(b), an amount equal to the SERIES 1997-1 SUPPLEMENT 29 25 lesser of such insufficiency or the credit balance remaining in the Reserve Account, in the following priority: (i) to the Class A Certificateholders, up to an amount equal to the Class A Monthly Interest for such Distribution Date; (ii) any remaining balance, up to an amount equal to the Class A Investor Loss Amount, if any, as of such Distribution Date, shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated in accordance with Section 3.02); (iii) any remaining balance, up to an amount equal to the Class A Monthly Servicing Fee for such Distribution Date PLUS the amount of any Class A Monthly Servicing Fee for each prior Distribution Date which has not been distributed to the Servicer, to the Servicer; and (iv) any remaining balance as "Excess Spread", to be allocated as set forth in Section 3.04, (c) a portion of such Collections of Finance Charge Receivables (including any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement) and of any Swap Payment for such Distribution Date equal to the Collateral Investor Available Funds for the most recently ended Due Period, PLUS, to the extent such amount and the amount allocated pursuant to the proviso to this Section 3.03(c) are insufficient to make the allocations provided for in clauses (i), (ii) and (iii) of this Section 3.03(c), an amount equal to the lesser of such insufficiency or the credit balance remaining in the Reserve Account, in the following priority: (i) to the Collateral Investor Certificateholders, up to an amount equal to the Collateral Investor Monthly Interest for such Distribution Date; (ii) any remaining balance, up to an amount equal to the Collateral Investor Loss Amount, if any, as of such Distribution Date, shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated accordingly); (iii) any remaining balance, up to an amount equal to the Collateral Investor Monthly Servicing Fee for such Distribution Date, PLUS the amount of SERIES 1997-1 SUPPLEMENT 30 26 any Collateral Investor Monthly Servicing Fee due but not paid to the Servicer on any prior Distribution Date, to the Servicer; and (iv) any remaining balance as "Excess Spread", to be allocated as set forth in Section 3.04; PROVIDED, HOWEVER, that if the Collateral Investor Available Funds and any amounts on deposit in the Reserve Account are insufficient to allocate fully for the amounts specified in clauses (i), (ii) and (iii) above, an amount equal to the lesser of such insufficiency or the credit balance remaining in the Spread Account shall be allocated in accordance with such clauses, and (d) a portion of such Collections of Finance Charge Receivables (including any amounts allocable as Collections of Finance Charge Receivables pursuant to Section 4.03(d) of the Pooling and Servicing Agreement) equal to the Subordinated Transferor Available Funds for the most recently ended Due Period, in the following priority: (i) to the Servicer, up to an amount equal to the Subordinated Transferor Interest Monthly Servicing Fee for such Distribution Date, PLUS the amount of any Subordinated Transferor Interest Monthly Servicing Fee for each prior Distribution Date which has not been distributed to the Servicer; and (ii) any remaining balance as "Excess Spread", to be allocated as set forth in Section 3.04. Section 3.04. EXCESS SPREAD. On each Distribution Date, the Servicer shall instruct the Trustee by the Monthly Servicer's Report to allocate Excess Spread, Series 1997-1 Shared Excess Finance Charge Collections and, after allocations, if any, on such Distribution Date pursuant to Section 3.03(c) shall have been made, the credit balance in the Spread Account, in each case with respect to the most recently ended Due Period, in the following priority: (a) to the Trustee, up to an amount equal to any portion of the Series 1997-1 Monthly Trustee's Fee for such Distribution Date which shall not have been allocated thereto pursuant to Section 3.02(a)(i); (b) any remaining balance to the Program Agent, up to an amount equal to any portion of the Series 1997-1 Program Fees which shall not have been allocated thereto pursuant to Section 3.02(a)(ii); SERIES 1997-1 SUPPLEMENT 31 27 (c) any remaining balance to the Class A Certificateholders, up to an amount equal to the Class A Required Amount, if any, with respect to such Distribution Date, allocated in accordance with, and in the priority and up to the amounts set forth in, Section 3.03(b); (d) any remaining balance to the Class A Certificateholders, until the aggregate cumulative amount allocated under this Section 3.04(d) equals the aggregate amount of Class A Investor Charge-Offs, shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated accordingly); (e) any remaining balance to the Collateral Investor Certificateholders, up to an amount equal to the Collateral Investor Required Amount, if any, with respect to such Distribution Date, allocated in accordance with, and in the priority and up to the amounts set forth in, Section 3.03(c); (f) any remaining balance, up to an amount equal to the aggregate amount by which the Collateral Invested Amount has been reduced below the Collateral Investor Initial Series Invested Amount, except for reductions pursuant to Section 3.02(b)(ii), shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated accordingly); (g) any remaining balance to the Program Agent, up to an amount equal to the Breakage Costs, if any, for the most recently ended Due Period; (h) any remaining balance, if the Excess Spread Percentage for the three consecutive Due Periods ending immediately before such Distribution Date is less than 1%, up to an amount equal to the excess, if any, of the Collateral Investor Initial Invested Amount over the credit balance in the Spread Account, to be deposited in the Spread Account; (i) at any time after the credit balance in the Reserve Account initially equals or exceeds the Reserve Account Required Balance, any remaining balance shall be allocated to and deposited in the Reserve Account, until the credit balance on deposit in the Reserve Account is equal to at least the Reserve Account Required Balance; (j) any remaining balance to the Servicer, up to an amount equal to the Subordinated Transferor Monthly Servicing Fee for such Distribution Date; SERIES 1997-1 SUPPLEMENT 32 28 (k) any remaining balance to the Subordinated Transferor Certificateholders, up to an amount equal to the Subordinated Transferor Monthly Interest for such Distribution Date PLUS the amount of any Subordinated Transferor Monthly Interest with respect to each prior Distribution Date which has not been distributed to the Subordinated Transferor Certificateholders; (l) any remaining balance, up to an amount equal to the Subordinated Transferor Loss Amount, if any, for such Distribution Date, shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated accordingly); (m) any remaining balance, up to an amount equal to the aggregate amount by which the Subordinated Transferor Invested Amount has been reduced below the Subordinated Transferor Initial Invested Amount, except for reductions pursuant to Section 3.02(b)(iii), shall be allocated as "Available Principal Collections" for such Distribution Date (to be allocated accordingly); (n) any remaining balance to and deposited in the Reserve Account, until the credit balance on deposit in the Reserve Account is equal to at least the Reserve Account Required Balance; and (o) any remaining balance will constitute "Shared Excess Finance Charge Collections" for such Distribution Date and will be available for allocation to other Series in Group One or to the holder of the Exchangeable Transferor Certificate as described in Section 4.03(f) of the Pooling and Servicing Agreement. Section 3.05. INVESTOR CHARGE-OFFS. (a) On or before each Distribution Date, the Servicer shall calculate the Class A Investor Loss Amount for such Distribution Date. If, on any Distribution Date, such Class A Investor Loss Amount exceeds the sum of the amounts allocated to the Class A Certificateholders with respect thereto pursuant to Sections 3.03(b) and 3.04 with respect to such Distribution Date, the Subordinated Transferor Invested Amount (after giving effect to reductions thereof for any Reallocated Subordinated Transferor Principal Collections on such Distribution Date) will be reduced by the amount of such excess. In the event that such reduction would cause the Subordinated Transferor Invested Amount to be a negative number, the Subordinated Transferor Invested Amount will be reduced to zero, and the Collateral Invested Amount (after giving effect to reductions thereof for any Reallocated Collateral Investor Principal Collections on such Distribution Date) will be reduced by the amount by which the Subordinated Transferor Invested Amount would have been reduced below zero. In the event that such reduction would cause the Collateral Invested Amount to be a negative number, the Collateral Invested Amount will be reduced to zero, and the Class A SERIES 1997-1 SUPPLEMENT 33 29 Invested Amount will be reduced by the amount by which the Collateral Invested Amount would have been reduced below zero, but not by more than the Class A Investor Loss Amount for such Distribution Date (such reduction being a "CLASS A INVESTOR CHARGE-OFF"). (b) On or before each Distribution Date, the Servicer shall calculate the Collateral Investor Loss Amount for such Distribution Date. If on any Distribution Date, such Collateral Investor Loss Amount exceeds the sum of the amounts allocated to the Collateral Investor Certificateholders with respect thereto pursuant to Sections 3.03(c) and 3.04 with respect to such Distribution Date, the Subordinated Transferor Invested Amount (after giving effect to reductions thereof for any Reallocated Subordinated Transferor Principal Collections and any adjustments with respect thereto pursuant to Section 3.05(a) above on such Distribution Date) will be reduced by the amount of such excess. In the event that such reduction would cause the Subordinated Transferor Invested Amount to be a negative number, the Subordinated Transferor Invested Amount (after giving effect to reductions thereof for any Reallocated Subordinated Transferor Principal Collections and any adjustments with respect thereto pursuant to Section 3.05(a) above) will be reduced to zero, and the Collateral Invested Amount (after giving effect to any reduction thereof for any Reallocated Collateral Investor Principal Collections and any adjustments thereto pursuant to Section 3.05(a) above) shall be reduced by the amount by which the Subordinated Transferor Invested Amount would have been reduced below zero, but not by more than the Collateral Investor Loss Amount for such Distribution Date (such reduction being a "COLLATERAL INVESTOR CHARGE-OFF"). (c) On or before each Distribution Date, the Servicer shall calculate the Subordinated Transferor Loss Amount for such Distribution Date. If on any Distribution Date, such Subordinated Transferor Loss Amount exceeds the amount allocated to the Subordinated Transferor Certificateholders with respect thereto pursuant to Section 3.04 with respect to such Distribution Date, the Subordinated Transferor Invested Amount (after giving effect to any reduction thereof for any Reallocated Subordinated Transferor Principal Collection and any adjustments thereto pursuant to Sections 3.05(a) and 3.05(b) above) will be reduced by the amount of such excess (such reduction being a "SUBORDINATED TRANSFEROR CHARGE-OFF"). Section 3.06. SPREAD ACCOUNT. (a) The Servicer, for the benefit of the Beneficiaries, shall establish and maintain in the United States, in the name of the Trustee, on behalf of the Trust, a segregated trust account with an institution which is and continues to be a Qualified Depository Institution (which shall initially be the Trustee), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries (the "SPREAD ACCOUNT"). The Trustee, for the benefit of the Beneficiaries, shall possess all right, title and interest in all funds on deposit from time to time in the Spread Account and in all proceeds thereof. Without limiting the rights of the Servicer set forth in Section 3.06(b) SERIES 1997-1 SUPPLEMENT 34 30 below, the Spread Account shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right to deduct from any funds held in the Spread Account for any amount owed to it by the Trustee, the Trust, the Transferor, any Originator or any Certificateholder. If at any time the institution holding the Spread Account ceases to be a Qualified Depository Institution the Transferor shall notify the Trustee, and the Trustee, upon notice by the Servicer (or the Servicer on its behalf) shall promptly establish a new Spread Account with a Qualified Depository Institution meeting the conditions specified above, and shall transfer any cash or any investments to such new Spread Account and, from the date such new Spread Account is established, it shall be the "Spread Account". The Trustee, at the written direction of the Servicer, shall make deposits to and withdrawals from the Spread Account from time to time, at such time and for distributions pursuant to Section 3.05 of amounts allocated pursuant to Sections 3.03(c) and 3.04 hereof. (b) Funds on deposit in the Spread Account shall be invested at the written direction of the Servicer by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Beneficiaries. The Trustee shall maintain for the benefit of the Beneficiaries possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Spread Account on any Distribution Date, after giving effect to any withdrawals from the Spread Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on the following Distribution Date. No Permitted Investment shall be disposed of prior to its maturity. Section 3.07. RESERVE ACCOUNT. (a) The Servicer, for the benefit of the Beneficiaries, shall establish and maintain in the United States, in the name of the Trustee, on behalf of the Trust, a segregated trust account with an institution which is and continues to be a Qualified Depository Institution (which shall initially be the Trustee), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries (the "RESERVE ACCOUNT"). The Trustee, for the benefit of the Beneficiaries, shall possess all right, title and interest in all funds on deposit from time to time in the Reserve Account and in all proceeds thereof. Without limiting the rights of the Servicer set forth in Section 3.07(b) below, the Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right to deduct from any funds held in the Reserve Account for any amount owed to it by the Trustee, the Trust, the Transferor, any Originator or any Certificateholder. If at any time the institution holding the Reserve Account ceases to be a Qualified Depository Institution the Transferor shall notify the Trustee, and the Trustee, upon notice by the Servicer (or the Servicer on its behalf) shall promptly establish a new Reserve Account with a Qualified Depository Institution meeting the conditions specified above, and SERIES 1997-1 SUPPLEMENT 35 31 shall transfer any cash or any investments to such new Reserve Account and, from the date such new Reserve Account is established, it shall be the "Reserve Account." The Trustee, at the written direction of the Servicer, shall make deposits to and withdrawals from the Reserve Account from time to time, at such time and for distributions pursuant to Section 3.05 of amounts allocated pursuant to Section 3.03 hereof. (b) Funds on deposit in the Reserve Account shall be invested at the written direction of the Servicer by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Beneficiaries. The Trustee shall maintain for the benefit of the Beneficiaries possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Reserve Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on the following Distribution Date. No Permitted Investment shall be liquidated prior to its maturity. Section 3.08. INTEREST RATE SWAPS AND CAPS. (a) The Servicer hereby represents that the Parent has obtained the Swap Agreement for the benefit of the Class A Certificateholders and the Collateral Investor Certificateholders in an aggregate notional amount of at least $115,000,000. The Swap Agreement shall entitle the Parent to receive monthly, on or prior to the Deposit Date, the Swap Payment, if any, as set forth therein. (b) Upon the effectiveness of any Replacement Swap Agreement, the Swap Agreement shall terminate and the Swap Provider shall be released of all future obligations thereunder, PROVIDED that such Swap Provider shall not be released from any obligations which have previously accrued thereunder and shall continue to be obligated to perform such obligations. (c) The Servicer hereby represents that it has obtained the Cap Agreement for the benefit of the Class A Certificateholders and the Collateral Investor Certificateholders in an aggregate notional amount of at least $10,000,000. The Cap Agreement shall entitle the Trust to receive monthly, on or prior to the Deposit Date, the Cap Payment, if any, as set forth therein. (d) Upon the effectiveness of any Replacement Cap Agreement, the Cap Agreement shall terminate and the Cap Provider shall be released of all future obligations thereunder, PROVIDED that such Cap Provider shall not be released from any obligations which have previously accrued thereunder and shall continue to be obligated to perform such obligations. SERIES 1997-1 SUPPLEMENT 36 32 (e) The Servicer covenants and agrees to replace (i) any Swap Provider who shall have failed to make any Swap Payment within five calendar days of when such payment is due with a Replacement Swap Provider and (ii) any Cap Provider who shall have failed to make any Cap Payment within five days of when such payment is due with a Replacement Cap Provider, in each case the short term debt obligations of which are rated at least A-1+ by Standard & Poor's and P-1 by Moody's, within 30 calendar days of when such payment, as the case may be, is due. Section 3.09. PRINCIPAL COLLECTION ACCOUNT. (a) The Servicer, for the benefit of the Beneficiaries, shall establish and maintain in the United States, in the name of the Trustee, on behalf of the Trust, a segregated trust account with an institution which is and continues to be a Qualified Depository Institution (which shall initially be the Trustee), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries (the "PRINCIPAL COLLECTION ACCOUNT"). The Trustee, for the benefit of the Beneficiaries, shall possess all right, title and interest in all funds on deposit from time to time in the Principal Collection Account and in all proceeds thereof. Without limiting the rights of the Servicer set forth in Section 3.09(b) below, the Principal Collection Account shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right to deduct from any funds held in the Principal Collection Account for any amount owed to it by the Trustee, the Trust, the Transferor, any Originator or any Certificateholder. If at any time the institution holding the Principal Collection Account ceases to be a Qualified Depository Institution, the Transferor shall notify the Trustee, and the Trustee, upon notice by the Servicer (or the Servicer on its behalf) shall promptly establish a new Principal Collection Account with a Qualified Depository Institution meeting the conditions specified above, and shall transfer any cash or any investments to such new Principal Collection Account and, from the date such new Principal Collection Account is established, it shall be the "Principal Collection Account." The Trustee, at the written direction of the Servicer, shall make deposits to and withdrawals from the Principal Collection Account from time to time, at such time and for distributions pursuant to Section 3.01 and for distributions of amounts allocated pursuant to Section 3.02(b). (b) Funds on deposit in the Principal Collection Account shall be invested at the written direction of the Servicer by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Beneficiaries. The Trustee shall maintain for the benefit of the Beneficiaries possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Principal Collection Account on any Distribution Date, after giving effect to any withdrawals from the Principal Collection Account on such Distribution Date, shall be invested SERIES 1997-1 SUPPLEMENT 37 33 in such investments that will mature so that such funds will be available for withdrawal on the following Distribution Date. No Permitted Investment shall be liquidated prior to its maturity. ARTICLE IV DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS Section 4.01. SERVICER DEPOSITS. On or before each Deposit Date in each Due Period, the Transferor shall deposit or cause to be deposited in the Concentration Account funds in an amount equal to the lesser of (x) the aggregate Finance Charge Shortfall for such Due Period and (y) the Available Principal Collections for such Due Period, it being understood that any underestimates or overestimates by the Servicer in making such deposit shall be promptly corrected. Section 4.02. DISTRIBUTIONS. (a) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 3.04(b) of the Pooling and Servicing Agreement) to itself (other than as provided in Section 12.03 of the Pooling and Servicing Agreement respecting a final distribution) from the Concentration Account, all amounts that have been allocated to the Trustee pursuant to Article III by wire transfer or other appropriate means. (b) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 3.04(b) of the Pooling and Servicing Agreement) to the Program Agent (other than as provided in Section 12.03 of the Pooling and Servicing Agreement respecting a final distribution) from the Concentration Account, all amounts that have been allocated to the Program Agent pursuant to Article III by wire transfer to the Program Agent's Account (or such other account as may be specified in writing by the Program Agent to the Trustee). (c) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 3.04(b) of the Pooling and Servicing Agreement) to each Class A Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.03 of the Pooling and Servicing Agreement respecting a final distribution) such Certificateholder's PRO RATA share (based on the aggregate Undivided Trust Interests represented by Class A Certificates held by such Certificateholder) from the Concentration Account, all amounts that have been allocated to the Class A Certificateholders pursuant to Article III by wire transfer to each Class A Certificateholder, to an account specified by such Certificateholder to the Trustee in writing. SERIES 1997-1 SUPPLEMENT 38 34 (d) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 3.04(b) of the Pooling and Servicing Agreement) to each Collateral Investor Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.03 of the Pooling and Servicing Agreement respecting a final distribution) such Certificateholder's PRO RATA share (based on the aggregate Undivided Trust Interests represented by Collateral Investor Certificates held by such Certificateholder) from the Concentration Account, all amounts that have been allocated to the Collateral Investor Certificateholders pursuant to Article III by wire transfer to each Collateral Investor Certificateholder, to an account specified by such Certificateholder to the Trustee in writing. (e) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 3.04(b) of the Pooling and Servicing Agreement) to each Subordinated Transferor Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.03 of the Pooling and Servicing Agreement respecting a final distribution) such Certificateholder's PRO RATA share (based on the aggregate Undivided Trust Interests represented by the Subordinated Transferor Certificate held by such Certificateholder) from the Concentration Account, all amounts that have been allocated to the Subordinated Transferor Certificateholders pursuant to Article III by wire transfer to each Subordinated Transferor Certificateholder, to an account specified by such Certificateholder to the Trustee in writing. Section 4.03. ANNUAL CERTIFICATEHOLDERS' TAX STATEMENT. On or before January 31 of each calendar year, beginning with calendar year 1998, the Trustee shall distribute to each Person who at any time during the preceding calendar year was a Series 1997-1 Certificateholder, a statement prepared by the Servicer containing the information required to be contained in the Monthly Servicer's Report, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 1997-1 Certificateholder, together with such other customary information (consistent with the treatment of the Class A Certificates and the Collateral Investor Certificates as debt) as the Servicer deems necessary or desirable to enable the Series 1997-1 Certificateholders to prepare their tax returns. The Servicer will provide such information to the Trustee as soon as possible after January 1 of each calendar year. Such obligations of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Code as from time to time in effect. Section 4.04. TRANSFEROR'S OR SERVICER'S FAILURE TO MAKE A DEPOSIT OR PAYMENT. If the Servicer or the Transferor fails to make, or give instructions to make, any payment or deposit required to be made or given by the Servicer or Transferor, respectively, at the time SERIES 1997-1 SUPPLEMENT 39 35 specified in the Pooling and Servicing Agreement (including applicable grace periods), the Trustee shall make such payment or deposit from the applicable account without instruction from the Servicer or Transferor. The Trustee shall be required to make any such payment, deposit or withdrawal hereunder only to the extent that the Trustee has sufficient information to allow it to determine the amount thereof; PROVIDED, HOWEVER, that the Trustee shall in all cases be deemed to have sufficient information to determine the amount of interest payable to the Investor Certificateholders on each Distribution Date. The Servicer shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such payment, deposit or withdrawal. Such funds or the proceeds of such withdrawal shall be applied by the Trustee in the manner in which such payment or deposit should have been made by the Transferor or the Servicer, as the case may be. ARTICLE V COVENANTS Section 5.01. COVENANTS OF THE SERVICER. The Servicer hereby covenants that: (a) The Servicer will furnish to the Program Agent, promptly after delivery to the Trustee, all notices, reports and other information given to the Trustee under the Pooling and Servicing Agreement other than the Daily Reports required thereunder. (b) At any time and from time to time during the Servicer's regular business hours, on reasonable prior notice and for a purpose reasonably related to the Pooling and Servicing Agreement, the Servicer shall, in response to any reasonable request of the Trustee or the Program Agent, permit the Trustee or the Program Agent or their agents or representatives (which may be an independent accounting firm), (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes, microfiche and disks) in the possession or under the control of the Servicer relating to the Trust Assets, the Receivables and the Accounts and (ii) to visit the offices and properties of the Servicer for the purpose of examining such materials and to discuss matters relating to the Trust Assets, the Receivables and the Accounts or the Servicer's performance under any Transaction Document with any of the officers or employees of the Servicer having knowledge thereof. The Parent hereby agrees to pay all reasonable expenses incurred by the Trustee and the Program Agent in exercising its rights under this Section 5.01. The Servicer agrees that the Program Agent will have the right to request reasonable changes in the annual servicing report furnished by the independent public accountants pursuant to Section 3.06 of the Pooling and Servicing Agreement which are reasonably SERIES 1997-1 SUPPLEMENT 40 36 related to the Trust Assets and the matters contemplated by the Transaction Documents, and the Servicer agrees to use good faith reasonable efforts to obtain the independent public accountants' agreement to such changes. Section 5.02. COVENANTS OF THE TRANSFEROR. The Transferor hereby covenants and agrees to deliver to the Program Agent (i) within three Business Days of the Effective Date, a copy of the charter of the Parent, certified by the Secretary of State of the jurisdiction of its incorporation as being a true and correct copy thereof as of such date and (ii) as soon as practicable after each such certificate is available from the Secretary of State of Ohio, a certificate from such Secretary of State stating that each of the Parent and the Servicer, respectively, has paid all franchise taxes to the date of such certificate. ARTICLE VI SERIES 1997-1 EARLY AMORTIZATION EVENTS Section 6.01. SERIES EARLY AMORTIZATION EVENTS. If an Early Amortization Event or any one of the following events shall occur (each, a "SERIES EARLY AMORTIZATION EVENT"): (a) any Purchase Agreement shall for any reason cease to be in full force and effect or an Early Termination (as defined therein) shall occur; or (b) (i) any purchase of any Receivables or other Trust Assets by the Transferor under any Purchase Agreement shall cease to create a valid sale, transfer and assignment to the Transferor of all right, title and interest of the Originator in and to such Trust Assets and the proceeds thereof, or (ii) any Transfer of any Trust Asset on any date shall for any reason cease to create a valid and perfected first priority sale, Transfer and assignment to the Trust of all right, title and interest of the Transferor in and to such Trust Assets and the proceeds thereof or, if such Transfer does not constitute such a sale, Transfer and assignment, cease to create a valid and perfected first priority security interest in such Trust Assets and the proceeds thereof, or (iii) the Investor Certificates delivered hereunder shall for any reason (other than due to the acts or omissions of the Investor Certificateholders) cease to evidence the transfer to the Investor Certificateholders of, or the Investor Certificateholders shall otherwise cease to have, a beneficial interest in a trust owning, or the Trustee on behalf of the Trust having a perfected first priority security interest in, the Trust Assets now existing and hereafter arising and the proceeds thereof to the extent of their respective Undivided Trust Interests; or SERIES 1997-1 SUPPLEMENT 41 37 (c) a Servicer Default shall have occurred and be continuing; or (d) the Servicer shall have resigned and shall not have been replaced, in each case in accordance with the terms of the Pooling and Servicing Agreement; or (e) the Parent shall fail to observe or perform any covenant or agreement (within any applicable cure period) applicable to it contained in the Parent Undertaking Agreement, or the Parent Undertaking Agreement shall cease to be in effect or the Parent shall so assert in writing; or (f) any material adverse change shall occur in the collectibility of the Receivables taken as a whole (other than as a result of the default of one or more Obligors on the payment thereof) or in the financial condition of the Transferor, the Parent, the Servicer or any Originator, or in the ability of any of them or any Originator to perform its obligations under any Transaction Document; or (g) any Transaction Document shall cease to be in full force and effect; or (h) (i) any Plan Event shall have occurred, (ii) the Transferor or any ERISA Affiliate shall have withdrawn from a Multiemployer Plan, or (iii) any Multiemployer Plan shall have been terminated or reorganized or become insolvent, and as a result of one or more such events the Transferor or any ERISA Affiliate has incurred or is reasonably expected to incur liability in excess of $500,000; or (i) with respect to any Originator and the related Purchase Agreement, (i) any Plan Event (as defined in such Purchase Agreement) shall have occurred, (ii) such Originator or any ERISA Affiliate (as defined in such Purchase Agreement) shall have withdrawn from a Multiemployer Plan (as defined in such Purchase Agreement), or (iii) any such Multiemployer Plan shall have been terminated or reorganized or become insolvent, and as a result of one or more such events such Originator or any such ERISA Affiliate has incurred or is reasonably expected to incur liability in excess of $500,000; or (j) the Parent shall cease to be the direct or indirect beneficial owner of at least 100% of the outstanding Voting Stock of the Transferor; or (k) the rating of the senior long-term debt obligations of the Parent by Moody's or Standard & Poor's shall fall below B2 or B, respectively or, if no such SERIES 1997-1 SUPPLEMENT 42 38 public ratings are available, in the Program Agent's sole judgment in accordance with its customary practices, the deemed equivalent of such ratings; or (l) the Excess Spread Percentage for any three consecutive Due Periods is reduced to a rate of less than 1%; or (m) the Class A Invested Amount shall not be paid in full on the Class A Expected Final Payment Date or the Collateral Invested Amount shall not be paid in full on the Collateral Investor Expected Final Payment Date; or (n) the failure on the part of a Swap Provider to make a Swap Payment, within five calendar days of the date on which such Swap Payment is due; or (o) the failure on the part of a Cap Provider to make a Cap Payment within five calendar days of the date on which such Cap Payment is due; or (p) the failure to maintain in full force and effect at all times the Swap Agreement and Cap Agreement, in a combined aggregate notional amount of at least $125,000,000, with a Swap Provider and a Cap Provider, respectively, the short term debt obligations of each of which are rated at least A-1+ by Standard & Poor's and P-1 by Moody's, PROVIDED that if, on any date, any such ratings fall below A-1+ or P-1, as the case may be, such Swap Agreement or Cap Agreement, as the case may be, shall be replaced with a Replacement Swap Agreement with a Replacement Swap Provider or a Replacement Cap Agreement with a Replacement Cap Provider, respectively, the short term debt obligations of which are rated at least A-1+ by Standard & Poor's and P-1 by Moody's, within 30 calendar days of such date; or (q) the Subordinated Transferor Invested Amount is less than $11,000,000; or (r) the Net Loss Percentage for any three consecutive Due Periods exceeds 10%; or (s) the Dilution Ratio for any three consecutive Due Periods exceeds 8%; then, if a Trust Early Amortization Event pursuant to Section 9.01(d) or (f) of the Pooling and Servicing Agreement shall have occurred, a "Series Early Amortization Event" shall occur without any notice, demand, protest or other requirement of any kind immediately upon the occurrence of such event, and, if any of the other events set forth in any of the paragraphs above shall have occurred, either the Trustee or the Program Agent (unless otherwise directed SERIES 1997-1 SUPPLEMENT 43 39 by a Majority in Interest of Series 1997-1 Certificateholders) or a Majority in Interest of Series 1997-1 Certificateholders, by notice then given in writing to the Transferor and the Servicer (and to the Trustee if given by such Majority in Interest), may declare (PROVIDED that such Series Early Amortization Event shall not have been remedied) that a "Series Early Amortization Event" has occurred as of the date of such notice. Section 6.02. TRUSTEE'S MONITORING OBLIGATIONS. The Trustee shall examine each Monthly Servicer's Report delivered thereunder for positive indications that an Early Amortization Event may have occurred pursuant to Section 9.01 of the Pooling and Servicing Agreement or Section 6.01 hereof and shall notify the Program Agent if such an Early Amortization Event is indicated. ARTICLE VII MISCELLANEOUS Section 7.01. REASSIGNMENT AND TRANSFER TERMS. The Investor Certificates shall be subject to retransfer to the Transferor at its option, in accordance with the terms specified in Section 12.02(a) of the Pooling and Servicing Agreement, on any Distribution Date on or after the Distribution Date on which the Series Invested Amount is less than or equal to 15% of the Initial Series Invested Amount. The deposit required in connection with any such repurchase shall be equal to the sum of (x) the Series Invested Amount PLUS (y) all accrued and unpaid interest on the Investor Certificates PLUS (z) all accrued and unpaid amounts owing in respect of the fees set forth in the Fee Letter and all other accrued costs and expenses owing to any of the Beneficiaries under any of the Transaction Documents, in each case through the day preceding the Distribution Date on which the repurchase occurs. Section 7.02. ASSIGNMENT BY CRC AND LIQUIDITY PROVIDERS. The Transferor and the Servicer agree to execute or obtain such other documentation as may be reasonably requested by CRC or any Liquidity Provider in order to effectuate any assignment under Section 6.01 of the Certificate Purchase Agreement. Section 7.03. NO ASSIGNABILITY BY TRANSFEROR AND SERVICER; TRANSFEROR'S LIABILITY. Neither the Servicer nor the Transferor may assign any of its rights and obligations hereunder or any interest herein (including any Subordinated Transferor Certificate) without the prior written consent of CRC and the Program Agent. Section 7.04. RATIFICATION OF POOLING AND SERVICING AGREEMENT. As supplemented by this Supplement, the Pooling and Servicing Agreement is in all respects SERIES 1997-1 SUPPLEMENT 44 40 ratified and confirmed and the Pooling and Servicing Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. Section 7.05. AMENDMENTS. All amendments to this Series 1997-1 Supplement shall be made in accordance with the provisions of the Pooling and Servicing Agreement. In addition, no amendments may be made to this Series 1997-1 Supplement the effect of which would be to (i) change the Class A Monthly Interest, Collateral Investor Monthly Interest, Subordinated Transferor Monthly Interest, Excess Spread Percentage, Net Loss Percentage, Dilution Ratio, Revolving Period, the Series 1997-1 Monthly Trustee's Fee, the Series 1997-1 Monthly Program Fees, Reserve Account Required Balance or Series Early Amortization Events, (ii) reduce in any manner the amount of, or delay the timing of, distributions to be made to any Series 1997-1 Certificateholder or allocations or deposits of amounts to be so distributed, (iii) cause any adverse tax effect (taking into account any offsetting non-tax benefit therefrom) for any Series 1997-1 Certificateholder or (iv) adversely affect in any material respect the interests of any Series 1997-1 Certificateholder, in each case unless a Series 1997-1 Majority in Interest and, in the case of clause (iii), each affected Series 1997-1 Certificateholder, has consented in writing. Section 7.06. NO OBLIGATIONS UNDER SWAP AGREEMENT. The parties hereto hereby agree that no Beneficiary will have any obligations, duties or other liabilities under or in connection with the Swap Agreement. Section 7.07. COUNTERPARTS. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Supplement by telecopier shall be effective as delivery of a manually executed counterpart of this Supplement. Section 7.08. GOVERNING LAW, ETC. (a) GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive general jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Supplement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent SERIES 1997-1 SUPPLEMENT 45 41 permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Supplement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Supplement or any of the other Transaction Documents in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Supplement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) CONSENT TO SERVICE OF PROCESS. Each party to this Supplement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Supplement will affect the right of any party to this Supplement to serve process in any other manner permitted by law. (d) WAIVER OF JURY TRIAL. Each party to this Supplement waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Supplement, any other Transaction Document or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto and the Liquidity Providers or any other relationship existing in connection with this Supplement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. Section 7.09. NO PETITION. (a) The Transferor, the Servicer and the Trustee, by entering into this Supplement and each Series 1997-1 Certificateholder, by accepting a Series 1997-1 Certificate, hereby covenant and agree that they will not at any time institute against the Trust, or join in any institution against the Trust of, any bankruptcy proceedings under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to the Investor Certificates, this Supplement or any other Transaction Document. SERIES 1997-1 SUPPLEMENT 46 42 (b) The Servicer and the Trustee, by entering into this Supplement and each Series 1997-1 Certificateholder, by accepting a Series 1997-1 Certificate, hereby covenant and agree that they will not at any time institute against the Transferor, or join in any institution against the Transferor of, any bankruptcy proceedings under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to the Investor Certificates, this Supplement or any other Transaction Document. IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have caused this Series 1997-1 Supplement to be duly executed by their respective officers as of the day and year first above written. THE EL-BEE RECEIVABLES CORPORATION, as Transferor By: ------------------------------------ Name: Title: THE EL-BEE CHARGIT CORP., as Servicer By: ------------------------------------ Name: Title: BANKERS TRUST COMPANY, as Trustee By: ------------------------------------ Name: Title: SERIES 1997-1 SUPPLEMENT 47 EXHIBIT A-1 FORM OF CLASS A CERTIFICATE ----------- --, ---- REGISTERED Variable Principal Amount* THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Certificate No. __ SERIES 1997-1 CLASS A FLOATING RATE CERTIFICATE THIS CERTIFICATE REPRESENTS AN UNDIVIDED INTEREST IN CERTAIN ASSETS OF THE ELDER-BEERMAN MASTER TRUST the corpus of which consists primarily of certain receivables generated from time to time by The Elder-Beerman Stores Corp. (the "COMPANY") which are then purchased by The El-Bee Chargit Corp. ("CHARGIT") (together, the "ORIGINATORS") and then purchased by The El-Bee Receivables Corporation (the "TRANSFEROR"), from the Originators, which in turn transfers and assigns such receivables to The Elder-Beerman Master Trust pursuant to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, Chargit, as Servicer, and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as therein defined). This Certificate (a "CLASS A CERTIFICATE") does not represent a recourse obligation, and is not guaranteed by, the Transferor, the Company, Chargit or any Affiliate of any of them. - --------------------------- * Denominations of $5,000,000 and multiples of $1,000 in excess thereof. SERIES 1997-1 SUPPLEMENT 48 This certifies that ____________________ (the "CLASS A CERTIFICATEHOLDER") is the registered owner of a fractional undivided interest in the assets of The Elder-Beerman Master Trust (the "TRUST") created pursuant to the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual or facsimile signature, this Class A Certificate shall not be entitled to any benefit under the Transaction Documents or be valid for any purpose. Each purchaser, by its purchase of this Class A Certificate, represents, acknowledges and agrees that: (1) it is purchasing "restricted" securities which have not been and will not be registered under the Securities Act; (2) if it should decide to dispose of any of such securities, it will not offer, sell, transfer, pledge, hypothecate or otherwise dispose of any of such securities except, (A) pursuant to Rule 144A under the Securities Act, (B) to a sophisticated institutional investor that is an "accredited investor" (within the meaning of Rule 501(a) (1), (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or advertising as evidenced by a certificate of the proposed transferor thereof delivered to the Trustee (in the form attached hereto) or (C) pursuant to any other exemption from the registration requirements of such Securities Act in each case in accordance with any applicable state laws governing the offer or sale of securities; and (3) for federal, state and local income and franchise tax law purposes, this Class A Certificate is intended to be indebtedness of the Transferor secured by the Receivables and the purchaser shall treat and report this Class A Certificate as indebtedness of the Transferor for such purposes. The corpus of the Trust consists of (i) a portfolio of Receivables arising in connection with the Accounts identified under the Pooling and Servicing Agreement from time to time, (ii) funds collected or to be collected from Obligors in respect of the Receivables, (iii) all funds which are from time to time on deposit in the Concentration Account, the Collection Accounts and any other account or accounts held for the benefit of the Certificateholders and (iv) all other assets and interests constituting the Trust Assets. This Class A Certificate is issued under and is subject to the terms, provisions and conditions of the Transaction Documents, to which Transaction Documents the Class A Certificateholder, by virtue of its acceptance hereof, assents and is bound. Although a summary of certain provisions of the Transaction Documents is set forth below, this Class A Certificate does not purport to summarize the Transaction Documents and is qualified in its entirety by the terms and provisions of the Transaction Documents and reference is made to the Transaction Documents for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee, the Servicer and the other parties bound by the SERIES 1997-1 SUPPLEMENT 49 A-1-3 Transaction Documents. A copy of the Transaction Documents may be requested by writing to the Trustee at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group/Structured Finance, at the expense of the Transferor. The Series 1997-1 Certificates are issued in three Classes, the Class A Certificates (of which this Class A Certificate is one), the Collateral Investor Certificates, which are subordinated to the Class A Certificates as described in the Transaction Documents, and the Subordinated Transferor Certificate, which is subordinated to the Class A Certificates and the Collateral Investor Certificates as described in the Transaction Documents. In addition to the Series 1997-1 Certificates, the Transferor will issue an Exchangeable Transferor Certificate pursuant to the Transaction Documents, which will represent a fractional undivided interest in the Trust. The Class A Certificates collectively represent a fractional undivided interest in the Trust and the right to receive Collections and other amounts, to the extent necessary to make the required payments with respect to the Class A Certificates, at the times and in the amounts specified in the Transaction Documents from time to time. The Class A Invested Amount with respect to any date will be determined as set forth in the Series 1997-1 Supplement. The Class A Invested Amount and the amount of any Increases and distributions of principal to the Class A Certificateholders shall be recorded on the Certificate Register. Interest on the unpaid Class A Invested Amount outstanding from time to time shall accrue at a rate per annum equal to the Class A Certificate Rate in effect from time to time applicable to this Class A Certificate and shall become due on the dates specified in the Transaction Documents for distributions of amounts on account of such interest until the Class A Invested Amount shall have been reduced to zero. Interest with respect to the Class A Certificates shall be distributed to the Class A Certificateholders on each Distribution Date. Payment of any installment of interest on Class A Certificates will be made or caused to be made by the Trustee to the person in whose name such Class A Certificate is registered at the close of business on the Record Date. Payment of such interest will be made by wire transfer to a designated account maintained by the Class A Certificateholder; PROVIDED that such Class A Certificateholder has provided the Trustee with the wire transfer designation, in writing, received by the Trustee on or prior to the relevant Record Date. In the absence of such timely wire transfer instructions, payment will be made by check to the address of record of the Class A Certificateholder. Payment of principal in reduction of this Class A Certificates will be made by wire transfer to a designated account maintained by the Class A Certificateholder. The final SERIES 1997-1 SUPPLEMENT 50 A-1-4 distribution on a Class A Certificate will be made after due notice by the Trustee of the pendency of such distribution and only upon presentation and surrender of a Class A Certificate at the Corporate Trust Office of the Trustee. The Class A Certificates do not represent an obligation of, or an interest in, the Transferor, the Servicer, the Company or any Affiliate of any of them. This Class A Certificate is limited in right of payment to certain Collections of the Receivables (and certain other amounts), all as more specifically set forth hereinabove and in the Transaction Documents. The Class A Certificates are only issuable in registered form without coupons in denominations of $5,000,000 and integral multiples of $1,000 in excess thereof. Class A Certificates are transferable upon surrender of the Class A Certificate, and any other required documents, to an office of the Trustee, where newly executed and authenticated Class A Certificates in the name of the designated transferee will be delivered. As provided in the Transaction Documents and subject to certain limitations therein set forth, this Class A Certificate is exchangeable for new Class A Certificates of the same Series evidencing a like aggregate fractional undivided interest in the Trust, as requested by the Class A Certificateholder surrendering this Class A Certificate. No service charge will be imposed for any such transfer or exchange, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. This Class A Certificate shall be construed in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF, the Transferor has caused this Class A Certificate to be duly executed. THE EL-BEE RECEIVABLES CORPORATION By: ------------------------------- Name: Title: SERIES 1997-1 SUPPLEMENT 51 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Class A Certificates described in the within-mentioned Pooling and Servicing Agreement. Dated: __________ __, ____ BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: OR - -------------------------------- ---------------------------------- Authorized Signer as Authenticating Agent for the Trustee By: ---------------------------------- Authorized Signer SERIES 1997-1 SUPPLEMENT 52 ASSIGNMENT FOR VALUE RECEIVED, the undersigned Certificateholder hereby sell(s), assign(s) and transfer(s) unto ____________________________________________________, whose taxpayer identification number is _________________, and whose address, including postal zip code, is ___________________________, the within Security capitalized terms used herein and not otherwise defined herein are used herein as defined therein) and all rights thereunder, hereby irrevocably constituting and appointing _______________ attorney-in-fact to transfer said Security on the books of the Trustee with full power of substitution in the premises. In connection with the transfer of this security, the undersigned holder certifies that: [CHECK ONE] |_| (A) This security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in compliance with the exemption from registration under the Securities Act provided by Rule 144A. |_| (B) This Security is being transferred to a sophisticated institutional investor which is an "accredited investor" (within the meaning of Rule 501(a) (1) (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or advertising. |_| (C) This Security is being transferred in compliance with another exemption from registration under the Securities Act. Dated:__________________ Name: _________________________ By: _________________________ Title: _________________________ NOTICE: The signature of the holder of this assignment must correspond with the name as written upon the face of the within instrument in every particular, without any change whatsoever. * If Box C is checked, the Trustee shall receive from the proposed transferee, prior to the Trustee being required to effect the transfer of this Security, a written opinion of SERIES 1997-1 SUPPLEMENT 53 counsel stating that such transfer is exempt from the registration requirements of the Securities Act and the basis therefor. SIGNATURE GUARANTEED ------------------------------------------ IF NONE OF THE FOREGOING BOXES IS CHECKED, THE TRUSTEE SHALL NOT BE OBLIGATED TO REGISTER THIS SECURITY IN THE NAME OF ANY PERSON OTHER THAN THE HOLDER HEREOF UNLESS AND UNTIL THE CONDITIONS TO ANY SUCH TRANSFER OF REGISTRATION SET FORTH HEREIN, ON THE FACE HEREOF AND IN THE TRANSACTION DOCUMENTS, SHALL HAVE BEEN SATISFIED. SERIES 1997-1 SUPPLEMENT 54 EXHIBIT A-2 FORM OF COLLATERAL INVESTOR CERTIFICATE ----------- --, ---- REGISTERED Variable Principal Amount* THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Certificate No. __ SERIES 1997-1 COLLATERAL INVESTOR FLOATING RATE CERTIFICATE THIS CERTIFICATE REPRESENTS AN UNDIVIDED INTEREST IN CERTAIN ASSETS OF THE ELDER-BEERMAN MASTER TRUST the corpus of which consists primarily of certain receivables generated from time to time by The Elder-Beerman Stores Corp. (the "COMPANY") which are then purchased by The El-Bee Chargit Corp. ("CHARGIT") (together, the "ORIGINATORS") and then purchased by The El-Bee Receivables Corporation (the "TRANSFEROR"), from the Originators, which in turn transfers and assigns such receivables to The Elder-Beerman Master Trust pursuant to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, Chargit, as Servicer, and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as therein defined). This Certificate (a - -------------------------- * Denominations of $5,000,000 and multiples of $1,000 in excess thereof. SERIES 1997-1 SUPPLEMENT 55 A-2-2 "COLLATERAL INVESTOR CERTIFICATE") does not represent a recourse obligation, and is not guaranteed by, the Transferor, the Company, Chargit or any Affiliate of any of them. This certifies that ____________________ (the "COLLATERAL INVESTOR CERTIFICATEHOLDER") is the registered owner of a fractional undivided interest in the assets of The Elder-Beerman Master Trust (the "TRUST") created pursuant to the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual or facsimile signature, this Collateral Investor Certificate shall not be entitled to any benefit under the Transaction Documents or be valid for any purpose. Each purchaser, by its purchase of this Collateral Investor Certificate, represents, acknowledges and agrees that: (1) it is purchasing "restricted" securities which have not been and will not be registered under the Securities Act; (2) if it should decide to dispose of any of such securities, it will not offer, sell, transfer, pledge, hypothecate or otherwise dispose of any of such securities except, (A) pursuant to Rule 144A under the Securities Act, (B) to a sophisticated institutional investor that is an "accredited investor" (within the meaning of Rule 501(a) (1), (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or advertising as evidenced by a certificate of the proposed transferor thereof delivered to the Trustee (in the form attached hereto) or (C) pursuant to any other exemption from the registration requirements of such Securities Act in each case in accordance with any applicable state laws governing the offer or sale of securities; and (3) for federal, state and local income and franchise tax law purposes, this Collateral Investor Certificate is intended to be indebtedness of the Transferor secured by the Receivables and the purchaser shall treat and report this Collateral Investor Certificate as indebtedness of the Transferor for such purposes. The corpus of the Trust consists of (i) a portfolio of Receivables arising in connection with the Accounts identified under the Pooling and Servicing Agreement from time to time, (ii) funds collected or to be collected from Obligors in respect of the Receivables, (iii) all funds which are from time to time on deposit in the Concentration Account, the Collection Accounts and any other account or accounts held for the benefit of the Certificateholders and (iv) all other assets and interests constituting the Trust Assets. This Collateral Investor Certificate is issued under and is subject to the terms, provisions and conditions of the Transaction Documents, to which Transaction Documents the Collateral Investor Certificateholder, by virtue of its acceptance hereof, assents and is bound. Although a summary of certain provisions of the Transaction Documents is set forth below, this Collateral Investor Certificate does not purport to summarize the Transaction Documents and is qualified in its entirety by the terms and provisions of the Transaction SERIES 1997-1 SUPPLEMENT 56 A-2-3 Documents and reference is made to the Transaction Documents for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee, the Servicer and the other parties bound by the Transaction Documents. A copy of the Transaction Documents may be requested by writing to the Trustee, at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group/Structured Finance, at the expense of the Transferor. The Series 1997-1 Certificates are issued in three Classes, the Class A Certificates, the Collateral Investor Certificates (of which this Collateral Investor Certificate is one), which are subordinated to the Class A Certificates as described in the Transaction Documents, and the Subordinated Transferor Certificate, which is subordinated to the Class A Certificates and the Collateral Investor Certificates as described in the Transaction Documents. In addition to the Series 1997-1 Certificates, the Transferor will issue an Exchangeable Transferor Certificate pursuant to the Transaction Documents, which will represent a fractional undivided interest in the Trust. The Collateral Investor Certificates collectively represent a fractional undivided interest in the Trust and the right to receive Collections and other amounts, to the extent necessary to make the required payments with respect to the Collateral Investor Certificates, at the times and in the amounts specified in the Transaction Documents from time to time. The Collateral Invested Amount with respect to any date will be determined as set forth in the Series 1997-1 Supplement. The Collateral Invested Amount and the amount of any distributions of principal to the Collateral Investor Certificateholders shall be recorded on the Certificate Register. Interest on the unpaid Collateral Invested Amount outstanding from time to time shall accrue at a rate per annum equal to the Collateral Investor Certificate Rate in effect from time to time applicable to this Collateral Investor Certificate and shall become due on the dates specified in the Transaction Documents for distributions of amounts on account of such interest until the Collateral Invested Amount shall have been reduced to zero. Interest with respect to the Collateral Investor Certificates shall be distributed to the Collateral Investor Certificateholders on each Distribution Date. Payment of any installment of interest on Collateral Investor Certificates will be made or caused to be made by the Trustee to the person in whose name such Collateral Investor Certificate is registered at the close of business on the Record Date. Payment of such interest will be made by wire transfer to a designated account maintained by the Collateral Investor Certificateholder; PROVIDED that such Collateral Investor Certificateholder has provided the Trustee with the wire transfer designation, in writing, received by the Trustee on or prior to the relevant Record Date. In the absence of such timely SERIES 1997-1 SUPPLEMENT 57 A-2-4 wire transfer instructions, payment will be made by check to the address of record of the Collateral Investor Certificateholder. Payment of principal in reduction of Collateral Investor Certificates will be made by wire transfer to a designated account maintained by the Collateral Investor Certificateholder. The final distribution on a Collateral Investor Certificate will be made after due notice by the Trustee of the pendency of such distribution and only upon presentation and surrender of a Collateral Investor Certificate at the Corporate Trust Office of the Trustee. The Collateral Investor Certificates do not represent an obligation of, or an interest in, the Transferor, the Servicer, the Company or any Affiliate of any of them. This Collateral Investor Certificate is limited in right of payment to certain Collections of the Receivables (and certain other amounts), all as more specifically set forth hereinabove and in the Transaction Documents. The Collateral Investor Certificates are only issuable in registered form without coupons in denominations of $5,000,000 and integral multiples of $1,000 in excess thereof. Collateral Investor Certificates are transferable upon surrender of the Collateral Investor Certificate, and any other required documents, to an office of the Trustee, where newly executed and authenticated Collateral Investor Certificates in the name of the designated transferee will be delivered. As provided in the Transaction Documents and subject to certain limitations therein set forth, this Collateral Investor Certificate is exchangeable for new Collateral Investor Certificates of the same Series evidencing a like aggregate fractional undivided interest in the Trust, as requested by the Collateral Investor Certificateholder surrendering this Collateral Investor Certificate. No service charge will be imposed for any such transfer or exchange, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. SERIES 1997-1 SUPPLEMENT 58 A-2-5 This Collateral Investor Certificate shall be construed in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF, the Transferor has caused this Collateral Investor Certificate to be duly executed. THE EL-BEE RECEIVABLES CORPORATION By: --------------------------------- Name: Title: SERIES 1997-1 SUPPLEMENT 59 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Collateral Investor Certificates described in the within-mentioned Pooling and Servicing Agreement. Dated: __________ __, ____ BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: OR ----------------------- ------------------------------------------- Authorized Signer as Authenticating Agent for the Trustee By: ------------------------------------- Authorized Signer SERIES 1997-1 SUPPLEMENT 60 ASSIGNMENT FOR VALUE RECEIVED, the undersigned Certificateholder hereby sell(s), assign(s) and transfer(s) unto ___________________________, whose taxpayer identification number is _________________, and whose address, including postal zip code, is ___________________________, the within Security capitalized terms used herein and not otherwise defined herein are used herein as defined therein) and all rights thereunder, hereby irrevocably constituting and appointing _______________ attorney-in-fact to transfer said Security on the books of the Trustee with full power of substitution in the premises. In connection with the transfer of this security, the undersigned holder certifies that: [CHECK ONE] |_| (A) This security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in compliance with the exemption from registration under the Securities Act provided by Rule 144A. |_| (B) This Security is being transferred to a sophisticated institutional investor which is an "accredited investor" (within the meaning of Rule 501(a) (1) (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or advertising. |_| (C) This Security is being transferred in compliance with another exemption from registration under the Securities Act. Dated:__________________ Name: _________________________ By: ____________________ Title: ____________________ NOTICE: The signature of the holder of this assignment must correspond with the name as written upon the face of the within instrument in every particular, without any change whatsoever. * If Box C is checked, the Trustee shall receive from the proposed transferee, prior to the Trustee being required to effect the transfer of this Security, a written opinion of SERIES 1997-1 SUPPLEMENT 61 counsel stating that such transfer is exempt from the registration requirements of the Securities Act and the basis therefor. SIGNATURE GUARANTEED ------------------------------------------ IF NONE OF THE FOREGOING BOXES IS CHECKED, THE TRUSTEE SHALL NOT BE OBLIGATED TO REGISTER THIS SECURITY IN THE NAME OF ANY PERSON OTHER THAN THE HOLDER HEREOF UNLESS AND UNTIL THE CONDITIONS TO ANY SUCH TRANSFER OF REGISTRATION SET FORTH HEREIN, ON THE FACE HEREOF AND IN THE TRANSACTION DOCUMENTS, SHALL HAVE BEEN SATISFIED. SERIES 1997-1 SUPPLEMENT 62 EXHIBIT A-3 FORM OF SUBORDINATED TRANSFEROR CERTIFICATE ----------- --, ---- REGISTERED Variable Principal Amount* THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Certificate No. __ SERIES 1997-1 SUBORDINATED TRANSFEROR FLOATING RATE CERTIFICATE THIS CERTIFICATE REPRESENTS AN UNDIVIDED INTEREST IN CERTAIN ASSETS OF THE ELDER-BEERMAN MASTER TRUST the corpus of which consists primarily of certain receivables generated from time to time by The Elder-Beerman Stores Corp. (the "COMPANY") which are then purchased by The El-Bee Chargit Corp. ("CHARGIT") (together, the "ORIGINATORS") and then purchased by The El-Bee Receivables Corporation (the "TRANSFEROR"), from the Originators, which in turn transfers and assigns such receivables to The Elder-Beerman Master Trust pursuant to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, Chargit, as Servicer, and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; capitalized terms used herein and not otherwise defined herein are used herein as therein defined). This Certificate - --------------------------------------- * Denominations of $5,000,000 and multiples of $1,000 in excess thereof. SERIES 1997-1 SUPPLEMENT 63 A-3-2 (the "SUBORDINATED TRANSFEROR CERTIFICATE") does not represent a recourse obligation, and is not guaranteed by, the Transferor, the Company, Chargit or any Affiliate of any of them. This certifies that ____________________ (the "SUBORDINATED TRANSFEROR CERTIFICATEHOLDER") is the registered owner of a fractional undivided interest in the assets of The Elder-Beerman Master Trust (the "TRUST") created pursuant to the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual or facsimile signature, this Subordinated Transferor Certificate shall not be entitled to any benefit under the Transaction Documents or be valid for any purpose. This Subordinated Transferor Certificate is not transferable or assignable. The corpus of the Trust consists of (i) a portfolio of Receivables arising in connection with Accounts identified under the Pooling and Servicing Agreement from time to time, (ii) funds collected or to be collected from Obligors in respect of the Receivables, (iii) all funds which are from time to time on deposit in the Concentration Account, the Collection Accounts and any other account or accounts held for the benefit of the Certificateholders and (iv) all other assets and interests constituting the Trust Assets. This Subordinated Transferor Certificate is issued under and is subject to the terms, provisions and conditions of the Transaction Documents, to which Transaction Documents the Subordinated Transferor Certificateholder, by virtue of the acceptance hereof, assents and is bound. Although a summary of certain provisions of the Transaction Documents is set forth below, this Subordinated Transferor Certificate does not purport to summarize the Transaction Documents and is qualified in its entirety by the terms and provisions of the Transaction Documents and reference is made to the Transaction Documents for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee, the Servicer and the other parties bound by the Transaction Documents. A copy of the Transaction Documents may be requested by writing to the Trustee, at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group/Structured Finance, at the expense of the Transferor. The Series 1997-1 Certificates are issued in three Classes, the Class A Certificates, the Collateral Investor Certificates, which are subordinated to the Class A Certificates as described in the Transaction Documents, and the Subordinated Transferor Certificate, which is subordinated to the Class A Certificates and the Collateral Investor Certificates as described in the Transaction Documents. In addition to the Series 1997-1 SERIES 1997-1 SUPPLEMENT 64 A-3-3 Certificates, the Transferor will issue an Exchangeable Transferor Certificate pursuant to the Transaction Documents, which will represent a fractional undivided interest in the Trust. The Subordinated Transferor Certificate collectively represent a fractional undivided interest in the Trust and the right to receive Collections and other amounts, to the extent necessary to make the required payments with respect to the Subordinated Transferor Certificate, at the times and in the amounts specified in the Transaction Documents from time to time. The Subordinated Transferor Invested Amount with respect to any date will be determined as set forth in the Series 1997-1 Supplement. The Subordinated Transferor Invested Amount and the amount of any distributions of principal to the Subordinated Transferor Certificateholder shall be recorded on the Certificate Register. Interest on the unpaid Subordinated Transferor Invested Amount outstanding from time to time shall accrue at a rate per annum equal to the Subordinated Transferor Certificate Rate in effect from time to time applicable to this Subordinated Transferor Certificate and shall become due on the dates specified in the Transaction Documents for distributions of amounts on account of such interest until the Subordinated Transferor Invested Amount shall have been reduced to zero. Interest with respect to the Subordinated Transferor Certificate shall be distributed to the Subordinated Transferor Certificateholder in accordance with the Transaction Documents. Payment of any installment of interest on Subordinated Transferor Certificate will be made or caused to be made by the Trustee to the Subordinated Transferor Certificateholder. Payment of such interest will be made by wire transfer to a designated account maintained by the Subordinated Transferor Certificateholder; PROVIDED that the Subordinated Transferor Certificateholder has provided the Trustee with the wire transfer designation, in writing, received by the Trustee on or prior to the relevant Record Date. In the absence of such timely wire transfer instructions, payment will be made by check to the address of record of the Subordinated Transferor Certificateholder. Payment of principal in reduction of Subordinated Transferor Certificate will be made by wire transfer to a designated account maintained by the Subordinated Transferor Certificateholder. The final distribution on a Subordinated Transferor Certificate will be made after due notice by the Trustee of the pendency of such distribution and only upon presentation and surrender of a Subordinated Transferor Certificate at the Corporate Trust Office of the Trustee. The Subordinated Transferor Certificate does not represent an obligation of, or an interest in, the Transferor, the Servicer, the Company or any Affiliate of any of them. This Subordinated Transferor Certificate is limited in right of payment to certain Collections of the SERIES 1997-1 SUPPLEMENT 65 A-3-4 Receivables (and certain other amounts), all as more specifically set forth hereinabove and in the Transaction Documents. As provided in the Transaction Documents and subject to certain limitations therein set forth, this Subordinated Transferor Certificate is exchangeable for a new Subordinated Transferor Certificate of the same Series evidencing a like aggregate fractional undivided interest in the Trust, as requested by the Subordinated Transferor Certificateholder surrendering this Subordinated Transferor Certificate. No service charge will be imposed for any such transfer or exchange, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. This Subordinated Transferor Certificate shall be construed in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF, the Transferor has caused this Subordinated Transferor Certificate to be duly executed. THE EL-BEE RECEIVABLES CORPORATION By: ----------------------------- Name: Title: SERIES 1997-1 SUPPLEMENT 66 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is the Subordinated Transferor Certificate described in the within-mentioned Pooling and Servicing Agreement. Dated: __________ __, ____ BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: OR -------------------------------- ------------------------------------- Authorized Signer as Authenticating Agent for the Trustee By: ---------------------------------- Authorized Signer SERIES 1997-1 SUPPLEMENT 67 EXHIBIT B FORM OF SWAP AGREEMENT SERIES 1997-1 SUPPLEMENT 68 EXHIBIT C FORM OF CAP AGREEMENT SERIES 1997-1 SUPPLEMENT EX-10.A.III 5 EXHIBIT 10(A)(III) 1 Exhibit 10(a)(iii) EXECUTION COPY ================================================================================ SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT Dated December 30, 1997 Among THE EL-BEE RECEIVABLES CORPORATION as Seller, CORPORATE RECEIVABLES CORPORATION, as Purchaser, THE LIQUIDITY PROVIDERS NAMED HEREIN, as Liquidity Providers, CITICORP NORTH AMERICA, INC., as Program Agent for Corporate Receivables Corporation and the Liquidity Providers and BANKERS TRUST COMPANY, as Trustee Series 1997-1 Certificate Purchase Agreement ================================================================================ 2
TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.01. Definitions............................................................................. 1 Section 1.02. Other Definitional Provisions........................................................... 5 ARTICLE II THE PURCHASE; INCREASES Section 2.01. The Purchase............................................................................ 6 Section 2.02. Increases............................................................................... 6 Section 2.03. Class A Certificates.................................................................... 6 Section 2.04. Reductions to the Series 1997-1 Class A Purchase Limit.................................. 7 Section 2.05. Procedures for Making the Purchase and Increases........................................ 7 Section 2.06. Assignments by CRC to Liquidity Providers............................................... 8 Section 2.07. Term.................................................................................... 9 ARTICLE III FEES AND YIELD PROTECTION Section 3.01. Fees.................................................................................... 10 Section 3.02. Increased Costs......................................................................... 10 Section 3.03. Taxes................................................................................... 11 Section 3.04. Cost and Expenses....................................................................... 14 Section 3.05. Sharing of Payments, Etc................................................................ 15 ARTICLE IV CONDITIONS PRECEDENT TO THE PURCHASE AND ALL INCREASES Section 4.01. Conditions Precedent to Initial Purchase................................................ 16 Section 4.02. Conditions Precedent to the Purchase and All Increases.................................. 19 Section 4.03. Additional Conditions Precedent......................................................... 21
Series 1997-1 Certificate Purchase Agreement 3 ii ARTICLE V THE PROGRAM AGENT Section 5.01. Authorization and Action of the Program Agent........................................... 22 Section 5.02. The Program Agent's Reliance, Etc....................................................... 22 Section 5.03. The Program Agent and Affiliates........................................................ 23 Section 5.04. Amendments, Waivers and Consents........................................................ 23 Section 5.05. Liquidity Provider Credit Decision...................................................... 24 ARTICLE VI ASSIGNMENTS Section 6.01. Assignment.............................................................................. 24 Section 6.02. Rights of Assignee...................................................................... 25 Section 6.03. Notice of Assignment.................................................................... 25 Section 6.04. Register................................................................................ 25 Section 6.05. Restrictions on Assignments and Participations.......................................... 26 ARTICLE VII PARTICIPATIONS Section 7.01. Participations.......................................................................... 26 ARTICLE VIII MISCELLANEOUS Section 8.01. Amendments, Etc......................................................................... 27 Section 8.02. Notices, Etc............................................................................ 27 Section 8.03. No Waiver; Remedies; Set-Off............................................................ 28 Section 8.04. Binding Effect; Survival................................................................ 28 Section 8.05. No Proceedings.......................................................................... 28 Section 8.06. Captions and Cross References........................................................... 29 Section 8.07. Integration............................................................................. 29 Section 8.08. Replacement of Liquidity Providers...................................................... 29 Section 8.09. Confidentiality......................................................................... 29 Section 8.10. Reimbursement of Program Agent.......................................................... 30 Section 8.11. Limitation of Liability................................................................. 30 Section 8.12. Governing Law........................................................................... 30
Series 1997-1 Certificate Purchase Agreement 4 iii Section 8.13. Submission to Jurisdiction.............................................................. 31 Section 8.14. Consent to Service of Process........................................................... 31 Section 8.15. Execution in Counterparts............................................................... 31 Section 8.16. Waiver of Jury Trial.................................................................... 32 EXHIBITS Exhibit A Form of Assignment and Acceptance Exhibit B Form of Notice of Purchase Exhibit C Form of Notice of Increase
Series 1997-1 Certificate Purchase Agreement 5 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT dated December 30, 1997 among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Seller (the "SELLER"), CORPORATE RECEIVABLES CORPORATION, a California corporation, as Purchaser (as defined below), the financial institutions listed from time to time on the signature pages hereto, as Liquidity Providers (as defined below), CITICORP NORTH AMERICA, INC., a Delaware corporation, as Program Agent (as defined below), and BANKERS TRUST COMPANY, a New York banking corporation, not in its individual capacity but solely as Trustee. PRELIMINARY STATEMENTS: 1. The Elder-Beerman Master Trust formed under the Pooling and Servicing Agreement (as such term and other terms used in these Preliminary Statements are hereinafter defined) may issue the Class A Certificates at the direction of the Seller. 2. Subject to the terms and conditions of this Agreement and of the Series 1997-1 Supplement, the Seller may sell the Class A Certificates to CRC or the Liquidity Providers. 3. Subject to the terms and conditions of this Agreement, CRC may, and the Liquidity Providers shall, fund from time to time, Increases in the Class A Invested Amount. 4. The Class A Certificates will be held by the Program Agent for CRC and the Liquidity Providers. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. DEFINITIONS. All capitalized terms used herein and not otherwise defined herein shall have the meanings specified in the Pooling and Servicing Agreement or in the Series 1997-1 Supplement (as defined below). In addition, the term "Agreement" shall mean this Series 1997-1 Certificate Purchase Agreement, as the same may from time to time be amended, supplemented or otherwise modified. Whenever used in this Agreement, the following words and phrases shall have the following meanings: SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 6 2 "AFFECTED PERSON" means CRC, any partner therein or shareholder thereof, or any Liquidity Provider (and, for purposes of Section 3.03, the Trust and the Trustee). "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance in substantially the form of Exhibit A hereto pursuant to which a Liquidity Provider assigns all or a portion of its rights and obligations under this Agreement in accordance with the terms of Section 6.01(b). "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, 11 U.S.C. ss.ss. 101 et. seq., as amended from time to time. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of Ohio, or such other court as may hereafter be granted primary jurisdiction over the Reorganization Case. "CERTIFICATE PRICE" has the meaning specified in Section 2.06. "CHANGE IN TAX LAW" means any amendment to, or change in, the laws (or any regulations thereunder) of the United States of America or any political subdivision or taxing authority thereof or therein affecting taxation or any amendment to, or change in, an interpretation or application of, such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination). "COMMITMENT" means, as of any date and with respect to any Liquidity Provider, the amount set forth opposite such Liquidity Provider's name on the signature pages hereto under the caption "Liquidity Provider Commitment" or, if such Liquidity Provider has entered into one or more assignments and acceptances, as set forth for such Liquidity Provider in the Register maintained by the Program Agent pursuant to Section 6.04 as such Liquidity Provider's "Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.04. "CONFIDENTIAL INFORMATION" means any written information delivered or made available by or on behalf of the Parent (or its Affiliates or Subsidiaries), the Servicer or the Transferor to any Person in connection with or pursuant to this Agreement or the transactions contemplated hereby, other than information (i) which was publicly known, or otherwise known to such Person (other than from any party to a Transaction Document or any other Person not entitled to disclose the same free of any confidentiality requirements) at the time of disclosure or (ii) which subsequently becomes publicly known through no act or omission by such Person. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 7 3 "CRC" means Corporate Receivables Corporation, a California corporation, and each assignee that shall become a party hereto pursuant to Section 6.01, but shall not include the Liquidity Providers as assignees under Section 2.06. "CURRENT PLAN" means the Parent's Second Amended Plan of Reorganization dated November 7, 1997 and all exhibits thereto. "ELIGIBLE ASSIGNEE" means a depository institution organized under the laws of the United States of America or any state thereof, or the District of Columbia (or any domestic branch of a foreign bank authorized under any such laws), (a) whose senior long-term unsecured debt obligations are rated at least (i) A- or better by Standard & Poor's, and (ii) A3 or better by Moody's, (b) which is subject to regulation regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b), and (c) which has a combined capital and surplus of at least $500,000,000. "EXTENSION TERM" has the meaning specified in Section 2.07. "INCREASE" has the meaning specified in Section 2.02. "INITIAL TERM" means, with respect to each Liquidity Provider Commitment, the period which commences on the date such Liquidity Provider enters into this Agreement and ends on the date which is 364 days after the date of this Agreement. "LIQUIDITY PROVIDER COMMITMENT PERCENTAGE" means, on any day and as to any Liquidity Provider, a fraction, the numerator of which is such Liquidity Provider's Commitment and the denominator of which is the Series 1997-1 Class A Purchase Limit on such day. "LIQUIDITY PROVIDERS" means the banks and financial institutions party hereto from time to time as "Liquidity Providers" hereunder, as their names appear on the signature pages hereto under the heading "Liquidity Providers", and their respective successors and assigns, including each assignee that shall become a party hereto pursuant to Section 6.01. "MAJORITY OF SERIES 1997-1 CLASS A CERTIFICATE INTERESTS" means Certificateholders of Series 1997-1 Class A Certificate Interests evidencing 51% or more of the aggregate Series Class A 1997-1 Certificate Interests; PROVIDED that, solely for purposes of this computation, (i) Liquidity Providers shall be deemed to hold Series 1997-1 Class A Certificate Interests equal to their respective Liquidity Provider Commitment Percentages of such aggregate Series 1997-1 Class A Certificate Interests, whether or not they have made the Purchase or funded any Increases, and (ii) CRC's Series 1997-1 Class A Certificate Interest will be reduced by the amount set forth in clause (i) and also by the amount of any Series SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 8 4 1997-1 Class A Certificate Interests held by Persons other than CRC and any Liquidity Provider. "OBLIGATIONS" means all obligations of any Originator, the Seller, the Transferor, the Servicer or the Parent to any one or more of the Trustee, the Trust, the Purchaser, the Liquidity Providers, each other Indemnified Party and its respective successors, permitted transferees and assigns, arising under or in connection with the Transaction Documents, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due. "PARENT" means The Elder-Beerman Stores Corp., an Ohio corporation. "PLAN OF REORGANIZATION" means the Parent's plan of reorganization (including all exhibits thereto) ultimately confirmed by the Bankruptcy Court in the Parent's Reorganization Case. "POOLING AND SERVICING AGREEMENT" means the Pooling and Servicing Agreement dated as of December 30, 1997, among the Transferor, the Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time. "PROGRAM AGENT" means Citicorp North America, Inc., together with its successors and assigns as agent for the Purchaser and the Liquidity Providers. "PROGRAM AGENT'S ACCOUNT" shall have the meaning specified in Section 2.05(e). "PURCHASE" means the purchase under Section 2.01 of the Class A Certificates, whether by CRC or the Liquidity Providers. "PURCHASE DATE" means the date on which either CRC or the Liquidity Providers make the Purchase pursuant to Section 2.01(a) or (b), respectively. "PURCHASE PRICE" means the price specified in the notice from the Seller (substantially in the form of Exhibit B hereto) delivered on or before the Purchase Date pursuant to Section 2.05(a). "PURCHASER" means either CRC or the Liquidity Providers, as provided in Section 2.01. "REGISTER" has the meaning specified in Section 6.04. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 9 5 "REORGANIZATION CASE" means the Parent's case pursuant to chapter 11 of the Bankruptcy Code administered in the Bankruptcy Court under Case No. 95-33643. "SELLER" shall have the meaning specified in the first paragraph hereof. "SERIES 1997-1 CLASS A CERTIFICATE INTEREST" means each interest in the Class A Certificates acquired by CRC or a Liquidity Provider. "SERIES 1997-1 CLASS A PURCHASE LIMIT" means, as of any date, $117,000,000 (or, if less, the aggregate amount of Commitments of all Liquidity Providers who as of such date are party to this Agreement), as such amount shall have been reduced pursuant to Section 2.04 hereof. "SERIES 1997-1 SUPPLEMENT" means the Series 1997-1 Supplement dated as of the date hereof among the Seller, the Servicer and the Trustee. "TERM" means, with respect to each Commitment, the Initial Term and each Extension Term as provided in Section 2.07. Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All accounting terms not defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not completely defined, shall have the respective meanings given to them under GAAP or regulatory accounting principles, as applicable and in effect from time to time. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP or regulatory accounting principles, the definitions contained herein shall control. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; the term "including" means "including without limitation". (c) Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms, and to the masculine as well as the feminine and neuter genders, of such terms. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 10 6 ARTICLE II THE PURCHASE; INCREASES Section 2.01. THE PURCHASE. (a) Subject to the satisfaction of the conditions precedent set forth in Article IV, CRC may, in its sole discretion, make the Purchase in accordance with the procedures set forth in Section 2.05 hereof. (b) If CRC shall elect not to make the Purchase on the Purchase Date, the Liquidity Providers shall, subject to the satisfaction of the conditions precedent set forth in Article IV, make the Purchase in accordance with the procedures set forth in Section 2.05 hereof. Each Liquidity Provider's share of the Purchase Price for the Purchase shall be an amount equal to its Liquidity Provider Commitment Percentage of the Purchase Price. (c) Under no circumstances shall CRC or the Liquidity Providers make the Purchase on any day if, as a result thereof, (i) the Class A Invested Amount would exceed the Series 1997-1 Class A Purchase Limit or (ii) any Liquidity Provider's ratable interest in the Class A Invested Amount would exceed such Liquidity Provider's Commitment. Section 2.02. INCREASES. (a) CRC may, in its sole discretion, from time to time during the period from the date of this Agreement to the last day of the Revolving Period, upon the request of the Seller (with a copy of such request delivered to the Trustee) and subject to the satisfaction of the conditions precedent set forth in Article IV, fund increases of the Class A Invested Amount (each such increase, an "INCREASE"), and, upon so funding an Increase, shall acquire Series 1997-1 Class A Certificate Interests in an amount corresponding to the amount of such Increase. (b) If CRC elects not to fund a requested Increase, each Liquidity Provider shall, during the Term applicable to such Liquidity Provider, upon the request of the Seller and subject to the satisfaction of the conditions precedent set forth in Article IV, (i) fund its Liquidity Provider Commitment Percentage of the amount of such requested Increase and (ii) acquire CRC's Series 1997-1 Class A Certificate Interest pursuant to Section 2.06. If any Liquidity Provider receives a request from the Seller in accordance with the preceding sentence during the Term applicable to such Liquidity Provider, such Liquidity Provider shall thereafter during the Revolving Period upon each subsequent request of the Seller and subject to the satisfaction of the conditions precedent set forth in Article IV fund its Liquidity Provider Commitment Percentage of the amount of each requested Increase. (c) Under no circumstances shall CRC or the Liquidity Providers fund any Increase to the extent that, after giving effect to such Increase on any day, (i) the Class A SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 11 7 Invested Amount would exceed the Series 1997-1 Class A Purchase Limit or (ii) any Liquidity Provider's ratable interest in the Class A Invested Amount would exceed such Liquidity Provider's Commitment. Section 2.03. CLASS A CERTIFICATES. On the Purchase Date, on each date on which an Increase in the Class A Invested Amount is funded hereunder and on each date on which each of the Class A Invested Amount and the Series 1997-1 Class A Purchase Limit is reduced, a duly authorized officer or employee of the Program Agent shall make appropriate notations in its books and records of the Purchase Price or the amount of such Increase or the amount of such reduction, as applicable. Each of the Servicer, the Seller and the Trustee hereby authorizes each duly authorized officer and employee of the Program Agent to make such notations on the books and records as aforesaid and every such notation made in accordance with the foregoing authority shall be PRIMA FACIE evidence of the accuracy of the information so recorded and shall be binding on the Servicer, the Seller and the Trustee absent manifest error. Section 2.04. REDUCTIONS TO THE SERIES 1997-1 CLASS A PURCHASE LIMIT. The Seller may, from time to time, upon at least 10 Business Days' prior written notice to the Program Agent and the Trustee, elect to reduce the Series 1997-1 Class A Purchase Limit by an amount up to the difference between the Series 1997-1 Class A Purchase Limit at such time and the Class A Invested Amount at such time. Any such reduction shall be permanent and shall reduce the Commitments of the Liquidity Providers hereunder ratably in accordance with the Liquidity Provider Commitment Percentages immediately prior to such reduction. Section 2.05. PROCEDURES FOR MAKING THE PURCHASE AND INCREASES. (a) NOTICE OF THE PURCHASE AND INCREASES. The Purchase and each Increase shall occur on a Business Day and shall be made or funded on notice from the Seller (substantially in the form of Exhibit B hereto, in the case of the Purchase, or Exhibit C hereto, in the case of an Increase) to the Program Agent, to be received by the Program Agent not later than 1:00 p.m. (New York City time) on, in the case of the Purchase, unless such Purchase Date is December , 1997, the third Business Day (or such shorter time as may be agreed to by the Seller and the Program Agent), immediately preceding the Purchase Date or, in the case of an Increase, on the Business Day immediately preceding the date of such Increase (with a copy provided to the Trustee); PROVIDED that, if the Class A Certificate Rate for the initial Interest Period for the resulting Increase is the Assignee Rate to be calculated at a rate based on the Adjusted Eurodollar Rate, then such notice must be received not later than 1:00 p.m. (New York City time) on the third Business Day next preceding the date of such Increase. Each notice shall specify the Purchase Price or the amount of the Increase (in each case, not to be less than $1,000,000) and the Purchase Date or the date of the Increase. The Program Agent shall promptly notify the Seller and each Liquidity Provider if CRC elects in its discretion not to make the Purchase or fund an Increase. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 12 8 (b) DELIVERY OF THE CLASS A CERTIFICATES. On the Purchase Date, the Seller will deliver to the Program Agent, on behalf of the Purchaser, the Class A Certificates dated the Purchase Date, duly executed by the Transferor, registered in the name of the Purchaser and duly authenticated in accordance with the provisions of the Pooling and Servicing Agreement, against delivery by the Program Agent, on behalf of the Purchaser, to the Seller, of the Purchase Price. (c) FUNDING OF THE PURCHASE AND INCREASES. On the Purchase Date and any date on which an Increase is funded, CRC or the Liquidity Providers, as applicable, shall, upon satisfaction of the applicable conditions set forth in Article IV, deposit in the Program Agent's Account, (i) in the case of CRC, the Purchase Price or amount of the Increase or (ii) in the case of each Liquidity Provider, its Liquidity Provider Commitment Percentage of the Purchase Price or amount of the Increase, in each case in same day funds, and after receipt by the Program Agent of such funds, the Program Agent will deposit the same into the Seller's Account. (d) The Seller shall establish a special account designated under the account name "The El-Bee Receivables Corporation, Series 1997-1 Class A" maintained with Citibank, N.A. in New York, New York, which account (the "SELLER'S ACCOUNT") shall be under the sole dominion and control of the Seller. (e) The Program Agent shall establish and maintain in its own name, on behalf and for the benefit of CRC (for so long as CRC or any Liquidity Provider is a holder of Class A Certificates), with Citibank, N.A. in New York, New York a segregated account accessible only by the Program Agent (the "PROGRAM AGENT'S ACCOUNT"), which shall be identified as "Program Agent's Account for the Elder-Beerman Master Trust, Series 1997-1 Class A" and shall bear a designation clearly indicating that the funds deposited therein are held for the benefit of CRC, as holder of Class A Certificates. Section 2.06. ASSIGNMENTS BY CRC TO LIQUIDITY PROVIDERS. (a) In addition to the obligations of the Liquidity Providers pursuant to Section 2.02(b), on any date during the Term (including any date on which CRC has elected in its discretion not to fund an Increase hereunder pursuant to Section 2.02), CRC may, in its sole discretion, upon written notice given to the Program Agent and the Seller, assign to the Liquidity Providers (in accordance with their respective Liquidity Provider Commitment Percentages), and the Liquidity Providers shall purchase, all of the right, title and interest in all Series 1997-1 Class A Certificate Interests which are then owned by CRC at a purchase price (the "CERTIFICATE PRICE") equal to the aggregate Class A Invested Amount plus all accrued and unpaid interest thereon and all other amounts payable to CRC under the Transaction Documents. Each such notice of purchase shall be given no later than 12:00 noon (New York City time) on the Business Day of SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 13 9 such purchase, shall be sent by telecopier, telex or cable to all Liquidity Providers concurrently, and shall specify the date of such purchase. Prior to 3:00 p.m. (New York City time) on the date of such purchase, each Liquidity Provider shall pay the Program Agent for the account of CRC in immediately available funds in U.S. Dollars, by depositing to an account designated by the Program Agent in New York City, an amount equal to the product of such Certificate Price times the Liquidity Provider Commitment Percentage of such Liquidity Provider. Such assignment of Series 1997-1 Class A Certificate Interests shall be made by CRC upon receipt of consideration (in cash) from the Liquidity Providers. (b) Upon the assignment described in subsection (a) above, (i) all Series 1997-1 Class A Certificate Interests previously owned by CRC and so assigned shall become Series 1997-1 Class A Certificate Interests owned by the Liquidity Providers, (ii) the Program Agent will present the Class A Certificates to the Trustee for transfer to the Liquidity Providers and the Trustee shall register new Class A Certificates in the name of the Liquidity Providers and deliver the same to the Program Agent who shall make appropriate notations in its books and records of such assignment and (iii) the Program Agent shall, to the extent provided under the Series 1997-1 Supplement, pay to CRC on the date of such assignment if such assignment occurs on a Distribution Date, or on the next succeeding Distribution Date, out of Collections available for such payments as provided in the Series 1997-1 Supplement, any Breakage Costs. (c) The assignment of the Series 1997-1 Class A Certificate Interests and the Class A Certificates from CRC to the Liquidity Providers pursuant to this Section 2.06 shall be without recourse or warranty, express or implied, except that such Series 1997-1 Class A Certificate Interests and the Class A Certificates are free and clear of Liens created by or arising as a result of claims against the Program Agent or CRC. Nothing in this Section 2.06 shall be deemed to limit any rights of CRC under any other provisions of this Agreement to assign its right, title to and interest in and to any portion of the Series 1997-1 Class A Certificate Interests or the Class A Certificates owned by it. Section 2.07. TERM. The Initial Term of each Liquidity Provider Commitment hereunder shall be for a period commencing on the date such Liquidity Provider enters into this Agreement and, subject to any earlier termination under Section 8.08, ending on the date that is 364 days after the date of this Agreement. No earlier than 30 days, but no later than 20 days, prior to the expiration of the Initial Term or any Extension Term, the Program Agent may request an extension of such Term (such extended period being an "EXTENSION TERM") and each Liquidity Provider may, in its sole and absolute discretion, extend its Commitment by delivering to the Program Agent a written notice of such Liquidity Provider's agreement to extend, which each Liquidity Provider shall deliver to the Program Agent no later than 10 days after such Liquidity Provider receives any such request for extension; PROVIDED, HOWEVER, that any such extension shall be ineffective if an Early Amortization Event has occurred and is SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 14 10 continuing at the time of the proposed commencement of such Extension Term. Failure of a Liquidity Provider to deliver a notice of such Liquidity Provider's intent to grant an Extension Term shall be deemed to be an election by such Liquidity Provider not to grant an Extension Term. Unless otherwise agreed by the Program Agent, if less than all of the Liquidity Providers have elected to grant an Extension Term and the Program Agent has been unable to replace after reasonable efforts any Liquidity Provider which has declined to grant an Extension Term, such request for an Extension Term shall be withdrawn and the Program Agent will so notify the Liquidity Providers and the Seller prior to the day on which the Term expires. ARTICLE III FEES AND YIELD PROTECTION Section 3.01. FEES. The Seller shall pay to the Program Agent such fees for its own account and for the account of CRC, and the Liquidity Providers in such amounts and at such times as set forth in the Fee Letter. Section 3.02. INCREASED COSTS. (a) If, due to either (i) the introduction or any change in or in the interpretation of any law or regulation (other than any change by way of imposition or increase of reserve requirements included in determining the Adjusted Eurodollar Rate) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case occurring after the Purchase Date, there shall be any increase in the cost, on an after-tax basis, to any Affected Person of any commitment to make the Purchase or to fund Increases or otherwise to maintain the investment in the Class A Certificates or Series 1997-1 Class A Certificate Interests in respect of which the Class A Certificate Rate is the Assignee Rate determined by reference to the Adjusted Eurodollar Rate (excluding for purposes of this Section 3.02 any such increased costs resulting from (A) Taxes or Other Taxes (as to which Section 3.03 will govern) and (B) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state (or any political subdivision thereof) under the laws of which such Affected Person is organized or in which it is otherwise doing business) then the Seller shall from time to time, upon demand by such Affected Person (with a copy of such demand to the Program Agent), promptly pay to the Program Agent, for the account of such Affected Person (as a third party beneficiary), additional amounts sufficient to compensate such Affected Person for such increased cost. Such demand shall be accompanied by a reasonably detailed statement as to the amount of such compensation and include a summary of the basis for such demand. A certificate as to such amounts submitted to the Seller and the Program Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 15 11 (b) If (i) the introduction of or change in or in the interpretation of any law or regulation, (ii) compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law), in each case occurring after the Purchase Date, affects or would affect the amount of capital required or expected to be maintained by any Affected Person, or any corporation controlling any Affected Person, and that the amount of such capital is increased by or based upon the existence of such Affected Person's commitment to make the Purchase or fund Increases or otherwise to maintain its investment in the Class A Certificates or Series 1997-1 Class A Certificate Interests, then, upon demand to the Seller by such Affected Person (with a copy of such demand to the Program Agent) the Seller shall promptly pay to the Program Agent for the account of such Affected Person (as a third party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person, in light of the circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of such Affected Person's commitment to make the Purchase or fund Increases or otherwise maintain its investment in the Class A Certificates or Series 1997-1 Class A Certificate Interests. Such demand shall be accompanied by a reasonably detailed statement as to the amount of such compensation and include a summary of the basis for such demand. A certificate as to such amounts submitted to the Seller and the Program Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (c) Each Affected Person will promptly notify the Seller and the Program Agent of any event of which it has knowledge which is reasonably likely to entitle such Affected Person to compensation pursuant to this Section 3.02; PROVIDED, HOWEVER, that no failure to give or delay in giving such notification shall adversely affect the rights of such Affected Person to such compensation. Section 3.03. TAXES. (a) Except as provided in subsection (g) below, any and all payments and deposits hereunder or under any other Transaction Document to or for the benefit of any Affected Person (including any payments or deposits made by the Servicer) shall be made free and clear of, and without deduction for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Affected Person, taxes imposed on, or measured by reference to, its overall net income or net profits (and franchise taxes imposed in lieu thereof) by any of (i) the United States or any state thereof, (ii) the jurisdiction under the laws of which such Affected Person is organized or in which it is otherwise doing business or (iii) any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments and deposits hereunder being hereinafter referred to as "TAXES"). In addition to, without duplication, the Seller's indemnity obligations under Section 7.03 of the Pooling and Servicing Agreement, if the Seller, the Parent, the Trust SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 16 12 or the Trustee shall be required by law to deduct or pay any Taxes from or in respect of any sum required to be paid or deposited hereunder or under any other Transaction Document or any instrument delivered hereunder or thereunder, to or for the benefit of any Affected Person, except as provided in subsection (g) below, (i) the Seller shall increase the sum payable by it, the Parent, the Trust or the Trustee, as the case may be, as may be necessary so that after making all required deductions or payments (including deductions or payments applicable to additional sums required to be paid or deposited under this Section 3.03) the amount received by the relevant Affected Person, or otherwise deposited hereunder or thereunder, shall be equal to the sum which would have been so received or deposited had no such deductions been made, (ii) the Seller shall make such deductions or payments, or cause such deductions or payments to be made, and (iii) the Seller shall pay or cause to be paid the full amount deducted or payable to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Seller shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment or deposit made under any Transaction Document or from the execution, delivery or registration of, performing under, or otherwise with respect to, any Transaction Document (hereinafter referred to as "OTHER TAXES"). (c) The Seller will indemnify each Affected Person for and hold it harmless against the full amount of Taxes and Other Taxes as well as for the full amount of any net increase in taxes of any kind imposed by any jurisdiction on amounts payable under this Section 3.03, imposed on or paid by such Affected Person (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or required to be paid with respect thereto. This indemnification shall be made within 30 days from the date such Affected Person makes written demand therefor to the Program Agent and the Seller. A certificate as to the amount of such indemnification submitted to the Seller and the Program Agent by such Affected Person setting forth the calculation thereof in reasonable detail shall be conclusive and binding for all purposes, absent manifest error. (d) Within 30 days after the date of any payment of Taxes, the Seller or the Trustee (as the case may be) shall furnish to the Program Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of the Seller through an account or branch outside the United States or by or on behalf of the Seller by a payor that is not a United States person, if the Seller determines that no Taxes are payable in respect thereof, the Seller shall furnish, or shall cause such payor to furnish, to the Program Agent, at such address, an Opinion of Counsel acceptable to the Program Agent stating that such payment is exempt from Taxes. For purposes of these Sections 3.03(d) and 3.03(f), the terms "UNITED STATES" and "UNITED STATES PERSON" have the meanings specified in Section 7701 of the Code. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 17 13 (e) Notwithstanding the foregoing and any other provisions of this Section 3.03, obligations of the Trustee, if any, under this Section 3.03 shall be payable only out of the Trust Assets. (f) Each Liquidity Provider that is organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement or on the date of the assignment and acceptance pursuant to which it became a Liquidity Provider, as applicable, and from time to time thereafter as requested in writing by the Seller or the Program Agent, provide (but only so long thereafter as such Liquidity Provider remains lawfully able to do so) each of the Seller and the Program Agent with two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Liquidity Provider is exempt from United States withholding tax or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement. If the form provided by a Liquidity Provider at the time such Liquidity Provider first becomes a party to this Agreement indicates a United States interest withholding tax in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Liquidity Provider provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate shall only be considered excluded from taxes for periods governed by such form. If any form or document referred to in this subsection (f) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service forms 1001 or 4224, that the Liquidity Provider reasonably considers to be confidential, the Liquidity Provider shall give notice thereof to the Seller and the Program Agent and shall not be obligated to include in such form or document such confidential information. (g) For any period with respect to which a Liquidity Provider has failed to provide the Seller and the Program Agent with the appropriate form described in subsection (f) above (OTHER THAN if such failure is due to a change in law occurring after the date on which a form originally was required to be provided by such Liquidity Provider or if such form otherwise is not required under subsection (f) above), the Seller shall not be required to make any additional payments under subsection (a) above nor shall such Liquidity Provider be entitled to indemnification under subsection (a) or (c) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Liquidity Provider become subject to Taxes because of its failure to deliver a form required hereunder, the Seller shall take such steps as such Liquidity Provider shall reasonably request to assist such Liquidity Provider to recover such Taxes. (h) Notwithstanding anything to the contrary herein, following a final determination or Opinion of Counsel based on a Change in Tax Law that the Trust will be SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 18 14 treated as a partnership for federal income tax purposes, the Seller or the Trustee shall be entitled to withhold any amounts required to be withheld with respect to an Affected Person under Section 1446 of the Code ("SECTION 1446 AMOUNTS") and to pay or cause such amounts to be paid to the relevant taxation authority as authorized in accordance with applicable law, and such amounts shall be deemed to have been paid to the Affected Person for all purposes of this Agreement, including Section 3.03(a). If a Section 1446 Amount is withheld with respect to an Affected Person for a taxable period other than one with respect to which such Affected Person as of the date of withholding has filed or was required to file a U.S. federal income tax return, the Trustee shall (i) promptly provide the Affected Person with appropriate written evidence reflecting the amount of and the basis for such withholding and (ii) pay to such Affected Person such additional interest as may accrue on such Section 1446 Amount from the date such amount was deemed paid to the Affected Person hereunder through the due date of the first federal income tax return (treating any required payment of estimated tax as a United States federal income tax return for such purpose) on which such Affected Person is able to take into account or otherwise request a credit or refund of such Section 1446 Amount, at a rate equal to the interest rate that would otherwise be applicable to the principal amount of the relevant Class A Certificates. Section 3.04. COST AND EXPENSES. (a) In addition to the rights of indemnification granted to the Indemnified Parties pursuant to Section 7.03 of the Pooling and Servicing Agreement, the Seller agrees to pay on demand (i) all costs and expenses (including reasonable fees and expenses of counsel) of the Trustee, the Program Agent, CRC and any general partner, limited partner or shareholder of CRC in connection with the arrangement, preparation, execution, delivery, closing, administration, modification, amendment, extension or waiver of the Transaction Documents (including (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses, (B) the reasonable fees and expenses of counsel for the Program Agent with respect thereto (including with respect to advising the Program Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Transaction Documents, with respect to negotiations with the Parent, the Transferor, the Servicer or any Originator or with other creditors of any such Person or any of its Subsidiaries arising out of any Early Amortization Event or Servicer Default, or any event or circumstance that may give rise to an Early Amortization Event or Servicer Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto), and (C) all other costs and expenses in connection therewith incurred by CRC or any general or limited partner or shareholder of CRC, including the reasonable fees and out-of-pocket expenses of counsel for CRC or any counsel for any general or limited partner or shareholder of CRC with respect to (1) advising CRC or any general or limited partner or shareholder of CRC as to its rights and remedies under the Transaction Documents or (2) advising CRC or any general or limited partner or shareholder of CRC as to SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 19 15 treated as a partnership for federal income tax purposes, the Seller or the Trustee shall be entitled to withhold any amounts required to be withheld with respect to an Affected Person under Section 1446 of the Code ("SECTION 1446 AMOUNTS") and to pay or cause such amounts to be paid to the relevant taxation authority as authorized in accordance with applicable law, and such amounts shall be deemed to have been paid to the Affected Person for all purposes of this Agreement, including Section 3.03(a). If a Section 1446 Amount is withheld with respect to an Affected Person for a taxable period other than one with respect to which such Affected Person as of the date of withholding has filed or was required to file a U.S. federal income tax return, the Trustee shall (i) promptly provide the Affected Person with appropriate written evidence reflecting the amount of and the basis for such withholding and (ii) pay to such Affected Person such additional interest as may accrue on such Section 1446 Amount from the date such amount was deemed paid to the Affected Person hereunder through the due date of the first federal income tax return (treating any required payment of estimated tax as a United States federal income tax return for such purpose) on which such Affected Person is able to take into account or otherwise request a credit or refund of such (b) If the Parent, the Seller, the Servicer or any Originator fails to pay when due any costs, expenses or other amounts payable by it under any Transaction Document, including fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Person by the Program Agent or any Liquidity Provider, in its sole discretion. Section 3.05. SHARING OF PAYMENTS, ETC. If any Liquidity Provider shall obtain at any time any payment or other recovery (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) (a) on account of any Obligation due and payable to such Liquidity Provider hereunder (other than pursuant to Section 3.02, 3.03 or 3.04 of this Agreement) which is in excess of its PRO RATA share (according to the proportion of (i) the amount of such Obligations due and payable to such Liquidity Provider at such time to (ii) the aggregate amount of such Obligations due and payable to all Liquidity Providers hereunder at such time) of payments on account of the Obligations due and payable to all Liquidity Providers hereunder at such time obtained by all Liquidity Providers at such time or (b) on account of Obligations owing (but not due and payable) to such Liquidity Provider hereunder at such time in excess of its PRO RATA share (according to the proportion of (i) the amount of such Obligations owing to such Liquidity Provider at such time to (ii) the aggregate amount of such Obligations owing (but not due and payable) to all Liquidity Providers hereunder at such time) of payments on account of the Obligations owing (but not due and payable) to all Liquidity Providers hereunder at such time obtained by all Liquidity Providers at such time, such Liquidity Provider shall forthwith purchase from the other Liquidity Providers such participations in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Liquidity Provider to share the excess payment or other recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Liquidity Provider, such purchase from each other Liquidity Provider shall be rescinded and such other Liquidity SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 20 16 Provider shall repay to the purchasing Liquidity Provider the purchase price to the extent of such Liquidity Provider's ratable share (according to the proportion of (i) the purchase price paid to such Liquidity Provider to (ii) the aggregate purchase price paid to all Liquidity Providers) of such recovery together with an amount equal to such Liquidity Provider's ratable share (according to the proportion of (i) the amount of such other Liquidity Provider's required repayment to (ii) the total amount so recovered from the purchasing Liquidity Provider) of any interest or other amount paid or payable by the purchasing Liquidity Provider in respect of the total amount so recovered. The Seller agrees that the Liquidity Provider so purchasing a participation from another Liquidity Provider pursuant to this Section 3.05 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Liquidity Provider were the direct creditor of the Trust in the amount of such participation. ARTICLE IV CONDITIONS PRECEDENT TO THE PURCHASE AND ALL INCREASES Section 4.01. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The making of the Purchase hereunder is subject to the following conditions precedent: (a) The Bankruptcy Court shall have entered an order or orders confirming the Plan of Reorganization, such order or orders shall have not been judicially stayed and such order or orders shall be satisfactory in form and substance to the Program Agent. (b) The Parent shall not have waived any material condition of the Plan of Reorganization without the consent of the Program Agent and all material changes and deviations in the Plan of Reorganization from the Current Plan shall be satisfactory in form and substance to the Program Agent. (c) The Plan of Reorganization shall be substantially consummated (or will be substantially consummated with the distributions required to be made with the proceeds of the drawings under the Credit Agreement and the proceeds of the Purchase hereunder). (d) The Collateral Investors shall have purchased the Collateral Investor Certificates in accordance with the provisions of the Loan Agreement. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 21 17 (e) The Program Agent shall have received on or before the Purchase Date the following, each dated such date (unless otherwise specified), in form and substance satisfactory to the Program Agent: (i) Certified copies of the resolutions of the Board of Directors of the Parent, the Servicer, each other Originator, the Seller and the Trustee approving each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to each Transaction Document. (ii) A copy of (A) the charter of the Parent, the Servicer, each other Originator and the Seller and each amendment thereto, certified (as of a date reasonably near the Purchase Date) by the Secretary of State of the jurisdiction of its incorporation as being a true and correct copy thereof and (B) a certified true and correct copy of the charter of the Parent as filed with the Secretary of State of Ohio on the Purchase Date. (iii) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the Purchase Date, certifying that (A) the Seller has paid all franchise taxes to the date of such certificate and (B) the Parent, the Servicer, each other Originator and the Seller are in good standing under the laws of the jurisdiction of its incorporation. (iv) A certificate of the Parent, the Servicer, each other Originator and the Seller, signed on behalf of the Parent, the Servicer, each other Originator and the Seller, respectively, by its President or a Vice President, dated the Purchase Date (the statements made in which certificate shall be true on and as of the Purchase Date), certifying as to (A) the absence of any amendments to its charter since the date of the certificate referred to in Section 4.01(e)(ii), (B) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the Purchase Date, (C) its due incorporation and good standing as a corporation organized under the laws of the jurisdiction of its incorporation and the absence of any proceeding for its dissolution or liquidation, (D) the truth of its representations and warranties contained in the Transaction Documents as though made on and as of the Purchase Date and (E) the absence of any event occurring and continuing, or resulting from the Purchase, that constitutes, or with notice or the lapse of time would constitute, an Early Amortization Event or a Termination Event (as defined in the Purchase Agreements). SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 22 18 (v) A certificate of the Secretary or an Assistant Secretary (or, in the case of the Trustee, an Assistant Treasurer) of the Parent, the Servicer, each other Originator, the Seller and the Trustee certifying the names and true signatures of the officers of the Parent, the Servicer, each other Originator, the Seller and the Trustee, respectively, authorized to sign the Transaction Documents to which such Person is a party and any other documents contemplated hereunder or thereunder, and appropriately evidencing the incumbency of such officers and such Secretary or Assistant Secretary. (vi) A certificate of the Trustee, signed on its behalf by its President or a Vice President or any Assistant Treasurer, dated the Purchase Date (the statements made in which certificate shall be true on and as of the Purchase Date), certifying as to (A) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the Purchase Date and (B) the due authentication of the Class A Certificates. (vii) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Seller, in form and substance satisfactory to the Program Agent which shall include, without limitation, (A) an opinion as to the perfection of the transfers of the Receivables, (B) an opinion as to enforceability and (C) a general corporate opinion. (viii) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Seller, in form and substance satisfactory to the Program Agent which, shall include (A) a "true sale" opinion with respect to the sales of Receivables from each Originator to the Seller or another Originator, as the case may be, and (B) an opinion relating to the likelihood of a substantive consolidation of any Originator with the Seller. (ix) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Seller in form and substance acceptable to the Program Agent with regard to tax matters, including Federal, Ohio and New York tax matters and to the effect set forth in the first sentence of Section 3.07 of the Pooling and Servicing Agreement. (x) A favorable opinion of Seward & Kissel, counsel for the Trustee, in form and substance satisfactory to the Program Agent. (xi) A favorable opinion of Shearman & Sterling, counsel for the Program Agent, in form and substance satisfactory to the Program Agent. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 23 19 (xii) Stamped-receipt copies or other evidence of filing of proper financing statements covering the Receivables, naming the applicable Originator as seller/debtor, the Seller or another Originator, as the case may be, as purchaser/secured party and the Trustee or Seller, as the case may be, as assignee, or other similar instruments or documents, as may be necessary or, in the opinion of the Program Agent, desirable under the UCC of any appropriate jurisdiction or other applicable law to perfect the Seller's first priority interest in the Receivables and the assignment thereof by the Seller to the Trustee. (xiii) Stamped-receipt copies or other evidence of filing of proper financing statements covering the Receivables and the other Trust Assets, naming the Seller as seller/debtor and the Trustee as purchaser/secured party, or other similar instruments or documents, as may be necessary or, in the opinion of the Program Agent, desirable under the UCC of any appropriate jurisdiction or other applicable law to perfect the Trustee's first priority interest in the Trust Assets. (xiv) Copies of proper financing statements (Form UCC-3) and other documents to be duly filed on or about the Purchase Date, if any, necessary to release all security interests and other rights of any Person in the Receivables granted by any Originator or the Seller other than to the Trustee or the secured parties under the Collateral Documents (as defined in the Credit Agreement). (xv) Certified copies of completed requests for information or a similar search report certified by a party acceptable to the Program Agent dated a date reasonably near the Purchase Date, listing all effective financing statements which name as debtor any Originator or the Seller (under such Originator's or Seller's present name and any previous name) and which are filed in the jurisdictions in which filings were made pursuant to Sections 4.01(e)(xii) and 4.01(e)(xiii) together with copies of such financing statements (none of which (except those with respect to which releases have been obtained pursuant to Section 4.01(e)(xiv) above) shall cover any property which may be Receivables or Collections). (xvi) A Collection Account Letter substantially in the form of Exhibit E to the Pooling and Servicing Agreement, in respect of each Collection Account maintained by the Servicer, duly executed by each Person with whom such Collection Account is maintained. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 24 20 (xvii) An executed subordinated note substantially in the form of Exhibit A to the Purchase Agreement between the Seller and The El-Bee Chargit Corp., to be delivered by the Seller thereto. (xviii) The Class A Certificates, delivered in accordance with the provisions of Section 2.05(b). (xix) Evidence that all bank accounts required to be established and maintained under any Transaction Document shall have been established. (xx) Each Transaction Document duly executed by each party thereto. (xxi) Evidence of payment of all related fees and expenses then due and payable in connection with the Transaction Documents. Section 4.02. CONDITIONS PRECEDENT TO THE PURCHASE AND ALL INCREASES. The making of the Purchase hereunder and the funding of each Increase pursuant to Section 2.02 are subject to the conditions precedent that, on the Purchase Date or the date of such Increase, the following statements shall be true (and the acceptance by the Seller of the proceeds of such Purchase or Increase shall constitute a representation and warranty by the Seller that on the Purchase Date or the date of such Increase such statements are true): (a) No event or condition has occurred and is continuing that constitutes, or with notice or lapse of time or both would constitute, a Termination Event (as defined in each of the Purchase Agreements), Early Amortization Event or Servicer Default; (b) The Revolving Period shall not have ended and an Early Amortization Period shall not have occurred and be continuing; (c) The representations and warranties made by the Parent, the Originators, the Transferor and the Servicer in each Transaction Document to which it is a party shall be true and correct in all material respects as if repeated on such date (except only to the extent such representation or warranty is expressly limited to a specific date) with respect to the facts and circumstances then existing; (d) The Pooling and Servicing Agreement, Series 1997-1 Supplement, Purchase Agreements, Parent Undertaking Agreement, Intercreditor Agreement, Loan Agreement and each other Transaction Document shall be in full force and effect; SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 25 21 (e) After making the Purchase or funding such Increase, the Class A Invested Amount shall not exceed the Series 1997-1 Class A Purchase Limit on such day; (f) The Program Agent shall have received by 1:00 p.m. (New York City time), on the Purchase Date or the date of such Increase the Daily Report, which shall be prepared on a pro forma basis and shall show that the Seller is in compliance with all of the Transaction Documents (after giving effect to the Purchase or such Increase) to the extent a showing of such compliance is called for in the form thereof; (g) Each Originator shall have delivered to the Seller and the Program Agent the accounts receivable aged trial balance as of the Purchase Date or the date of such Increase of each such Originator (which if in magnetic tape or diskette format shall be compatible with the Seller's, or, if applicable, the Servicer's computer equipment); (h) The Servicer shall have delivered to the Seller, in form and substance satisfactory to the Seller and the Program Agent, a completed Monthly Servicer's Report, together with a listing of the Accounts under which all Receivables subject to each Transfer through the date of such Purchase or Increase have arisen, for the most recently ended reporting period for which such Monthly Servicer's Report as of the Purchase Date or the date of such Increase is required to be delivered pursuant to Section 3.04(b) of the Pooling and Service Agreement and, if the Servicer shall have been given not less than three Business Days' prior written notice, containing such additional information as may be reasonably requested by the Seller and the Program Agent; (i) Each Originator shall have marked its master data processing and computer records relating to the Receivables which are the subject of each Transfer through the date of such Purchase or Increase, and the Accounts under which such Receivables have arisen, with a legend, acceptable to the Program Agent, stating that such Receivables and Collections with respect thereto and other proceeds thereof, have been sold in accordance with the Transaction Documents; (j) The Parent shall have entered into the Swap Agreement and the Cap Agreement, which shall be in form and substance satisfactory to the Program Agent; (k) The Program Agent shall have received any other documentation and opinions required to be delivered with respect to the Transaction Documents and such other approvals, opinions or documents as reasonably requested by the Program Agent with not less than three Business Days' prior written notice; SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 26 22 (l) The combined aggregate notional amount of the Swap Agreement and the Cap Agreement shall be equal to at least the sum of the Class A Invested Amount and the Collateral Invested Amount, in each case after giving effect to such Purchase or Increase; and (m) At any time after the Reserve Account has an initial credit balance equal to or exceeding the Reserve Account Required Balance, the credit balance in the Reserve Account shall be equal to at least the Reserve Account Required Balance. Section 4.03. ADDITIONAL CONDITIONS PRECEDENT. (a) If CRC is the Purchaser, the making of the Purchase and the funding of each Increase is subject to the additional condition precedent that the Program Agent shall not have given notice that CRC will not make the Purchase or fund an Increase. (b) The funding of any Increase is subject to the additional condition precedent that the rating of the senior long-term debt obligations of the Parent shall not be less than (i) BB- if rated by S&P, (ii) Ba3 if rated by Moody's or (iii) a rating equivalent to BB/Ba2 as determined by the Program Agent in its sole judgment in accordance with its customary practices. ARTICLE V THE PROGRAM AGENT Section 5.01. AUTHORIZATION AND ACTION OF THE PROGRAM AGENT. Each of CRC and each Liquidity Provider hereby appoints and authorizes the Program Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Program Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Section 5.02. THE PROGRAM AGENT'S RELIANCE, ETC. Neither the Program Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or the Program Agent under or in connection with the Transaction Documents, except for its or their own gross negligence or wilful misconduct. Without limiting the generality of the foregoing, the Program Agent (a) may consult with independent legal counsel (including counsel for the Trustee, the Seller, the Transferor or the Servicer), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (b) makes no representation or warranty to the Parent, any Originator, the Seller, the Transferor, the Servicer or any Beneficiary and shall not be SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 27 23 responsible to the Parent, any Originator, the Seller, the Transferor, the Servicer or any Beneficiary for any statements, representations or warranties made in or in connection with this Agreement or any of the Transaction Documents, (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Transaction Documents on the part of the Trustee, the Seller, the Transferor, any Originator, the Parent or the Servicer or to inspect the property (including the books and records) of the Trust, the Trustee, the Seller, the Transferor, any Originator, the Parent or the Servicer, (d) shall not be responsible to the Parent, any Originator, the Seller, the Transferor, the Servicer or any Beneficiary for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Class A Certificates or any other Transaction Document or the condition or value of any Trust Asset or the creation, perfection or priority of any interest therein created or purported to be created under or in connection with the Transaction Documents (except for the execution by the Program Agent of, and legality, validity and enforceability against the Program Agent of its obligations under, the Transaction Documents to which the Program Agent is a party), and (e) shall incur no liability under or in respect of the Transaction Documents by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties; except in each case for gross negligence or wilful misconduct on the part of the Program Agent. Section 5.03. THE PROGRAM AGENT AND AFFILIATES. Citicorp North America, Inc. and its Affiliates (including Citibank, N.A.) may generally engage in any kind of business with the Seller, the Transferor, the Servicer, any Originator or the Parent, any of their respective Affiliates and any Person who may do business with or own securities of the Servicer, any Originator, the Parent or any of their respective Affiliates, all as if Citicorp North America, Inc. were not the Program Agent and without any duty to account therefor to the Parent, any Originator, the Seller, the Transferor, the Servicer or any Beneficiary. Section 5.04. AMENDMENTS, WAIVERS AND CONSENTS. CRC and the Program Agent each reserves the right, in its sole discretion (subject to the next sentence), to exercise any rights and remedies available to the Purchaser or the Program Agent under the Transaction Documents or pursuant to applicable law, and also to agree with the other parties hereto to any amendment, modification or waiver of any Transaction Document, to the extent such Transaction Document provides for, or requires, the Purchaser's or the Program Agent's agreement, which agreements shall be binding on each Beneficiary. Notwithstanding the foregoing, each of CRC and the Program Agent agrees for the benefit of the Liquidity Providers that it shall not, subject to the terms of the Transaction Documents: (a) without the prior written consent of each of the affected Liquidity Providers, SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 28 24 (i) reduce in any manner the amount of, or delay the timing of, distributions to be made to any Series 1997-1 Certificateholder or deposits of amounts to be so distributed, or (ii) reduce any fees payable to the Program Agent or CRC which relate to payments to Liquidity Providers or delay the dates on which such fees are payable, or (iii) modify any provision relating to the Reserve Account, or the amounts required to be deposited therein or extend the Revolving Period, or (iv) release the Parent from its obligations under the Parent Undertaking Agreement, or (v) amend or waive any Termination Event (as defined in any Purchase Agreement) or Early Amortization Event under any Transaction Document relating to the bankruptcy of the Seller, the Transferor, the Servicer or the Parent, or (b) without the prior written consent of the Majority of Series 1997-1 Class A Certificate Interests, (i) amend, modify or waive any provision of any Transaction Document which would impair in any material respect any rights expressly granted to an assignee or participant, or (ii) change the definitions of Express Spread Percentage, Net Loss Percentage, Dilution Ratio, Eligible Receivable, or Eligible Account, or (iii) amend any Early Amortization Event to increase the maximum permitted Net Loss Percentage or Dilution Ratio, or to decrease the minimum permitted Excess Spread Percentage, or (iv) waive violations of the maximum permitted levels for the Net Loss Percentage or Dilution Ratio, or of the minimum permitted level for the Excess Spread Percentage, which violations occur for more than two consecutive months or by more than 10% of such permitted levels for any time, or (v) amend the Series 1997-1 Class A Purchase Limit. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 29 25 Section 5.05. LIQUIDITY PROVIDER CREDIT DECISION. Each Liquidity Provider acknowledges that it has, independently and without reliance upon the Program Agent or any other Liquidity Provider and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Liquidity Provider also acknowledges that it will, independently and without reliance upon the Program Agent or any other Liquidity Provider and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. ARTICLE VI ASSIGNMENTS Section 6.01. ASSIGNMENT. (a) At any time and from time to time, CRC may, by notice and delivery to the Program Agent of a fully executed assignment and assumption agreement assign all or any portion of its rights and obligations (which portion shall in no event evidence less than $5,000,000 of the Class A Invested Amount then held by CRC or, if less, the entire Class A Invested Amount so held by CRC) hereunder to (i) any securitization company administered by the Program Agent or any of its Affiliates or to any Liquidity Provider or (ii) any other Person, PROVIDED that, in the case of clause (ii), (A) such Person is an Eligible Assignee and (B) such assignment shall comply with any applicable legal requirements including the Securities Act. The Program Agent shall, promptly upon its receipt of any such notice and assignment and assumption agreement, notify the Transferor, the Servicer and the Trustee of such assignment. The assignee shall, upon the effectiveness of such assignment and assumption agreement and delivery thereof and of such other requested documentation to the Program Agent, become entitled to the benefits hereof and subject to the obligations of CRC hereunder. (b) At any time and from time to time, any Liquidity Provider may, by notice and delivery to the Program Agent of a fully executed Assignment and Acceptance, assign to any other Person, all or any portion of its Series 1997-1 Class A Certificate Interest or its interest therein (which portion shall in no event evidence less than $5,000,000 of the Class A Invested Amount then held by such Liquidity Provider or, if less, the entire Class A Invested Amount so held by such Liquidity Provider); PROVIDED that (i) such assignee is an Eligible Assignee and (ii) such assignment shall comply with any applicable legal requirements including the Securities Act. Any Liquidity Provider making any such assignment shall provide notice to the Seller and the Servicer thereof. The assignee shall, upon the effectiveness of such Assignment and Acceptance and delivery thereof and of such other requested documentation to the Program Agent, become entitled to the benefits hereof and subject to the obligations of the assignor hereunder. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 30 26 (c) The Program Agent agrees to cooperate with the Transferor to effect any assignment under this Section 6.01, and the Transferor agrees to execute or obtain such other documentation as may be reasonably requested by CRC or any Liquidity Provider in order to effectuate any assignment under this Section 6.01 (PROVIDED that the Transferor shall not have any obligation to amend any Transaction Document in connection therewith), the costs of such documentation to be borne by CRC or the Liquidity Provider, as appropriate. Section 6.02. RIGHTS OF ASSIGNEE. Upon any assignment in accordance with this Article VI, (a) the assignee receiving such assignment shall have all of the rights of such assignor hereunder with respect to the Class A Certificate or Series 1997-1 Class A Certificate Interest (or portion thereof) or rights associated therewith being assigned and (b) all references to such assignor in the Transaction Documents shall be deemed to apply to such assignee to the extent of its interest therein and in the related Collections. Section 6.03. NOTICE OF ASSIGNMENT. Each assignor shall provide notice to the Seller, the Program Agent and the Trustee of any assignment of any Class A Certificate or Series 1997-1 Class A Certificate Interest (or portion thereof) or rights associated therewith by such assignor to any assignee. Section 6.04. REGISTER. The Program Agent shall maintain a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Liquidity Providers and the Commitment of each Liquidity Provider from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Seller, the Program Agent, the Trustee and the Liquidity Providers may treat each Person whose name is recorded in the Register as a Liquidity Provider hereunder for all purposes of the Transaction Documents. The Register shall be available for inspection by the Seller, the Parent, the Trustee or any Liquidity Provider at any reasonable time and from time to time upon reasonable prior notice. Section 6.05. RESTRICTIONS ON ASSIGNMENTS AND PARTICIPATIONS. Notwithstanding any provision of this Agreement to the contrary, neither CRC nor any Liquidity Provider shall assign any of its rights or obligations hereunder to any Person (other than an assignment by CRC to a Liquidity Provider) that is not a United States Person (as defined in Section 7701(a)(30) of the Internal Revenue Code) unless such Person shall have provided the Seller and the Program Agent with two original Internal Revenue Service forms 1001 or 4224 (or a successor form certifying that the income from the Class A Certificates is effectively connected with the conduct of such Person's trade or business in the United States or that such income is exempt from withholding under an applicable tax treaty). Notwithstanding Sections 6.01 and 7.01, neither CRC nor any Liquidity Provider shall be entitled to assign (or sell participations in) all or any portion of its rights and obligations hereunder to (i) a partnership, grantor trust SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 31 27 or S corporation, as such terms are defined in the Internal Revenue Code or (ii) any Person if, following such assignment or sale to such other Person, the Trust would have more than 100 beneficial owners of Certificates (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)). Notwithstanding the preceding sentence, CRC and each Liquidity Provider shall be entitled to assign (or sell a participation in) its rights and obligations hereunder to a partnership that is a securitization company managed by Citicorp North America, Inc., PROVIDED that the Seller receives evidence reasonably satisfactory to it that such sale or assignment will not cause the Trust to have at any time more than 100 beneficial owners (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)). ARTICLE VII PARTICIPATIONS Section 7.01. PARTICIPATIONS. At any time and from time to time any Liquidity Provider may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Series 1997-1 Class A Certificate Interests owned by it); PROVIDED, HOWEVER, that (i) such Liquidity Provider's obligations under this Agreement (including its Commitment) shall remain unchanged, (ii) such Liquidity Provider shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Seller, the Program Agent, CRC and the other Liquidity Providers shall continue to deal solely and directly with such Liquidity Provider in connection with the rights of such Liquidity Provider and the obligations of such Liquidity Provider under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Transaction Document, or any consent to any departure by any Person therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Class A Certificates or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Class A Certificates or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Receivables. Anything herein to the contrary notwithstanding, the Seller shall not, at any time, be obligated to pay to any Liquidity Provider any sum in excess of the sum the Seller would have been obligated to pay to such Liquidity Provider hereunder if such Liquidity Provider had not sold any participation in its rights and obligations under this Agreement. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 32 28 ARTICLE VIII MISCELLANEOUS Section 8.01. AMENDMENTS, ETC. Subject to Section 5.04, no amendment of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by the parties hereto. Any waiver or consent shall be effective only if signed by the party waiving any right, in the specific instance and for the specific purpose for which given. Section 8.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, one Business Day after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means, except that notices and communications pursuant to Articles II and III shall not be effective until received. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the next following Business Day. Section 8.03. NO WAIVER; REMEDIES; SET-OFF. No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, the Program Agent and each Liquidity Provider is hereby authorized by the Seller at any time and from time to time after the occurrence and during the continuance of an Early Amortization Event, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Program Agent and each Liquidity Provider to or for the credit or the account of the Seller against any and all of the Obligations of the Seller now or hereafter existing, to the Program Agent, any Liquidity Provider, any Affected Person or CRC, or their respective successors and assigns, irrespective of whether such Person shall have made any demand under any Transaction Document and although such Obligations may be unmatured; PROVIDED, HOWEVER, that no such Person shall exercise any such right of set-off SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 33 29 without the prior written consent of the Program Agent. Each set-off by CRC or any Liquidity Provider under this Section 8.03 against the Class A Invested Amount shall reduce the Class A Invested Amount accordingly. Section 8.04. BINDING EFFECT; SURVIVAL. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 6.01. This Agreement shall create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until one year and one day after the earlier of the date on which all Obligations are indefeasibly paid in full or the date on which the Trust shall terminate in accordance with the Pooling and Servicing Agreement. The provisions of Article III shall be continuing and shall survive any termination of this Agreement. (b) A Liquidity Provider shall become a party hereto (i) by executing and delivering to the Program Agent a counterpart of the signature page to this Agreement or (ii) in accordance with the procedures set forth in Article VI hereof. Thereupon, upon acceptance and recording by the Program Agent in the Register, such Liquidity Provider shall become a party to this Agreement from and after the date of execution of such signature page. Liquidity Providers may become parties hereto at different times and from time to time in accordance with the foregoing procedure. Section 8.05. NO PROCEEDINGS. Each of CRC, the Seller (on its own behalf and on behalf of its Affiliates), the Trustee, Citicorp North America, Inc., individually and as Program Agent, and each Liquidity Provider hereby agrees that it will not institute against CRC, or join any other Person in instituting against CRC, any case or proceeding of the type referred to in the definition of "INSOLVENCY EVENT" so long as any CP Notes issued by CRC shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such CP Notes shall have been outstanding. The foregoing shall not limit the right of CRC, the Seller, the Trustee, Citicorp North America, Inc., individually or as the Program Agent, or any Liquidity Provider to file any claim in or otherwise take any action with respect to any such case or proceeding that was instituted against CRC by any Person other than CRC, the Seller, the Trustee, Citicorp North America, Inc., individually or as the Program Agent, or any Liquidity Provider. Section 8.06. CAPTIONS AND CROSS REFERENCES. The various captions (including the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Section 8.07. INTEGRATION. This Agreement, together with the other Transaction Documents, contains a final and complete integration of all prior expressions by the parties SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 34 30 hereto with respect to the subject matter hereof and, together with all the other Transaction Documents, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. Section 8.08. REPLACEMENT OF LIQUIDITY PROVIDERS. So long as CRC or any securitization company administered by the Program Agent or any of its Affiliates is a Purchaser, the Program Agent shall have the right, in its sole discretion, to terminate the rights and obligations of any or all Liquidity Providers to make the Purchase or fund Increases in the event that the applicable rating of such Liquidity Provider shall be downgraded below that described in the definition of "Eligible Assignee". Such termination shall be effective upon written notice to such effect delivered by the Program Agent to such Liquidity Provider, whereupon the Term of such Liquidity Provider's Commitment shall terminate. Upon such termination, such Liquidity Provider shall cease to have any rights or obligations with respect to future Increases under this Agreement but shall continue to have the rights and obligations of a Liquidity Provider with respect to any Purchase or Increases funded by it under this Agreement prior to such termination. The Program Agent shall use reasonable efforts to replace any Liquidity Provider removed pursuant to this Section 8.08. Section 8.09. CONFIDENTIALITY. The Trustee, the Program Agent and the Class A Certificateholders agree, and shall cause their agents or representatives, to hold in confidence all Confidential Information; PROVIDED that nothing herein shall prevent any Class A Certificateholder from delivering copies of any financial statements and other documents constituting Confidential Information, or disclosing any other Confidential Information, to (i) such Class A Certificateholder's directors, officers, employees, agents and professional consultants, (ii) any other Class A Certificateholder or any Rating Agency, (iii) any Person to which such Class A Certificateholder offers to sell or assign or sells or assigns such Class A Certificate or any part thereof or any rights associated therewith or participation therein, PROVIDED that such Person shall have agreed to hold in confidence all Confidential Information as set forth herein, (iv) any federal or state regulatory authority having jurisdiction over such Class A Certificateholder, (v) the National Association of Insurance Commissioners or any similar organization, (vi) any state, federal or foreign authority or examiner regulating banks or banking, (vii) to any affiliate, independent or internal auditor, agent, employee or attorney having a need to know the same, PROVIDED that such Person is advised of the confidential nature of the information being disclosed and each such recipient agrees to be bound by the terms of this Section or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such Class A Certificateholder, (b) in response to any subpoena or other legal process or (c) in connection with any litigation to which such Class A Certificateholder is a party. Section 8.10. REIMBURSEMENT OF PROGRAM AGENT. Each Liquidity Provider will on demand reimburse the Program Agent its Liquidity Provider Commitment Percentage of SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 35 31 any and all reasonable costs and expenses (including reasonable fees and disbursements of counsel) which may be incurred in connection with collecting amounts owed with respect to any Class A Certificate in which such Liquidity Provider purchases Series 1997-1 Certificate Interests for which the Program Agent is not promptly reimbursed by the Seller or otherwise. Should the Program Agent later be reimbursed by the Seller or CRC for any such amount, the Program Agent shall immediately pay to each Liquidity Provider its Liquidity Provider Commitment Percentage of such amount. Section 8.11. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that, except as otherwise expressly provided in any Transaction Document, (a) this Agreement is executed and delivered by Bankers Trust Company, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by Bankers Trust Company, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on Bankers Trust Company, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any person claiming by, through or under such parties, and (d) under no circumstances shall Bankers Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement, except to the extent provided in this Agreement. Section 8.12. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 36 32 Section 8.13. SUBMISSION TO JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Section 8.14. CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 8.15. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 37 Section 8.16. WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Agreement, any other Transaction Document, or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto and the Liquidity Providers or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the parties hereto have caused this Series 1997-1 Certificate Purchase Agreement to be duly executed by their respective officers thereunto duly authorized as of the date first above written. THE EL-BEE RECEIVABLES CORPORATION, as Seller By:_________________________________ Name: Title: Address: 3155 El-Bee Road Dayton, Ohio 45439 Attn: President Tel: (937) 296- Fax: (937) 296- SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 38 CORPORATE RECEIVABLES CORPORATION, as Purchaser By: CITICORP NORTH AMERICA, INC., as Attorney-in-Fact By:_________________________________ Name: Title: Address: 399 Park Avenue New York, New York 10043 Attn: Radford West Tel: (212) 559-3811 Fax: (212) 758-7245 CITICORP NORTH AMERICA, INC., as Program Agent By:_________________________________ Name: Title: Address: 399 Park Avenue New York, New York 10043 Attn: Radford West Tel: (212) 559-3811 Fax: (212) 758-7245 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 39 BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By:_________________________________ Name: Title: Address: Bankers Trust Company, as Trustee Four Albany Street New York, New York 10006 Attn: Corporate Trust and Agency Group/Structured Finance Team Tel: (212) 250-6137 Fax: (212) 250-6439 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 40 LIQUIDITY PROVIDERS: Liquidity Provider Commitment: Forty-two Million Dollars, CITIBANK, N.A., as Liquidity Provider $42,000,000 By:_________________________________ Name: Title: Address: 399 Park Avenue New York, New York 10043 Attn: Radford West Tel: (212) 559-3811 Fax: (212) 758-7245 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 41 Liquidity Provider Commitment: Thirty Million Dollars, $30,000,000 ABN AMRO, N.V., as Liquidity Provider By:_________________________________ Name: Title: By:_________________________________ Name: Title: Address: 135 South LaSalle Street, Suite 2805 Chicago, IL 60603 Attn: Derek Mansfield Tel: (312) 904-2323 Fax: (312) 904-6376 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 42 Liquidity Provider Commitment: Twenty-five Million Dollars, $25,000,000 BHF BANK AKTIENGESELLSCHAFT, as Liquidity Provider By:_________________________________ Name: Title: By:_________________________________ Name: Title: Address: 590 Madison Avenue, 30th Floor New York, New York 10022 Attn: John Sykes Tel: (212) 756-5939 Fax: (212) 756-5536 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 43 Liquidity Provider Commitment: Twenty Million Dollars, $20,000,000 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as Liquidity Provider By:_________________________________ Name: Title: By:_________________________________ Name: Title: Address: 190 South LaSalle, Suite 2700 Chicago, IL 60603 Attn: Jeffrey Mumm Tel: (312) 444-1336 Fax: (312) 444-1305 SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 44 EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Series 1997-1 Certificate Purchase Agreement dated as of December __, 1997 (as amended, supplemented or otherwise modified from time to time, the "CERTIFICATE PURCHASE AGREEMENT") among The El-Bee Receivables Corporation, as seller, Corporate Receivables Corporation, as purchaser (the "PURCHASER"), the financial institutions party thereto, as Liquidity Providers (each a "LIQUIDITY PROVIDER"), Citicorp North America, Inc., as program agent (the "PROGRAM AGENT") for the Purchaser and the Liquidity Providers, and Bankers Trust Company, as trustee (the "TRUSTEE"). Terms defined in the Certificate Purchase Agreement unless otherwise defined herein are used herein as defined therein. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. As of the Effective Date (defined below), the Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse to or representation of any kind (except as set forth below) from Assignor, an interest in and to the Assignor's rights and obligations under the Certificate Purchase Agreement and under any other Transaction Document equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Certificate Purchase Agreement and any other Transaction Document, including the Assignor's Liquidity Provider Commitment, Liquidity Provider Commitment Percentage, Series 1997-1 Class A Certificate Interests and Class A Invested Amount (such rights and obligations assigned hereby being the "ASSIGNED INTERESTS"). After giving effect to such sale and assignment, the Assignee's Liquidity Provider Commitment and Liquidity Provider Commitment Percentage will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder free and clear of any Lien created by Assignor; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Transaction Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security or ownership interest created or purported to be created under or in connection with, the Transaction Documents or any other instrument or document furnished pursuant thereto or the condition or value of any Trust Asset or any interest therein; and (iii) makes no representation or warranty and assumes no responsibility with respect to the condition (financial or otherwise) of any of the Transferor, any other Originator, the Servicer, the Parent or the Trustee or the performance or observance SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 45 A-2 by any Person of any of its obligations under any Transaction Document or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Certificate Purchase Agreement, the Pooling and Servicing Agreement, together with copies of any financial statements delivered pursuant to Sections 2.05(f) and 3.03(b)(vii) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Program Agent, the Assignor or any other Liquidity Provider and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any of the Transaction Documents; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Program Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Transaction Documents as are delegated to the Program Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Transaction Documents are required to be performed by it as a Liquidity Provider; (vi) confirms that the assignment hereunder complies with any applicable legal requirements including the Securities Act; (vii) confirms that such Assignee is a United States Person (as defined in Section 7701(a)(30) of the Internal Revenue Code) or that such Assignee shall have provided the Transferor with two Internal Revenue Service forms 1001 or 4224 (or a successor form) certifying that the income from the Class A Certificates is effectively connected with the conduct of such Person's trade or business in the United States or that such income is exempt from withholding under an applicable tax treaty; (viii) confirms that such Assignee is not a partnership, grantor trust or S corporation (as such terms are defined in the Internal Revenue Code); (ix) confirms that the assignment hereunder will not result in the Trust having more than 100 beneficial owners of Certificates (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)); and (x) attaches any other U.S. Internal Revenue Service forms required under Section 3.03 of the Certificate Purchase Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Program Agent for acceptance and recording by the Program Agent. The effective date for this Assignment and Acceptance (the "EFFECTIVE DATE") shall be the date of acceptance hereof by the Program Agent, unless a later effective date is specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Program Agent, as of the Effective Date, (i) the Assignee shall be a party to and bound by the provisions of the Certificate Purchase Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Liquidity Provider thereunder and under any SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 46 A-3 other Transaction Document and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Certificate Purchase Agreement and under any other Transaction Document. 6. Upon such acceptance and recording by the Program Agent, from and after the Effective Date, the Program Agent and Trustee shall make all payments under the Certificate Purchase Agreement and the Assigned Interests (including, without limitation, all payments of the Class A Invested Amount, interest and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Certificate Purchase Agreement and the Assigned Interests for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 47 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE Liquidity Provider Commitment assigned: $__________ Liquidity Provider Commitment Percentage assigned: __________% Assignor's Liquidity Provider Commitment after assignment: $__________ Assignor's Liquidity Provider Commitment Percentage after assignment: __________% Effective Date (if later than date of acceptance by Program Agent): ________ __, ____ [NAME OF ASSIGNOR], as Assignor By Name: Title: Dated: _________ __, ____ [NAME OF ASSIGNEE], as Assignee By Name: Title: Dated:_________ __, ____ Address for Notices: SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 48 2 Accepted this ____ day of _____________, ____ CITICORP NORTH AMERICA, INC., as Program Agent By ---------------------------- Name: Title: SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 49 EXHIBIT B FORM OF SERIES 1997-1 NOTICE OF PURCHASE [Date] Citicorp North America, Inc. 399 Park Avenue New York, NY 10043 The El-Bee Receivables Corporation 3155 El-Bee Road Dayton, Ohio 45349 Attention: President Reference is made to the Series 1997-1 Certificate Purchase Agreement dated December __, 1997 (the "SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT") among The El-Bee Receivables Corporation, as seller, Corporate Receivables Corporation, as purchaser, the Liquidity Providers party thereto, Citicorp North America, Inc., as program agent, and Bankers Trust Company, as trustee. Capitalized terms not defined herein have the meaning specified in the Series 1997-1 Certificate Purchase Agreement. Notice is hereby given that the undersigned requests the making of the Purchase on ________ __, ____ in the amount of $_________. THE EL-BEE RECEIVABLES CORPORATION By ------------------------------ Name: Title: SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT 50 EXHIBIT C FORM OF NOTICE OF INCREASE [Date] Citicorp North America, Inc. 399 Park Avenue New York, NY 10043 The El-Bee Receivables Corporation 3155 El-Bee Road Dayton, Ohio 45349 Attention: President Reference is made to the Series 1997-1 Certificate Purchase Agreement dated December __, 1997 (the "SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT") among The El-Bee Receivables Corporation, as seller, Corporate Receivables Corporation, as purchaser, the Liquidity Providers party thereto, Citicorp North America, Inc., as program agent, and Bankers Trust Company, as trustee. Capitalized terms not defined herein have the meaning specified in the Series 1997-1 Certificate Purchase Agreement. Notice is hereby given that the undersigned requests the funding of an Increase in the amount of $___________ on _________ __, ______. THE EL-BEE RECEIVABLES CORPORATION By __________________________ Name: Title: SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT EX-10.A.IV 6 EXHIBIT 10(A)(IV) 1 Exhibit 10(a)(iv) EXECUTION COPY ============================================================= ELDER-BEERMAN MASTER TRUST SERIES 1997-1 LOAN AGREEMENT Dated as of December 30, 1997 among THE EL-BEE RECEIVABLES CORPORATION, as Transferor, THE EL-BEE CHARGIT CORP., as Servicer, BANKERS TRUST COMPANY, as Trustee, THE COLLATERAL INVESTORS PARTIES HERETO and CITICORP NORTH AMERICA, INC., as Program Agent ============================================================= SERIES 1997-1 LOAN AGREEMENT 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS Section 1.01. Defined Terms.................................................................. 1 Section 1.02. Other Definition Provisions.................................................... 4 ARTICLE II AMOUNT AND TERMS OF COMMITMENT Section 2.01. Commitment..................................................................... 5 Section 2.02. Allocations and Distributions.................................................. 5 Section 2.03. Fees........................................................................... 6 Section 2.04. Increased Costs................................................................ 6 Section 2.05. Taxes.......................................................................... 7 Section 2.06. Cost and Expenses.............................................................. 10 Section 2.07. Sharing of Payments, Etc....................................................... 10 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. Representations and Warranties................................................. 11 ARTICLE IV CONDITIONS PRECEDENT Section 4.01. Conditions Precedent to the Purchase........................................... 13 Section 4.02. Further Conditions Precedent to the Purchase................................... 17 ARTICLE V COVENANTS Section 5.01. Covenants...................................................................... 19 SERIES 1997-1 LOAN AGREEMENT
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PAGE ---- ARTICLE VI THE PROGRAM AGENT Section 6.01. Authorization and Action of the Program Agent.................................. 19 Section 6.02. The Program Agent's Reliance, Etc.............................................. 19 Section 6.03. The Program Agent and Affiliates............................................... 20 Section 6.04. Amendments, Waivers and Consents............................................... 20 Section 6.05. Collateral Investor Credit Decision............................................ 22 ARTICLE VII MISCELLANEOUS Section 7.01. Amendments and Waivers......................................................... 22 Section 7.02. Assignment..................................................................... 22 Section 7.03. Rights of Assignee............................................................. 23 Section 7.04. Notice of Assignment........................................................... 23 Section 7.05. Register....................................................................... 23 Section 7.06. Participations................................................................. 23 Section 7.07. Restrictions on Assignments and Participations................................. 24 Section 7.08. Notices, Etc................................................................... 24 Section 7.09. No Waiver; Remedies; Set-Off................................................... 25 Section 7.10. Binding Effect; Survival....................................................... 25 Section 7.11. Captions....................................................................... 25 Section 7.12. Integration.................................................................... 25 Section 7.13. Confidentiality................................................................ 25 Section 7.14. Reimbursement of Program Agent................................................. 26 Section 7.15. Limitation of Liability........................................................ 26 Section 7.16. No Proceedings................................................................. 27 Section 7.17. Governing Law.................................................................. 27 Section 7.18. Submission to Jurisdiction..................................................... 27 Section 7.19. Consent to Service of Process.................................................. 28 Section 7.20. Execution in Counterparts...................................................... 28 Section 7.21. Waiver of Jury Trial........................................................... 29 EXHIBITS Exhibit A Form of Transfer Supplement
SERIES 1997-1 LOAN AGREEMENT 4 SERIES 1997-1 LOAN AGREEMENT, dated as of December 30, 1997, among BANKERS TRUST COMPANY, as Trustee (as defined below) for the Elder- Beerman Master Trust (as defined below), THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Transferor (as defined below), THE EL-BEE CHARGIT CORP. ("CHARGIT"), as Servicer (as defined below), each of the financial institutions listed as a Collateral Investor on the signature pages hereof or in a Transfer Supplement entered into in accordance with Section 7.02 (individually, a "COLLATERAL INVESTOR" and, collectively, the "COLLATERAL INVESTORS") and CITICORP NORTH AMERICA, INC., as Program Agent for the Collateral Investors (in such capacity, together with its successors and assigns in such capacity, the "PROGRAM AGENT"). 1. The Transferor, the Servicer and the Trustee have entered into a Pooling and Servicing Agreement, dated as of December 30, 1997 (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"), and the Series 1997-1 Supplement, dated as of December 30, 1997, to the Pooling and Servicing Agreement (the "SERIES 1997-1 SUPPLEMENT"). Terms defined in the Pooling and Servicing Agreement as supplemented by the Series 1997-1 Supplement, unless otherwise defined herein, are used herein as therein defined. 2. The Elder-Beerman Master Trust, formed under the Pooling and Servicing Agreement, may issue the Collateral Investor Certificates at the direction of the Transferor. 3. Subject to the terms and conditions of this Agreement and of the Series 1997-1 Supplement, the Transferor may sell the Collateral Investor Certificates to the Collateral Investors. 4. The Collateral Investor Certificates will be held by the Program Agent for the Collateral Investors. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. DEFINED TERMS. Whenever used in this Agreement, the following terms shall have the following meanings: "AFFECTED PERSON" means any Collateral Investor (and, for purposes of Section 2.04, the Trust and the Trustee). SERIES 1997-1 LOAN AGREEMENT 5 2 "AGREEMENT" means this Series 1997-1 Loan Agreement, as amended, supplemented or otherwise modified from time to time. "ASSIGNMENT" shall have the meaning specified in Section 7.02(a). "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of Ohio, or such other court as may hereafter be granted primary jurisdiction over the Reorganization Case. "CHANGE IN TAX LAW" means any amendment to, or change in, the laws (or any regulations thereunder) of the United States of America or any political subdivision or taxing authority thereof or therein affecting taxation or any amendment to, or change in, an interpretation or application of, such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination). "CHARGIT" shall have the meaning specified in the first paragraph hereof. "CLASS" means any class of any Series of Investor Certificates. "COLLATERAL INVESTOR" shall have the meaning specified in the first paragraph hereof. "COMMITMENT" means, as of any date and with respect to each Collateral Investor, the amount set forth opposite such Collateral Investor's name on the signature pages hereof or, if such Collateral Investor has entered into one or more Transfer Supplements, set forth for such Collateral Investor in the Register maintained by the Program Agent pursuant to Section 7.05 hereof as such Collateral Investor's Commitment, as the same may be reduced pursuant to any Assignment. "CONFIDENTIAL INFORMATION" means any written information delivered or made available by or on behalf of the Parent (or its Affiliates or Subsidiaries), the Servicer or the Transferor to any Person in connection with or pursuant to this Agreement or the transactions contemplated hereby, other than information (i) which was publicly known, or otherwise known to such Person (other than from any party to a Transaction Document or any other Person not entitled to disclose the same free of any confidentiality requirements) at the time of disclosure or (ii) which subsequently becomes publicly known through no act or omission by such Person. SERIES 1997-1 LOAN AGREEMENT 6 3 "CURRENT PLAN" means the Parent's Second Amended Plan of Reorganization dated November 7, 1997 and all exhibits thereto. "ELIGIBLE ASSIGNEE" means a depository institution organized under the laws of the United States of America or any state thereof, or the District of Columbia (or any domestic branch of a foreign bank authorized under any such laws), (a) whose senior long-term unsecured debt obligations are rated at least (i) A- or better by Standard & Poor's, and (ii) A3 or better by Moody's, (b) which is subject to regulation regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b), and (c) which has a combined capital and surplus of at least $500,000,000. "OBLIGATIONS" means all obligations of any Originator, the Transferor, the Servicer or the Parent to any one or more of the Trustee, the Trust, the Collateral Investors, each other Indemnified Party and its respective successors, permitted transferees and assigns, arising under or in connection with the Transaction Documents, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due. "OTHER TAXES" shall have the meaning specified in Section 2.05(b). "PARENT" means the Elder-Beerman Stores Corp., an Ohio corporation. "PLAN OF REORGANIZATION" means the Parent's plan of reorganization (including all exhibits thereto) ultimately confirmed by the Bankruptcy Court in the Parent's Reorganization Case. "POOLING AND SERVICING AGREEMENT" shall have the meaning specified in the recitals to this Agreement. "PROGRAM AGENT" shall have the meaning specified in the first paragraph hereof. "PROGRAM AGENT'S ACCOUNT" shall have the meaning specified in the Series 1997-1 Certificate Purchase Agreement. "PRO RATA SHARE" means, with respect to any Collateral Investor at any time, the percentage equivalent of a fraction the numerator of which shall be an amount equal to such Collateral Investor's Commitment at such time (after giving effect to all Assignments effective on or prior to such time of determination) and the denominator of which shall be an amount equal to the Commitments of all Collateral Investors at such time. SERIES 1997-1 LOAN AGREEMENT 7 4 "PURCHASE" means the purchase under Section 2.01 of the Collateral Investor Certificates by the Collateral Investors. "PURCHASE DATE" has the meaning specified in Section 2.01(a). "PURCHASE PRICE" has the meaning specified in Section 2.01(a). "REGISTER" has the meaning specified in Section 7.05. "REORGANIZATION CASE" means the Parent's case pursuant to chapter 11 of the Bankruptcy Code administered in the Bankruptcy Court under Case No. 95-33643. "REQUIRED COLLATERAL INVESTORS" means, at any time, such Collateral Investors whose Pro Rata Shares in the aggregate represent at least 66-2/3% of the aggregate of the Commitments such time. "SELLER'S ACCOUNT" shall have the meaning specified in the Series 1997-1 Certificate Purchase Agreement. "SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT" means the Series 1997-1 Certificate Purchase Agreement, dated as of December 30, 1997, among the Transferor, as Seller, Corporate Receivables Corporation, as Purchaser, the Liquidity Providers party thereto, Citicorp North America, Inc., as Program Agent, and the Trustee. "SERIES 1997-1 SUPPLEMENT" shall have the meaning specified in the recitals of this Agreement. "TAXES" shall have the meaning specified in Section 2.05(a). "TRANSFER SUPPLEMENT" means a Transfer Supplement, substantially in the form of Exhibit A hereto. Section 1.02. OTHER DEFINITION PROVISIONS. (a) All accounting terms not defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not completely defined, shall have the respective meanings given to them under GAAP or regulatory accounting principles, as applicable and in effect from time to time. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP or regulatory accounting principles, the definitions contained herein shall control. SERIES 1997-1 LOAN AGREEMENT 8 5 (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; the term "including" means "including without limitation". (c) Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms, and to the masculine as well as the feminine and neuter genders, of such terms. ARTICLE II AMOUNT AND TERMS OF COMMITMENT Section 2.01. COMMITMENT. (a) Subject to the terms and conditions hereof, each Collateral Investor severally agrees to purchase the Collateral Investor Certificates, or a portion thereof, in a principal amount equal to such Collateral Investor's Commitment on the date all the conditions specified in Article IV are met or waived (the "PURCHASE DATE") for a purchase price (the "PURCHASE PRICE") equal to such amount. (b) On the Closing Date and on any date on which either of the Collateral Invested Amount or the Commitment of any Collateral Investor is reduced, a duly authorized officer or employee of the Program Agent shall make appropriate notations in the Register of the Purchase Price or the amount of such reduction, as applicable. (c) On the Closing Date, the Transferor will deliver to the Program Agent, on behalf of the Collateral Investors, the Collateral Investor Certificates dated the Closing Date, duly executed by the Transferor, registered in the name of the Collateral Investors and duly authenticated in accordance with the provisions of the Pooling and Servicing Agreement, against delivery by the Program Agent, on behalf of the Collateral Investors, to the Transferor, of the Purchase Price. (d) On the Closing Date, each Collateral Investor shall, upon satisfaction or waiver of the applicable conditions set forth in Article IV, deposit in the Program Agent's Account such Collateral Investor's Pro Rata Share of the Purchase Price, in each case in same SERIES 1997-1 LOAN AGREEMENT 9 6 day funds, and after receipt by the Program Agent of such funds, the Program Agent will deposit the same into the Seller's Account. Section 2.02. ALLOCATIONS AND DISTRIBUTIONS. All allocations of Collections of Principal Receivables, Collections of Finance Charge Receivables, Loss Amounts, the Series 1997-1 Monthly Trustee's Fee, the Series 1997-1 Program Fees, the Investor Monthly Servicing Fee, Breakage Costs, all other amounts allocable with respect to the Collateral Investor Certificates, and all amounts distributable in connection with each of the foregoing, shall be allocated and distributed in accordance with the Pooling and Servicing Agreement and the Series 1997-1 Supplement. Section 2.03. FEES. The Transferor shall pay to the Program Agent such fees for its own account and for the account of the Collateral Investors in such amounts and at such times as are set forth in the Fee Letter. Section 2.04. INCREASED COSTS. (a) If, due to either (i) the introduction or any change in or in the interpretation of any law or regulation (other than any change by way of imposition or increase of reserve requirements included in determining the Adjusted Eurodollar Rate) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case occurring after the Purchase Date, there shall be any increase in the cost, on an after-tax basis, to any Affected Person of any commitment to make the Purchase or otherwise to maintain its Commitment or its investment in the Collateral Investor Certificates in respect of which the Collateral Investor Certificate Rate is the Assignee Rate determined by reference to the Adjusted Eurodollar Rate (excluding for purposes of this Section 2.04 any such increased costs resulting from (A) Taxes or Other Taxes (as to which Section 2.05 will govern) and (B) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state (or any political subdivision thereof) under the laws of which such Affected Person is organized or in which it is otherwise doing business), then the Transferor shall from time to time, upon demand by such Affected Person (with a copy of such demand to the Program Agent), promptly pay to the Program Agent, for the account of such Affected Person (as a third party beneficiary), additional amounts sufficient to compensate such Affected Person for such increased cost. Such demand shall be accompanied by a reasonably detailed statement as to the amount of such compensation and include a summary of the basis for such demand. A certificate as to such amounts submitted to the Transferor and the Program Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If (i) the introduction of or change in or in the interpretation of any law or regulation, (ii) compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law), in each SERIES 1997-1 LOAN AGREEMENT 10 7 case occurring after the Purchase Date, affects or would affect the amount of capital required or expected to be maintained by any Affected Person, or any corporation controlling any Affected Person, and that the amount of such capital is increased by or based upon the existence of such Affected Person's commitment to make the Purchase or otherwise to maintain its Commitment or its investment in the Collateral Investor Certificates, then, upon demand to the Transferor by such Affected Person (with a copy of such demand to the Program Agent) the Transferor shall promptly pay to the Program Agent for the account of such Affected Person (as a third party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person, in light of the circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of such Affected Person's commitment to make the Purchase or otherwise maintain its Commitment or its investment in the Collateral Investor Certificates. Such demand shall be accompanied by a reasonably detailed statement as to the amount of such compensation and include a summary of the basis for such demand. A certificate as to such amounts submitted to the Transferor and the Program Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (c) Each Affected Person will promptly notify the Transferor and the Program Agent of any event of which it has knowledge which is reasonably likely to entitle such Affected Person to compensation pursuant to this Section 2.04; PROVIDED, HOWEVER, that no failure to give or delay in giving such notification shall adversely affect the rights of such Affected Person to such compensation. Section 2.05. TAXES. (a) Except as provided in subsection (g) below, any and all payments and deposits hereunder or under any other Transaction Document to or for the benefit of any Affected Person (including any payments or deposits made by the Servicer) shall be made free and clear of, and without deduction for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Affected Person, taxes imposed on, or measured by reference to, its overall net income or net profits (and franchise taxes imposed in lieu thereof) by any of (i) the United States or any state thereof, (ii) the jurisdiction under the laws of which such Affected Person is organized or in which it is otherwise doing business or (iii) any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments and deposits hereunder being hereinafter referred to as "TAXES"). In addition to, without duplication, the Transferor's indemnity obligations under Section 7.03 of the Pooling and Servicing Agreement, if the Transferor, the Parent, the Trust or the Trustee shall be required by law to deduct or pay any Taxes from or in respect of any sum required to be paid or deposited hereunder or under any other Transaction Document or any instrument delivered hereunder or thereunder, to or for the benefit of any Affected Person, except as provided in subsection (g) below, (i) the Transferor shall increase the sum payable by it, the Parent, the Trust or the Trustee, as the case may be, as may be SERIES 1997-1 LOAN AGREEMENT 11 8 necessary so that after making all required deductions or payments (including deductions or payments applicable to additional sums required to be paid or deposited under this Section 2.05) the amount received by the relevant Affected Person, or otherwise deposited hereunder or thereunder, shall be equal to the sum which would have been so received or deposited had no such deductions been made, (ii) the Transferor shall make such deductions or payments, or cause such deductions or payments to be made, and (iii) the Transferor shall pay or cause to be paid the full amount deducted or payable to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Transferor shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment or deposit made under any Transaction Document or from the execution, delivery or registration of, performing under, or otherwise with respect to, any Transaction Document (hereinafter referred to as "OTHER TAXES"). (c) The Transferor will indemnify each Affected Person for and hold it harmless against the full amount of Taxes and Other Taxes as well as for the full amount of any net increase in taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.05, imposed on or paid by such Affected Person (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or required to be paid with respect thereto. This indemnification shall be made within 30 days from the date such Affected Person makes written demand therefor to the Program Agent and the Transferor. A certificate as to the amount of such indemnification submitted to the Transferor and the Program Agent by such Affected Person setting forth the calculation thereof in reasonable detail, shall be conclusive and binding for all purposes, absent manifest error. (d) Within 30 days after the date of any payment of Taxes, the Transferor or the Trustee (as the case may be) shall furnish to the Program Agent, at its address referred to in Section 7.08, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of the Transferor through an account or branch outside the United States or by or on behalf of the Transferor by a payor that is not a United States person, if the Transferor determines that no Taxes are payable in respect thereof, the Transferor shall furnish, or shall cause such payor to furnish, to the Program Agent, at such address, an Opinion of Counsel acceptable to the Program Agent stating that such payment is exempt from Taxes. For purposes of these Sections 2.05(d) and 2.05(f), the terms "UNITED STATES" and "UNITED STATES PERSON" have the meanings specified in Section 7701 of the Code. (e) Notwithstanding the foregoing and any other provisions of this Section 2.05, obligations of the Trustee, if any, under this Section 2.05 shall be payable only out of the Trust Assets. SERIES 1997-1 LOAN AGREEMENT 12 9 (f) Each Collateral Investor that is organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement or on the date of the Transfer Supplement pursuant to which it became a Collateral Investor, as applicable, and from time to time thereafter as requested in writing by the Transferor or the Program Agent, provide (but only so long thereafter as such Collateral Investor remains lawfully able to do so) each of the Transferor and the Program Agent with two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Collateral Investor is exempt from United States withholding tax or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement. If the form provided by a Collateral Investor at the time such Collateral Investor first becomes a party to this Agreement indicates a United States interest withholding tax in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Collateral Investor provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate shall only be considered excluded from Taxes for periods governed by such form. If any form or document referred to in this subsection (f) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service forms 1001 or 4224, that the Collateral Investor reasonably considers to be confidential, the Collateral Investor shall give notice thereof to the Transferor and the Program Agent and shall not be obligated to include in such form or document such confidential information. (g) For any period with respect to which a Collateral Investor has failed to provide the Transferor and the Program Agent with the appropriate form described in subsection (f) above (OTHER THAN if such failure is due to a change in law occurring after the date on which a form originally was required to be provided by such Collateral Investor or if such form otherwise is not required under subsection (f) above), the Transferor shall not be required to make any additional payments under subsection (a) above nor shall such Collateral Investor be entitled to indemnification under subsection (a) or (c) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Collateral Investor become subject to Taxes because of its failure to deliver a form required hereunder, the Transferor shall take such steps as such Collateral Investor shall reasonably request to assist such Collateral Investor to recover such Taxes. SERIES 1997-1 LOAN AGREEMENT 13 10 (h) Notwithstanding anything to the contrary herein, following a final determination or Opinion of Counsel based on a Change in Tax Law that the Trust will be treated as a partnership for federal income tax purposes, the Transferor or the Trustee shall be entitled to withhold any amounts required to be withheld with respect to an Affected Person under Section 1446 of the Code ("SECTION 1446 AMOUNTS") and to pay or cause such amounts to be paid to the relevant taxation authority as authorized in accordance with applicable law, and such amounts shall be deemed to have been paid to the Affected Person for all purposes of this Agreement, including Section 3.03(a). If a Section 1446 Amount is withheld with respect to an Affected Person for a taxable period other than one with respect to which such Affected Person as of the date of withholding has filed or was required to file a U.S. federal income tax return, the Trustee shall (i) promptly provide the Affected Person with appropriate written evidence reflecting the amount of and the basis for such withholding and (ii) pay to such Affected Person such additional interest as may accrue on such Section 1446 Amount from the date such amount was deemed paid to the Affected Person hereunder through the due date of the first federal income tax return (treating any required payment of estimated tax as a United States federal income tax return for such purpose) on which such Affected Person is able to take into account or otherwise request a credit or refund of such Section 1446 Amount, at a rate equal to the interest rate that would otherwise be applicable to the principal amount of the relevant Collateral Investor Certificates. Section 2.06. COST AND EXPENSES. (a) In addition to the rights of indemnification granted to the Indemnified Parties pursuant to Section 7.03 of the Pooling and Servicing Agreement, the Transferor agrees to pay on demand (i) all costs and expenses (including reasonable fees and expenses of counsel) of the Trustee and the Program Agent in connection with the arrangement, preparation, execution, delivery, closing, administration, modification, amendment, extension or waiver of the Transaction Documents (including (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Program Agent with respect thereto (including with respect to advising the Program Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Transaction Documents, with respect to negotiations with the Parent, the Transferor, the Servicer or any Originator or with other creditors of any such Person or any of its Subsidiaries arising out of any Early Amortization Event or Servicer Default, or any event or circumstance that may give rise to an Early Amortization Event or Servicer Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto), (ii) all reasonable costs and expenses of the Trustee, the Program Agent and the Collateral Investors in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of the Transaction Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally SERIES 1997-1 LOAN AGREEMENT 14 11 (including the reasonable fees and expenses of counsel for the Trustee, the Program Agent and each Collateral Investor with respect thereto, EXCEPT that, in the case of the Collateral Investors, such fees and expenses will be payable only for a single counsel selected by the Required Collateral Investors) and (iii) all costs and expenses of the Trustee and the Program Agent incurred as a result of the delay in or omission to make any payment with respect to amounts due under clauses (i), (ii) and (iii) hereof. (b) If the Parent, the Transferor, the Servicer or any Originator fails to pay when due any costs, expenses or other amounts payable by it under any Transaction Document, including fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Person by the Program Agent or any Collateral Investor, in its sole discretion. Section 2.07. SHARING OF PAYMENTS, ETC. If any Collateral Investor shall obtain at any time any payment or other recovery (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) (a) on account of any Obligation due and payable to such Collateral Investor under the Transaction Documents (other than pursuant to Section 2.04, 2.05 or 2.06 of this Agreement) which is in excess of its PRO RATA share (according to the proportion of (i) the amount of such Collateral Investor's Pro Rata Share of the Collateral Invested Amount at such time to (ii) the Collateral Invested Amount at such time) of payments on account of the Obligations due and payable to all Collateral Investors under the Transaction Documents at such time obtained by all Collateral Investors at such time or (b) on account of Obligations owing (but not due and payable) to such Collateral Investor under the Transaction Documents at such time in excess of its PRO RATA share (according to the proportion of (i) the amount of such Collateral Investor's Pro Rata Share of the Collateral Invested Amount at such time to (ii) the Collateral Invested Amount at such time) of payments on account of the Obligations owing (but not due and payable) to all Collateral Investors under the Transaction Documents at such time obtained by all Collateral Investors at such time, such Collateral Investor shall forthwith purchase from the other Collateral Investors such participations in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Collateral Investor to share the excess payment or other recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Collateral Investor, such purchase from each other Collateral Investor shall be rescinded and such other Collateral Investor shall repay to the purchasing Collateral Investor the purchase price to the extent of such Collateral Investor's ratable share (according to the proportion of (i) the purchase price paid to such Collateral Investor to (ii) the aggregate purchase price paid to all Collateral Investors) of such recovery together with an amount equal to such Collateral Investor's ratable share (according to the proportion of (i) the amount of such other Collateral Investor's required repayment to (ii) the total amount so recovered from the purchasing Collateral Investor) of any interest or other amount paid or payable by the purchasing Collateral Investor in respect of the total SERIES 1997-1 LOAN AGREEMENT 15 12 amount so recovered. The Transferor agrees that the Collateral Investor so purchasing a participation from another Collateral Investor pursuant to this Section 2.07 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Collateral Investor were the direct creditor of the Trust in the amount of such participation. ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. REPRESENTATIONS AND WARRANTIES. Each of the Transferor and the Servicer hereby represents and warrants to the Collateral Investors as follows: (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. It (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by it of the Transaction Documents to which it is or is to be a party, the consummation of the transactions contemplated hereby and the making of each Transfer, are within its corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene or violate any Requirement of Law, (ii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting it or any of its properties or (iii) result in or require the creation or imposition of any Lien upon or with respect to any of its properties. It is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery or performance by it of any of the Transaction Documents to which it is or is to be a party, any Transfer or the consummation of the other transactions contemplated hereby or thereby, (ii) the grant by it of the liens granted by it pursuant to the Transaction SERIES 1997-1 LOAN AGREEMENT 16 13 Documents, (iii) the perfection or maintenance of the liens created by the Transaction Documents (including the first priority nature thereof) or (iv) the exercise by the Trustee of its rights under the Transaction Documents or the remedies granted under the Transaction Documents, except for (A) the financing statements and other documents required to have been filed on or prior to the Effective Date pursuant to the Certificate Purchase Agreement or this Agreement for the initial Series issued pursuant to the Transaction Documents, all of which have already been duly filed and are in full force and effect, (B) the filing from time to time of any amendments, assignments, continuation statements or other documents which may become required pursuant to Sections 2.05(i) or 3.03(b)(viii) of the Pooling and Servicing Agreement and (C) any properly completed and executed UCC-3 termination statements which shall have been delivered to the Program Agent on or before the Effective Date. (d) ENFORCEABILITY. Each Transaction Document to which it is or is to be a party constitutes its legal, valid and binding obligation enforceable against it in accordance with such Transaction Document's terms (except as such enforceability may be limited by Debtor Relief Laws). Each Transaction Document is in full force and effect and is not subject, as to the Transferor or the Servicer, as the case may be, to any specific dispute, offset, counterclaim or defense of the Transferor or the Servicer, as the case may be. (e) NO LITIGATION. There is no action, suit, investigation, litigation or proceeding affecting it, pending or threatened before any Governmental Authority or arbitrator that (i) could have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated hereby or (iii) could adversely affect the income tax attributes of the Trust. (f) POOLING AND SERVICING AGREEMENT REPRESENTATIONS AND WARRANTIES. The Transferor's representations and warranties in Sections 2.03 and 2.04 of the Pooling and Servicing Agreement and the Servicer's representations and warranties in Section 3.03 of the Pooling and Servicing Agreement are true and correct in all material respects on or as of the dates they were made or deemed made. SERIES 1997-1 LOAN AGREEMENT 17 14 ARTICLE IV CONDITIONS PRECEDENT Section 4.01. CONDITIONS PRECEDENT TO THE PURCHASE. The making of the Purchase hereunder is subject to the following conditions precedent: (a) The Bankruptcy Court shall have entered an order or orders confirming the Plan of Reorganization, such order or orders shall have not been judicially stayed and such order or orders shall be satisfactory in form and substance to the Program Agent. (b) The Parent shall not have waived any material condition of the Plan of Reorganization without the consent of the Program Agent and all material changes and deviations in the Plan of Reorganization from the Current Plan shall be satisfactory in form and substance to the Program Agent. (c) The Plan of Reorganization shall be substantially consummated (or will be substantially consummated with the distributions required to be made with the proceeds of the drawings under the Credit Agreement and the proceeds of the Purchases under the Transaction Documents). (d) The Program Agent shall have received on or before the Purchase Date the following, each dated such date (unless otherwise specified), in form and substance satisfactory to the Program Agent: (i) Certified copies of the resolutions of the Board of Directors of the Parent, the Servicer, each other Originator, the Transferor and the Trustee approving each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to each Transaction Document. (ii) A copy of (A) the charter of the Parent, the Servicer, each other Originator and the Transferor and each amendment thereto, certified (as of a date reasonably near the Purchase Date) by the Secretary of State of the jurisdiction of its incorporation as being a true and correct copy thereof and (B) a certified true and correct copy of the charter of the Parent as filed with the Secretary of State of Ohio on the Purchase Date. SERIES 1997-1 LOAN AGREEMENT 18 15 (iii) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the Purchase Date, certifying that (A) the Transferor has paid all franchise taxes to the date of such certificate and (B) the Parent, the Servicer, each other Originator and the Transferor are in good standing under the laws of the jurisdiction of its incorporation. (iv) A certificate of the Parent, the Servicer, each other Originator and the Transferor, signed on behalf of the Parent, the Servicer, each other Originator and the Transferor, respectively, by its President or a Vice President, dated the Purchase Date (the statements made in which certificate shall be true on and as of the Purchase Date), certifying as to (A) the absence of any amendments to its charter since the date of the certificate referred to in Section 4.01(d)(ii), (B) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the Purchase Date, (C) its due incorporation and good standing as a corporation organized under the laws of the jurisdiction of its incorporation and the absence of any proceeding for its dissolution or liquidation, (D) the truth of its representations and warranties contained in the Transaction Documents as though made on and as of the Purchase Date and (E) the absence of any event occurring and continuing, or resulting from the Purchase, that constitutes, or with notice or the lapse of time would constitute, an Early Amortization Event or a Termination Event (as defined in the Purchase Agreements). (v) A certificate of the Secretary or an Assistant Secretary (or, in the case of the Trustee, an Assistant Treasurer) of the Parent, the Servicer, each other Originator, the Transferor and the Trustee certifying the names and true signatures of the officers of the Parent, the Servicer, each other Originator, the Transferor and the Trustee, respectively, authorized to sign the Transaction Documents to which such Person is a party and any other documents contemplated hereunder or thereunder, and appropriately evidencing the incumbency of such officers and such Secretary or Assistant Secretary. (vi) A certificate of the Trustee, signed on its behalf by its President or a Vice President or any Assistant Treasurer, dated the Purchase Date (the statements made in which certificate shall be true on and as of the Purchase Date), certifying as to (A) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the Purchase Date and (B) the due authentication of the Collateral Investor Certificates. (vii) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Transferor, in form and SERIES 1997-1 LOAN AGREEMENT 19 16 substance satisfactory to the Program Agent, which shall include, without limitation, (A) an opinion as to the perfection of the transfers of the Receivables, (B) an opinion as to enforceability and (C) a general corporate opinion. (viii) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Transferor, in form and substance satisfactory to the Program Agent, which shall include (A) a "true sale" opinion with respect to the sales of Receivables from each Originator to the Transferor or another Originator, as the case may be, and (B) an opinion relating to the likelihood of a substantive consolidation of any Originator with the Transferor. (ix) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer, each other Originator and the Transferor, in form and substance acceptable to the Program Agent, with regard to tax matters, including Federal, Ohio and New York tax matters and to the effect set forth in the first sentence of Section 3.07 of the Pooling and Servicing Agreement. (x) A favorable opinion of Seward & Kissel, counsel for the Trustee, in form and substance satisfactory to the Program Agent. (xi) A favorable opinion of Shearman & Sterling, counsel for the Program Agent, in form and substance satisfactory to the Program Agent. (xii) Stamped-receipt copies or other evidence of filing of proper financing statements covering the Receivables, naming the applicable Originator as seller/debtor, the Transferor or another Originator, as the case may be, as purchaser/secured party and the Trustee or Transferor, as the case may be, as assignee, or other similar instruments or documents, as may be necessary or, in the opinion of the Program Agent, desirable under the UCC of any appropriate jurisdiction or other applicable law to perfect Chargit's and the Transferor's respective first priority interests in the Receivables and the assignment thereof by the Transferor to the Trustee. (xiii) Stamped-receipt copies or other evidence of filing of proper financing statements covering the Receivables and the other Trust Assets, naming the Transferor as seller/debtor and the Trustee as purchaser/secured party, or other similar instruments or documents, as may be necessary or, in the opinion of the Program Agent, desirable under the UCC of any appropriate SERIES 1997-1 LOAN AGREEMENT 20 17 jurisdiction or other applicable law to perfect the Trustee's first priority interest in the Trust Assets. (xiv) Copies of proper financing statements (Form UCC-3) and other documents to be duly filed on or about the Purchase Date, if any, necessary to release all security interests and other rights of any Person in the Receivables granted by any Originator or the Transferor other than to the Trustee or the secured parties under the Collateral Documents (as defined in the Credit Agreement). (xv) Certified copies of completed requests for information or a similar search report certified by a party acceptable to the Program Agent dated a date reasonably near the Purchase Date, listing all effective financing statements which name as debtor any Originator or the Transferor (under such Originator's or Transferor's present name and any previous name) and which are filed in the jurisdictions in which filings were made pursuant to Sections 4.01(d)(xii) and 4.01(d)(xiii) together with copies of such financing statements (none of which (except those with respect to which releases have been obtained pursuant to Section 4.01(d)(xiv) above) shall cover any property which may be Receivables or Collections). (xvi) A Collection Account Letter substantially in the form of Exhibit E to the Pooling and Servicing Agreement, in respect of each Collection Account maintained by the Servicer, duly executed by each Person with whom such Collection Account is maintained. (xvii) An executed subordinated note substantially in the form of Exhibit A to the Purchase Agreement between the Transferor and Chargit, to be delivered by the Transferor to Chargit. (xviii) The Collateral Investor Certificates, delivered in accordance with the provisions of Section 2.01(c). (xix) Evidence that all bank accounts required to be established and maintained under any Transaction Document shall have been established. (xx) Each Transaction Document duly executed by each party thereto. (xxi) Evidence of payment of all related fees and expenses then due and payable in connection with the Transaction Documents. SERIES 1997-1 LOAN AGREEMENT 21 18 Section 4.02. FURTHER CONDITIONS PRECEDENT TO THE PURCHASE. The making of the Purchase hereunder is subject to the further conditions precedent that, on the Purchase Date, the following statements shall be true (and the acceptance by the Transferor of the proceeds of such Purchase shall constitute a representation and warranty by the Transferor that on the Purchase Date such statements are true): (a) No event or condition has occurred and is continuing that constitutes, or with notice or lapse of time or both would constitute, a Termination Event (as defined in each of the Purchase Agreements), Early Amortization Event or Servicer Default; (b) The Revolving Period shall not have ended and an Early Amortization Period shall not have occurred and be continuing; (c) The representations and warranties made by the Parent, the Originators, the Transferor and the Servicer in each Transaction Document to which it is a party shall be true and correct in all material respects as if repeated on such date (except only to the extent such representation or warranty is expressly limited to a specific date) with respect to the facts and circumstances then existing; (d) The Pooling and Servicing Agreement, Series 1997-1 Supplement, Purchase Agreements, Parent Undertaking Agreement, Intercreditor Agreement, Certificate Purchase Agreement and each other Transaction Document shall be in full force and effect; (e) After making the Purchase, the Collateral Invested Amount shall not exceed the aggregate amount of the Collateral Investor's Commitments on such day; (f) The Program Agent shall have received by 1:00 p.m. (New York City time), on the Purchase Date, the Daily Report, which shall be prepared on a pro forma basis and shall show that the Transferor is in compliance with all of the Transaction Documents (after giving effect to the Purchase) to the extent a showing of such compliance is called for in the form thereof; (g) Each Originator shall have delivered to the Transferor and the Program Agent the accounts receivable aged trial balance as of the Purchase Date of each such Originator (which, if in magnetic tape or diskette format, shall be compatible with the Transferor's, or, if applicable, the Servicer's computer equipment); (h) The Servicer shall have delivered to the Transferor, in form and substance satisfactory to the Transferor and the Program Agent, a completed Monthly Servicer's Report, together with a listing of the Accounts under which all Receivables SERIES 1997-1 LOAN AGREEMENT 22 19 subject to each Transfer through the date of such Purchase have arisen, for the most recently ended reporting period for which such Monthly Servicer's Report as of the Purchase Date is required to be delivered pursuant to Section 3.04(b) of the Pooling and Service Agreement and, if the Servicer shall have been given not less than three Business Days' prior written notice, containing such additional information as may be reasonably requested by the Transferor and the Program Agent; (i) Each Originator shall have marked its master data processing and computer records relating to the Receivables which are the subject of each Transfer through the date of such Purchase, and the Accounts under which such Receivables have arisen, with a legend, acceptable to the Program Agent, stating that such Receivables and Collections with respect thereto and other proceeds thereof, have been sold in accordance with the Transaction Documents; (j) The Parent shall have entered into the Swap Agreement and the Cap Agreement, which shall be in form and substance satisfactory to the Program Agent; (k) The Program Agent shall have received any other documentation and opinions required to be delivered with respect to the Transaction Documents and such other approvals, opinions or documents as reasonably requested by the Program Agent with not less than three Business Days' prior written notice; (l) The combined aggregate notional amount of the Swap Agreement and the Cap Agreement shall be equal to at least the sum of the Class A Invested Amount and the Collateral Invested Amount, in each case after giving effect to such Purchase or Increase; and (m) At any time after the Reserve Account has an initial credit balance equal to or exceeding the Reserve Account Required Balance, the credit balance in the Reserve Account shall be equal to at least the Reserve Account Required Balance. SERIES 1997-1 LOAN AGREEMENT 23 20 ARTICLE V COVENANTS Section 5.01. COVENANTS. Each of the Transferor and the Servicer, as applicable, covenants and agrees that, unless the Required Collateral Investors shall otherwise consent in writing, it will: (a) PERFORMANCE OF AGREEMENTS. For the benefit of the Program Agent and the Collateral Investors, perform on a timely basis each of their respective agreements, warranties and indemnities under, and comply in all material respects with each of the respective terms and provisions applicable to it in, the Pooling and Servicing Agreement and the Series 1997-1 Supplement. (b) CERTIFICATES. Furnish to the Program Agent a copy of each certificate, report, statement, notice or other communication furnished by or on behalf of the Transferor or the Servicer to the Series 1997-1 Certificateholders, the Trustee or the Rating Agencies (including all such certificates, reports, statements, notices or other communications required to be furnished thereby to the Trustee under any Transaction Document) concurrently therewith and furnish to the Program Agent promptly after receipt thereof a copy of each notice, demand or other communication received by or on behalf of the Transferor or the Servicer, in each case, with respect to the Series 1997-1 Certificates, this Agreement, or any other Transaction Document. (c) TIMELY PAYMENTS. Timely make all payments, deposits or transfers, and give all instructions to transfer, in each case required to be made by it hereunder and under any other Transaction Document. ARTICLE VI THE PROGRAM AGENT Section 6.01. AUTHORIZATION AND ACTION OF THE PROGRAM AGENT. Each Collateral Investor hereby appoints and authorizes the Program Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Program Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. SERIES 1997-1 LOAN AGREEMENT 24 21 Section 6.02. THE PROGRAM AGENT'S RELIANCE, ETC. Neither the Program Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or the Program Agent under or in connection with the Transaction Documents, except for its or their own gross negligence or wilful misconduct. Without limiting the generality of the foregoing, the Program Agent (a) may consult with independent legal counsel (including counsel for the Trustee, the Transferor or the Servicer), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (b) makes no representation or warranty to the Parent, any Originator, the Transferor, the Servicer or any Beneficiary and shall not be responsible to the Parent, any Originator, the Transferor, the Servicer or any Beneficiary for any statements, representations or warranties made in or in connection with this Agreement or any of the Transaction Documents, (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Transaction Documents on the part of the Trustee, the Transferor, any Originator, the Parent or the Servicer or to inspect the property (including the books and records) of the Trust, the Trustee, the Transferor, any Originator, the Parent or the Servicer, (d) shall not be responsible to the Parent, any Originator, the Transferor, the Servicer or any Beneficiary for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Collateral Investor Certificates or any other Transaction Document or the condition or value of any Trust Asset or the creation, perfection or priority of any interest therein created or purported to be created under or in connection with the Transaction Documents (except for the execution by the Program Agent of, and legality, validity and enforceability against the Program Agent of its obligations under, the Transaction Documents to which the Program Agent is a party), and (e) shall incur no liability under or in respect of the Transaction Documents by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties; except in each case for gross negligence or wilful misconduct on the part of the Program Agent. Section 6.03. THE PROGRAM AGENT AND AFFILIATES. Citicorp North America, Inc. and its Affiliates (including Citibank, N.A.) may generally engage in any kind of business with the Transferor, the Servicer, any Originator or the Parent, any of their respective Affiliates and any Person who may do business with or own securities of the Servicer, any Originator, the Parent or any of their respective Affiliates, all as if Citicorp North America, Inc. were not the Program Agent and without any duty to account therefor to the Parent, any Originator, the Transferor, the Servicer or any Beneficiary. Section 6.04. AMENDMENTS, WAIVERS AND CONSENTS. Each Collateral Investor and the Program Agent each reserves the right, in its sole discretion (subject to the next sentence), to exercise any rights and remedies available to such Collateral Investor or the SERIES 1997-1 LOAN AGREEMENT 25 22 Program Agent under the Transaction Documents or pursuant to applicable law, and also to agree with the other parties hereto to any amendment, modification or waiver of any Transaction Document, to the extent such Transaction Document provides for, or requires, such Collateral Investor's or the Program Agent's agreement, which agreements shall be binding on each Beneficiary. Notwithstanding the foregoing, each of the Program Agent and each Collateral Investor agrees for the benefit of the Collateral Investors that it shall not, subject to the terms of the Transaction Documents: (a) without the prior written consent of each of the affected Collateral Investors, (i) reduce in any manner the amount of, or delay the timing of, distributions to be made to any Collateral Investor Certificateholder or deposits of amounts to be so distributed, or (ii) reduce any fees payable to the Program Agent or any Collateral Investor which relate to payments to the Collateral Investors or delay the dates on which such fees are payable, or (iii) modify any provision relating to the Reserve Account, or the amounts required to be deposited therein or extend the Revolving Period, or (iv) release the Parent from its obligations under the Parent Undertaking Agreement, or (v) amend or waive any Termination Event (as defined in any Purchase Agreement) or Early Amortization Event under any Transaction Document relating to the bankruptcy of the Transferor, the Servicer or the Parent, or (b) without the prior written consent of the Required Collateral Investors, (i) amend, modify or waive any provision of any Transaction Document which would impair in any material respect any rights expressly granted to an assignee or participant, or (ii) change the definitions of Express Spread Percentage, Net Loss Percentage, Dilution Ratio, Eligible Receivable, or Eligible Account, or SERIES 1997-1 LOAN AGREEMENT 26 23 (iii) amend any Early Amortization Event to increase the maximum permitted Net Loss Percentage or Dilution Ratio, or to decrease the minimum permitted Excess Spread Percentage, or (iv) waive violations of the maximum permitted levels for the Net Loss Percentage or Dilution Ratio, or of the minimum permitted level for the Excess Spread Percentage, which violations occur for more than two consecutive months or by more than 10% of such permitted levels for any time, or (v) amend the amount of the Commitments. Section 6.05. COLLATERAL INVESTOR CREDIT DECISION. Each Collateral Investor acknowledges that it has, independently and without reliance upon the Program Agent or any other Collateral Investor and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Collateral Investor also acknowledges that it will, independently and without reliance upon the Program Agent or any other Collateral Investor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. ARTICLE VII MISCELLANEOUS Section 7.01. AMENDMENTS AND WAIVERS. Except to the extent otherwise provided in Section 6.04, no amendment of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by all parties hereto. Any waiver or consent shall be effective only if signed by the party waiving any right, in the specific instance and for the specific purpose for which given. Section 7.02. ASSIGNMENT. (a) At any time and from time to time, any Collateral Investor may, by notice and delivery to the Program Agent of a fully executed Transfer Supplement, assign to any other Person all or any portion of its interest in the Certificates (which portion shall in no event evidence less than $5,000,000 of the Collateral Invested Amount then held by such Collateral Investor or, if less, the entire Collateral Invested Amount so held by such Collateral Investor) (any such assignment being an "ASSIGNMENT"); PROVIDED that (i) such assignee is an Eligible Assignee and (ii) such assignment shall comply with any applicable legal requirements including the Act. The assignee shall, upon the effectiveness of such Transfer Supplement and delivery thereof and of such other requested SERIES 1997-1 LOAN AGREEMENT 27 24 documentation to the Program Agent, become entitled to the benefits hereof and subject to the obligations of the assignor hereunder. (b) The Transferor agrees to execute or obtain such other documentation as may be reasonably requested by any Collateral Investor in order to effectuate any assignment under this Section 7.02 (PROVIDED that the Transferor shall not have any obligation to amend any Transaction Document in connection therewith), the costs of such documentation to be borne by the Collateral Investor. Section 7.03. RIGHTS OF ASSIGNEE. Upon any assignment in accordance with this Article VIII, (a) the assignee receiving such assignment shall have all of the rights of such assignor hereunder with respect to the Collateral Investor Certificate (or portion thereof) or rights associated therewith being assigned and (b) all references to such assignor in the Transaction Documents shall be deemed to apply to such assignee to the extent of its interest therein and in the related Collections. Section 7.04. NOTICE OF ASSIGNMENT. Each assignor shall provide notice to the Transferor, the Program Agent and the Trustee of any assignment of any Collateral Investor Certificate (or portion thereof) or rights associated therewith by such assignor to any assignee. Section 7.05. REGISTER. The Program Agent shall maintain a copy of each Transfer Supplement delivered to and accepted by it and a register (the "REGISTER") for the recordation of the names and addresses of the Collateral Investors and the Commitment of each Collateral Investor from time to time and the Collateral Invested Amount outstanding from time to time. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Transferor, the Program Agent, the Trustee and the Collateral Investors may treat each Person whose name is recorded in the Register as a Collateral Investor hereunder for all purposes of the Transaction Documents. The Register shall be available for inspection by the Transferor, the Parent, the Trustee or any Collateral Investor at any reasonable time and from time to time upon reasonable prior notice. Section 7.06. PARTICIPATIONS. At any time and from time to time any Collateral Investor may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its interest in the Collateral Investor Certificates); PROVIDED, HOWEVER, that (i) such Collateral Investor's obligations under this Agreement (including its Commitment) shall remain unchanged, (ii) such Collateral Investor shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Transferor, the Program Agent and the other Collateral Investors shall continue to deal solely and directly with such Collateral Investor in connection with the rights of such Collateral Investor and the obligations of such Collateral Investor under this Agreement and (iv) no participant under any such SERIES 1997-1 LOAN AGREEMENT 28 25 participation shall have any right to approve any amendment or waiver of any provision of any Transaction Document, or any consent to any departure by any Person therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Collateral Investor Certificates or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Collateral Investor Certificates or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Receivables. Anything herein to the contrary notwithstanding, the Transferor shall not, at any time, be obligated to pay to any Collateral Investor any sum in excess of the sum the Transferor would have been obligated to pay to such Collateral Investor hereunder if such Collateral Investor had not sold any participation in its rights and obligations under this Agreement. Section 7.07. RESTRICTIONS ON ASSIGNMENTS AND PARTICIPATIONS. Notwithstanding any provision of this Agreement to the contrary, no Collateral Investor shall assign any of its rights or obligations hereunder to any Person that is not a United States Person (as defined in Section 7701(a)(30) of the Code) unless such Person shall have provided the Transferor and the Program Agent with two original Internal Revenue Service forms 4224 (or a successor form certifying that the income from the Collateral Investor Certificates is effectively connected with the conduct of such Person's trade or business in the United States). Notwithstanding Sections 7.02 and 7.06, no Collateral Investor shall be entitled to assign (or sell participations in) all or any portion of its rights and obligations hereunder to (i) a partnership, grantor trust or S corporation, as such terms are defined in the Code or (ii) any Person if, following such assignment or sale to such other Person, the Trust would have more than 100 beneficial owners of Certificates (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)). Notwithstanding the preceding sentence, each Collateral Investor shall be entitled to assign (or sell a participation in) its rights and obligations hereunder to a partnership that is a securitization company managed by Citicorp North America, Inc., PROVIDED that the Transferor receives evidence reasonably satisfactory to it that such sale or assignment will not cause the Trust to have at any time more than 100 beneficial owners (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)). Section 7.08. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, one Business Day after having been SERIES 1997-1 LOAN AGREEMENT 29 26 given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means, except that notices and communications pursuant to Article II shall not be effective until received. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the next following Business Day. Section 7.09. NO WAIVER; REMEDIES; SET-OFF. No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each of the Program Agent and each Collateral Investor is hereby authorized by the Transferor at any time and from time to time after the occurrence and during the continuance of an Early Amortization Event, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Program Agent and each Collateral Investor to or for the credit or the account of the Transferor against any and all of the Obligations of the Transferor now or hereafter existing, to the Program Agent, any Collateral Investor or any Affected Person, or their respective successors and assigns, irrespective of whether such Person shall have made any demand under any Transaction Document and although such Obligations may be unmatured; PROVIDED, HOWEVER, that no such Person shall exercise any such right of set-off without the prior written consent of the Program Agent. Each set-off by any Collateral Investor under this Section 7.09 against the Collateral Invested Amount shall reduce the Collateral Invested Amount accordingly. Section 7.10. BINDING EFFECT; SURVIVAL. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 7.02. This Agreement shall create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until one year and one day after the earlier of the date on which all Obligations are indefeasibly paid in full or the date on which the Trust shall terminate in accordance with the Pooling and Servicing Agreement. The provisions of Article II shall be continuing and shall survive any termination of this Agreement. Section 7.11. CAPTIONS. The various captions (including the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Section 7.12. INTEGRATION. This Agreement, together with the other Transaction Documents, contains a final and complete integration of all prior expressions by the parties SERIES 1997-1 LOAN AGREEMENT 30 27 hereto with respect to the subject matter hereof and, together with all the other Transaction Documents, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. Section 7.13. CONFIDENTIALITY. The Trustee, the Program Agent and the Collateral Investor Certificateholders agree, and shall cause their agents or representatives, to hold in confidence all Confidential Information; PROVIDED that nothing herein shall prevent any Collateral Investor Certificateholder from delivering copies of any financial statements and other documents constituting Confidential Information, or disclosing any other Confidential Information, to (i) such Collateral Investor Certificateholder's directors, officers, employees, agents and professional consultants, (ii) any other Collateral Investor Certificateholder or any Rating Agency, (iii) any Person to which such Collateral Investor Certificateholder offers to sell or assign or sells or assigns such Collateral Investor Certificate or any part thereof or any rights associated therewith or participation therein, PROVIDED that such Person shall have agreed to hold in confidence all Confidential Information as set forth herein, (iv) any federal or state regulatory authority having jurisdiction over such Collateral Investor Certificateholder, (v) the National Association of Insurance Commissioners or any similar organization, (vi) any state, federal or foreign authority or examiner regulating banks or banking, (vii) to any affiliate, independent or internal auditor, agent, employee or attorney having a need to know the same, PROVIDED that such Person is advised of the confidential nature of the information being disclosed and each such recipient agrees to be bound by the terms of this Section or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such Collateral Investor Certificateholder, (b) in response to any subpoena or other legal process or (c) in connection with any litigation to which such Collateral Investor Certificateholder is a party. Section 7.14. REIMBURSEMENT OF PROGRAM AGENT. Each Collateral Investor will on demand reimburse the Program Agent its Pro Rata Share of any and all reasonable costs and expenses (including reasonable fees and disbursements of counsel) which may be incurred in connection with collecting amounts owed with respect to any Collateral Investor Certificate in which such Collateral Investor purchases any interest for which the Program Agent is not promptly reimbursed by the Transferor or otherwise. Should the Program Agent later be reimbursed by the Transferor for any such amount, the Program Agent shall immediately pay to each Collateral Investor its Pro Rata Share of such amount. Section 7.15. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that, except as otherwise expressly provided in any Transaction Document, (a) this Agreement is executed and delivered by Bankers Trust Company, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings SERIES 1997-1 LOAN AGREEMENT 31 28 and agreements by Bankers Trust Company, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on Bankers Trust Company, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any person claiming by, through or under such parties, and (d) under no circumstances shall Bankers Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement, except to the extent provided in this Agreement. Section 7.16. NO PROCEEDINGS. Notwithstanding any prior termination of this Agreement, any Collateral Investor, the Trustee and the Transferor, shall not, prior to the date which is one year and one day after the last day on which any Investor Certificate shall have been outstanding, acquiesce, petition or otherwise invoke or cause the Trust or the Transferor to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Transferor under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Transferor or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Trust or the Transferor. Section 7.17. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7.18. SUBMISSION TO JURISDICTION. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this SERIES 1997-1 LOAN AGREEMENT 32 29 Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Section 7.19. CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 7.20. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SERIES 1997-1 LOAN AGREEMENT 33 Section 7.21. WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Agreement, any other Transaction Document, or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto and the Collateral Investors or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the parties hereto have caused this Series 1997-1 Loan Agreement to be duly executed by their respective officers thereunto duly authorized as of the date first above written. THE EL-BEE RECEIVABLES CORPORATION, as Transferor By: ----------------------------------------- Name: Title: Address: 3155 El-Bee Road Dayton, Ohio 45439 THE EL-BEE CHARGIT CORP., as Servicer By: ----------------------------------------- Name: Title: Address: 3155 El-Bee Road Dayton, Ohio 45439 SERIES 1997-1 LOAN AGREEMENT 34 BANKERS TRUST COMPANY, as Trustee By: ----------------------------------------- Name: Title: Address: Four Albany Street New York, NY 10006 CITICORP NORTH AMERICA, INC., as Program Agent By: Name: Title: Address: 399 Park Avenue New York, NY 10043 Commitment: $8,000,000 CITIBANK, N.A., as a Collateral Investor By: Title: Address: 399 Park Avenue New York, NY 10043 SERIES 1997-1 LOAN AGREEMENT 35 EXHIBIT A FORM OF TRANSFER SUPPLEMENT Reference is made to the Series 1997-1 Loan Agreement dated as of December 30, 1997 (as amended, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT") among The El-Bee Receivables Corporation, as Transferor, The El-Bee Chargit Corp., as Servicer, the financial institutions party thereto, as Collateral Investors (the "COLLATERAL INVESTORS"), Citicorp North America, Inc., as Program Agent for the Collateral Investors, and Bankers Trust Company, as Trustee. Terms defined in the Loan Agreement unless otherwise defined herein are used herein as defined therein. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. As of the Effective Date (defined below), the Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse to or representation of any kind (except as set forth below) from Assignor, an interest in and to the Assignor's rights and obligations under the Loan Agreement and under any other Transaction Document equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Loan Agreement and any other Transaction Document, including the Assignor's Commitment, Pro Rata Share, and Collateral Invested Amount (such rights and obligations assigned hereby being the "ASSIGNED INTERESTS"). After giving effect to such sale and assignment, the Assignee's Commitment and Pro Rata Share will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder free and clear of any Lien created by Assignor; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Transaction Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security or ownership interest created or purported to be created under or in connection with, the Transaction Documents or any other instrument or document furnished pursuant thereto or the condition or value of any Trust Asset or any interest therein; and (iii) makes no representation or warranty and assumes no responsibility with respect to the condition (financial or otherwise) of any of the Transferor, any other Originator, the Servicer, the Parent or the Trustee or the performance or observance by any Person of any of its obligations under any Transaction Document or any other instrument or document furnished pursuant thereto. SERIES 1997-1 LOAN AGREEMENT 36 A-2 3. The Assignee (i) confirms that it has received a copy of the Loan Agreement, the Pooling and Servicing Agreement, together with copies of any financialstatements delivered pursuant to Sections 2.05(f) and 3.03(b)(vii) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Program Agent, the Assignor or any other Collateral Investor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any of the Transaction Documents; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Program Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Transaction Documents as are delegated to the Program Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Transaction Documents are required to be performed by it as a Collateral Investor; (vi) confirms that the assignment hereunder complies with any applicable legal requirements including the Securities Act; (vii) confirms that such Assignee is a United States Person (as defined in Section 7701(a)(30) of the Internal Revenue Code) or that such Assignee shall have provided the Transferor with two Internal Revenue Service forms 1001 or 4224 (or a successor form) certifying that the income from the Collateral Investor Certificates is effectively connected with the conduct of such Person's trade or business in the United States or that such income is exempt from withholding under an applicable tax treaty; (viii) confirms that such Assignee is not a partnership, grantor trust or S corporation (as such terms are defined in the Internal Revenue Code); (ix) confirms that the assignment hereunder will not result in the Trust having more than 100 beneficial owners of Certificates (taking into account the attribution rules of Treasury Regulation Section 1.7704-2(h)); and (x) attaches any other U.S. Internal Revenue Service forms required under Section 2.05 of the Loan Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Program Agent for acceptance and recording by the Program Agent. The effective date for this Assignment and Acceptance (the "EFFECTIVE DATE") shall be the date of acceptance hereof by the Program Agent, unless a later effective date is specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Program Agent, as of the Effective Date, (i) the Assignee shall be a party to and bound by the provisions of the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Collateral Investor thereunder and under any other Transaction Document and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Agreement and under any other Transaction Document. SERIES 1997-1 LOAN AGREEMENT 37 A-3 6. Upon such acceptance and recording by the Program Agent, from and after the Effective Date, the Program Agent and Trustee shall make all payments under the Loan Agreement and the Assigned Interests (including, without limitation, all payments of the Collateral Invested Amount, interest and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Loan Agreement and the Assigned Interests for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. SERIES 1997-1 LOAN AGREEMENT 38 SCHEDULE 1 TO TRANSFER SUPPLEMENT Collateral Investor Commitment assigned: $__________ Pro Rata Share assigned: __________% Assignor's Collateral Investor Commitment after assignment: $__________ Assignor's Collateral Investor Commitment Percentage after assignment: __________% Effective Date (if later than date of acceptance by Program Agent): _______ __, ____ [NAME OF ASSIGNOR], as Assignor By________________________________ Name: Title: Dated: _________ __, ____ [NAME OF ASSIGNEE], as Assignee By________________________________ Name: Title: Dated:_________ __, ____ Address for Notices: SERIES 1997-1 LOAN AGREEMENT 39 2 Accepted this ____ day of _____________, ____ CITICORP NORTH AMERICA, INC., as Program Agent By________________________________ Name: Title: SERIES 1997-1 LOAN AGREEMENT EX-10.A.V 7 EXHIBIT 10(A)(V) 1 Exhibit 10(a)(v) INTERCREDITOR AGREEMENT INTERCREDITOR AGREEMENT dated as of December 30, 1997, by and among CITICORP NORTH AMERICA, INC., as agent (together with its successors and assigns, the "PROGRAM AGENT") for CORPORATE RECEIVABLES CORPORATION, a California corporation ("CRC"), and as collateral investor ("COLLATERAL INVESTOR"), and the banks and financial institutions (the "LIQUIDITY PROVIDERS") from time to time party to the Certificate Purchase Agreement referred to below and for any other Certificateholders (as hereinafter defined), THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation (the "TRANSFEROR"), THE EL-BEE CHARGIT CORP., an Ohio corporation ("CHARGIT"), THE ELDER-BEERMAN STORES CORP., an Ohio corporation ("ELDER- BEERMAN"), BANKERS TRUST COMPANY, not in its individual capacity but solely as trustee (together with its successors and assigns, the "TRUSTEE") of the Elder-Beerman Master Trust (the "TRUST"), and CITICORP USA, INC., in its separate capacity as agent (the "BANK AGENT"), for the issuer (the "ISSUING BANK") and the financial institutions (the "LENDERS") party to the Credit Agreement referred to below. PRELIMINARY STATEMENTS 1. Elder-Beerman has agreed to sell, transfer and assign to Chargit, and Chargit has agreed to purchase from Elder-Beerman, all of the right, title and interest of Elder-Beerman in and to the Purchased Receivables (as hereinafter defined) pursuant to a Purchase Agreement dated as of the date hereof (as amended, supplemented or otherwise modified, the "FIRST PURCHASE AGREEMENT"), between Elder-Beerman and Chargit, and Chargit (together with Elder-Beerman, the "ORIGINATORS") has agreed to sell, transfer and assign to the Transferor, and the Transferor has agreed to purchase from Chargit, all of the right, title and interest of Chargit in and to the Purchased Receivables, pursuant to a Purchase Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "SECOND PURCHASE AGREEMENT", and together with the First Purchase Agreement, the "PURCHASE AGREEMENTS"), between Chargit and the Transferor. 2. The Transferor, Chargit, as servicer (the "SERVICER"), and the Trustee are parties to a Pooling and Servicing Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"), pursuant to which the Transferor has agreed to transfer the Receivables to the Trustee on behalf of the Trust. 3. The Pooling and Servicing Agreement will be supplemented by the Series 1997-1 Supplement dated as of the date hereof (as amended, supplemented or otherwise 2 2 modified from time to time, the "SERIES 1997-1 SUPPLEMENT") among the Transferor, the Servicer and the Trustee. 4. CRC or the Liquidity Providers will purchase the Class A Certificates (as defined under the Series 1997-1 Supplement) issued under the Series 1997-1 Supplement, pursuant to a Certificate Purchase Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "CERTIFICATE PURCHASE AGREEMENT"), among the Transferor, the Trustee, CRC, the Liquidity Providers and the Program Agent. 5. Collateral Investor will purchase the Collateral Investor Certificates (as defined under the Series 1997-1 Supplement) issued under the Series 1997-1 Supplement, pursuant to a Loan Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "COLLATERAL INVESTOR LOAN AGREEMENT"), among the Transferor, the Trustee, Servicer, Program Agent, and the Collateral Investor. 6. The Purchase Agreements and the Pooling and Servicing Agreement provide for the filing of UCC (as hereinafter defined) financing statements in connection with obtaining and perfecting the ownership or security interests of the parties thereto in certain of the assets and properties constituting the Receivables. 7. Elder-Beerman, the Lenders, the Issuing Bank and the Bank Agent are parties to a Credit Agreement dated as of December 30, 1997 (as amended, supplemented, modified, restated, replaced or refinanced from time to time, with the same or a different group of lenders, issuing banks or bank agents, the "CREDIT AGREEMENT"). 8. To secure certain obligations, Elder-Beerman and Chargit have granted to the Bank Agent, for the benefit of the Lender Parties (as hereinafter defined), a security interest in certain collateral, including but not limited to Receivables (as hereinafter defined) and proceeds thereof, pursuant to the Security Agreement (as such term is defined in the Credit Agreement). 9. It is a condition precedent to the making of the Purchase (as defined in the Certificate Purchase Agreement) under the Certificate Purchase Agreement and the purchase and sale of Collateral Investor Certificates under the Collateral Investor Loan Agreement and to the issuance of the certificates pursuant to the Series 1997-1 Supplement that the parties hereto enter into this Agreement. 10. The parties hereto have agreed to enter into this Agreement to set forth provisions regarding the allocation of priorities in, and the enforcement of remedies with 3 3 respect to, the Purchased Property (as hereinafter defined) and with respect to the Collateral (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following capitalized terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). The term "Agreement" shall mean this Intercreditor Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "AMORTIZATION DATE" has the meaning specified in the Series 1997-1 Supplement. "BANK CLAIM" means all "Obligations" as such term is defined in the Credit Agreement. "BANK COLLATERAL" means all property and interests in property now owned or hereafter acquired by any Originator in or upon which a security interest, lien or mortgage is granted by any Originator or The Bee-Gee Shoe Corp., an Ohio corporation, to the Bank Agent under any of the Bank Loan Documents. "BANK COLLATERAL DOCUMENTS" means each Bank Loan Document which grants a security interest, lien or mortgage in any asset of the Borrower, Chargit or the Transferor. "BANK LOAN DOCUMENTS" has the meaning specified for the term "Loan Documents" in the Credit Agreement. "BORROWER" has the meaning specified in the Credit Agreement. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Ohio or the State of New York or is a day on which banking institutions located in either of such states are closed; PROVIDED, HOWEVER, that when making reference to a Eurodollar Advance (as defined in the Credit Agreement) 4 4 (including the making, continuing, prepaying or repaying of any Eurodollar Advance), the term "Business Day" shall also exclude any day in which banks are not open for dealings in deposits of United States dollars on the London interbank market. "CERTIFICATEHOLDERS" has the meaning specified in the Pooling and Servicing Agreement. "CLAIM" means the Bank Claim or the Purchaser Claim, as applicable. "COLLATERAL" means all Bank Collateral which does not constitute Purchased Property. "COLLECTION ACCOUNT" has the meaning specified in the Pooling and Servicing Agreement. "COLLECTION ACCOUNT BANK" has the meaning specified in the Pooling and Servicing Agreement. "COLLECTIONS" means, with respect to any Purchased Receivable, all cash collections and other cash proceeds of such Purchased Receivable excluding, however, (i) such collections and proceeds received by Elder-Beerman with respect to the sale of the Purchased Receivables by Elder-Beerman to Chargit, (ii) such collections and proceeds received by Chargit with respect to the sale of the Purchased Receivables by Chargit to the Transferor and (iii) any Certificate received by the Transferor upon the transfer of Purchased Receivables to the Trustee on behalf of the Trust and any Supplemental Certificate (as defined in the Pooling and Servicing Agreement) issued pursuant to the Pooling and Servicing Agreement. "COMPANY CLAIM" means all of the indebtedness, obligations and other liabilities of (i) the Transferor to Chargit and (ii) Chargit to Elder-Beerman arising under, or in connection with, the Purchase Agreements, including, but not limited to, obligations evidenced by any Subordinated Note, and any costs of collection or enforcement thereof. "CONCENTRATION ACCOUNT" has the meaning specified in the Pooling and Servicing Agreement. "CONCENTRATION ACCOUNT BANK" has the meaning specified in the Pooling and Servicing Agreement. "EARLY AMORTIZATION EVENT" has the meaning specified in the Pooling and Servicing Agreement. 5 5 "ENFORCEMENT" means, collectively or individually, for (i) the Program Agent on behalf of the Certificateholders or the Trustee to declare an "Early Amortization Event" under the Purchaser Documents and to cease the purchase of Receivables under the Pooling and Servicing Agreement or (ii) the Majority Lenders or the Bank Agent to demand payment in full of or accelerate the Bank Claim, and to commence the judicial or nonjudicial enforcement of any of the rights and remedies, under the Bank Loan Documents. "ENFORCEMENT NOTICE" means a written notice delivered in accordance with Section 2.05 hereof, which notice shall (i) if delivered by the Program Agent or the Trustee, state that an Early Amortization Event has occurred, specify the nature of such event and announce that an Enforcement Period has commenced and (ii) if delivered by the Bank Agent, state that an Event of Default has occurred, specify the nature of such event and announce that an Enforcement Period has commenced. "ENFORCEMENT PERIOD" means the period of time following the receipt by either the Bank Agent or the Trustee of an Enforcement Notice delivered by the other such Person until the earliest of the following: (1) the Purchaser Claim Termination Date, in the case of an Enforcement Notice delivered by the Program Agent or the Trustee; (2) the Bank Claim has been paid and satisfied in full in cash, in the case of an Enforcement Notice delivered by the Bank Agent; and (3) the parties hereto agree in writing to terminate the Enforcement Period. "EVENT OF DEFAULT" has the meaning specified in the Credit Agreement. "LENDER PARTIES" means the Lenders and the Issuing Bank. "MAJORITY LENDERS" has the meaning specified in the Credit Agreement. "OBLIGOR" has the meaning specified in the Pooling and Servicing Agreement. "PERSON" means an individual, corporation, trust (including a business trust), joint-stock company, limited liability company, unincorporated organization, association, partnership, joint venture, governmental authority or any other entity. "PURCHASED PROPERTY" means (i) the Purchased Receivables, (ii) the Collections related to such Purchased Receivables and (iii) each Collection Account, the Concentration Account, the Excess Funding Account (as defined in the Pooling and Servicing Agreement) and each other account established pursuant to the Pooling and Servicing Agreement. "PURCHASED RECEIVABLES" means now owned or hereafter existing Receivables sold or purported to be sold, contributed or otherwise transferred by one or more Originators to Chargit and/or to the Transferor under and pursuant to the terms of any Purchase 6 6 Agreement other than Receivables arising after the Business Day immediately following the Business Day on which notice is delivered by the Bank Agent pursuant to Section 6.17 of the Credit Agreement. "PURCHASER CLAIM" means all obligations of any Originator (as Servicer or otherwise) or of the Transferor to, or which have been assigned to or entered into in favor of, the Trustee, the Program Agent, or any Holder arising under any Purchaser Document and of any Obligor arising under any Purchased Receivable, including, but not limited to, all sums or increases now or hereafter advanced or made to or for the benefit of the Transferor thereunder, any interest thereon, any repayment obligations, indemnity payments, fees or expenses due thereunder, and any costs of collection or enforcement. "PURCHASER DOCUMENTS" means the Purchase Agreements, each Subordinated Note, the Pooling and Servicing Agreement, the Series 1997-1 Supplement, the Certificate Purchase Agreement, the Collateral Investor Loan Agreement, the Fee Letter (as defined in the Pooling and Servicing Agreement) and any other agreements, instruments or documents (i) executed by an Originator and delivered to the Transferor or (ii) executed by the Transferor and delivered to the Trustee or Program Agent. "PURCHASER CLAIM TERMINATION DATE" any date on which (i) the Purchaser Claim has been paid and satisfied in full in cash or (ii) the Trust shall have been completely terminated, and the Trustee shall have distributed all Trust Assets, in accordance with the Pooling and Servicing Agreement. "RECEIVABLE" has the meaning specified in the Pooling and Servicing Agreement. "RECORDS" means all contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to the Receivables and the related Obligors. "RETURNED GOODS" means all right, title and interest of any Originator or the Transferor, as applicable, in and to returned, repossessed or foreclosed goods and/or merchandise the sale of which gave rise to a Purchased Receivable. "RETURNED GOODS LIEN" has the meaning specified in Section 2.01(a). "SERIES" has the meaning specified in the Pooling and Servicing Agreement. 7 7 "STORE ACCOUNT" has the meaning specified in the Pooling and Servicing Agreement). "SUBORDINATED NOTE" has the meaning specified in the Purchase Agreements. "TRUST ASSETS" has the meaning specified in the Pooling and Servicing Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. "UNSOLD RECEIVABLES" means any Receivables other than Purchased Receivables. SECTION 1.02. REFERENCES TO TERMS DEFINED IN THE PURCHASER DOCUMENTS AND THE BANK LOAN DOCUMENTS. Whenever in Section 1.01 a term is defined by reference to the meaning specified in any of the Purchaser Documents or Bank Loan Documents, then, unless otherwise specified herein, such term shall have the meaning specified in such Purchaser Documents or Bank Loan Documents, as the case may be, as in existence on the date hereof, without giving effect to any amendments of such term as may hereafter be agreed to by the parties to such documents, unless such amendments have been consented to in writing by all of the parties hereto. ARTICLE II INTERCREDITOR PROVISIONS SECTION 2.01. PRIORITIES WITH RESPECT TO PURCHASED PROPERTY. (a) Notwithstanding any provision of the UCC, any applicable law or decision or any of the Bank Loan Documents or Purchaser Documents, the Bank Agent hereby agrees that, upon the sale or other transfer of an interest in each Purchased Receivable by Elder-Beerman to Chargit, and by Chargit to the Transferor, any lien, claim, encumbrance, security interest or other interest acquired by the Bank Agent or any Lender Party in such Purchased Receivable and proceeds thereof (other than the proceeds of such sale or transfer to the Transferor) and any other Trust Assets shall automatically and without further action cease and be released and the Bank Agent and the Lender Parties shall have no lien, claim, encumbrance, security interest or other interest or right therein; PROVIDED, HOWEVER, that nothing in this Section 2.01 shall be deemed to constitute a release by the Bank Agent of: (A) its lien on and security interest in the proceeds received by an Originator from the Transferor or from Chargit for the sale or other transfer of the Purchased Receivables (including, without limitation, cash payments made by the Transferor and any Subordinated Note issued by the Transferor in favor of, or endorsed to, 8 8 an Originator, each in connection with such sales); (B) any lien on, security interest in or assignment of the Company Claim; (C) any lien, claim, encumbrance, security interest or other interest or right the Bank Agent has in any Unsold Receivables and the proceeds thereof, including, without limitation, Collections of Unsold Receivables which are at any time deposited in the Collection Accounts or the Concentration Account; and (D) any lien, claim, encumbrance, security interest or other interest or right the Bank Agent may have in any Subordinated Note or in any capital stock issued by the Transferor; and (E) any lien, claim, encumbrance, security interest or other interest or right (collectively, a "RETURNED GOODS LIEN") the Bank Agent may have in any interest of an Originator in Returned Goods. The security interest of the Bank Agent in Purchased Receivables reassigned by the Transferor to Chargit, and from Chargit to Elder-Beerman, pursuant to Section 2.04(e) of the Pooling and Servicing Agreement shall reattach upon such transfer. (b) All interests of the Trustee in Returned Goods under the Purchaser Documents shall in all respects be junior and subordinate to any Returned Goods Lien in such Returned Goods, EXCEPT that (i) during any period in which an Early Amortization Event shall have occurred and be continuing, such Returned Goods Lien shall be junior and subordinate to all interests of the Trustee in any Returned Goods under the Purchaser Documents which have not been commingled with Collateral and (ii) the Trustee shall have no interest in any Returned Good the sale of which gave rise to a Receivable which shall have been paid in full. As among the Trustee and the Bank Agent, all proceeds of any Returned Goods shall be distributed FIRST to the party whose position is designated as senior in the preceding sentence and SECOND to the party whose position is designated as junior in the preceding sentence. (c) The Bank Agent hereby acknowledges that each Subordinated Note is subordinated to the Senior Debt as defined in such Subordinated Note. SECTION 2.02. RESPECTIVE INTERESTS IN PURCHASED PROPERTY AND COLLATERAL. Except for all rights of access to and use of Records granted to the Trustee, the Program Agent and the other Beneficiaries pursuant to the Purchaser Documents, each of the Trustee (on behalf of the Trust) and the Program Agent agrees that it does not have and shall not have any security interest in, lien upon or interest in the Collateral. Except as otherwise specified in Section 2.01 above, the Bank Agent agrees that it does not have and shall not have any security interest in, lien upon or interest in the Purchased Property other than an interest in the Store Accounts for the benefit of itself and the Trustee. SECTION 2.03. DISTRIBUTION OF PROCEEDS. At all times, all proceeds of Collateral and Purchased Property (including proceeds received in the Collection Accounts that are Store Accounts) shall be distributed in accordance with the following procedure: 9 9 (a) Except as otherwise provided in Section 2.04 or Section 2.01(b), (i) all Collections and other proceeds of the Collateral shall be paid or delivered to the Bank Agent for application on the Bank Claim in accordance with the Bank Documents and (ii) any remaining proceeds after the Bank Claim has been paid and satisfied in full in cash shall be paid to the Borrower or as otherwise required by applicable law. (b) Except as otherwise provided in Section 2.04 or Section 2.01(b), (i) all Collections and other proceeds of the Purchased Property shall be paid or delivered to the Trustee on behalf of the Trust for application in accordance with the terms of the Supplements (as defined in the Pooling and Servicing Agreement) against the Purchaser Claim until the Purchaser Claim Termination Date, and (ii) any remaining Collections and proceeds shall be paid to the Transferor in accordance with the terms of the Supplements or as otherwise required by applicable law, PROVIDED, HOWEVER, that the Transferor and each Originator hereby agrees that all such remaining Collections and proceeds which, pursuant to the Purchaser Documents, are to be paid by the Transferor or by Chargit to an Originator, for application against the Company Claim shall be paid directly on behalf of such Originator to the Bank Agent for application against the Bank Claim before being paid to any Originator or the Transferor. SECTION 2.04. COLLECTION ACCOUNTS. (a) The Trustee (on behalf of the Trust) and the Program Agent hereby acknowledge (i) that Elder-Beerman will deliver to the Bank Agent each Subordinated Note issued by the Transferor and transferred to Elder-Beerman by Chargit, as security for the Bank Claim, (ii) that the Bank Agent shall be entitled to Collections of Unsold Receivables which may be deposited in the Collection Accounts or the Concentration Account and (iii) the interest of the Bank Agent and the Lender Parties in the Store Accounts, which are also held by the Bank Agent on behalf of the Trustee. The Servicer shall promptly notify the Trustee and the Bank Agent of any Collections of Unsold Receivables which are deposited in any Collection Account or the Concentration Account and shall promptly deliver such funds to the Bank Agent. The Trustee (on behalf of the Trust) agrees, upon the Bank Agent's written request, to notify (in such form as is provided by the Bank Agent) the Collection Account Banks and Concentration Account Bank of the Bank Agent's interest in and to such Collection Accounts or the Concentration Account, as applicable, in order to perfect the Bank Agent's interest in such Collection Accounts or the Concentration Account. The Bank Agent agrees upon the Trustee's written request, to notify (in such form as is provided by the Trustee) the Collection Account Banks which hold Store Accounts of the Trustee's interest in and to such Store Accounts in order to perfect the Trustee's interest in such Store Accounts. (b) For purposes of determining whether specific Collections have been received on account of Purchased Property or on account of Unsold Receivables, the parties hereto agree as follows: 10 10 (i) All payments made by an Obligor which is obligated to make payments on Purchased Receivables but is not obligated to make any payments on Unsold Receivables shall be conclusively presumed to be payments on account of Purchased Receivables, and all payments made by an Obligor which is obligated to make payments on Unsold Receivables but is not obligated to make any payments on Purchased Receivables shall be conclusively presumed to be payments on account of Unsold Receivables. (ii) All payments made by an Obligor which is obligated to make payments with respect to both Purchased Receivables and Unsold Receivables shall be applied against the specific Receivables, if any, which are designated by such Obligor by reference to the applicable invoice as the Receivables with respect to which such payments should be applied. In the absence of such designation after reasonable efforts by the Originators to obtain such designation, such payments shall be applied against the oldest outstanding Receivables or portion thereof owed by such Obligor to the extent such oldest Receivable or portion thereof is not in dispute. (c) Subject to the terms and conditions of this Section 2.04(c), the Trustee agrees that it shall transfer its ownership and control over the Collection Accounts (to the extent not previously transferred as in the case of the Store Accounts) and the Concentration Account to the Bank Agent upon receipt by the Trustee of any of (i) a certificate of the Program Agent to the effect that the Purchaser Claim Termination Date has occurred or (ii) a certificate of the Program Agent to the effect that, with respect to all Series, the Amortization Dates shall have occurred or a Trust Early Amortization Event shall have occurred and be continuing, that a Responsible Officer of the Trustee has been notified in writing of such occurrence, and that all outstanding Purchased Receivables have been paid in full in cash or (iii) written instructions (whether embodied in one or more documents) to the Trustee to make such transfer signed by each of the Program Agent, the Transferor, the Originators and the Bank Agent. Any such transfer shall be without representation, recourse or warranty of any kind on the part of the Trustee. Notwithstanding any such transfer, all Collections and other proceeds subsequently deposited into the Collection Accounts or the Concentration Account on account of the Purchased Property shall be delivered to the Trustee as provided in Section 2.04(b) above, unless otherwise limited by the Bank Agent after the Purchaser Claim Termination Date. The Bank Agent agrees that, at the time of such transfer, the Bank Agent shall take such steps as may be reasonably requested by the Trustee, the Transferor or the Program Agent (including, without limitation, notification to the Collection Account Banks and Concentration Account Bank of the Trustee's continuing interest on behalf of the Trust, if any, in the Collection Accounts and the Concentration Account) to maintain perfection of the Trustee's interest on behalf of the Trust in such Collection Accounts and the Concentration Account. 11 11 (d) In order to effect more fully the provisions of this Agreement, each of the Trustee and the Bank Agent hereby agrees that, from and after an Early Amortization Event: (i) during any period that the Trustee has control over the Collection Accounts, the Trustee shall provide to the Bank Agent upon prior written request a copy of the latest monthly account statement relating to the Collection Accounts during the Trustee's administration; (ii) in the event that the Bank Agent has control over the Collection Accounts pursuant to clause (iii) of Section 2.04(c) above, the Program Agent shall be entitled to review the Bank Agent's records of receipts of Collections and application of proceeds therefrom; (iii) in the event that the Bank Agent shall foreclose or otherwise dispose of any commingled inventory described in Section 2.01(b), the Program Agent shall be allowed to have a representative observe such foreclosure or disposition and the Bank Agent's application of proceeds received therefrom; and (iv) neither the Bank Agent, the Trustee or the Program Agent shall, before the Purchaser Claim Termination Date, send any notices to any obligor of any Receivable directing such obligor to remit Collections of any Receivables other than to the Collection Accounts. (e) The Trustee and Program Agent each further agree that they will not cause the Servicer to be replaced by a successor servicer unless (i) a "Servicer Default" has occurred under and as defined in the Pooling and Servicing Agreement; (ii) such successor servicer is a "Successor Servicer" under and as defined in the Pooling and Servicing Agreement; and (iii) such successor servicer has acknowledged the terms of this Agreement and agreed to be bound hereby. SECTION 2.05. ENFORCEMENT ACTIONS. Each of the Bank Agent, the Trustee, and the Program Agent agrees to use reasonable efforts to give an Enforcement Notice to each other such Person prior to commencement of Enforcement and further agrees that during the period, if any, between the giving of such Enforcement Notice and the commencement of Enforcement thereunder, each party receiving such notice shall have the right to the extent within its power (but not the obligation) to cure the Event of Default or Early Amortization Event which has occurred under the Bank Loan Documents or the Purchaser Documents, respectively, and to which such Enforcement Notice relates. Subject to the foregoing, the parties hereto agree that during an Enforcement Period: (a) Subject to any applicable restrictions in the Purchaser Documents, the Trustee may take any action to liquidate the Purchased Property or to foreclose or realize upon or enforce any of the rights of the Trust with respect to the Purchased Property without the prior written consent of any Lender Party or any other party hereto; PROVIDED, HOWEVER, that with respect to Returned Goods the Trustee shall not take any action to foreclose or realize upon or to enforce any rights it may have with respect to any Collateral or any Purchased Property constituting Returned Goods in which the Trustee then has an interest junior and subordinate to a Returned Goods Lien 12 12 without the prior written consent of the Bank Agent, unless the Bank Claim shall have been first paid and satisfied in full in cash, and the Trustee shall apply the proceeds of such Returned Goods as provided in Section 2.01(b) above. (b) Subject to any applicable restrictions in the Bank Loan Documents, the Bank Agent may, at its option and without the prior written consent of the other parties hereto, take any action to accelerate payment of the Bank Claim and to foreclose or realize upon or enforce any of its rights with respect to (A) the Collateral and (B) any Purchased Property constituting Returned Goods; PROVIDED, HOWEVER, that the Bank Agent shall not otherwise take any action to foreclose or realize upon or to enforce any rights it may have with respect to any of the Purchased Property constituting Returned Goods in which a Returned Goods Lien is then junior and subordinate to an interest of the Trustee in such Returned Goods (to the extent that such interest has been so identified to the Bank Agent with sufficient specificity so as to enable the Trustee to segregate such property) without the Program Agent's prior written consent (unless the Purchaser Claim Termination Date shall have occurred) and the Bank Agent shall apply proceeds of any Purchased Property consisting of Returned Goods as provided in Section 2.01(b) above. SECTION 2.06. ACCESS TO AND USE OF COLLATERAL. The Trustee, the Program Agent and the Bank Agent hereby agree that, notwithstanding the priorities set forth in this Agreement, the Trustee and the Bank Agent shall have the following rights of access to and use of the Purchased Property and the Collateral, respectively: (a) Subject to any applicable restrictions in the Purchaser Documents, each of the Trustee and the Program Agent may enter one or more premises of any Originator or the Transferor, whether leased or owned, at any time during reasonable business hours, without force or process of law and without obligation to pay rent or compensation to any Originator, the Transferor or the Bank Agent, whether before, during or after an Enforcement Period, and may have access to and use of all Records located thereon and may have access to and use of any other property to which such access and use are granted under the Purchaser Documents, in each case provided that such use is for any purpose permitted under the Purchaser Documents or for the purposes of enforcing the rights of the Trust with respect to the Purchased Property. (b) Subject to any applicable restrictions in the Bank Loan Documents and any Subordinated Note, the Bank Agent may enter one or more premises of any Originator or the Transferor, whether leased or owned, at any time during reasonable business hours, without force or process of law and without obligation to pay rent or compensation to any Originator, the Transferor or the Trustee, whether before, during or after an Enforcement Period, and may have access to and use of all Records located 13 13 thereon, provided that such use is for any purpose permitted under the Bank Loan Documents or for the purposes of enforcing the Bank Agent's rights (i) with respect to the Collateral and (ii) subject to the limits provided in Section 2.01 above, with respect to the Purchased Property. SECTION 2.07. NOTICE OF DEFAULTS. The Bank Agent agrees to use reasonable efforts to give to the Trustee and the Program Agent copies of any notice sent to the Borrower with respect to the occurrence or existence of an Event of Default which continues for a period of ten (10) consecutive Business Days without there being in effect a waiver thereof or an agreement forbearing from the exercise of remedies duly executed by the parties required to do so under the applicable Bank Loan Documents. The Trustee agrees to use reasonable efforts to give to the Bank Agent copies of any notice sent to any Originator or the Transferor with respect to the occurrence or existence of an Early Amortization Event which continues for any period of ten (10) consecutive Business Days without there being in effect a waiver thereof or an agreement forbearing from the exercise of remedies duly executed by the parties required to do so under the applicable Purchaser Documents. Notwithstanding the foregoing, any failure by any party hereto to give such notice shall not create a cause of action against any party failing to give such notice or create any claim or right on behalf of any third party. In each of the above cases, the party receiving such notice shall have the right to the extent within its power (but not the obligation) to cure the Event of Default or Early Amortization Event, as the case may be, which gave rise to the sending of such notice. SECTION 2.08. AGENCY FOR PERFECTION. The Trustee and the Bank Agent hereby appoint each other as agent for purposes of perfecting by possession their respective security interests and ownership interests and liens on the Collateral (which may include any Subordinated Note) and Purchased Property. In the event that the Trustee, to the actual knowledge of a Responsible Officer thereof, obtains possession of any of the Collateral, the Trustee shall notify the Bank Agent of such fact, shall hold such Collateral in trust and, subject to Section 2.01(b), shall deliver such Collateral to the Bank Agent upon request. In the event that the Bank Agent, to the actual knowledge of a Responsible Officer thereof, obtains possession of any of the Purchased Property, the Bank Agent shall notify in writing the Trustee and the Program Agent of such fact, shall hold such Purchased Property in trust and, subject to Section 2.01(b), shall deliver such Purchased Property to the Trustee upon request. SECTION 2.09. UCC NOTICES. In the event that any party hereto shall be required by the UCC or any other applicable law to give notice to the other of intended disposition of Purchased Property or Collateral, respectively, such notice shall be given in accordance with Section 3.01 hereof and ten (10) days' notice shall be deemed to be commercially reasonable. 14 14 SECTION 2.10. INDEPENDENT CREDIT INVESTIGATIONS. None of the Trustee, the Program Agent or the Bank Agent or any of their respective directors, officers, agents or employees shall be responsible to the other or to any other Person for the solvency, financial condition or ability of the Originators or the Transferor to repay the Purchaser Claim or the Bank Claim, or for the worth of the Purchased Property or the Collateral, or for statements of either the Originators or the Transferor, oral or written, or for the validity, sufficiency or enforceability of the Purchaser Claim, the Bank Claim, the Purchaser Documents, the Bank Loan Documents, the Trustee's interest on behalf of the Trust in the Purchased Property or the Bank Agent's interest in the Collateral or any other collateral. The Bank Agent and the Program Agent have entered into their respective agreements with the Originators or the Transferor, as applicable, based upon their own independent investigations. None of the Bank Agent, the Program Agent or the Trustee makes any warranty or representation to the other nor does it rely upon any representation of the other with respect to matters identified or referred to in this Section 2.10. SECTION 2.11. LIMITATION ON LIABILITY OF PARTIES TO EACH OTHER. Except as provided in this Agreement, the Bank Agent shall have no liability to the Trustee or the Program Agent, and the Trustee and the Program Agent shall have no liability to the Bank Agent, except in each case for liability arising from the gross negligence or willful misconduct of such party or its representatives. The Bank Agent shall have no liability to any other party hereto and the Trustee and the Program Agent shall have no liability to any other party hereto in each case for consequential or exemplary damages. SECTION 2.12. MARSHALLING OF ASSETS. Nothing in this Agreement will be deemed to require either the Trustee or the Bank Agent (i) to proceed against certain property securing any or all of the Bank Claim or the Purchaser Claim prior to proceeding against other property securing any such Claim or (ii) to marshal the Collateral or the Purchased Property (as applicable) upon the enforcement of the Bank Agent's or the Trustee's rights or remedies under the Bank Loan Documents or Purchaser Documents, as applicable. SECTION 2.13. RELATIVE RIGHTS OF CERTIFICATEHOLDERS AND LENDER PARTIES AS AMONG THEMSELVES. The relative rights of the Certificateholders, each as against the other, with respect to the exercise of the rights and the receipt of the benefits granted by the Trustee hereunder shall be determined by mutual agreement among such parties in accordance with the terms of the Purchaser Documents. Each of the parties hereto (other than the Trustee) shall be entitled to rely on the power and authority of the Trustee to act on behalf of all of the Certificateholders. The relative rights of the Lender Parties, each as against the other, with respect to the exercise of the rights and the receipt of the benefits granted by the Bank Agent shall be determined by mutual agreement among the parties in accordance with the terms of the Loan Documents. Each of the parties hereto (other than the Bank Agent) shall be entitled to 15 15 rely conclusively on the power and authority of the Bank Agent to act on behalf of all of the Lender Parties. SECTION 2.14. EFFECT UPON BANK LOAN DOCUMENTS AND PURCHASER DOCUMENTS. By executing this Agreement, the Originators and the Transferor agree to be bound by the provisions hereof (i) as they relate to the relative rights of the Bank Agent and the Trustee on behalf of the Trust with respect to the property of the Originators and (ii) as they relate to the relative rights of Chargit and the Trustee on behalf of the Trust as creditors of the Transferor. Each of the Originators and the Transferor acknowledge that the provisions of this Agreement shall not give the Originators or the Transferor any substantive rights as against any other Person and that nothing in this Agreement shall amend, modify, change or supersede the terms of (x) the Bank Loan Documents as between the Borrower, Chargit, the Bank Agent and the Lender Parties or (y) the Purchaser Documents as among the Originators, the Transferor, the Trustee, the Certificateholders, the Liquidity Providers and the Program Agent. The Bank Agent, individually and on behalf of the Issuing Banks and the Lenders, hereby confirms that the Purchaser Documents in existence as of the date hereof have been furnished to it, the Issuing Banks and the Lenders and that the Bank Loan Documents expressly permit the transactions contemplated thereby and hereby consents to the execution, delivery and performance by each Originator and the Transferor of such Purchaser Documents. Notwithstanding the foregoing, the Bank Agent, on the one hand, and the Trustee and the Program Agent, on the other hand, agree that, as between themselves, to the extent the terms and provisions of the Bank Loan Documents or the Purchaser Documents are inconsistent with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control. SECTION 2.15. ACCOUNTINGS. To the extent not provided by the Originators, (a) the Bank Agent agrees to render accounts of the Bank Claim to the Program Agent upon request, including but not limited to giving effect to the application of proceeds of any collateral as hereinbefore provided and (b) the Program Agent agrees to render statements to the Bank Agent upon request, which statements shall identify in reasonable detail the Purchased Receivables and shall render an account of the Purchaser Claim, giving effect to the application of proceeds of Purchased Property as hereinbefore provided. SECTION 2.16. FURTHER ASSURANCES. Each of the parties hereto agrees to take such actions as may be reasonably requested by any other party, whether before, during or after an Enforcement Period, in order to effect the rules of distribution and allocation set forth above in this Article II. SECTION 2.17. SUBORDINATED CERTIFICATES. Until the Bank Claim has been paid in full and satisfied in full in cash, the Transferor and the Originators shall not authorize or permit the Trust to issue any Certificate (as defined in the Pooling and Servicing 16 16 Agreement) to any Person other than the Transferor unless either (a) such Certificate is issued under a Supplement (as defined in the Pooling and Servicing Agreement) which does not subordinate such Certificate in any respect to any other Investor Certificate (as defined in the Pooling and Servicing Agreement) then outstanding or (b) the Bank Agent has consented to such issuance. ARTICLE III MISCELLANEOUS SECTION 3.01. NOTICES. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, two Business Days after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the following Business Day. If to the Program Agent: Citicorp North America, Inc. 450 Mamaroneck Avenue Harrison, New York 10528 Facsimile No.: 914-899-7015 Confirmation No.: 914-899-7338 Attention: Madelyn Arroup 17 17 with a copy to: Citicorp North America, Inc. 399 Park Avenue 6th Floor, Zone 6 New York, New York 10043 Facsimile No.: 212-758-7245 Confirmation No.: 212-559-2375 Attention: Susan Olsen If to the Transferor: 3155 El-Bee Road Dayton, Ohio 45439 Facsimile No.: 937-296-4674 Confirmation No.: 937-296-2689 Attention: President If to Elder-Beerman: 3155 El-Bee Road Dayton, Ohio 45439 Facsimile No.: 937-296-4625 Confirmation No.: 937-296-4698 Attention: Sr. Vice President and Treasurer If to Chargit: 3155 El-Bee Road, Dayton, Ohio 45349 Facsimile No.: 937-296-4674 Confirmation No.: 937-296-4698 Attention: President If to the Trustee: Bankers Trust Company Four Albany Street 10th Floor New York, New York 10006 Facsimile No.: 212-250-6439 18 18 Confirmation No.: 212-250-6137 Attention: Structured Finance Team If to the Bank Agent: Citicorp USA, Inc. 399 Park Avenue Sixth Floor, Zone 4 New York, New York 10043 Facsimile No.: (212) 793-1290 Attention: Claudia Slacik Except as otherwise expressly required by this Agreement, no notice shall be required to be given to any Lender Party under any Bank Loan Document, other than to the Bank Agent. SECTION 3.02. AGREEMENT ABSOLUTE. Each of the Program Agent and the Trustee shall be deemed to have entered into the Purchaser Documents in express reliance upon this Agreement. The Bank Agent and the Lender Parties shall be deemed to have entered into the Bank Loan Documents in express reliance upon this Agreement. This Agreement shall be and remain absolute and unconditional under any and all circumstances, and no acts or omissions on the part of any other party to this Agreement shall affect or impair the agreement of any party to this Agreement, unless otherwise agreed to in writing by all of the parties hereto. This Agreement shall be applicable both before and after the filing of any petition by or against any Originator or the Transferor under the Bankruptcy Code and all references herein to any Originator or the Transferor shall be deemed to apply to a debtor-in-possession or trustee for such party and all allocations of payments among the parties hereto shall, subject to any court order to the contrary, continue to be made after the filing of such petition on the same basis that the payments were to be applied prior to the date of the petition. SECTION 3.03. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. The successors and assigns for the Originators and the Transferor shall include a debtor-in-possession or trustee of or for such party. The successors and assigns for the Bank Agent, the Trustee or the Program Agent, as the case may be, shall include any successor Bank Agent, Trustee or Program Agent, as the case may be, appointed under the terms of the Bank Loan Documents or the Purchaser Documents, as applicable. Each of the Bank Agent, the Trustee and the Program Agent, as the case may be, agrees not to transfer any interest it may have in the Bank Loan Documents or the Purchaser Documents, as the case may be, unless such transferee has been notified of the existence of this Agreement and has agreed to be bound hereby. 19 19 SECTION 3.04. THIRD-PARTY BENEFICIARIES. The terms and provisions of this Agreement shall be for the sole benefit of the parties hereto, the Certificateholders, the Liquidity Providers and the Lender Parties and their respective successors and assigns and no other Person shall have any right, benefit or priority by reason of this Agreement. SECTION 3.05. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by all the parties hereto, and any such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. SECTION 3.06. SECTION TITLES. The article and section headings 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. SECTION 3.07. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 3.08. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 3.09. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Bankers Trust Company, not individually or personally, but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) any representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by Bankers Trust Company, but are made and intended for the purpose of binding only the Trust, and (c) under no circumstances shall Bankers Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement, except to the extent such breach or failure resulted from the gross negligence, bad faith or willful misconduct of the Trustee. SECTION 3.10 GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 3.11. SUBMISSION TO JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action 20 20 or proceeding arising out of or relating to this Agreement or any of the Bank Loan Documents or Purchaser Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any of the Bank Loan Documents or Purchaser Documents shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any Bank Loan Documents or Purchaser Documents to which it is a party in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the Bank Loan Documents or Purchaser Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 3.12. CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 21 SECTION 3.13. WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Agreement or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto or any other relationship existing in connection with this Agreement, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CITICORP NORTH AMERICA, INC., as Program Agent and as Collateral Investor By: -------------------------------------- Name: Title: THE EL-BEE RECEIVABLES CORPORATION, as Transferor By: ------------------------------------- Name: Title: THE EL-BEE CHARGIT CORP., as Originator and as Servicer By: ------------------------------------- Name: Title: 22 THE ELDER-BEERMAN STORES CORP., as Borrower and as Originator By: -------------------------------------- Name: Title: ELDER-BEERMAN MASTER TRUST BY: BANKERS TRUST COMPANY, not in its individual capacity, but solely as Trustee By: ------------------------------------- Name: Title: CITICORP USA, INC., as Bank Agent By: ------------------------------------- Name: Title: EX-10.A.VI 8 EXHIBIT 10(A)(VI) 1 Exhibit 10(a)(vi) EXECUTION COPY =============================================== PARENT UNDERTAKING AGREEMENT Dated as of December 30, 1997 among THE ELDER-BEERMAN STORES CORP. AS PARENT and BANKERS TRUST COMPANY AS TRUSTEE =============================================== 2 TABLE OF CONTENTS
PRELIMINARY STATEMENTS........................................................................... 1 SECTION 1. Unconditional Guarantee.............................................................. 1 SECTION 2. Guaranty Absolute.................................................................... 2 SECTION 3. Waivers and Acknowledgments.......................................................... 3 SECTION 4. Subrogation.......................................................................... 4 SECTION 5. Representations and Warranties....................................................... 4 SECTION 6. Covenants............................................................................ 6 SECTION 7. Amendments, Etc...................................................................... 10 SECTION 8. Addresses for Notices................................................................ 11 SECTION 9. No Waiver; Remedies.................................................................. 11 SECTION 10. Indemnification...................................................................... 12 SECTION 11. Continuing Agreement................................................................. 12 SECTION 12. Governing Law........................................................................ 12 SECTION 13. Submission to Jurisdiction........................................................... 12 SECTION 14. Consent to Service of Process........................................................ 13 SECTION 15. Execution in Counterparts............................................................ 13 SECTION 16. Waiver of Jury Trial................................................................. 14
3 PARENT UNDERTAKING AGREEMENT PARENT UNDERTAKING AGREEMENT (this "AGREEMENT"), dated as of December 30, 1997, made by THE ELDER-BEERMAN STORES CORP., INC., an Ohio corporation (the "PARENT"), in favor of BANKERS TRUST COMPANY, a New York banking corporation, not in its individual capacity but solely as Trustee (as defined in the Pooling and Servicing Agreement referred to below) on behalf of the Investor Certificateholders (as hereinafter defined). PRELIMINARY STATEMENTS. 1. The Parent and its wholly owned subsidiary, The El-Bee Chargit Corp., an Ohio corporation ("CHARGIT"), have entered into a Purchase Agreement dated as of the date hereof (as it may hereafter be amended, supplemented or otherwise modified from time to time, the "FIRST PURCHASE AGREEMENT"). Simultaneously, Chargit and The El-Bee Receivables Corporation, a Delaware corporation (the "TRANSFEROR"), have entered into a separate Purchase Agreement dated as of the date hereof (as it may hereafter be amended, supplemented or otherwise modified from time to time, the "SECOND PURCHASE AGREEMENT" and, together with the First Purchase Agreement, the "PURCHASE AGREEMENTS"). 2. Chargit, as servicer, the Transferor and the Trustee have entered into a Pooling and Servicing Agreement dated as of the date hereof (as it may hereafter be amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; terms defined in the Pooling and Servicing Agreement are used herein as therein defined). 3. It is a condition precedent to the transfer of the Receivables to the Trust and the issuance of the Certificates under the Pooling and Servicing Agreement that the Parent shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises, and the substantial direct and indirect benefits to the Parent from the financing arrangements contemplated by the Transaction Documents and other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Investor Certificateholders to make purchases of Investor Certificates and to fund Increases, the Parent hereby agrees as follows: SECTION 1. UNCONDITIONAL GUARANTEE. The Parent hereby unconditionally and irrevocably guarantees the punctual payment and performance when due by Chargit and the Transferor (Chargit and the Transferor are, collectively, the "OBLIGATED PARTIES") of all of such Obligated Party's respective covenants, agreements and undertakings now or hereafter existing under each Transaction Document to which such Obligated Party is a party (whether 4 2 for Collections actually received or deemed to have been received, yield, repurchase or indemnity payments, fees, expenses or otherwise, such covenants, agreements, and other obligations being the "GUARANTEED OBLIGATIONS"), and agrees to pay any and all reasonable expenses (including reasonable counsel fees and expenses) incurred by the Trustee in enforcing any rights under this Agreement. Without limiting the generality of the foregoing, the Parent's liability shall extend to all amounts which constitute part of the Guaranteed Obligations and would be owed by an Obligated Party but for the fact that such Guaranteed Obligation is unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving an Obligated Party. In the event that any Obligated Party shall fail in any manner whatsoever to perform or observe any of its Guaranteed Obligations when the same shall be required to be performed, then the Parent will itself duly and punctually perform or observe, or cause to be duly and punctually performed and observed, such Guaranteed Obligation, and it shall not be a condition to the accrual of the obligation of the Parent hereunder to perform or observe any Guaranteed Obligation (or to cause the same to be performed or observed) that the Trustee shall have first made any request of or demand upon or given any notice to any Obligated Party or its respective successors or assigns, or have instituted any action or proceedings against any Obligated Party or its respective successors or assigns in respect thereof; PROVIDED, HOWEVER, that nothing contained herein shall affect any requirements set forth in any Transaction Document that notice be given or time elapse prior to the occurrence of a Termination Event or a Trust Early Amortization Event. For the avoidance of doubt, Guaranteed Obligations do not include any obligations of Obligors with respect to any Accounts or Receivables. SECTION 2. GUARANTY ABSOLUTE. The Parent guarantees that the Guaranteed Obligations will be paid and performed strictly in accordance with the terms of the Transaction Documents or any document delivered in connection therewith, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Beneficiary with respect thereto. The obligations of the Parent under this Agreement are independent of the Guaranteed Obligations and a separate action or actions may be brought and prosecuted against the Parent to enforce this Agreement, irrespective of whether any action is brought against any Obligated Party or whether any Obligated Party is joined in any such action or actions. The liability of the Parent under this Agreement shall be irrevocable, absolute and unconditional irrespective of, and the Parent hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any or all of the following: (a) any lack of validity or enforceability of any Transaction Document or any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations under the Transaction Documents, or 5 3 any other amendment or waiver of or any consent to departure from any Transaction Document; (c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other obligations of any Obligated Party under the Transaction Documents; (e) any change, restructuring or termination of the corporate structure or existence of any Obligated Party or any of its Subsidiaries; (f) any failure of any Beneficiary to disclose to the Parent any information relating to the financial condition, operations, properties or prospects of any Obligated Party now or in the future known to any Beneficiary (the Parent waiving any duty on the part of any Beneficiary to disclose such information); or (g) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by any Beneficiary that might otherwise constitute a defense available to, or a discharge of, the Parent or any other guarantor or surety. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time (x) any payment in connection with any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Trustee, or (y) any performance or satisfaction of any Guaranteed Obligation is rescinded or otherwise invalidated, upon the insolvency, bankruptcy or reorganization of any party to any Transaction Document, all as though payment had not been made or as though such Guaranteed Obligation had not been performed or satisfied. SECTION 3. WAIVERS AND ACKNOWLEDGMENTS. (a) The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Agreement and any requirement that any Beneficiary protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Obligated Party or any other Person or any collateral. (b) The Parent hereby waives any right to revoke this Agreement, and acknowledges that this Agreement is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. 6 4 (c) The Parent hereby agrees that the Beneficiaries shall have no obligations, duties or other liabilities under or in connection with any Swap Agreement (as defined under any Series Supplement). SECTION 4. SUBROGATION. The Parent will not exercise any rights that it may now or hereafter acquire against any Obligated Party that arise from the existence, payment, performance or enforcement of the Parent's obligations under this Agreement or any other Transaction Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Beneficiary against any Obligated Party or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Obligated Party, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all amounts in connection with the Guaranteed Obligations and all other amounts payable under this Agreement shall have been paid in full and the Trust shall have been terminated. If any amount shall be paid to the Parent in violation of the preceding sentence at any time prior to the later of (i) the payment in full of the Guaranteed Obligations and all other amounts payable under this Agreement and (ii) termination of the Trust, such amount shall be held in trust for the benefit of the Beneficiaries and shall forthwith be paid to the Trustee to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Transaction Documents or to be held by the Trustee as collateral security for any Guaranteed Obligations payable under this Agreement thereafter arising. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Parent hereby represents and warrants as follows: (a) DUE ORGANIZATION. The Parent (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) CORPORATE POWERS AND NO CONFLICTS. The Parent's execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, are within the Parent's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene or violate any 7 5 Requirement of Law, (ii) conflict with, or result in any breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Parent or any of its properties or (iii) result in or require the creation or imposition of any Lien upon or with respect to its properties. The Parent is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) NO CONSENTS. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required by the Parent for (i) the due execution, delivery or performance by the Parent of this Agreement or the consummation of the other transactions contemplated hereby, or (ii) the exercise by the Trustee of its rights or remedies granted hereunder. (d) ENFORCEABILITY. This Agreement constitutes a legal, valid and binding obligation of the Parent, enforceable against it in accordance with its terms (except as such enforceability may be limited by Debtor Relief Laws). This Agreement is in full force and effect and is not subject to any specific dispute, offset, counterclaim or defense of the Parent. (e) NO LITIGATION. There is no action, suit, investigation, litigation, or proceeding affecting the Parent, pending or threatened, before any Governmental Authority or arbitrator that (i) could have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby or (iii) could adversely affect the income tax attributes of the Trust. (f) SUBSIDIARIES. All of the outstanding capital stock of each Obligated Party is owned, directly or indirectly, by the Parent. (g) ACCURACY OF INFORMATION. Each certificate, information, exhibit, financial statement, document, book, record or report furnished by a Responsible Officer of the Parent to the Trustee or Enhancement Provider in connection with this Agreement is accurate in all material respects as of its date and no such document contains any misstatement of material fact. (h) SOLVENCY. The Parent is, and after giving effect to its obligations under this Agreement will be, Solvent. 8 6 (i) INDEPENDENT CREDIT ANALYSIS. The Parent has, independently and without reliance upon any Beneficiary and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement, and the Parent has established adequate means of obtaining from each Obligated Party on a continuing basis information pertaining to, and is now and on a continuing basis will be familiar with, the financial condition, operations, properties and prospects of each Obligated Party. (j) The consolidated balance sheet of the Parent and its subsidiaries as at February 11, 1997, and the related consolidated statement of operations and consolidated statements of cash flows ending as of February 11, 1997, copies of which have been furnished to the Program Agent, fairly present the financial condition of the Parent and its Subsidiaries as at such date and the results of the operations of the Parent and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied. (k) CONDITIONS SATISFIED. There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. SECTION 6. COVENANTS. (a) So long as any Invested Amount shall remain unpaid or any Liquidity Provider or any Enhancement Provider shall have any commitment under any Transaction Document, the Parent will: (i) COMPLIANCE WITH LAW. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all Requirements of Law applicable to the Parent, its business and properties. (ii) PRESERVATION OF LEGAL EXISTENCE. Preserve and maintain its existence, legal structure, legal name, rights (charter and statutory), franchises, permits, licenses, approvals, and privileges in the jurisdiction of its formation, and qualify and remain qualified in each jurisdiction where the failure to maintain such qualification could have a Material Adverse Effect. (iii) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, which shall be maintained or caused to be maintained by the Parent and shall be separate and apart from those of any Affiliate of the Parent, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary in accordance with generally accepted accounting principles consistently applied. 9 7 (iv) VISITATION RIGHTS. At any reasonable time and from time to time upon reasonable notice, permit the Trustee, the Program Agent, any of the Investor Certificateholders or any Enhancement Provider, or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and to visit the properties of, the Parent and any of its Subsidiaries and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with their independent certified public accountants. (v) PAYMENT OF TAXES, ETC. Pay promptly, and cause each of its Subsidiaries to pay promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its property or in respect of its income and profits therefrom, and any and (B) claims of any kind except that no such amount, so long as such amount is not material, need be paid if the charge or levy is being contested in good faith through appropriate proceedings and as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its creditors. (vi) REPORTING REQUIREMENTS. (A) Within 30 days after the end of each fiscal month, deliver to the Trustee, the Program Agent, each Rating Agency and each Enhancement Provider the unaudited consolidated balance sheet of the Parent and its Subsidiaries as of the end of such month and the related consolidated statements of operations and consolidated statements of cash flows for that portion of the Fiscal Year ending as of the end of such month setting forth in comparative form with respect to the balance sheet and statements of income the results from both the comparable period for the preceding Fiscal Year, and the projected consolidated figures for the current period, accompanied by the certification of the treasurer or controller of the Parent stating (i) that all such financial statements and (ii) the consolidated and consolidating financial position, the consolidated and consolidating results of operations and consolidated statements of cash flows of the Parent and its Subsidiaries as at the end of such months and for the periods then ended, are complete and correct (subject to year-end audit adjustments). (B) As soon as available and in any event within 45 days after the end of each fiscal quarter of the Parent and its consolidated Subsidiaries for financial accounting purposes ("FISCAL QUARTER") of each Fiscal Year, deliver to the Trustee, the Program Agent, each Rating Agency and each Enhancement Provider consolidated and consolidating balance sheets of the Parent and its 10 8 Subsidiaries as of the end of such quarter and consolidated and consolidating statements of operations and retained earnings and consolidated statements of cash flow of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, setting forth in comparative form the results from the comparable period for the preceding Fiscal Year all prepared in conformity with generally accepted accounting principles (subject to year-end audit adjustments) and certified by the treasurer or controller of the Parent as fairly presenting the financial condition and results of operations of the Parent and its Subsidiaries at such dates and for such periods, together with (i) a schedule in form satisfactory to the Trustee of the computations used by the Parent in determining compliance with all financial covenants contained herein, and (ii) a written discussion and analysis by the management of the Parent of the financial statements furnished in respect of such Fiscal Quarter; (C) As soon as available and in any event within 90 days after the end of each Fiscal Year, deliver to the Trustee, the Program Agent, each Rating Agency and each Enhancement Provider consolidated balance sheets of the Parent and its Subsidiaries as of the end of such year and consolidated statements of operations and retained earnings and consolidated statements of cash flow of the Parent and its Subsidiaries and divisional operating results for such Fiscal Year, setting forth in comparative form the results from the preceding Fiscal Year, all prepared in conformity with generally accepted accounting principles and certified, in the case of such consolidated financial statements, without qualification as to the scope of the audit by Deloitte and Touche or other independent public accountants of recognized national standing acceptable to the Majority in Interest, together with (i) a certificate of such accounting firm stating that the audit was conducted by such accounting firm in accordance with generally accepted auditing standards, (ii) a schedule in form satisfactory to the Trustee of the computations used by such accountants in determining, as of the end of such Fiscal Year, the Parent's compliance with all financial covenants contained herein, and (iii) a written discussion and analysis by the management of the Parent of the financial statements furnished in respect of such Fiscal Year. (D) Within one Business Day after a Responsible Officer of the Parent obtains Knowledge of the occurrence of any Early Amortization Event or Servicer Default or any event which, with the giving of notice or lapse of time or both, would constitute an Early Amortization Event or a Service Default, notify the Trustee in writing of such occurrence; 11 9 (E) As soon as possible and in any event (x) within three Business Days after a Responsible Officer of the Parent obtains Knowledge of the occurrence of any Early Amortization Event or Servicer Default, or any event which, with the giving of notice or lapse of time or both, would constitute an Early Amortization Event or Servicer Default, furnish to the Trustee, each Rating Agency and each Enhancement Provider the written statement of a Responsible Officer of the Parent setting forth details of such Early Amortization Event or Servicer Default or such event and the action which the Parent has taken and proposes to take with respect thereto, and (y) within three Business Days after a Responsible Officer of the Parent makes a determination that any other event, development or information is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, give written notice thereof to the Trustee, each Rating Agency and each Enhancement Provider; (F) Promptly, from time to time, furnish to the Trustee such other information, documents, records or reports regarding the condition or operations, financial or otherwise, of the Parent as the Trustee may from time to time reasonably request; and (G) As soon as possible and in any event within 30 days after a Responsible Officer of the Parent obtains Knowledge that one of the following events has occurred or is reasonably expected to occur, furnish to the Trustee, each Rating Agency and each Enhancement Provider the written statement of a Responsible Officer of the Parent setting forth details of: (i) the occurrence of any Plan Event with respect to any Plan or (ii) the withdrawal by the Transferor or any of its ERISA Affiliates from, or the termination, reorganization or insolvency of, any Multiemployer Plan. (vii) MAINTENANCE OF INSURANCE. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Subsidiary operates, including current commercial crime insurance (including commercial fraud insurance) as is commercially available at a cost that is not generally regarded as excessive by industry standards, with coverage on all officers, employees or other Persons acting in any capacity requiring such Persons to handle funds, money, documents or papers relating to the Receivables and the related Accounts. 12 10 (viii) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except to the extent that any failure to do so, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on the Parent's ability to perform its obligations hereunder. (ix) GUARANTEES; INDEBTEDNESS; INVESTMENTS. Comply, and cause each of its Subsidiaries to comply, with Sections 5.2, 7.2, 7.5 and 7.19 of the Credit Agreement. (b) The Parent covenants and agrees that so long as any promissory notes issued by any Investor (or any other securitization company administered by Citicorp North America, Inc. or any of its Affiliates) shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such notes shall have been outstanding, the Parent will not commence or institute, or join any other Person in commencing or instituting, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law, against the Transferor or any Investor or any successor to the Transferor or any Investor (or such other company) which becomes a party to any of the Transaction Documents. SECTION 7. AMENDMENTS, ETC. (a) This Agreement may be amended from time to time by the Parent and the Trustee, without the consent of any Investor Certificateholder, (i) to cure any ambiguity, (ii) to correct or supplement any provision herein which may be inconsistent with any other provision herein or (iii) to add any other provisions with respect to matters or questions arising under this Agreement which are not inconsistent with the provisions of this Agreement; PROVIDED that any amendment pursuant to this clause (a) shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Investor Certificateholder. (b) This Agreement may be amended from time to time by the Parent and the Trustee, with the consent of a Majority in Interest of each adversely affected Series, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, any payment to be made hereunder without the consent of each such Certificateholder or (ii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Investor Certificateholder. The Trustee may request an Officer's Certificate and Opinion of Counsel with respect to an amendment entered into pursuant to this clause (b) concerning compliance with the requirements of this Agreement. Any amendment to be effected pursuant to this clause (b) shall be deemed to 13 11 adversely affect all outstanding Series, other than any Series with respect to which such action shall not, as evidenced by an Opinion of Counsel (which counsel shall not be an employee of, or counsel for, the Parent or any Obligated Party) addressed and delivered to the Trustee, adversely affect the interests of any Investor Certificateholder of such Series. (c) Promptly after the execution of any such amendment or consent (other than an amendment pursuant to clause (a)), the Trustee shall furnish written notification of the substance of such amendment to each Investor Certificateholder. (d) It shall not be necessary for the consent of Investor Certificateholders to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. SECTION 8. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, two Business Days after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the following Business Day. If to the Parent, 3155 El-Bee Road Dayton, Ohio 45439 Tel: 937-296-4698 Fax: 937-296-4625 Attn: Sr. Vice President and Treasurer If to the Trustee, Bankers Trust Company 4 Albany Street 14 12 10th Floor New York, New York 10006 Tel: (212) 250-6137 Fax: (212) 250-6439 Attn: Structured Finance Team SECTION 9. NO WAIVER; REMEDIES. No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 10. INDEMNIFICATION. Without limitation on any other obligations of the Parent or remedies of the Trustee or the Investor Certificateholders under this Agreement, the Parent shall, to the fullest extent permitted by law, indemnify, defend and save and hold harmless the Trustee and each Investor Certificateholder from and against, and shall pay on demand, any and all losses, liabilities, damages, costs, expenses and charges (including the reasonable fees and disbursements of the Trustee or such Investor Certificateholder's legal counsel) suffered or incurred by the Trustee or such Investor Certificateholder as a result of any failure of any Guaranteed Obligations to be the legal, valid and binding obligations of the Parent enforceable against the Parent in accordance with their terms. SECTION 11. CONTINUING AGREEMENT. This Agreement is a continuing guaranty and shall (a) remain in full force and effect until the later of the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Agreement (i) the payment of all other amounts payable under this Agreement and the other Transaction Documents and (ii) termination of the Trust, (b) be binding upon the Parent, its successors and assigns and (c) inure to the benefit of, and be enforceable by, the Trustee and its respective successors and permitted transferees and assigns. SECTION 12. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 13. SUBMISSION TO JURISDICTION. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees 15 13 that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 14. CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service or process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 15. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 16 14 SECTION 16. WAIVER OF JURY TRIAL. The Parent hereby irrevocably waives any right to a trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or any other Transaction Document or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether verbal or written), actions of any of the parties hereto or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the Parent has caused this Agreement to be duly executed and delivered by its respective officers thereunto duly authorized as of the date first above written. THE ELDER-BEERMAN STORES CORP. By___________________________ Name: Title: AGREED AND ACCEPTED: BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By ______________________________ Name: Title: EX-10.A.VII 9 EXHIBIT 10(A)(VII) 1 Exhibit 10(a)(vii) EXECUTION COPY ================================================================================ PURCHASE AGREEMENT Dated as of December 30, 1997 Among THE EL-BEE CHARGIT CORP. AS SELLER and THE EL-BEE RECEIVABLES CORPORATION AS PURCHASER ================================================================================ CHARGIT PURCHASE AGREEMENT 2
TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS SECTION 1.01. Definitions.................................................................... 1 SECTION 1.02. Other Definitional Provisions.................................................. 3 SECTION 1.03. Computation of Time Periods.................................................... 4 ARTICLE II PURCHASE AND SALE OF RECEIVABLES SECTION 2.01. Purchase and Sale of Receivables............................................... 4 SECTION 2.02. Payment of Purchase Price...................................................... 5 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties of the Seller................................... 6 SECTION 3.02. Representations and Warranties of the Purchaser................................ 12 SECTION 3.03. Obligations Unaffected......................................................... 13 ARTICLE IV COVENANTS SECTION 4.01. Affirmative Covenants of the Seller............................................ 14 SECTION 4.02. Reporting Requirements of the Seller........................................... 17 SECTION 4.03. Negative Covenants of the Seller............................................... 18 SECTION 4.04. Affirmative Mutual Covenant.................................................... 20 ARTICLE V EVENTS OF TERMINATION SECTION 5.01. Termination.................................................................... 21
CHARGIT PURCHASE AGREEMENT 3 ii
ARTICLE VI INDEMNIFICATION SECTION 6.01. Indemnification................................................................ 22 ARTICLE VII MISCELLANEOUS SECTION 7.01. Further Assurances............................................................. 25 SECTION 7.02. Payments....................................................................... 26 SECTION 7.03. Costs, Expenses and Taxes...................................................... 26 SECTION 7.04. Binding Effect; Assignability.................................................. 26 SECTION 7.05. No Waiver; Cumulative Remedies................................................. 27 SECTION 7.06. Amendment...................................................................... 27 SECTION 7.07. Severability................................................................... 28 SECTION 7.08. Notices........................................................................ 28 SECTION 7.09. Counterparts................................................................... 29 SECTION 7.10. Construction of Agreement as Security Agreement................................ 29 SECTION 7.11. Third-Party Beneficiaries...................................................... 29 SECTION 7.12. The Seller's Obligations....................................................... 29 SECTION 7.13. Governing Law, Jurisdiction, Consent to Service of Process..................... 30 EXHIBIT Exhibit A Form of Subordinated Note
7 CHARGIT PURCHASE AGREEMENT 4 PURCHASE AGREEMENT dated as of December 30, 1997 among THE EL- BEE CHARGIT CORP., an Ohio corporation ("CHARGIT"), as seller hereunder (the "SELLER" or the "ORIGINATOR"), and THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as purchaser hereunder (the "PURCHASER"). PRELIMINARY STATEMENTS 1. The Seller has right, title and interest in, to and under the Receivables (as defined in the Pooling and Servicing Agreement referred to below) and other Transferred Assets (as defined below) existing on the date hereof or hereafter created and has acquired such right, title and interest pursuant to the Purchase Agreement dated as of the date hereof between The Elder-Beerman Stores Corp., an Ohio corporation ("ELDER-BEERMAN"), and the Seller (as amended, supplemented or otherwise modified from time to time, the "FIRST PURCHASE AGREEMENT"). 2. The Seller desires to sell to the Purchaser, and the Purchaser desires to buy from the Seller, on the date hereof and from time to time hereafter, all of the Seller's right, title and interest in, to and under the Receivables and other Transferred Assets. 3. All of the outstanding capital stock of the Purchaser is owned, directly or indirectly, by Elder-Beerman. 4. Pursuant to that certain Pooling and Servicing Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT") among the Purchaser, Chargit, as servicer, and Bankers Trust Company, a New York banking corporation, as trustee, the Purchaser has agreed to transfer to the Trust created pursuant to the Pooling and Servicing Agreement all of the Purchaser's right, title and interest in, to and under the Receivables and other Transferred Assets. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITIONS. Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in the Pooling and Servicing Agreement. In addition, the term "AGREEMENT" shall mean this Purchase Agreement, as the same may from time to time be amended, supplemented or otherwise modified. The following capitalized terms shall have the following meanings: CHARGIT PURCHASE AGREEMENT 5 2 "EARLY TERMINATION" has the meaning specified in Section 5.01. "EFFECTIVE PERIOD" means the period beginning on the Initial Cut Off Date and terminating on (i) the earliest of (a) the close of business on the Business Day on which a Termination Event occurs, (b) the close of business on the Business Day immediately following the day on which any Early Amortization Event occurs and (c) the close of business on the Business Day immediately preceding the day on which the Amortization Period for the last outstanding Series begins or (ii) such other date as is specified in a written notice from either the Seller or the Purchaser to the other and to the Trustee. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of the Seller, or under common control with the Seller, within the meaning of Section 414 of the Internal Revenue Code and the regulations promulgated thereunder. "MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in Section 4001(a)(3) of ERISA, to which the Seller or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Seller or any ERISA Affiliate and at least one Person other than the Seller and the ERISA Affiliates or (b) was so maintained and in respect of which the Seller or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "ORIGINATOR INDEMNIFIED AMOUNTS" has the meaning specified in Section 6.01. "ORIGINATOR INDEMNIFIED PARTY" has the meaning specified in Section 6.01. "PLAN" means a Single Employer Plan or Multiple Employer Plan. "PLAN EVENT" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) or ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; CHARGIT PURCHASE AGREEMENT 6 3 (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Seller or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Seller or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "PURCHASE DATE" has the meaning specified in Section 2.02(b). "PURCHASE PERCENTAGE" means (a) for the period from the Effective Date until the third Distribution Date on which payment is made by Purchaser after the Effective Date, 97.5% and (b) for each day on and after such third Distribution Date an amount (expressed as a percentage) equal to (i) 100% MINUS (ii) the aggregate sum of the Series Discount Factors (as defined in each Supplement) for all outstanding Series, so long as such Series Discount Factor is greater than zero; PROVIDED, HOWEVER, that such "Purchase Percentage" shall not be less than 96%. "PURCHASE PRICE" has the meaning specified in Section 2.02(c). "SINGLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Seller or any ERISA Affiliate or (b) was so maintained and in respect of which the Seller or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SUBORDINATED LOAN" has the meaning specified in Section 2.02(d). "TERMINATION EVENT" has the meaning specified in Section 5.01. "TRANSFER" has the meaning specified in Section 2.01. "TRANSFERRED ASSETS" has the meaning specified in Section 2.01. CHARGIT PURCHASE AGREEMENT 7 4 SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All accounting terms not defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not completely defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable and in effect from time to time. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principals or regulatory accounting principles, the definitions contained herein shall control. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation". (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. SECTION 1.03. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". CHARGIT PURCHASE AGREEMENT 8 5 ARTICLE II PURCHASE AND SALE OF RECEIVABLES SECTION 2.01. PURCHASE AND SALE OF RECEIVABLES. By execution of this Agreement, the Seller does hereby transfer, assign, set-over and otherwise convey (the making of such transfer, assignment, set-over and conveyance being a "TRANSFER", and so to transfer, assign, set-over and otherwise convey being to "TRANSFER") without recourse, except as expressly provided herein, to the Purchaser, in each case whether now existing or hereafter created, (a) all of the Seller's right, title and interest in, to and under all of the Receivables existing on the Initial Cut Off Date and thereafter arising from time to time in connection with the Accounts, (b) all monies due or to become due with respect thereto, (c) all Recoveries and Insurance Proceeds relating to such Receivables, (d) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, (e) all rights, remedies, powers and privileges with respect to the Receivables, (f) all of the Seller's rights, remedies, powers and privileges under the First Purchase Agreement and (g) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. Such property described in the preceding sentence shall constitute the property transferred by the Seller (collectively, the "TRANSFERRED ASSETS"). SECTION 2.02. PAYMENT OF PURCHASE PRICE. (a) On the Initial Cut Off Date, the Purchaser shall pay to the Seller, with respect to all of the Seller's right, title and interest in, to and under all Receivables and other Transferred Assets existing at the close of business on the Initial Cut Off Date, a payment consisting of $162,377,744.49 multiplied by the Purchase Percentage. (b) On each Business Day during the Effective Period (each, a "PURCHASE DATE"), the Seller shall determine the Receivables and other Transferred Assets with respect thereto arising since the close of business on the preceding Business Day, which Receivables and other Transferred Assets shall be deemed available for purchase by the Purchaser on such Purchase Date. To the extent that any sale of Receivables is not reflected in the Daily Report, such Receivables and other Transferred Assets with respect thereto will nevertheless be deemed sold to such Purchaser in every respect and all of the Seller's rights, title and interest in, to and under such Receivables and other Transferred Assets will be deemed to have been sold to the Purchaser. CHARGIT PURCHASE AGREEMENT 9 6 (c) The purchase price payable to the Seller for the Receivables and other Transferred Assets to be purchased on any Purchase Date shall be an amount equal to the product of (i) the aggregate outstanding principal balance of all Receivables deemed available for purchase pursuant to paragraph (b) above and (ii) the Purchase Percentage for such Purchase Date (such amount, the "PURCHASE PRICE"), PROVIDED, HOWEVER, that such Purchase Price shall not be less than the reasonably equivalent value of the Receivables to which such Purchase Price relates, and in the event that, in the reasonable judgment of either the Seller or the Purchaser, such Purchase Price is less than such reasonably equivalent value or does not reflect the fair market value of such Receivables, within five Business Days after such Purchase Date, each of the Seller and the Purchaser (after notice to the other party) shall appoint a Person (other than an Affiliate of the Purchaser or Seller) in the business of purchasing proprietary credit card receivables, and such Persons shall appoint a third Person (other than an Affiliate of the Purchaser or Seller) in such business, and such Persons shall make an independent appraisal of the value of such Receivables and shall determine a Purchase Price which reasonably reflects the fair market value of such Receivables. The Purchase Percentage with respect to each Determination Date shall be calculated in the Monthly Servicer's Report with respect to such Determination Date and such calculation shall be used in the calculation of the Purchase Price owed under this Agreement for all Purchases occurring from and including such Determination Date to but excluding the next Determination Date. (d) The Purchase Price shall be paid to the Seller on the applicable Purchase Date in immediately available funds to the extent of funds available to the Purchaser. The excess, if any, of the Purchase Price over the payment therefor set forth in clauses (a) and (c) above shall be deemed to be either (i) a loan by the Seller to the Purchaser (a "SUBORDINATED LOAN") evidenced by the Subordinated Note of the Purchaser substantially in the form attached hereto as Exhibit A or (ii) to the extent such loan would cause the unpaid principal amount of the Subordinated Loan, together with all accrued and unpaid interest thereon, to exceed ten percent (10%) of the Transferor Invested Amount, a contribution by the Seller to the Purchaser's capital, and the Purchase Price shall be considered paid in full by reflecting such contribution as an addition to the surplus of the Purchaser at an appropriate value. In addition, the Seller may otherwise make capital contributions to the Purchaser. CHARGIT PURCHASE AGREEMENT 10 7 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants to the Purchaser as of the Initial Cut Off Date and each Purchase Date that: (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Seller (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Seller of the Transaction Documents to which it is or is to be a party, the making of each Transfer hereunder and the consummation of the transactions contemplated hereby are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene or violate any Requirement of Law, (ii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Seller or any of its properties or (iii) except for the Liens created under the Transaction Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Seller, and no transaction contemplated hereby requires compliance on its part with any bulk sales act or similar law. The Seller is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required with respect to the Seller for (i) the due execution, delivery or performance by the Seller of any of the Transaction Documents to which it is or is to be a party, any Transfer or the consummation of the other transactions contemplated hereby or thereby, (ii) the grant by the Seller of the CHARGIT PURCHASE AGREEMENT 11 8 transfers made or Liens granted by it pursuant to this Agreement, (iii) the perfection or maintenance of the transfers made or Liens created by this Agreement (including the first priority nature thereof) or (iv) the exercise by the Purchaser and its assigns of its rights under this Agreement or its remedies granted under the Transaction Documents, except for (A) the financing statements and other documents required to have been filed on or prior to the Initial Cut Off Date pursuant to the Certificate Purchase Agreement for the initial Series issued pursuant to the Pooling and Servicing Agreement, all of which have already been duly filed and are in full force and effect, (B) the filing from time to time of any amendments, assignments, continuation statements or other documents which may become required or applicable pursuant to Section 7.01 hereof or Sections 2.05(i) or 3.03(b)(viii) of the Pooling and Servicing Agreement and (C) any properly completed and executed UCC-3 termination statements which shall have been delivered to the Program Agent on or before the Initial Cut Off Date. (d) ENFORCEABILITY. Each Transaction Document to which the Seller is or is to be a party constitutes a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws. Each Transaction Document is in full force and effect, and is not subject, as to the Seller, to any specific dispute, offset, counterclaim or defense of the Seller. (e) NO LITIGATION. There is no action, suit, investigation, litigation or proceeding affecting the Seller, pending or threatened before any Governmental Authority or arbitrator that (i) could have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated hereby, including the prevention of the issuance of the Certificates or (iii) could have an adverse effect on the income tax attributes of the Trust. (f) LIENS ON PROPERTIES. Except for Liens that will be terminated prior to the Initial Cut Off Date, there are no Liens of any nature whatsoever on any Account or Receivable. The Seller is not a party to any contract, agreement, lease or instrument (other than this Agreement or as contemplated by this Agreement) the performance of which, either unconditionally or upon the happening of an event, will result in or require the creation of any Lien on any Account or Receivable, or otherwise result in a violation of any Transaction Document. (g) CONTRACTUAL OBLIGATIONS. (i) The Seller is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument, or subject to CHARGIT PURCHASE AGREEMENT 12 9 any Requirement of Law, that would have an adverse effect on the ability of the Seller to carry out its obligations under this Agreement or any other Transaction Document to which it is a party, and (ii) neither the Seller nor any other party is in default in any respect under or with respect to any Transaction Document or any other contract, agreement, lease or instrument to which the Seller is a party. (h) INVESTMENT COMPANY ACT, ETC. The Seller is not an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, or a company controlled by, an "investment company" within the meaning of and as such terms are defined in the Investment Company Act. Each Transfer of Receivables to the Purchaser hereunder constitutes a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act. The acquisition by the Purchaser of each Receivable constitutes a "current transaction" within the meaning of Section 3(a)(3) of such Act. (i) LOCATIONS. The chief place of business and chief executive office of the Seller, and the office where the Seller keeps the originals of its books, records and documents regarding the Receivables and other Transferred Assets are located at the address of the Seller specified in Section 7.08. During the four months prior to the Transfer Date and prior to any Purchase Date, the chief place of business and chief executive office of the Seller, and the offices where the Seller kept the originals of its books, records and documents regarding the Receivables and the other Transferred Assets were located at the address of the Seller specified in Section 7.08. (j) TRADENAMES. The legal name of the Seller is as set forth on the signature page of this Agreement and the Seller has no tradenames, fictitious names, assumed names or "doing business as" names. (k) ACCURACY OF INFORMATION. Each certificate, information, exhibit, financial statement, document, book, record or report furnished by a Responsible Officer of the Seller to any Originator Indemnified Party in connection with this Agreement is accurate in all material respects as of its date and no such document contains any misstatement of material fact. (l) SOLVENCY. The Seller is Solvent and will be Solvent after giving effect to the transactions contemplated by the Transaction Documents. CHARGIT PURCHASE AGREEMENT 13 10 (m) COLLECTION ACCOUNTS. Schedule 3.03(a)(vi) to the Pooling and Servicing Agreement (as such Schedule may be amended from time to time pursuant thereto) is a complete and accurate list of each Collection Account as of each Purchase Date. The Collection Account Banks are the only institutions holding Collection Accounts for the receipt of payments in respect of Receivables (subject to such changes as may be made from time to time in accordance with Section 4.02(c) of the Pooling and Servicing Agreement), and all Obligors, and only such Obligors, have been instructed or, upon the creation of Receivables, will be instructed to make payments only to the Collection Accounts in accordance with Section 4.03 of the Pooling and Servicing Agreement and such instructions have not been modified or revoked by the Seller (except as permitted under Section 4.02 of the Pooling and Servicing Agreement) and such instructions that have been given are in full force and effect. (n) COMPLIANCE. The Seller has complied, and will comply on each Purchase Date, with each Requirement of Law with respect to all Receivables and other Transferred Assets Transferred to the Purchaser hereunder and the Cardholder Agreements related thereto and with respect to its business or properties. The Seller has performed and complied with its obligations under the Cardholder Agreements and invoices giving rise to the Receivables. (o) TAXES. The Seller has filed all tax returns (federal, state and local) which it reasonably believes are required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from the Seller or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its other creditors. The Seller knows of no reasonable basis for any additional tax assessment for any year for which adequate reserves have not been established. (p) USE OF PROCEEDS. The proceeds of each Purchase will be used by the Seller solely to pay to Elder-Beerman the purchase price of Transferred Assets the Seller purchases from Elder-Beerman. No proceeds of any Purchase will be used by the Seller to acquire any security in a transaction that is subject to Sections 13 and 14 of the Exchange Act, as amended, or to purchase or carry any margin security in violation of any applicable law or regulation. (q) NO RESCISSION. No Cardholder Agreement giving rise to any Receivable Transferred hereunder has been amended, satisfied, subordinated or rescinded, except CHARGIT PURCHASE AGREEMENT 14 11 as disclosed in writing to the Purchaser on or before the date of Transfer of such Receivable or as otherwise permitted under the Pooling and Servicing Agreement. Subsequent to such Transfer no such Receivable has been compromised, adjusted, extended, satisfied, subordinated, rescinded or modified, except as permitted under the Pooling and Servicing Agreement. (r) NO PAYMENT. The Seller has no Knowledge of any fact which would lead it to reasonably expect that, when billed, any Receivable Transferred hereunder would not be paid in accordance with its terms when due. (s) FRAUDULENT CONVEYANCE. The Seller is not entering into the transactions contemplated hereby with the intent of hindering, delaying or defrauding creditors. (t) VALID SALE AND TRANSFER. This Agreement creates a valid sale, transfer and assignment to the Purchaser of, and, subject to the interest of the Trust under the Pooling and Servicing Agreement, the Purchaser is the legal and beneficial owner of, in each case whether now existing or hereafter created, (A) all of the Originators' right, title and interest in and to all of the Receivables existing on the Initial Cut Off Date and thereafter arising from time to time in connection with the Accounts until the termination of the Trust, (B) all monies due or to become due with respect thereto, (C) all Recoveries and Insurance Proceeds relating to such Receivables, (D) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, and (E) all rights, remedies, powers and privileges with respect to such Receivables, (F) all of the Originators' rights, remedies, powers and privileges under each Interest Rate Protection Agreement and (G) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. This Agreement constitutes a valid Transfer and assignment to the Purchaser of all right, title and interest of the Seller in and to the Transferred Assets, which is enforceable with respect to the Receivables now existing in connection with the Accounts and the other existing Transferred Assets and the proceeds thereof, and which will be enforceable by the Purchaser, in the case of Receivables hereafter created and arising from time to time in connection with the Accounts and all other Transferred Assets and the proceeds thereof hereafter created, upon such creation. Upon the filing of the appropriate financing statements, the Purchaser shall have a first priority perfected ownership interest in Transferred Assets and proceeds thereof. Except as otherwise provided in the Pooling and Servicing Agreement, the Seller has clearly and unambiguously marked all of its computer records and all of its microfiche storage files, if any, in a manner reasonably calculated to indicate that the Transferred Assets CHARGIT PURCHASE AGREEMENT 15 12 are the property of the Purchaser and shall cause the Purchaser to maintain such records in a manner such that the Purchaser's perfected first priority interest in the Receivables shall not be adversely affected. (u) NO CLAIM OR INTEREST. (i) Except as otherwise provided in this Agreement or any applicable Supplement, neither the Seller nor any Person claiming through or under the Seller has any claim to or interest in the Concentration Account, the Collection Accounts (other than the Store Accounts), the Excess Funding Account or any Series Account. (ii) Each Receivable and other Transferred Asset has been or will be Transferred to the Purchaser free and clear of any Lien or interest of any other Person not holding through the Trust, and in compliance with all Requirements of Law applicable to the Transferor. (v) ELIGIBILITY. Each Account that was classified as an "Eligible Account" by the Seller, the Purchaser or the Servicer in any document or report delivered hereunder or under the Pooling and Servicing Agreement satisfied, at the time of such classification, the requirements for eligibility contained in the definition of Eligible Account. Each Receivable as of the date of its Transfer is an Eligible Receivable. The computer file or microfiche or written list delivered by the Servicer pursuant to Section 3.03(b)(viii)(E) of the Pooling and Servicing Agreement is a true and complete listing of all Accounts and the information contained therein with respect to the identity of each Account and the aggregate unpaid balance of the Receivables existing thereunder is true and correct. (w) ERISA. No Plan has any accumulated funding deficiency, as defined in Section 302(a) of ERISA, whether or not waived. The Seller and each ERISA Affiliate has timely made all contributions required to be made by it to any Plan, except where a failure to contribute could not reasonably be expected to give rise to a Lien under Section 302(f) of ERISA. No Plan Event with respect to any Plan has occurred or could reasonably be expected to occur that could result, directly or indirectly, in any Lien being imposed on the property of the Seller. Neither the Seller nor any ERISA Affiliate has incurred, or could reasonably be expected to incur, withdrawal liability to, or liability in connection with, the reorganization, termination or insolvency of any Multiemployer Plan. (x) TERMINATION EVENT. No event or condition has occurred and is continuing that is, or with the giving of notice or the passage of time or both would constitute, a Termination Event. CHARGIT PURCHASE AGREEMENT 16 13 (y) REASSIGNMENT OF PORTFOLIO. Upon the occurrence of an event or condition for which a Receivable shall be removed from the Trust under Section 2.04(e) of the Pooling and Servicing Agreement, the Seller shall accept reassignment of an amount of Principal Receivables (as specified below) to the extent the Purchaser is obligated to accept reassignment under Section 2.04(e) of the Pooling and Servicing Agreement. The Seller (on behalf of the Purchaser) shall deposit on such Reassignment Date an amount equal to the reassignment deposit amount (as specified in Section 2.04(e) of the Pooling and Servicing Agreement) for such Receivables in the Concentration Account. On the Distribution Date on which such amount has been deposited in full into the Concentration Account, Transferred Assets which have been released to the Purchaser under Section 2.04(e) of the Pooling and Servicing Agreement shall be released to the Seller after payment of all amounts otherwise due hereunder on or prior to such dates, and the Purchaser shall execute and deliver such instruments of transfer or assignment, in each case without recourse, representation or warranty, as shall be prepared by and as are reasonably requested by the Seller to vest in the Seller, all right, title and interest of the Purchaser in and to such Transferred Assets. If the Purchaser or the Trustee gives notice directing the Seller to accept reassignment as provided above, the obligation of the Seller to accept reassignment of the Receivables and pay the reassignment deposit amount pursuant to this Section 3.01(y) shall constitute the sole remedy respecting a breach of the representations and warranties contained in Sections 3.01(d) and 3.01(t) hereof available to the Purchaser. (z) SURVIVAL. The representations and warranties set forth in Section 3.01 hereof shall survive the Transfer of any of the respective Receivables to the Purchaser and the termination of the rights and obligations of the Servicer pursuant to Section 10.01 of the Pooling and Servicing Agreement. SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants to the Seller as of the Initial Cut Off Date and each Purchase Date that: (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Purchaser (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. CHARGIT PURCHASE AGREEMENT 17 14 (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Purchaser of the Transaction Documents to which it is or is to be a party, the Transfer of the Receivables and other Transferred Assets pursuant to this Agreement and the consummation of the transactions contemplated hereby are within the Purchaser's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Purchaser's charter or bylaws, (ii) violate any Requirement of Law, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Purchaser or any of its properties or (iv) except for the Liens created under the Transaction Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Purchaser. The Purchaser is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by the Purchaser of any of the Transaction Documents to which it is or is to be a party, the making of each purchase and sale of Receivables hereunder or the consummation of the other transactions contemplated hereby or thereby. (d) ENFORCEABILITY. Each Transaction Document to which the Purchaser is or is to be a party constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms (except as such enforceability may be limited by Debtor Relief Laws). Each Transaction Document is in full force and effect, and is not subject, as to the Purchaser, to any specific dispute, offset, counterclaim or defense of the Purchaser. SECTION 3.03. OBLIGATIONS UNAFFECTED. The obligations of the Seller to the Purchaser under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or other Transferred Asset or the sale of any Receivable or other Transferred Asset. CHARGIT PURCHASE AGREEMENT 18 15 ARTICLE IV COVENANTS SECTION 4.01. AFFIRMATIVE COVENANTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date: (a) COMPLIANCE WITH LAW. The Seller shall duly satisfy all obligations on its part to be fulfilled under or in connection with the Receivables and the Seller Related Security, will maintain in effect all qualifications required under any Requirement of Law in order to properly convey the Receivables and other Transferred Assets to the Purchaser and will comply in all respects with all Requirements of Law applicable to the Seller, its business and properties and the Receivables and other Transferred Assets. (b) PRESERVATION OF LEGAL EXISTENCE. The Seller will preserve and maintain its existence, legal structure, legal name and its rights (charter and statutory), permits, licenses, approvals, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in each jurisdiction where the failure to maintain such qualification could have a Material Adverse Effect. (c) AUDITS. At any time during the Seller's regular business hours and on reasonable prior notice and for a purpose reasonably related to this Agreement, the Seller shall, at its expense and in response to any reasonable request of the Purchaser or the Trustee, permit the Purchaser or the Trustee, or their respective agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes, microfiche and disks) in the possession or under the control of the Seller relating to the Receivables, other Transferred Assets and related Cardholder Agreements and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials and to discuss matters relating to the Receivables, other Transferred Assets, and related Cardholder Agreements or the Seller's performance hereunder with any of the officers or employees of the Seller having knowledge thereof. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Seller will (i) keep proper books of record and account, which shall be maintained or caused to be maintained by the Seller and shall be separate and apart from those of any Affiliate of the Seller, in which full and correct entries shall be made of all financial transactions and the assets and business of the Seller in accordance with generally accepted CHARGIT PURCHASE AGREEMENT 19 16 accounting principles consistently applied, (ii) maintain and implement administrative and operating procedures (including the ability to recreate records evidencing the Receivables and other Transferred Assets in the event of the destruction of the originals thereof) and (iii) keep and maintain all documents, books, records and other information necessary or reasonably advisable for the collection of all Receivables and other Transferred Assets (including records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES. The Seller will, at its expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it hereunder including complying with its material obligations under all Cardholder Agreements and invoices giving rise to the Receivables. The Seller shall enforce the covenant in the First Purchase Agreement requiring Elder-Beerman to comply with and perform its obligations under the Cardholder Agreements relating to the Accounts and the Cardholder Guidelines. The Seller may not change or permit Elder-Beerman to change the terms and provisions of the Cardholder Agreements or the Cardholder Guidelines in any respect except in accordance with Section 2.05(t) of the Pooling and Servicing Agreement. The Seller will not rescind or cancel, or permit the rescission or cancellation of, any Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority. (f) PAYMENT OF TAXES, ETC. The Seller will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon it, or any Transferred Asset, or in respect of its receipts, income or profits therefrom, and any and all claims of any kind, except that no such amount, so long as such amount is not material, need be paid if the charge or levy is being contested in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its creditors. (g) CARDHOLDER GUIDELINES. The Seller shall comply with the Cardholder Guidelines. (h) COLLECTIONS. (i) The Seller will instruct all Obligors to pay all Collections of Receivables directly into a Collection Account or to the Servicer, and the Seller shall deposit any Collections received by it directly into a Collection Account in CHARGIT PURCHASE AGREEMENT 20 17 the manner and within the time period required by Section 4.03(a) of the Pooling and Servicing Agreement. (ii) If the Seller accepts payment of a Receivable from any Obligor in a currency other than U.S. Dollars, then the Seller will, on the date of such acceptance, deposit directly into a Collection Account in U.S. Dollars an amount equal to the outstanding principal amount of such Receivable. (iii) In the event that the Seller receives any Collections, the Seller agrees to hold all such Collections in trust and to deposit such Collections to the appropriate Collection Account as soon as practicable, but in no event later than when required under Section 4.03(a) of the Pooling and Servicing Agreement. (iv) In the event that any Affiliate of the Seller receives any Store Payment, the Seller agrees to cause such Affiliate to hold all such Collections in trust and to cause such Affiliate to deposit such Collections to the appropriate Collection Account within two Business Days after such payments are deposited into Store Accounts. (i) MERGER. The Seller will not (i) sell any shares of any class of its capital stock to any Person (other than Elder-Beerman or any of its Affiliates that are Subsidiaries of Elder-Beerman), or enter into any transaction of merger or consolidation, or convey or otherwise dispose of all or substantially all of its assets (except as contemplated herein), or (ii) terminate, liquidate or dissolve itself (or suffer any termination, liquidation or dissolution), or (ii) acquire or be acquired by any Person. (j) MAINTENANCE OF SEPARATE EXISTENCE AND DIRECTORS. Seller shall take all actions as are necessary to comply with, and to cause the Purchaser to comply with, Section 2.05(d) and Section 2.05(r) of the Pooling and Servicing Agreement. (k) MODIFICATION OF SYSTEMS. The Seller agrees, promptly after the replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to make any calculations or reports hereunder, to give written notice of any such replacement or modification to the Purchaser and the Trustee. (l) MAINTENANCE OF INSURANCE. The Seller shall use its best efforts to maintain with a responsible company, and at its own expense, its current commercial CHARGIT PURCHASE AGREEMENT 21 18 crime insurance (including commercial fraud insurance) as is commercially available at a cost that is not generally regarded as excessive by industry standards, with coverage on all officers, employees or other Persons acting in any capacity requiring such Persons to handle funds, money, documents or papers relating to the Receivables and the related Accounts. (m) FIRST PURCHASE AGREEMENTS. The Seller (i) will, at its expense, timely perform and comply with all provisions, covenants and other promises required to be observed by it under the First Purchase Agreement, maintain the First Purchase Agreement in full force and effect, enforce its rights under the First Purchase Agreement substantially in accordance with the terms thereof and comply with its obligations under all Cardholder Agreements giving rise to the Receivables, and (ii) will not amend or otherwise modify any term or condition of any Purchase Agreement or give any consent, waiver or approval thereunder. The Seller shall, within one Business Day after a Responsible Officer obtains Knowledge of the occurrence of any Termination Event or any event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, notify the Purchaser and the Trustee in writing of such occurrence. The Seller shall promptly furnish to the Purchaser and the Trustee copies of any notices, reports or certificates given or delivered to the Seller under the Purchase Agreements. SECTION 4.02. REPORTING REQUIREMENTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date: (a) TERMINATION EVENTS, ETC. The Seller shall (i) within one Business Day after a Responsible Officer of the Seller obtains Knowledge of the occurrence of any Termination Event or any event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, notify the Purchaser and the Trustee of such occurrence; (ii) as soon as possible and in any event (A) within three Business Days after a Responsible Officer of the Seller obtains Knowledge of the occurrence of any Termination Event or event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, deliver to the Purchaser and the Trustee a written statement of a Responsible Officer of the Seller setting forth details of such Termination Event or such event and the action that the Seller has taken and proposes to take with respect thereto; and (B) within three Business Days after a Responsible Officer of the Seller makes a CHARGIT PURCHASE AGREEMENT 22 19 determination that any other event, development or information is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, give written notice thereof to the Purchaser and the Trustee. (b) LITIGATION. As soon as possible and in any event within 10 Business Days after a Responsible Officer of the Seller obtains Knowledge thereof, the Seller shall notify the Purchaser of any litigation, investigation or proceeding which could be expected to impair the ability of the Seller to perform its obligations under this Agreement. (c) ERISA. As soon as possible and in any event within 30 days after a Responsible Officer of the Seller obtains Knowledge that one of the following events has occurred or is reasonably expected to occur, furnish to the Trustee a written statement of a Responsible Officer of the Seller setting forth the details of: (i) the occurrence of any Plan Event with respect to any Plan or (ii) the withdrawal by the Seller or any of its ERISA Affiliates from, or the termination, reorganization or insolvency of, any Multiemployer Plan. (d) LIENS. The Seller will advise the Purchaser and the Trustee promptly, in reasonable detail, (A) of any Lien or claim asserted against any of the Receivables or other Transferred Asset, and (B) of the occurrence of any event which in the case of clause (A) would have an adverse effect on the value of the Receivables or other Transferred Assets. (e) OTHER INFORMATION. The Seller shall promptly, from time to time, furnish to the Purchaser such other information, documents, records or reports regarding the Receivables, the other Transferred Assets or the condition or operations, financial or otherwise, of the Seller, as the Purchaser may from time to time reasonably request. SECTION 4.03. NEGATIVE COVENANTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date, it will not: (a) SALES, LIENS, ETC. Except for the Transfers contemplated herein, or pursuant to or as contemplated by the Pooling and Servicing Agreement or First Purchase Agreement, sell, pledge, assign or transfer any Receivable, any other Transferred Asset or any interest therein to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable or other Transferred Asset or any other property or asset of the Seller, whether now existing or hereafter created, or any CHARGIT PURCHASE AGREEMENT 23 20 interest therein, and the Seller shall defend the right, title and interest of the Purchaser in and to the Receivables and other Transferred Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Seller or any other Originator. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Extend, amend or otherwise modify (or consent or fail to object to any such extension, amendment or modification), except as permitted under the Cardholder Agreements, the Cardholder Guidelines or Section 2.05(t) of the Pooling and Servicing Agreement, the terms of any Receivable and the related Account, or amend, modify or waive (or consent or fail to object to any such extension, amendment or modification) any payment term or condition of any invoice related thereto (other than as provided in the Cardholder Agreements, Cardholder Guidelines or Section 2.05(t) of the Pooling and Servicing Agreement). The Seller will not rescind or cancel, or permit the rescission or cancellation of, any Receivable or the related Account except as ordered by a court of competent jurisdiction or other Governmental Authority. (c) CHANGE IN BUSINESS OR CARDHOLDER GUIDELINES. Make any change in the nature of its business as carried out on the date hereof or in the Cardholder Guidelines, which change would, in either case, materially impair the collectibility of the Receivables, except as permitted under the terms of the Pooling and Servicing Agreement. (d) CHANGE IN LEGAL NAME. (i) Make any change to its legal name, identity or business structure in any manner or chief executive office (including the address thereof) or use any trade names, fictitious names, assumed names or "doing business as" names or (ii) change its jurisdiction of organization UNLESS, prior to the effective date of any such name change, change in chief executive office, use or change of jurisdiction, the Seller delivers to the Purchaser (A) written notice of such change at least 30 days prior to the effective date thereof, (B) such financing statements (Forms UCC-1 and UCC-3) executed by the Seller required to reflect such name change, change in chief executive office, use or change of jurisdiction, together with such other documents and instruments required in connection therewith to maintain the continued perfection of the interests of the Purchaser in the Transferred Assets and (C) prior to the effective date thereof, an Opinion of Counsel, in form and substance satisfactory to the Purchaser, as to the Seller's due organization, valid existence and good standing and the continued perfection after the effective date thereof of the interests of the Purchaser in and to the Receivables and other Transferred Assets Transferred hereby (to the same extent as such interest was perfected on the Initial Cut Off Date with CHARGIT PURCHASE AGREEMENT 24 21 respect to the Receivables then owned by the Seller). Furthermore, the Seller shall give 30 days prior written notice to the Purchaser of any change in the location of the office where it keeps the books, records and documents regarding the Receivables and the other Transferred Assets from the address of the Seller referred to in Section 7.08. (e) DEPOSITS TO COLLECTION ACCOUNTS. Deposit or otherwise credit, or cause to be so deposited or credited, or consent or fail to object to any such deposit or credit Known to it, cash or cash proceeds other than Collections to the Concentration Account, any Collection Account (other than the Store Accounts), the Excess Funding Account or any Series Account. (f) NO ACTIONS AGAINST OBLIGORS. Except in accordance with the Cardholder Guidelines and Pooling and Servicing Agreement, commence or settle any legal action to enforce collection of any Receivable. (g) NO BANKRUPTCY FILING AGAINST THE PURCHASER OR THE TRUST. Commence, institute or cause to be commenced or instituted any proceeding of the type referred to in the definition of "Insolvency Event" against the Purchaser or the Trust. (h) LOCATIONS OF SUBSIDIARIES. Permit any of the Originators to have or maintain its jurisdiction of organization or principal place of business in any of the States of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming. (i) SUBORDINATED NOTE. Transfer or pledge the Subordinated Note to any Person, other than as permitted under the Intercreditor Agreement or First Purchase Agreement. (j) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. Take action which would impair the rights of any Beneficiary in any Receivable or other Trust Asset or any proceeds thereof, except as provided in the Pooling and Servicing Agreement. (k) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. Take action to cause any Receivable to be evidenced by any "instrument" (as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest in such Receivable created hereunder), except in connection with its enforcement, in which event the Seller shall deliver such instrument to the Purchaser as soon as reasonably practicable but in no event more than three Business Days after execution thereof. CHARGIT PURCHASE AGREEMENT 25 22 (l) INFORMATION PROVIDED TO RATING AGENCIES. The Seller will use its best efforts to cause all information provided to any Rating Agency pursuant to this Agreement or the Pooling and Servicing Agreement or in connection with any action required or permitted to be taken under this Agreement or the Pooling and Servicing Agreement to be complete and accurate in all material respects. SECTION 4.04. AFFIRMATIVE MUTUAL COVENANT. The Purchaser and Seller shall record each Purchase as a purchase and sale, respectively, on its books and records and reflect each Purchase in its financial statements as a purchase and sale, respectively. ARTICLE V EVENTS OF TERMINATION SECTION 5.01. TERMINATION. If any of the following events (each, a "TERMINATION EVENT") shall have occurred: (a) any failure by the Seller to make any payment, transfer or deposit required to be paid, effected or made by it hereunder within two Business Days after the same shall become due; or (b) any representation or warranty, certification or written statement made or deemed made by the Seller under or in connection with this Agreement or in any statement, record, certificate, financial statement or other document delivered pursuant hereto or in connection herewith shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) the Seller shall fail to observe or perform any covenant or agreement applicable to it contained herein (other than as specified in clause (a) above) which has a material adverse effect on any Beneficiary of any Series if such failure shall remain unremedied for ten days after the first date on which any Responsible Officer of the Seller knew or should have known of such failure; or (d) any Receivables transferred hereunder whose aggregate outstanding principal balance constitute more than 1% of the aggregate outstanding principal balance of all Eligible Receivables shall for any reason cease to be the subject of the valid and perfected first priority ownership interest created by this Agreement; or any Receivables transferred hereunder whose aggregate outstanding principal balance CHARGIT PURCHASE AGREEMENT 26 23 constitute more than 1% of the aggregate outstanding principal balance of all Eligible Receivables shall cease to be free and clear of any Lien except as provided for herein; or (e) an Insolvency Event shall occur with respect to the Seller; or (f) the Internal Revenue Service shall file notice of a Lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the Receivables or the PBGC shall file notice of a Lien pursuant to Section 4068 of ERISA with regard to any of the Receivables; or (g) there shall have occurred a Trust Early Amortization Event; then, if any of the events set forth in paragraph (e) above shall have occurred, a "Termination Event" shall occur without any notice, demand, protest or other requirement of any kind immediately upon the occurrence of such event and, if any of the events set forth in any other paragraph above shall have occurred, the Purchaser may, by notice to the Seller, declare that a "Termination Event" shall occur as of the date set forth in such notice. Upon the occurrence of a Termination Event, the Effective Period shall terminate (any termination of the Effective Period pursuant to this Section 5.01 is herein referred to as an "EARLY TERMINATION"). Upon any Early Termination the Purchaser shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies with respect to the Receivables provided under the UCC of the applicable jurisdiction and under other applicable laws, which rights and remedies shall be cumulative. The Purchaser may, with the prior written consent of a Majority in Interest of each outstanding Series (or, if so specified in the related supplement, each Enhancement Provider for such Series) on behalf of all Certificateholders, waive any default (other than a default described in paragraph (e) above) by the Seller in the performance of its obligations hereunder and its consequences, except the failure to make any distributions or payments required to be made to the Purchaser or to make any required deposits of any amounts to be so distributed or paid. The Purchaser with the consent of the Certificateholders of Certificates evidencing 67% or more of the Aggregate Invested Amount of each outstanding Series (or, if so specified in the related Supplement, each Enhancement Provider for such Series) may, on behalf of all Certificateholders, waive any default described in paragraph (e) above and its consequences. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. CHARGIT PURCHASE AGREEMENT 27 24 ARTICLE VI INDEMNIFICATION SECTION 6.01. INDEMNIFICATION. Without limiting any other rights which the Purchaser, the Trustee, any Program Agent, any Enhancement Provider and their respective assignees (which shall not be deemed to include any of the Certificateholders as such) and their respective officers, directors, employees, agents and affiliates (each, an "ORIGINATOR INDEMNIFIED PARTY" and collectively the "ORIGINATOR INDEMNIFIED PARTIES") may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Purchaser and any of its assignees hereunder (including each other Originator Indemnified Party) from and against any and all claims, damages, losses and liabilities and related costs and expenses (including reasonable attorneys' fees and disbursements) (all of the foregoing being collectively referred to as "ORIGINATOR INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or resulting from this Agreement, the activities of the Seller in connection herewith or with any Transaction Document to which the Seller is a party in its capacity as Seller or the use of proceeds of purchases hereunder or the ownership of any Receivable or other Transferred Asset (excluding however (a) Originator Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Originator Indemnified Party, (b) recourse (except as otherwise specifically provided in any Transaction Document) for uncollectible Receivables or (c) EXCEPT with respect to clause (x) below, any federal, state, foreign or local income or franchise taxes or any other tax imposed on or measured by income (or any interest, penalty, or addition to tax with respect thereto or arising from a failure to comply therewith) incurred by such Originator Indemnified Party arising out of or as a result of this Agreement or the interest conveyed hereunder in Receivables and other Transferred Asset or Account. Without limiting or being limited by the foregoing, the Seller shall pay on demand to the Purchaser or any of its assignees (including each other Originator Indemnified Party) any and all amounts necessary to indemnify the Purchaser or any such assignee from and against any and all Originator Indemnified Amounts relating to or resulting from: (i) reliance on any representation, warranty or covenant made or statement made or deemed made by the Seller (or any of its Responsible Officers) under or in connection with any Transaction Document which shall have been incorrect in any material respect when made or deemed made or which the Seller shall have failed to perform; (ii) the failure by the Seller to comply with any Transaction Document or any applicable Requirement of Law with respect to any Receivable, any other CHARGIT PURCHASE AGREEMENT 28 25 Transferred Asset or Account, or the failure of any Receivable, any other Transferred Asset or Account to conform to any requirement with respect thereto under any Transaction Document or any Requirement of Law; (iii) the failure to vest in the Purchaser a perfected first priority 100% ownership interest in the Receivables free and clear of any Lien; (iv) the failure to have filed, or any delay in filing, any financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws that are necessary for perfection or first priority of the ownership interests created by this Agreement; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including a defense based on such Receivable, any other Transferred Asset or Account not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise, insurance or services related to such Receivable or the furnishing or failure to furnish such merchandise, insurance or services; (vi) any products liability claim or other claim allegedly arising out of or in connection with merchandise, insurance or services which gave rise to any Receivable or any credit, administration or other activity in connection with any Cardholder Agreement; (vii) any failure by the Seller or any Affiliate of the Seller (other than the Purchaser) to perform its duties or obligations in accordance with the provisions of any Transaction Document, including any failure to so perform in connection with servicing, administering or collecting any Receivable; (viii) any commingling by an act or omission of the Seller of Collections at any time with other funds (other than in the Store Accounts); (ix) any investigation, litigation or proceeding related to any Receivable, this Agreement or any other Transaction Document to which the Seller is or is to be a party or the use of proceeds of purchases hereunder or the ownership of Receivables, any other Transferred Assets or related Accounts or in respect of any Receivable, Account or Cardholder Agreement; CHARGIT PURCHASE AGREEMENT 29 26 (x) any taxes, including sales, excise, intangibles, value added, personal property and similar taxes, payable with respect to the Receivables or the Accounts; (xi) any reduction in the outstanding principal balance of a Receivable by reason of any defective, rejected, returned, repossessed or foreclosed merchandise, insurance or services or any cash discount or other adjustment made by the Seller; (xii) any breach by the Seller of any obligation under any Receivable or any Cardholder Agreement; (xiii) Any Receivable classified as an "Eligible Receivable" by the Seller in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of Eligible Receivable; or (xiv) Any Account classified as an "Eligible Account" by the Seller in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of "Eligible Account." Any Originator Indemnified Amounts due hereunder shall be payable within fifteen Business Days of submission of a claim by the Originator Indemnified Party which describes in reasonable detail the basis for such claim. The rights of the Originator Indemnified Parties under this Section 6.01 shall survive the collection of all Receivables, the termination of this Agreement and the Trust and the payment of all amounts otherwise payable hereunder. CHARGIT PURCHASE AGREEMENT 30 27 ARTICLE VII MISCELLANEOUS SECTION 7.01. FURTHER ASSURANCES. (a) The Seller agrees that from time to time, at its own expense, the Seller will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Purchaser may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Purchaser to exercise and enforce its rights and remedies hereunder with respect to any Receivable and other Transferred Assets and to enable the Trustee to exercise its rights and remedies under the Transaction Documents with respect to any of the Trust Assets. Without limiting the generality of the foregoing, the Seller will: (i) mark its master data processing and computer records in a manner reasonably calculated to indicate that the Transferred Assets have been sold to the Purchaser in accordance with this Agreement and the other Transaction Documents; (ii) clearly and unambiguously identify each Account in its computer or other records and all its micro fiche storage files, if any, to reflect that an interest in the Receivables arising in such account has been Transferred pursuant to this Agreement; (iii) if any Receivable or other Transferred Asset shall be evidenced by a promissory note, other instrument or chattel paper, deliver and pledge to the Purchaser such note, instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Purchaser; and (iv) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Purchaser may reasonably request, in order to perfect and preserve the valid and perfected first priority ownership or security interests granted or purported to be granted hereunder or under any Transaction Document. (b) The Seller hereby authorizes the Purchaser to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Transferred Assets without the signature of the Seller where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Transferred Assets or any part thereof shall be sufficient as a financing statement where permitted by law. (c) The Seller will furnish to the Purchaser from time to time statements and schedules further identifying and describing the Transferred Assets and such other reports in connection with the Transferred Assets as the Purchaser may reasonably request, all in reasonable detail. CHARGIT PURCHASE AGREEMENT 31 28 (d) The Seller shall, from time to time, execute and deliver to the Obligors any bills, statements and letters or other writings necessary to carry out the terms and provisions of any Transaction Document and to facilitate the collection of the Receivables in a manner consistent with the Cardholder Guidelines. SECTION 7.02. PAYMENTS. Each payment to be made by either of the Purchaser or the Seller hereunder shall be made on the required payment date, or on the next succeeding Business Day if the required payment date is not a Business Day, in U.S. Dollars and in immediately available funds at the office of the payee set forth in Section 7.08 below or to such other office as may be specified by either party in a written notice to the other party hereto. SECTION 7.03. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of indemnification granted to the Purchaser pursuant to Article VI hereof, the Seller agrees to pay on demand (i) all reasonable costs and expenses of the Purchaser in connection with the preparation, execution, delivery, modification and amendment of this Agreement and the other documents to be delivered by the Seller in connection with this Agreement, including the reasonable fees and expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and (ii) all reasonable costs and expenses (including reasonable counsel fees and expenses) of the Purchaser in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered by the Seller in connection herewith, including reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 7.03, EXCLUDING, HOWEVER, any costs of enforcement or collection of any Receivables. (b) In addition, the Seller agrees to pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment or deposit made hereunder or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement, and the Seller agrees to indemnify the Purchaser against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, charges or levies. SECTION 7.04. BINDING EFFECT; ASSIGNABILITY. (a) This Agreement shall be binding upon and inure to the benefit of the Seller and the Purchaser and their respective successors (whether by merger, consolidation or otherwise) and assigns. Except as otherwise permitted herein, the Seller agrees that it will not assign or transfer all or any portion of its rights or obligations hereunder to any Person without the prior written consent of the Parent, the Purchaser and a Majority in Interest of each outstanding Series. In connection with any CHARGIT PURCHASE AGREEMENT 32 29 sale or assignment by the Purchaser of all or a portion of the Receivables or other Transferred Assets, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent specifically provided in the agreement between the Purchaser and such buyer or assignee. (b) The Seller acknowledges that the Purchaser shall assign to the Trust, as collateral security for the Purchaser's obligations under the Pooling and Servicing Agreement, all of the Purchaser's rights, remedies, powers and privileges hereunder (including the right to give any notice which the Purchaser may provide to the Seller hereunder), PROVIDED that the Purchaser shall not assign or delegate any of its duties or obligations hereunder to the Trust. (c) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the last Termination Date of any Series; PROVIDED, HOWEVER, that rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article III and the provisions of Article VI and Sections 4.03(h), 7.03, 7.04 and 7.12 shall be continuing and shall survive any termination of this Agreement; and PROVIDED FURTHER that the Purchaser shall remain entitled to receive any collections on Receivables sold hereunder which have been charged off as uncollectible after it shall have completed its collection efforts in respect thereof. SECTION 7.05. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Purchaser, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 7.06. AMENDMENT. (a) This Agreement may be amended from time to time by the Seller and the Purchaser without the consent of any Beneficiary (i) to cure any ambiguity, (ii) to correct or supplement any provision herein which may be inconsistent with any other provision herein or (iii) to add any other provisions with respect to matters or questions arising under this Agreement which are not inconsistent with the provisions of this Agreement; PROVIDED that any amendment pursuant to this clause (a) shall not, as evidenced by a certificate of a Responsible Officer of the Seller, adversely affect in any material respect the interests of any Beneficiary. CHARGIT PURCHASE AGREEMENT 33 30 (b) This Agreement may be amended from time to time by the Seller and the Purchaser, so long as the Rating Agency Condition is satisfied, with the consent of the Elder-Beerman and a Majority in Interest of each adversely affected Series for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, any payment to be made hereunder without the consent of each such Certificateholder or (ii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Investor Certificateholder. The Trustee may request an Officer's Certificate and Opinion of Counsel in each case to the effect that such amendment does not adversely affect any Series and is otherwise in compliance with the requirements of this Agreement. Any amendment to be effected pursuant to this paragraph shall be deemed to adversely affect all outstanding Series, other than any Series with respect to which such action shall not, as evidenced by an Opinion of Counsel (which counsel shall not be an employee of, or counsel for, the Seller or the Purchaser), addressed and delivered to the Trustee, adversely affect the interests of such Series. SECTION 7.07. SEVERABILITY. If any provision hereof is deemed void or unenforceable in any jurisdiction, such voiding or unenforceability shall not affect the validity or enforceability of such provision in any other jurisdiction or any other provision hereof in such or any other jurisdiction. SECTION 7.08. NOTICES. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, two Business Days after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the following Business Day. CHARGIT PURCHASE AGREEMENT 34 31 (a) If to the Seller, 3155 El-Bee Road Dayton, Ohio 45439 Tel.: 937-296-4698 Fax: 937-296-4674 Attn.: President (b) If to the Purchaser, 3155 El-Bee Road Dayton, Ohio 45439 Tel.: 937-296-2689 Fax: 937-296-4674 Attn.: President SECTION 7.09. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 7.10. CONSTRUCTION OF AGREEMENT AS SECURITY AGREEMENT. It is the intent of the parties that the transactions contemplated herein constitute sales of the Receivables and other Transferred Assets to the Purchaser. If, however, such transactions are deemed to be loans, (a) the Seller hereby grants to the Purchaser a first priority perfected security interest in all of the Seller's right, title and interest in and to the Transferred Assets to secure all of the Seller's obligations hereunder, including the Seller's obligations to sell or transfer to the Purchaser all Receivables existing on the date hereof or hereafter created and (b) this Agreement shall constitute a security agreement under applicable law. SECTION 7.11. THIRD-PARTY BENEFICIARIES. The Originator Indemnified Parties are third-party beneficiaries of all provisions of this Agreement and are entitled to enforce the provisions of Section 6.01 of this Agreement to the extent any Originator Indemnified Amounts are due such parties. CHARGIT PURCHASE AGREEMENT 35 32 SECTION 7.12. THE SELLER'S OBLIGATIONS. It is expressly agreed that, anything contained in this Agreement to the contrary notwithstanding, the Seller shall be obligated to perform all of its obligations under the Receivables to the same extent as if the Purchaser had no interest therein and the Purchaser shall have no obligations or liability under Receivables to any Obligor thereunder by reason of or arising out of this Agreement, nor shall the Purchaser be required or obligated in any manner to perform or fulfill any of the obligations of the Seller under or pursuant to any Receivable. SECTION 7.13. GOVERNING LAW, JURISDICTION, CONSENT TO SERVICE OF PROCESS. (a) GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASER IN THE TRANSFERRED ASSETS IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. CHARGIT PURCHASE AGREEMENT 36 33 (c) CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail (postage prepaid) or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. CHARGIT PURCHASE AGREEMENT 37 (d) WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or any other Transaction Document or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto or any Beneficiary or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. THE EL-BEE CHARGIT CORP., as Seller By:_______________________________________ Name: Title: THE EL-BEE RECEIVABLES CORPORATION, as Purchaser By:_______________________________________ Name: Title: CHARGIT PURCHASE AGREEMENT 38 EXHIBIT A THE EL-BEE RECEIVABLES CORPORATION SUBORDINATED NOTE Due: December ___, 2017 No. 1 THE EL-BEE RECEIVABLES CORPORATION (the "ISSUER"), for value received, hereby promises to pay to THE EL-BEE CHARGIT CORP. (the "HOLDER"), or its registered assigns, at its address for payments set forth in Section 7.08 of the Purchase Agreement hereinafter referred to, all principal sums owing from time to time under Section 2.02(d) of the Purchase Agreement, upon the earlier to occur of (i) December ___, 2017, and (ii) the first date following the end of the Effective Period (as defined in the Purchase Agreement) upon which the aggregate Invested Amount for each Series is zero (the "STATED MATURITY"), unless earlier prepaid pursuant to the provisions for repayment referred to herein, and to pay interest (computed on the basis of a 360-day year and the actual number of days in each calendar year) on the unpaid principal sum from the date such principal sum is advanced, such interest being payable on (i) the first day of the month immediately following the initial advance and the first day of each month thereafter, (ii) each date of prepayment (with respect to the amount prepaid) and (iii) the Stated Maturity at a rate per annum equal to the equivalent of the rate for commercial paper having a maturity of 30 days reported on such day by the Board of Governors of the Federal Reserve System in "Statistical Release H.15 (519), Selected Interest Rates" or any successor thereto, under the heading "Commercial Paper", converted to a money marked yield, or if no such rate for commercial paper is reported on such date, the applicable rate in effect with respect to the most recent day on which such rate was reported, plus 1.5%, until the principal hereof is paid in full. Prior to any transfer hereof, the Holder shall enter on Schedule A information reflecting the date and amount of each advance and the amount of any payments made hereon. Notwithstanding anything contained herein to the contrary, the principal sum hereof and all accrued interest thereon shall not exceed ten percent (10%) of the excess of the Net Receivables Balance over the Trust Invested Amount at any given time. Payments of the principal of and interest on this Subordinated Note (this "NOTE") will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts by check mailed to, or wire transfer in federal funds to the account of, the Holder as directed by the Holder. All amounts CHARGIT PURCHASE AGREEMENT 39 A-2 paid with respect to this Note shall be allocated first to accrued interest until all such interest is paid, and then to outstanding principal. If any payment on this Note shall remain unpaid on the due date thereof, the same shall thereafter be payable with interest thereon (to the extent permitted by law) at the Certificate Rate for the then most recently issued Series, from such due date to the date of payment thereof. This Note is issued under the Purchase Agreement dated as of December __, 1997 between the Issuer and the Holder (as amended, supplemented or otherwise modified from time to time, the "PURCHASE AGREEMENT"). This Note represents all or a portion of the Purchase Price for Receivables purchased by the Issuer pursuant to the terms of the Purchase Agreement. Each capitalized term used herein which is defined in the December __, 1997 Purchase Agreement or the Pooling and Servicing Agreement dated as of December __, 1997 among the Issuer, as Transferor, the Holder, as Servicer and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"), shall have the meaning ascribed to it in the Purchase Agreement or the Pooling and Servicing Agreement, as the case may be. This Note may be prepaid in whole or in part at the option of the Issuer at any time without a premium or penalty. The Issuer shall be entitled to borrow, prepay and reborrow hereunder. The payment of this Note is hereby expressly subordinated in right of payment to the extent and in the manner set forth below to the prior payment and performance by the Issuer of the following obligations ("SENIOR DEBT") of the Issuer: (i) all obligations of the Issuer under the Pooling and Servicing Agreement, the Purchase Agreement, any Supplement or any other Transaction Document to which the Issuer is a party and (ii) all renewals, extensions, refinancings or refundings of any such obligations (and, in the case of each such indebtedness or obligation, whether for principal, interest (including but not limited to any interest accruing after the filing of a petition initiating any Bankruptcy Proceeding (as defined below) whether or not such interest is allowed in such Bankruptcy Proceeding), fees, indemnities, repurchase price, expenses or otherwise). (a) In the event of any dissolution, winding up, liquidation, arrangement, adjustment, reorganization, composition or other similar event relating to the Issuer or its debts, whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency, arrangement, reorganization, liquidation, receivership or other similar proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of the Issuer or any sale of all or substantially all of the assets of the Issuer except pursuant to the Pooling and Servicing Agreement CHARGIT PURCHASE AGREEMENT 40 A-3 (such proceedings being herein collectively called "BANKRUPTCY PROCEEDINGS" and individually called a "BANKRUPTCY PROCEEDING"), the Senior Debt shall first be indefeasibly paid and performed in full and in cash before the holder of this Note shall be entitled to receive and to retain any payment or distribution (whether in cash, property or securities) in respect of this Note. In order to implement the foregoing: (x) all payments and distributions of any kind or character in respect of this Note to which the holder of this Note would be entitled except for this clause (a) shall be made directly to the Trustee (for the benefit of the holders of the Senior Debt); (y) if a Bankruptcy Proceeding has been commenced, the holder of this Note shall promptly file a claim or claims, in the form required in such Bankruptcy Proceeding, for the full outstanding amount of this Note, and shall use reasonable efforts to cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Trustee (for the benefit of the holders of the Senior Debt) until the Senior Debt shall have been paid and performed in full and in cash; and (z) the holder of this Note hereby irrevocably agrees that the Trust (or the Trustee acting on the Trust's behalf), in the name of the holder of this Note or otherwise, may, if the holder of this Note does not take the actions required pursuant to the preceding clause (y) and upon notice to the holder of this Note, demand, sue for, collect, receive and give receipt for any and all such payments or distributions, and file, prove and vote or consent in any such Bankruptcy Proceedings with respect to any and all claims of the holder of this Note relating to this Note, in each case until the Senior Debt shall have been paid and performed in full and in cash. (b) In the event that any Termination Event or Early Amortization Event or event which with the giving of notice or lapse of time, or both, would become a Termination Event or an Early Amortization Event shall have occurred and be continuing, which Termination Event or Early Amortization Event has not been waived (a "BLOCKING EVENT"), then no payment shall be made by or on behalf of the Issuer for or on account of any amounts owing in respect of this Note, unless and until the Senior Debt shall first be indefeasibly paid and performed in full and in cash. (c) In the event that the holder of this Note receives any payment or other distribution of any kind or character from the Issuer or from any other source whatsoever in respect of this Note after the commencement of any Bankruptcy Proceeding or while any Blocking Event has occurred and is continuing, such payment or other distribution shall be received in trust for the holders of the Senior Debt and shall be turned over by the holder of this Note to the Trustee (for the benefit of the holders of the Senior Debt) forthwith, until all Senior Debt shall have been paid and performed in full and in cash. All payments and distributions received by the Trustee CHARGIT PURCHASE AGREEMENT 41 A-4 in respect of this Note, to the extent received in or converted into cash, may be applied by the Trustee (for the benefit of the holders of the Senior Debt) first to the payment of any and all reasonable expenses (including reasonable attorneys fees and legal expenses) paid or incurred by the Trustee or the holders of the Senior Debt in enforcing these subordination provisions, or in endeavoring to collect or realize upon this Note, and any balance thereof shall, solely as between the holder of this Note and the holders of the Senior Debt, be applied by the Trustee toward the payment of the Senior Debt in a manner determined by the Trustee to be in accordance with the Transaction Documents; but as between the Issuer and its creditors no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Debt. (d) Upon the indefeasible payment in full and in cash of all Senior Debt, the holder of this Note shall be subrogated to the rights of the holders of the Senior Debt to receive payments or distributions from the Issuer that are applicable to the Senior Debt until this Note is paid in full. (e) These subordination provisions are intended solely for the purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in these subordination provisions or elsewhere in this Note is intended to or shall impair, as between the Issuer, its creditors (other than the holders of the Senior Debt) and the holder of this Note, the Issuer's obligation, which is unconditional and absolute, to pay this Note as and when the same shall become due and payable in accordance with the terms hereof and of the Purchase Agreement or to affect the relative rights of the holder of this Note and creditors of the Issuer (other than the holders of the Senior Debt). (f) The holder of this Note shall not, until the Senior Debt has been finally paid and performed in full and in cash, (i) cancel, waive, amend, forgive, sell, pledge, transfer or assign or otherwise encumber or dispose of or commence legal proceedings to enforce or collect this Note or any obligation of the Issuer; PROVIDED, HOWEVER, that the holder may endorse this Note to The Elder-Beerman Stores Corp. and The Elder-Beerman Stores Corp. may pledge this Note to Citicorp USA, Inc. as security for its Obligations under and as defined in the Credit Agreement (as defined in the Pooling and Servicing Agreement), (ii) subordinate this Note to any obligation of the Issuer, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, other than to the Senior Debt or any rights in respect hereof or (iii) convert this Note into an equity CHARGIT PURCHASE AGREEMENT 42 A-5 interest in the Issuer, unless, in the case of each of clauses (i) and (ii) above, the holder of this Note shall have received the prior written consent of the Trustee in each case. (g) The holder of this Note shall not, without the prior written consent of the Trustee, commence, or join with any other Person in commencing, any Bankruptcy Proceeding with respect to the Issuer until at least one year and one day shall have passed since the Senior Debt shall have been indefeasibly paid and performed in full and in cash. (h) If, at any time, any payment (in whole or in part) made with respect to the Senior Debt is rescinded or must be restored or returned by a holder of the Senior Debt (whether in connection with any Bankruptcy Proceeding or otherwise), these subordination provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made. (i) As between the holder of this Note and the holders of the Senior Debt, each of the holders of the Senior Debt may, from time to time, at its sole discretion, without notice to the holder of this Note, and without waiving any of its rights under these subordination provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Senior Debt; (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Debt; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter, increase or exchange any of the Senior Debt, or release or compromise any obligation of any nature with respect to any of the Senior Debt; (iv) amend, supplement, amend and restate, or otherwise modify any Transaction Document; and (v) release its ownership or security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property, securing any of the Senior Debt, or extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property. (j) By its acceptance hereof, the holder of this Note hereby waives to the maximum extent permitted by applicable law, (i) notice of acceptance of these subordination provisions by any of the holders of the Senior Debt; (ii) notice of the existence, creation, nonpayment or nonperformance of all or any of the Senior Debt; and (iii) all diligence in enforcement, collection or protection of, or realization upon, the Senior Debt, or any thereof, or any security therefor. CHARGIT PURCHASE AGREEMENT 43 A-6 (k) These subordination provisions constitute a continuing offer from the Issuer to all Persons who become the holders of, or who continue to hold, Senior Debt and these subordination provisions are made for the benefit of the holders of the Senior Debt, and the Trustee may proceed to enforce such provisions on behalf of each of such Persons. The obligation of the Issuer to repay this Note from the amounts paid to the Issuer with respect to Finance Charge Receivables, Principal Receivables, and other sources of funds described in the Pooling and Servicing Agreement, together with any capital or surplus of the Issuer remaining after all of its obligations under the Pooling and Servicing Agreement are repaid in full and the Trust Termination Date has occurred, shall be the sole and exclusive remedy available to the holder, and to the extent that such payments are insufficient to pay such amounts, the holder shall not have any claim against the Issuer for such amounts and no further or additional recourse shall be available against the Issuer. This Note shall not evidence any rights in the Receivables or the Exchangeable Transferor Certificate and need not be evidenced by any separate instrument of the holder. CHARGIT PURCHASE AGREEMENT 44 A-7 This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York. CHARGIT PURCHASE AGREEMENT 45 A-8 IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed manually by its undersigned officer duly authorized thereunto. Dated: December ___ , 1997. THE EL-BEE RECEIVABLES CORPORATION By:__________________________________________ Name: Title: ENDORSEMENT Pay to the order of The Elder-Beerman Stores Corp. THE EL-BEE CHARGIT CORP. By:__________________________________________ Name: Title: ENDORSEMENT Pay to the order of Citicorp USA, Inc., as Agent. THE ELDER-BEERMAN STORES CORP. By:__________________________________________ Name: Title: CHARGIT PURCHASE AGREEMENT 46 SCHEDULE A
Principal Interest Principal Interest Date Advanced Paid Paid Rate - ---- -------- -------- --------- --------
CHARGIT PURCHASE AGREEMENT EX-10.A.VIII 10 EXHIBIT 10(A)(VIII) 1 Exhibit 10(a)(viii) EXECUTION COPY ================================================================================ PURCHASE AGREEMENT Dated as of December 30, 1997 Among THE ELDER-BEERMAN STORES CORP. as Seller -- ------ and THE EL-BEE CHARGIT CORP. as Purchaser -- --------- ELDER-BEERMAN PURCHASE AGREEMENT 2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.01. Definitions................................................ 1 SECTION 1.02. Other Definitional Provisions.............................. 3 SECTION 1.03. Computation of Time Periods................................ 4 ARTICLE II PURCHASE AND SALE OF RECEIVABLES SECTION 2.01. Purchase and Sale of Receivables........................... 4 SECTION 2.02. Payment of First Purchase Price............................ 4 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties of the Seller............... 6 SECTION 3.02. Representations and Warranties of the Purchaser............ 12 SECTION 3.03. Obligations Unaffected..................................... 13 ARTICLE IV COVENANTS SECTION 4.01. Affirmative Covenants of the Seller........................ 13 SECTION 4.02. Reporting Requirements of the Seller....................... 16 SECTION 4.03. Negative Covenants of the Seller........................... 17 SECTION 4.04. Affirmative Mutual Covenant................................ 19 ARTICLE V EVENTS OF TERMINATION SECTION 5.01. Termination................................................ 20 ELDER-BEERMAN PURCHASE AGREEMENT 3 ii ARTICLE VI INDEMNIFICATION SECTION 6.01. Indemnification.............................................. 21 ARTICLE VII MISCELLANEOUS SECTION 7.01. Further Assurances........................................... 24 SECTION 7.02. Payments..................................................... 25 SECTION 7.03. Costs, Expenses and Taxes.................................... 25 SECTION 7.04. Binding Effect; Assignability................................ 25 SECTION 7.05. No Waiver; Cumulative Remedies............................... 26 SECTION 7.06. Amendment.................................................... 26 SECTION 7.07. Severability................................................. 27 SECTION 7.08. Notices...................................................... 27 SECTION 7.09. Counterparts................................................. 28 SECTION 7.10. Construction of Agreement as Security Agreement.............. 28 SECTION 7.11. Third-Party Beneficiaries.................................... 28 SECTION 7.12. The Seller's Obligations..................................... 28 SECTION 7.13. Governing Law, Jurisdiction, Consent to Service of Process... 29 ELDER-BEERMAN PURCHASE AGREEMENT 4 PURCHASE AGREEMENT dated as of December 30, 1997 among THE ELDER-BEERMAN STORES CORP., an Ohio corporation ("ELDER-BEERMAN"), as seller hereunder (the "SELLER" or the "ORIGINATOR"), and THE EL-BEE CHARGIT CORP., an Ohio corporation ("CHARGIT"), as purchaser hereunder (the "PURCHASER"). PRELIMINARY STATEMENTS 1. The Seller has right, title and interest in, to and under the Receivables (as defined in the Pooling and Servicing Agreement referred to below) and other Transferred Assets (as defined below) existing on the date hereof or hereafter created. 2. The Seller desires to sell to the Purchaser, and the Purchaser desires to buy from the Seller, on the date hereof and from time to time hereafter, all of the Seller's right, title and interest in, to and under the Receivables and other Transferred Assets. 3. All of the outstanding capital stock of the Purchaser is owned, directly or indirectly, by Elder-Beerman. 4. Pursuant to that certain Purchase Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "SECOND PURCHASE AGREEMENT") between Chargit and The El-Bee Receivables Corporation, a Delaware corporation ("EL-BEE RECEIVABLES"), Chargit has agreed to transfer to El-Bee Receivables all of Chargit's right, title and interest in, to and under the Receivables and other Transferred Assets (as defined below). 5. Pursuant to that certain Pooling and Servicing Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT") among El-Bee Receivables, Chargit, as servicer, and Bankers Trust Company, a New York banking corporation, as trustee, El-Bee Receivables has agreed to transfer to the Trust created pursuant to the Pooling and Servicing Agreement all of its right, title and interest in, to and under the Receivables and other Transferred Assets. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITIONS. Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in the Pooling and Servicing Agreement. In addition, the term "AGREEMENT" shall mean this Purchase Agreement, as the same may from ELDER-BEERMAN PURCHASE AGREEMENT 5 2 time to time be amended, supplemented or otherwise modified. The following capitalized terms shall have the following meanings: "EARLY TERMINATION" has the meaning specified in Section 5.01. "EFFECTIVE PERIOD" means the period beginning on the Initial Cut Off Date and terminating on (i) the earliest of (a) the close of business on the Business Day on which a Termination Event occurs, (b) the close of business on the Business Day immediately following the day on which any Early Amortization Event occurs and (c) the close of business on the Business Day immediately preceding the day on which the Amortization Period for the last outstanding Series begins or (ii) such other date as is specified in a written notice from either the Seller or the Purchaser to the other and to the Trustee. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of the Seller, or under common control with the Seller, within the meaning of Section 414 of the Internal Revenue Code and the regulations promulgated thereunder. "FIRST PURCHASE PRICE" has the meaning specified in Section 2.02(c). "MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in Section 4001(a)(3) of ERISA, to which the Seller or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Seller or any ERISA Affiliate and at least one Person other than the Seller and the ERISA Affiliates or (b) was so maintained and in respect of which the Seller or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "ORIGINATOR INDEMNIFIED AMOUNTS" has the meaning specified in Section 6.01. "ORIGINATOR INDEMNIFIED PARTY" has the meaning specified in Section 6.01. "PLAN" means a Single Employer Plan or Multiple Employer Plan. "PLAN EVENT" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements ELDER-BEERMAN PURCHASE AGREEMENT 6 3 of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) or ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Seller or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Seller or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "PURCHASE DATE" has the meaning specified in Section 2.02(b). "SINGLE EMPLOYER PLAN" means a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Seller or any ERISA Affiliate or (b) was so maintained and in respect of which the Seller or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SUBORDINATED LOAN" has the meaning specified in Section 2.02(d). "TERMINATION EVENT" has the meaning specified in Section 5.01. "TRANSFER" has the meaning specified in Section 2.01. "TRANSFERRED ASSETS" has the meaning specified in Section 2.01. SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All accounting terms not defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not completely defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable and in effect from time to time. To the extent that the definitions of accounting terms herein are ELDER-BEERMAN PURCHASE AGREEMENT 7 4 inconsistent with the meanings of such terms under generally accepted accounting principals or regulatory accounting principles, the definitions contained herein shall control. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation". (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. SECTION 1.03. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" shall mean "to but excluding". ARTICLE II PURCHASE AND SALE OF RECEIVABLES SECTION 2.01. PURCHASE AND SALE OF RECEIVABLES. By execution of this Agreement, the Seller does hereby transfer, assign, set-over and otherwise convey (the making of such transfer, assignment, set-over and conveyance being a "TRANSFER", and so to transfer, assign, set-over and otherwise convey being to "TRANSFER") without recourse, except as expressly provided herein, to the Purchaser, in each case whether now existing or hereafter created, (a) all of the Seller's right, title and interest in, to and under all of the Receivables existing on the Initial Cut Off Date and thereafter arising from time to time in connection with the Accounts, (b) all monies due or to become due with respect thereto, (c) all Recoveries and Insurance Proceeds relating to such Receivables, (d) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, (e) all rights, remedies, powers and privileges with respect to the Receivables, (f) all of the Seller's rights, remedies, powers and privileges under the First Purchase Agreement and (g) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. Such property described in the preceding sentence shall constitute the property transferred by the Seller (collectively, the "TRANSFERRED ASSETS"). ELDER-BEERMAN PURCHASE AGREEMENT 8 5 SECTION 2.02. PAYMENT OF FIRST PURCHASE PRICE. (a) On the Initial Cut Off Date, the Purchaser shall pay to the Seller, with respect to all of the Seller's right, title and interest in, to and under all Receivables and other Transferred Assets existing at the close of business on the Initial Cut Off Date, a payment in an amount equal to the amount of the payment made pursuant to Section 2.02(a) of the Second Purchase Agreement. (b) On each Business Day during the Effective Period (each, a "PURCHASE DATE"), the Seller shall determine the Receivables and other Transferred Assets with respect thereto arising since the close of business on the preceding Business Day, which Receivables and other Transferred Assets shall be deemed available for purchase by the Purchaser on such Purchase Date. To the extent that any sale of Receivables is not reflected in the Daily Report, such Receivables and other Transferred Assets with respect thereto will nevertheless be deemed sold to such Purchaser in every respect and all of the Seller's rights, title and interest in, to and under such Receivables and other Transferred Assets will be deemed to have been sold to the Purchaser. (c) The purchase price payable to the Seller for the Receivables and other Transferred Assets to be purchased on any Purchase Date shall be an amount equal to the Purchase Price (as defined under the Second Purchase Agreement) for such Receivables and other Transferred Assets determined on such Purchase Date (such amount, the "First Purchase Price"); PROVIDED, HOWEVER, that such First Purchase Price shall not be less than the reasonably equivalent value of the Receivables to which such First Purchase Price relates, and in the event that, in the reasonable judgment of either the Seller or the Purchaser, such First Purchase Price is less than such reasonably equivalent value or does not reflect the fair market value of such Receivables, within five Business Days after such Purchase Date, each of the Seller and the Purchaser (after notice to the other party) shall appoint a Person (other than an Affiliate of the Purchaser or Seller) in the business of purchasing proprietary credit card receivables, and such Persons shall appoint a third Person (other than an Affiliate of the Purchaser or Seller) in such business, and such Persons shall make an independent appraisal of the value of such Receivables and shall determine a First Purchase Price which reasonably reflects the fair market value of such Receivables. (d) The First Purchase Price shall be paid to the Seller on the applicable Purchase Date in immediately available funds to the extent of funds available to the Purchaser. Payment with respect to the excess, if any, of the First Purchase Price over the payment therefor set forth in clauses (a) and (c) above shall be evidenced by the Subordinated Note (as defined under the Second Purchase Agreement), which the Purchaser shall transfer, assign, set-over or otherwise convey to the Seller or (ii) to the extent, the First Purchase Price exceeds ELDER-BEERMAN PURCHASE AGREEMENT 9 6 the sum of the amount of such available funds and the face amount of such Subordinated Note, a contribution by the Seller to the Purchaser's capital, and the First Purchase Price shall be considered paid in full by reflecting such contribution as an addition to the surplus of the Purchaser at an appropriate value. In addition, the Seller may otherwise make capital contributions to the Purchaser. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants to the Purchaser as of the Initial Cut Off Date and each Purchase Date that: (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Seller (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Seller of the Transaction Documents to which it is or is to be a party, the making of each Transfer hereunder and the consummation of the transactions contemplated hereby are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene or violate any Requirement of Law, (ii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Seller or any of its properties or (iii) except for the Liens created under the Transaction Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Seller, and no transaction contemplated hereby requires compliance on its part with any bulk sales act or similar law. The Seller is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. ELDER-BEERMAN PURCHASE AGREEMENT 10 7 (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required with respect to the Seller for (i) the due execution, delivery or performance by the Seller of any of the Transaction Documents to which it is or is to be a party, any Transfer or the consummation of the other transactions contemplated hereby or thereby, (ii) the grant by the Seller of the transfers made or Liens granted by it pursuant to this Agreement, (iii) the perfection or maintenance of the transfers made or Liens created by this Agreement (including the first priority nature thereof) or (iv) the exercise by the Purchaser and its assigns of its rights under this Agreement or its remedies granted under the Transaction Documents, except for (A) the financing statements and other documents required to have been filed on or prior to the Initial Cut Off Date pursuant to the Certificate Purchase Agreement for the initial Series issued pursuant to the Pooling and Servicing Agreement, all of which have already been duly filed and are in full force and effect, (B) the filing from time to time of any amendments, assignments, continuation statements or other documents which may become required or applicable pursuant to Section 7.01 hereof or Sections 2.05(i) or 3.03(b)(viii) of the Pooling and Servicing Agreement and (C) any properly completed and executed UCC-3 termination statements which shall have been delivered to the Program Agent on or before the Initial Cut Off Date. (d) ENFORCEABILITY. Each Transaction Document to which the Seller is or is to be a party constitutes a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws. Each Transaction Document is in full force and effect, and is not subject, as to the Seller, to any specific dispute, offset, counterclaim or defense of the Seller. (e) NO LITIGATION. There is no action, suit, investigation, litigation or proceeding affecting the Seller, pending or threatened before any Governmental Authority or arbitrator that (i) could have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated hereby, including the prevention of the issuance of the Certificates or (iii) could have an adverse effect on the income tax attributes of the Trust. (f) LIENS ON PROPERTIES. Except for Liens that will be terminated prior to the Initial Cut Off Date, there are no Liens of any nature whatsoever on any Account or Receivable. The Seller is not a party to any contract, agreement, lease or instrument (other than this Agreement or as contemplated by this Agreement) the performance of ELDER-BEERMAN PURCHASE AGREEMENT 11 8 which, either unconditionally or upon the happening of an event, will result in or require the creation of any Lien on any Account or Receivable, or otherwise result in a violation of any Transaction Document. (g) CONTRACTUAL OBLIGATIONS. (i) The Seller is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument, or subject to any Requirement of Law, that would have an adverse effect on the ability of the Seller to carry out its obligations under this Agreement or any other Transaction Document to which it is a party, and (ii) neither the Seller nor any other party is in default in any respect under or with respect to any Transaction Document or any other contract, agreement, lease or instrument to which the Seller is a party. (h) INVESTMENT COMPANY ACT, ETC. The Seller is not an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, or a company controlled by, an "investment company" within the meaning of and as such terms are defined in the Investment Company Act. Each Transfer of Receivables to the Purchaser hereunder constitutes a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act. The acquisition by the Purchaser of each Receivable constitutes a "current transaction" within the meaning of Section 3(a)(3) of such Act. (i) LOCATIONS. The chief place of business and chief executive office of the Seller, and the office where the Seller keeps the originals of its books, records and documents regarding the Receivables and other Transferred Assets are located at the address of the Seller specified in Section 7.08. During the four months prior to the Transfer Date and prior to any Purchase Date, the chief place of business and chief executive office of the Seller, and the offices where the Seller kept the originals of its books, records and documents regarding the Receivables and the other Transferred Assets were located at the address of the Seller specified in Section 7.08. (j) TRADENAMES. The legal name of the Seller is as set forth on the signature page of this Agreement and the Seller has no tradenames, fictitious names, assumed names or "doing business as" names. (k) ACCURACY OF INFORMATION. Each certificate, information, exhibit, financial statement, document, book, record or report furnished by a Responsible Officer of the Seller to any Originator Indemnified Party in connection with this ELDER-BEERMAN PURCHASE AGREEMENT 12 9 Agreement is accurate in all material respects as of its date and no such document contains any misstatement of material fact. (l) SOLVENCY. The Seller is Solvent and will be Solvent after giving effect to the transactions contemplated by the Transaction Documents. (m) COLLECTION ACCOUNTS. Schedule 3.03(a)(vi) to the Pooling and Servicing Agreement (as such Schedule may be amended from time to time pursuant thereto) is a complete and accurate list of each Collection Account as of each Purchase Date. The Collection Account Banks are the only institutions holding Collection Accounts for the receipt of payments in respect of Receivables (subject to such changes as may be made from time to time in accordance with Section 4.02(c) of the Pooling and Servicing Agreement), and all Obligors, and only such Obligors, have been instructed or, upon the creation of Receivables, will be instructed to make payments only to the Collection Accounts in accordance with Section 4.03 of the Pooling and Servicing Agreement and such instructions have not been modified or revoked by the Seller (except as permitted under Section 4.02 of the Pooling and Servicing Agreement) and such instructions that have been given are in full force and effect. (n) COMPLIANCE. The Seller has complied, and will comply on each Purchase Date, with each Requirement of Law with respect to all Receivables and other Transferred Assets Transferred to the Purchaser hereunder and the Cardholder Agreements related thereto and with respect to its business or properties. The Seller has performed and complied with its obligations under the Cardholder Agreements and invoices giving rise to the Receivables. (o) TAXES. The Seller has filed all tax returns (federal, state and local) which it reasonably believes are required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from the Seller or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its other creditors. The Seller knows of no reasonable basis for any additional tax assessment for any year for which adequate reserves have not been established. (p) USE OF PROCEEDS. No proceeds of any Purchase will be used by the Seller to acquire any security in a transaction that is subject to Sections 13 and 14 of ELDER-BEERMAN PURCHASE AGREEMENT 13 10 the Exchange Act, as amended, or to purchase or carry any margin security in violation of any applicable law or regulation. (q) NO RESCISSION. No Cardholder Agreement giving rise to any Receivable Transferred hereunder has been amended, satisfied, subordinated or rescinded, except as disclosed in writing to the Purchaser on or before the date of Transfer of such Receivable or as otherwise permitted under the Pooling and Servicing Agreement. Subsequent to such Transfer no such Receivable has been compromised, adjusted, extended, satisfied, subordinated, rescinded or modified, except as permitted under the Pooling and Servicing Agreement. (r) NO PAYMENT. The Seller has no Knowledge of any fact which would lead it to reasonably expect that, when billed, any Receivable Transferred hereunder would not be paid in accordance with its terms when due. (s) FRAUDULENT CONVEYANCE. The Seller is not entering into the transactions contemplated hereby with the intent of hindering, delaying or defrauding creditors. (t) VALID SALE AND TRANSFER. This Agreement creates a valid sale, transfer and assignment to the Purchaser of, and, subject to the interest of El-Bee Receivables under the Second Purchase Agreement, and subject to the interest of the Trust under the Pooling and Servicing Agreement, the Purchaser is the legal and beneficial owner of, in each case whether now existing or hereafter created, (A) all of Elder-Beerman's right, title and interest in and to all of the Receivables existing on the Initial Cut Off Date and thereafter arising from time to time in connection with the Accounts until the termination of the Trust, (B) all monies due or to become due with respect thereto, (C) all Recoveries and Insurance Proceeds relating to such Receivables, (D) all Collections and all other amounts received or receivable from time to time with respect to such Receivables, and (E) all rights, remedies, powers and privileges with respect to such Receivables, (F) all of Elder-Beerman's rights, remedies, powers and privileges under each Interest Rate Protection Agreement and (G) all proceeds (including "proceeds" as defined in the UCC of the State of New York and of the jurisdiction the law of which governs the perfection of the interest in the Receivables Transferred hereunder) of the foregoing. This Agreement constitutes a valid Transfer and assignment to the Purchaser of all right, title and interest of the Seller in and to the Transferred Assets, which is enforceable with respect to the Receivables now existing in connection with the Accounts and the other existing Transferred Assets and the proceeds thereof, and which will be enforceable by the Purchaser, in the case of Receivables hereafter created and arising from time to time in connection with the Accounts and all other Transferred ELDER-BEERMAN PURCHASE AGREEMENT 14 11 Assets and the proceeds thereof hereafter created, upon such creation. Upon the filing of the appropriate financing statements, the Purchaser shall have a first priority perfected ownership interest in Transferred Assets and proceeds thereof. Except as otherwise provided in the Pooling and Servicing Agreement, the Seller has clearly and unambiguously marked all of its computer records and all of its microfiche storage files, if any, in a manner reasonably calculated to indicate that the Transferred Assets are the property of the Purchaser and shall cause the Purchaser to maintain such records in a manner such that the Purchaser's perfected first priority interest in the Receivables shall not be adversely affected. (u) NO CLAIM OR INTEREST. (i) Except as otherwise provided in this Agreement or any applicable Supplement, neither the Seller nor any Person claiming through or under the Seller has any claim to or interest in the Concentration Account, the Collection Accounts (other than the Store Accounts), the Excess Funding Account or any Series Account. (ii) Each Receivable and other Transferred Asset has been or will be Transferred to the Purchaser free and clear of any Lien or interest of any other Person not holding through the Trust, and in compliance with all Requirements of Law applicable to the Transferor. (v) ELIGIBILITY. Each Account that was classified as an "Eligible Account" by the Seller, the Purchaser or the Servicer in any document or report delivered hereunder or under the Pooling and Servicing Agreement satisfied, at the time of such classification, the requirements for eligibility contained in the definition of Eligible Account. Each Receivable as of the date of its Transfer is an Eligible Receivable. The computer file or microfiche or written list delivered by the Servicer pursuant to Section 3.03(b)(viii)(E) of the Pooling and Servicing Agreement is a true and complete listing of all Accounts and the information contained therein with respect to the identity of each Account and the aggregate unpaid balance of the Receivables existing thereunder is true and correct. (w) ERISA. No Plan has any accumulated funding deficiency, as defined in Section 302(a) of ERISA, whether or not waived. The Seller and each ERISA Affiliate has timely made all contributions required to be made by it to any Plan, except where a failure to contribute could not reasonably be expected to give rise to a Lien under Section 302(f) of ERISA. No Plan Event with respect to any Plan has occurred or could reasonably be expected to occur that could result, directly or indirectly, in any Lien being imposed on the property of the Seller. Neither the Seller nor any ERISA Affiliate has incurred, or could reasonably be expected to incur, withdrawal liability to, ELDER-BEERMAN PURCHASE AGREEMENT 15 12 or liability in connection with, the reorganization, termination or insolvency of any Multiemployer Plan. (x) TERMINATION EVENT. No event or condition has occurred and is continuing that is, or with the giving of notice or the passage of time or both would constitute, a Termination Event. (y) REASSIGNMENT OF PORTFOLIO. Upon the occurrence of an event or condition for which a Receivable shall be removed from the Trust under Section 2.04(e) of the Pooling and Servicing Agreement, the Seller shall accept reassignment of an amount of Principal Receivables (as specified below) to the extent El-Bee Receivables is obligated to accept reassignment under Section 3.01(y) of the Second Purchase Agreement. The Seller (on behalf of the Purchaser and El-Bee Receivables) shall deposit on such Reassignment Date an amount equal to the reassignment deposit amount (as specified in Section 2.04(e) of the Pooling and Servicing Agreement) for such Receivables in the Concentration Account. On the Distribution Date on which such amount has been deposited in full into the Concentration Account, Transferred Assets which have been released to El-Bee Receivables under Section 3.01(y) of the Second Purchase Agreement shall be released to the Seller by El-Bee Receivables (on behalf of the Purchaser) after payment of all amounts otherwise due hereunder on or prior to such dates, and the Purchaser shall execute and deliver such instruments of transfer or assignment, in each case without recourse, representation or warranty, as shall be prepared by and as are reasonably requested by the Seller to vest in the Seller, all right, title and interest of the Purchaser in and to such Transferred Assets. If the Purchaser or the Trustee gives notice directing the Seller to accept reassignment as provided above, the obligation of the Seller to accept reassignment of the Receivables and pay the reassignment deposit amount pursuant to this Section 3.01(y) shall constitute the sole remedy respecting a breach of the representations and warranties contained in Sections 3.01(d) and 3.01(t) hereof available to the Purchaser. (z) SURVIVAL. The representations and warranties set forth in Section 3.01 hereof shall survive the Transfer of any of the respective Receivables to the Purchaser and the termination of the rights and obligations of the Servicer pursuant to Section 10.01 of the Pooling and Servicing Agreement. SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants to the Seller as of the Initial Cut Off Date and each Purchase Date that: ELDER-BEERMAN PURCHASE AGREEMENT 16 13 (a) DUE ORGANIZATION, QUALIFICATION AND AUTHORIZATION. The Purchaser (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) CORPORATE POWERS AND NO CONFLICTS. The execution, delivery and performance by the Purchaser of the Transaction Documents to which it is or is to be a party, the Transfer of the Receivables and other Transferred Assets pursuant to this Agreement and the consummation of the transactions contemplated hereby are within the Purchaser's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Purchaser's charter or bylaws, (ii) violate any Requirement of Law, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Purchaser or any of its properties or (iv) except for the Liens created under the Transaction Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Purchaser. The Purchaser is not in violation of any Requirement of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENT AUTHORIZATION AND APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by the Purchaser of any of the Transaction Documents to which it is or is to be a party, the making of each purchase and sale of Receivables hereunder or the consummation of the other transactions contemplated hereby or thereby. (d) ENFORCEABILITY. Each Transaction Document to which the Purchaser is or is to be a party constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms (except as such enforceability may be limited by Debtor Relief Laws). Each Transaction Document is in full force and effect, and is not subject, as to the Purchaser, to any specific dispute, offset, counterclaim or defense of the Purchaser. ELDER-BEERMAN PURCHASE AGREEMENT 17 14 SECTION 3.03. OBLIGATIONS UNAFFECTED. The obligations of the Seller to the Purchaser under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or other Transferred Asset or the sale of any Receivable or other Transferred Asset. ARTICLE IV COVENANTS SECTION 4.01. AFFIRMATIVE COVENANTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date: (a) COMPLIANCE WITH LAW. The Seller shall duly satisfy all obligations on its part to be fulfilled under or in connection with the Receivables and the Seller Related Security, will maintain in effect all qualifications required under any Requirement of Law in order to properly convey the Receivables and other Transferred Assets to the Purchaser and will comply in all respects with all Requirements of Law applicable to the Seller, its business and properties and the Receivables and other Transferred Assets. (b) PRESERVATION OF LEGAL EXISTENCE. The Seller will preserve and maintain its existence, legal structure, legal name and its rights (charter and statutory), permits, licenses, approvals, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in each jurisdiction where the failure to maintain such qualification could have a Material Adverse Effect. (c) AUDITS. At any time during the Seller's regular business hours and on reasonable prior notice and for a purpose reasonably related to this Agreement, the Seller shall, at its expense and in response to any reasonable request of the Purchaser or the Trustee, permit the Purchaser or the Trustee, or their respective agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes, microfiche and disks) in the possession or under the control of the Seller relating to the Receivables, other Transferred Assets and related Cardholder Agreements and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials and to discuss matters relating to the Receivables, other Transferred Assets, and related Cardholder Agreements or the Seller's performance hereunder with any of the officers or employees of the Seller having knowledge thereof. ELDER-BEERMAN PURCHASE AGREEMENT 18 15 (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Seller will (i) keep proper books of record and account, which shall be maintained or caused to be maintained by the Seller and shall be separate and apart from those of any Affiliate of the Seller, in which full and correct entries shall be made of all financial transactions and the assets and business of the Seller in accordance with generally accepted accounting principles consistently applied, (ii) maintain and implement administrative and operating procedures (including the ability to recreate records evidencing the Receivables and other Transferred Assets in the event of the destruction of the originals thereof) and (iii) keep and maintain all documents, books, records and other information necessary or reasonably advisable for the collection of all Receivables and other Transferred Assets (including records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES. The Seller will, at its expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it hereunder including complying with its material obligations under all Cardholder Agreements and invoices giving rise to the Receivables. The Seller may not change the terms and provisions of the Cardholder Agreements or the Cardholder Guidelines in any respect except in accordance with Section 2.05(t) of the Pooling and Servicing Agreement. The Seller will not rescind or cancel, or permit the rescission or cancellation of, any Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority. (f) PAYMENT OF TAXES, ETC. The Seller will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon it, or any Transferred Asset, or in respect of its receipts, income or profits therefrom, and any and all claims of any kind, except that no such amount, so long as such amount is not material, need be paid if the charge or levy is being contested in good faith through appropriate proceedings as to which adequate reserves are being maintained and no Lien with respect thereto has attached to its property and become enforceable against its creditors. (g) CARDHOLDER GUIDELINES. The Seller shall comply with the Cardholder Guidelines. (h) COLLECTIONS. (i) The Seller will instruct all Obligors to pay all Collections of Receivables directly into a Collection Account or to the Servicer, and the Seller shall deposit any Collections received by it directly into a Collection Account in ELDER-BEERMAN PURCHASE AGREEMENT 19 16 the manner and within the time period required by Section 4.03(a) of the Pooling and Servicing Agreement. (ii) If the Seller accepts payment of a Receivable from any Obligor in a currency other than U.S. Dollars, then the Seller will, on the date of such acceptance, deposit directly into a Collection Account in U.S. Dollars an amount equal to the outstanding principal amount of such Receivable. (iii) In the event that the Seller receives any Collections, the Seller agrees to hold all such Collections in trust and to deposit such Collections to the appropriate Collection Account as soon as practicable, but in no event later than when required under Section 4.03(a) of the Pooling and Servicing Agreement. (iv) In the event that any Affiliate of the Seller receives any Store Payment, the Seller agrees to cause such Affiliate to hold all such Collections in trust and to cause such Affiliate to deposit such Collections to the appropriate Collection Account within two Business Days after such payments are deposited into Store Accounts. (i) MERGER. The Seller will comply, and cause each of its Subsidiaries to comply, with Section 7.4 of the Credit Agreement. (j) MAINTENANCE OF SEPARATE EXISTENCE AND DIRECTORS. Seller shall take all actions as are necessary to comply with, and to cause El-Bee Receivables to comply with, Section 2.05(d) and Section 2.05(r) of the Pooling and Servicing Agreement. (k) MODIFICATION OF SYSTEMS. The Seller agrees, promptly after the replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to make any calculations or reports hereunder, to give written notice of any such replacement or modification to the Purchaser and the Trustee. (l) MAINTENANCE OF INSURANCE. The Seller shall use its best efforts to maintain with a responsible company, and at its own expense, its current commercial crime insurance (including commercial fraud insurance) as is commercially available at a cost that is not generally regarded as excessive by industry standards, with coverage on all officers, employees or other Persons acting in any capacity requiring such Persons to handle funds, money, documents or papers relating to the Receivables and the related Accounts. ELDER-BEERMAN PURCHASE AGREEMENT 20 17 SECTION 4.02. REPORTING REQUIREMENTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date: (a) TERMINATION EVENTS, ETC. The Seller shall (i) within one Business Day after a Responsible Officer of the Seller obtains Knowledge of the occurrence of any Termination Event or any event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, notify the Purchaser and the Trustee of such occurrence; (ii) as soon as possible and in any event (A) within three Business Days after a Responsible Officer of the Seller obtains Knowledge of the occurrence of any Termination Event or event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, deliver to the Purchaser and the Trustee a written statement of a Responsible Officer of the Seller setting forth details of such Termination Event or such event and the action that the Seller has taken and proposes to take with respect thereto; and (B) within three Business Days after a Responsible Officer of the Seller makes a determination that any other event, development or information is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, give written notice thereof to the Purchaser and the Trustee. (b) LITIGATION. As soon as possible and in any event within 10 Business Days after a Responsible Officer of the Seller obtains Knowledge thereof, the Seller shall notify the Purchaser of any litigation, investigation or proceeding which could be expected to impair the ability of the Seller to perform its obligations under this Agreement. (c) ERISA. As soon as possible and in any event within 30 days after a Responsible Officer of the Seller obtains Knowledge that one of the following events has occurred or is reasonably expected to occur, furnish to the Trustee the written statement of a Responsible Officer of the Seller setting forth details of: (i) the occurrence of any Plan Event with respect to any Plan or (ii) the withdrawal by the Seller or any of its ERISA Affiliates from, or the termination, reorganization or insolvency of, any Multiemployer Plan. (d) LIENS. The Seller will advise the Purchaser and the Trustee promptly, in reasonable detail, (A) of any Lien or claim asserted against any of the Receivables or ELDER-BEERMAN PURCHASE AGREEMENT 21 18 other Transferred Asset, and (B) of the occurrence of any event which in the case of clause (A) would have an adverse effect on the value of the Receivables or other Transferred Assets. (e) OTHER INFORMATION. The Seller shall promptly, from time to time, furnish to the Purchaser such other information, documents, records or reports regarding the Receivables, the other Transferred Assets or the condition or operations, financial or otherwise, of the Seller, as the Purchaser may from time to time reasonably request. SECTION 4.03. NEGATIVE COVENANTS OF THE SELLER. The Seller hereby covenants that, until the Trust Termination Date, it will not: (a) SALES, LIENS, ETC. Except for the Transfers contemplated herein, or pursuant to or as contemplated by the Pooling and Servicing Agreement or Second Purchase Agreement, sell, pledge, assign or transfer any Receivable, any other Transferred Asset or any interest therein to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable or other Transferred Asset or any other property or asset of the Seller, whether now existing or hereafter created, or any interest therein, and the Seller shall defend the right, title and interest of the Purchaser in and to the Receivables and other Transferred Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Seller or any other Originator. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Extend, amend or otherwise modify (or consent or fail to object to any such extension, amendment or modification), except as permitted under the Cardholder Agreements, the Cardholder Guidelines or Section 2.05(t) of the Pooling and Servicing Agreement, the terms of any Receivable and the related Account, or amend, modify or waive (or consent or fail to object to any such extension, amendment or modification) any payment term or condition of any invoice related thereto (other than as provided in the Cardholder Agreements, Cardholder Guidelines or Section 2.05(t) of the Pooling and Servicing Agreement). The Seller will not rescind or cancel, or permit the rescission or cancellation of, any Receivable or the related Account except as ordered by a court of competent jurisdiction or other Governmental Authority. (c) CHANGE IN BUSINESS OR CARDHOLDER GUIDELINES. Make any change in the nature of its business as carried out on the date hereof or in the Cardholder Guidelines, which change would, in either case, materially impair the collectibility of the ELDER-BEERMAN PURCHASE AGREEMENT I 22 19 Receivables, except as permitted under the terms of the Pooling and Servicing Agreement. (d) CHANGE IN LEGAL NAME. (i) Make any change to its legal name, identity or business structure in any manner or chief executive office (including the address thereof) or use any trade names, fictitious names, assumed names or "doing business as" names or (ii) change its jurisdiction of organization UNLESS, prior to the effective date of any such name change, change in chief executive office, use or change of jurisdiction, the Seller delivers to the Purchaser (A) written notice of such change at least 30 days prior to the effective date thereof, (B) such financing statements (Forms UCC-1 and UCC-3) executed by the Seller required to reflect such name change, change in chief executive office, use or change of jurisdiction, together with such other documents and instruments required in connection therewith to maintain the continued perfection of the interests of the Purchaser in the Transferred Assets and (C) prior to the effective date thereof, an Opinion of Counsel, in form and substance satisfactory to the Purchaser, as to the Seller's due organization, valid existence and good standing and the continued perfection after the effective date thereof of the interests of the Purchaser in and to the Receivables and other Transferred Assets Transferred hereby (to the same extent as such interest was perfected on the Initial Cut Off Date with respect to the Receivables then owned by the Seller). Furthermore, the Seller shall give 30 days prior written notice to the Purchaser of any change in the location of the office where it keeps the books, records and documents regarding the Receivables and the other Transferred Assets from the address of the Seller referred to in Section 7.08. (e) DEPOSITS TO COLLECTION ACCOUNTS. Deposit or otherwise credit, or cause to be so deposited or credited, or consent or fail to object to any such deposit or credit Known to it, cash or cash proceeds other than Collections to the Concentration Account, any Collection Account (other than the Store Accounts), the Excess Funding Account or any Series Account. (f) NO ACTIONS AGAINST OBLIGORS. Except in accordance with the Cardholder Guidelines and Pooling and Servicing Agreement, commence or settle any legal action to enforce collection of any Receivable. (g) NO BANKRUPTCY FILING AGAINST THE PURCHASER OR THE TRUST. Commence, institute or cause to be commenced or instituted any proceeding of the type referred to in the definition of "Insolvency Event" against the Purchaser or the Trust. ELDER-BEERMAN PURCHASE AGREEMENT 23 20 (h) LOCATIONS OF SUBSIDIARIES. Permit any of the Originators to have or maintain its jurisdiction of organization or principal place of business in any of the States of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming. (i) SUBORDINATED NOTE. Transfer or pledge the Subordinated Note (as defined in the Second Purchase Agreement) to any Person, other than as permitted under the Intercreditor Agreement or hereunder. (j) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. Take action which would impair the rights of any Beneficiary in any Receivable or other Trust Asset or any proceeds thereof, except as provided in the Pooling and Servicing Agreement. (k) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. Take action to cause any Receivable to be evidenced by any "instrument" (as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest in such Receivable created hereunder), except in connection with its enforcement, in which event the Seller shall deliver such instrument to the Purchaser as soon as reasonably practicable but in no event more than three Business Days after execution thereof. (l) INFORMATION PROVIDED TO RATING AGENCIES. The Seller will use its best efforts to cause all information provided to any Rating Agency pursuant to this Agreement or the Pooling and Servicing Agreement or in connection with any action required or permitted to be taken under this Agreement or the Pooling and Servicing Agreement to be complete and accurate in all material respects. SECTION 4.04. AFFIRMATIVE MUTUAL COVENANT. The Purchaser and Seller shall record each Purchase as a purchase and sale, respectively, on its books and records and reflect each Purchase in its financial statements as a purchase and sale, respectively. ARTICLE V EVENTS OF TERMINATION SECTION 5.01. TERMINATION. If any of the following events (each, a "TERMINATION EVENT") shall have occurred: ELDER-BEERMAN PURCHASE AGREEMENT 24 21 (a) any failure by the Seller to make any payment, transfer or deposit required to be paid, effected or made by it hereunder within two Business Days after the same shall become due; or (b) any representation or warranty, certification or written statement made or deemed made by the Seller under or in connection with this Agreement or in any statement, record, certificate, financial statement or other document delivered pursuant hereto or in connection herewith shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) the Seller shall fail to observe or perform any covenant or agreement applicable to it contained herein (other than as specified in clause (a) above) which has a material adverse effect on any Beneficiary of any Series if such failure shall remain unremedied for ten days after the first date on which any Responsible Officer of the Seller knew or should have known of such failure; or (d) any Receivables transferred hereunder whose aggregate outstanding principal balance constitute more than 1% of the aggregate outstanding principal balance of all Eligible Receivables shall for any reason cease to be the subject of the valid and perfected first priority ownership interest created by this Agreement; or any Receivables transferred hereunder whose aggregate outstanding principal balance constitute more than 1% of the aggregate outstanding principal balance of all Eligible Receivables shall cease to be free and clear of any Lien except as provided for herein; or (e) an Insolvency Event shall occur with respect to the Seller; or (f) the Internal Revenue Service shall file notice of a Lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the Receivables or the PBGC shall file notice of a Lien pursuant to Section 4068 of ERISA with regard to any of the Receivables; or (g) there shall have occurred a Trust Early Amortization Event; then, if any of the events set forth in paragraph (e) above shall have occurred, a "Termination Event" shall occur without any notice, demand, protest or other requirement of any kind immediately upon the occurrence of such event and, if any of the events set forth in any other paragraph above shall have occurred, the Purchaser may, by notice to the Seller, declare that a "Termination Event" shall occur as of the date set forth in such notice. Upon the occurrence ELDER-BEERMAN PURCHASE AGREEMENT 25 22 of a Termination Event, the Effective Period shall terminate (any termination of the Effective Period pursuant to this Section 5.01 is herein referred to as an "EARLY TERMINATION"). Upon any Early Termination the Purchaser shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies with respect to the Receivables provided under the UCC of the applicable jurisdiction and under other applicable laws, which rights and remedies shall be cumulative. The Purchaser may, with the prior written consent of a Majority in Interest of each outstanding Series (or, if so specified in the related supplement, each Enhancement Provider for such Series) on behalf of all Certificateholders, waive any default (other than a default described in paragraph (e) above) by the Seller in the performance of its obligations hereunder and its consequences, except the failure to make any distributions or payments required to be made to the Purchaser or to make any required deposits of any amounts to be so distributed or paid. The Purchaser with the consent of the Certificateholders of Certificates evidencing 67% or more of the Aggregate Invested Amount of each outstanding Series (or, if so specified in the related Supplement, each Enhancement Provider for such Series) may, on behalf of all Certificateholders, waive any default described in paragraph (e) above and its consequences. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. ELDER-BEERMAN PURCHASE AGREEMENT 26 23 ARTICLE VI INDEMNIFICATION SECTION 6.01. INDEMNIFICATION. Without limiting any other rights which the Purchaser, the Trustee, any Program Agent, any Enhancement Provider and their respective assignees (which shall not be deemed to include any of the Certificateholders as such) and their respective officers, directors, employees, agents and affiliates (each, an "ORIGINATOR INDEMNIFIED PARTY" and collectively the "ORIGINATOR INDEMNIFIED PARTIES") may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Purchaser and any of its assignees hereunder (including each other Originator Indemnified Party) from and against any and all claims, damages, losses and liabilities and related costs and expenses (including reasonable attorneys' fees and disbursements) (all of the foregoing being collectively referred to as "ORIGINATOR INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or resulting from this Agreement, the activities of the Seller in connection herewith or with any Transaction Document to which the Seller is a party in its capacity as Seller or the use of proceeds of purchases hereunder or the ownership of any Receivable or other Transferred Asset (excluding however (a) Originator Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Originator Indemnified Party, (b) recourse (except as otherwise specifically provided in any Transaction Document) for uncollectible Receivables or (c) EXCEPT with respect to clause (x) below, any federal, state, foreign or local income or franchise taxes or any other tax imposed on or measured by income (or any interest, penalty, or addition to tax with respect thereto or arising from a failure to comply therewith) incurred by such Originator Indemnified Party arising out of or as a result of this Agreement or the interest conveyed hereunder in Receivables and other Transferred Asset or Account. Without limiting or being limited by the foregoing, the Seller shall pay on demand to the Purchaser or any of its assignees (including each other Originator Indemnified Party) any and all amounts necessary to indemnify the Purchaser or any such assignee from and against any and all Originator Indemnified Amounts relating to or resulting from: (i) reliance on any representation, warranty or covenant made or statement made or deemed made by the Seller (or any of its Responsible Officers) under or in connection with any Transaction Document which shall have been incorrect in any material respect when made or deemed made or which the Seller shall have failed to perform; (ii) the failure by the Seller to comply with any Transaction Document or any applicable Requirement of Law with respect to any Receivable, any other ELDER-BEERMAN PURCHASE AGREEMENT 27 24 Transferred Asset or Account, or the failure of any Receivable, any other Transferred Asset or Account to conform to any requirement with respect thereto under any Transaction Document or any Requirement of Law; (iii) the failure to vest in the Purchaser a perfected first priority 100% ownership interest in the Receivables free and clear of any Lien; (iv) the failure to have filed, or any delay in filing, any financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws that are necessary for perfection or first priority of the ownership interests created by this Agreement; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including a defense based on such Receivable, any other Transferred Asset or Account not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise, insurance or services related to such Receivable or the furnishing or failure to furnish such merchandise, insurance or services; (vi) any products liability claim or other claim allegedly arising out of or in connection with merchandise, insurance or services which gave rise to any Receivable or any credit, administration or other activity in connection with any Cardholder Agreement; (vii) any failure by the Seller or any Affiliate of the Seller (other than the Purchaser) to perform its duties or obligations in accordance with the provisions of any Transaction Document, including any failure to so perform in connection with servicing, administering or collecting any Receivable; (viii) any commingling by an act or omission of the Seller of Collections at any time with other funds (other than in the Store Accounts); (ix) any investigation, litigation or proceeding related to any Receivable, this Agreement or any other Transaction Document to which the Seller is or is to be a party or the use of proceeds of purchases hereunder or the ownership of Receivables, any other Transferred Assets or related Accounts or in respect of any Receivable, Account or Cardholder Agreement; ELDER-BEERMAN PURCHASE AGREEMENT 28 25 (x) any taxes, including sales, excise, intangibles, value added, personal property and similar taxes, payable with respect to the Receivables or the Accounts; (xi) any reduction in the outstanding principal balance of a Receivable by reason of any defective, rejected, returned, repossessed or foreclosed merchandise, insurance or services or any cash discount or other adjustment made by the Seller; (xii) any breach by the Seller of any obligation under any Receivable or any Cardholder Agreement; (xiii) Any Receivable classified as an "Eligible Receivable" by the Seller in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of Eligible Receivable; or (xiv) Any Account classified as an "Eligible Account" by the Seller in any document or report delivered hereunder failing to satisfy, at the time of such classification, the requirements of eligibility contained in the definition of "Eligible Account." Any Originator Indemnified Amounts due hereunder shall be payable within fifteen Business Days of submission of a claim by the Originator Indemnified Party which describes in reasonable detail the basis for such claim. The rights of the Originator Indemnified Parties under this Section 6.01 shall survive the collection of all Receivables, the termination of this Agreement and the Trust and the payment of all amounts otherwise payable hereunder. 29 26 ARTICLE VII MISCELLANEOUS SECTION 7.01. FURTHER ASSURANCES. (a) The Seller agrees that from time to time, at its own expense, the Seller will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Purchaser may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Purchaser to exercise and enforce its rights and remedies hereunder with respect to any Receivable and other Transferred Assets and to enable the Trustee to exercise its rights and remedies under the Transaction Documents with respect to any of the Trust Assets. Without limiting the generality of the foregoing, the Seller will: (i) mark its master data processing and computer records in a manner reasonably calculated to indicate that the Transferred Assets have been sold to the Purchaser in accordance with this Agreement and the other Transaction Documents; (ii) clearly and unambiguously identify each Account in its computer or other records and all its micro fiche storage files, if any, to reflect that an interest in the Receivables arising in such account has been Transferred pursuant to this Agreement; (iii) if any Receivable or other Transferred Asset shall be evidenced by a promissory note, other instrument or chattel paper, deliver and pledge to the Purchaser such note, instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Purchaser; and (iv) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Purchaser may reasonably request, in order to perfect and preserve the valid and perfected first priority ownership or security interests granted or purported to be granted hereunder or under any Transaction Document. (b) The Seller hereby authorizes the Purchaser to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Transferred Assets without the signature of the Seller where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Transferred Assets or any part thereof shall be sufficient as a financing statement where permitted by law. (c) The Seller will furnish to the Purchaser from time to time statements and schedules further identifying and describing the Transferred Assets and such other reports in connection with the Transferred Assets as the Purchaser may reasonably request, all in reasonable detail. ELDER-BEERMAN PURCHASE AGREEMENT 30 27 (d) The Seller shall, from time to time, execute and deliver to the Obligors any bills, statements and letters or other writings necessary to carry out the terms and provisions of any Transaction Document and to facilitate the collection of the Receivables in a manner consistent with the Cardholder Guidelines. SECTION 7.02. PAYMENTS. Each payment to be made by either of the Purchaser or the Seller hereunder shall be made on the required payment date, or on the next succeeding Business Day if the required payment date is not a Business Day, in U.S. Dollars and in immediately available funds at the office of the payee set forth in Section 7.08 below or to such other office as may be specified by either party in a written notice to the other party hereto. SECTION 7.03. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of indemnification granted to the Purchaser pursuant to Article VI hereof, the Seller agrees to pay on demand (i) all reasonable costs and expenses of the Purchaser in connection with the preparation, execution, delivery, modification and amendment of this Agreement and the other documents to be delivered by the Seller in connection with this Agreement, including the reasonable fees and expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and (ii) all reasonable costs and expenses (including reasonable counsel fees and expenses) of the Purchaser in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered by the Seller in connection herewith, including reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 7.03, EXCLUDING, HOWEVER, any costs of enforcement or collection of any Receivables. (b) In addition, the Seller agrees to pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment or deposit made hereunder or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement, and the Seller agrees to indemnify the Purchaser against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, charges or levies. SECTION 7.04. BINDING EFFECT; ASSIGNABILITY. (a) This Agreement shall be binding upon and inure to the benefit of the Seller and the Purchaser and their respective successors (whether by merger, consolidation or otherwise) and assigns. Except as otherwise permitted herein, the Seller agrees that it will not assign or transfer all or any portion of its rights or obligations hereunder to any Person without the prior written consent of the Parent, the Purchaser and a Majority in Interest of each outstanding Series. In connection with any ELDER-BEERMAN PURCHASE AGREEMENT 31 28 sale or assignment by the Purchaser of all or a portion of the Receivables or other Transferred Assets, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent specifically provided in the agreement between the Purchaser and such buyer or assignee. (b) The Seller acknowledges that the Purchaser shall assign to El-Bee Receivables, as collateral security for the Purchaser's obligations under the Second Purchase Agreement, all of the Purchaser's rights, remedies, powers and privileges hereunder (including the right to give any notice which the Purchaser may provide to the Seller hereunder), PROVIDED that the Purchaser shall not assign or delegate any of its duties or obligations hereunder to El-Bee Receivables. (c) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the last Termination Date of any Series; PROVIDED, HOWEVER, that rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article III and the provisions of Article VI and Sections 4.03(h), 7.03, 7.04 and 7.12 shall be continuing and shall survive any termination of this Agreement; and PROVIDED FURTHER that the Purchaser shall remain entitled to receive any collections on Receivables sold hereunder which have been charged off as uncollectible after it shall have completed its collection efforts in respect thereof. SECTION 7.05. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Purchaser, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 7.06. AMENDMENT. (a) This Agreement may be amended from time to time by the Seller and the Purchaser without the consent of any Beneficiary (i) to cure any ambiguity, (ii) to correct or supplement any provision herein which may be inconsistent with any other provision herein or (iii) to add any other provisions with respect to matters or questions arising under this Agreement which are not inconsistent with the provisions of this Agreement; PROVIDED that any amendment pursuant to this clause (a) shall not, as evidenced by a certificate of a Responsible Officer of the Seller, adversely affect in any material respect the interests of any Beneficiary. ELDER-BEERMAN PURCHASE AGREEMENT 32 29 (b) This Agreement may be amended from time to time by the Seller and the Purchaser, so long as the Rating Agency Condition is satisfied, with the consent of the Majority in Interest of each adversely affected Series for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, any payment to be made hereunder without the consent of each such Certificateholder or (ii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Investor Certificateholder. The Trustee may request an Officer's Certificate and Opinion of Counsel in each case to the effect that such amendment does not adversely affect any Series and is otherwise in compliance with the requirements of this Agreement. Any amendment to be effected pursuant to this paragraph shall be deemed to adversely affect all outstanding Series, other than any Series with respect to which such action shall not, as evidenced by an Opinion of Counsel (which counsel shall not be an employee of, or counsel for, the Seller or the Purchaser), addressed and delivered to the Trustee, adversely affect the interests of such Series. SECTION 7.07. SEVERABILITY. If any provision hereof is deemed void or unenforceable in any jurisdiction, such voiding or unenforceability shall not affect the validity or enforceability of such provision in any other jurisdiction or any other provision hereof in such or any other jurisdiction. SECTION 7.08. NOTICES. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, two Business Days after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the following Business Day. ELDER-BEERMAN PURCHASE AGREEMENT 33 30 (a) If to the Seller, 3155 El-Bee Road Dayton, Ohio 45439 Tel.: 937-296-4698 Fax: 937-296-4625 Attn.: Sr. Vice President and Treasurer (b) If to the Purchaser, 3155 El-Bee Road Dayton, Ohio 45439 Tel.: 937-296-4698 Fax: 937-296-4674 Attn.: President SECTION 7.09. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 7.10. CONSTRUCTION OF AGREEMENT AS SECURITY AGREEMENT. It is the intent of the parties that the transactions contemplated herein constitute sales of the Receivables and other Transferred Assets to the Purchaser. If, however, such transactions are deemed to be loans, (a) the Seller hereby grants to the Purchaser a first priority perfected security interest in all of the Seller's right, title and interest in and to the Transferred Assets to secure all of the Seller's obligations hereunder, including the Seller's obligations to sell or transfer to the Purchaser all Receivables existing on the date hereof or hereafter created and (b) this Agreement shall constitute a security agreement under applicable law. SECTION 7.11. THIRD-PARTY BENEFICIARIES. The Originator Indemnified Parties are third-party beneficiaries of all provisions of this Agreement and are entitled to enforce the provisions of Section 6.01 of this Agreement to the extent any Originator Indemnified Amounts are due such parties. ELDER-BEERMAN PURCHASE AGREEMENT 34 31 SECTION 7.12. THE SELLER'S OBLIGATIONS. It is expressly agreed that, anything contained in this Agreement to the contrary notwithstanding, the Seller shall be obligated to perform all of its obligations under the Receivables to the same extent as if the Purchaser had no interest therein and the Purchaser shall have no obligations or liability under Receivables to any Obligor thereunder by reason of or arising out of this Agreement, nor shall the Purchaser be required or obligated in any manner to perform or fulfill any of the obligations of the Seller under or pursuant to any Receivable. SECTION 7.13. GOVERNING LAW, JURISDICTION, CONSENT TO SERVICE OF PROCESS. (a) GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASER IN THE TRANSFERRED ASSETS IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) JURISDICTION. (i) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Transaction Documents in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. ELDER-BEERMAN PURCHASE AGREEMENT 35 32 (c) CONSENT TO SERVICE OF PROCESS. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail (postage prepaid) or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. ELDER-BEERMAN PURCHASE AGREEMENT 36 (d) WAIVER OF JURY TRIAL. Each party to this Agreement waives any right to a trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or any other Transaction Document or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith or therewith or arising from any course of conduct, course of dealing, statements (whether oral or written), actions of any of the parties hereto or any Beneficiary or any other relationship existing in connection with this Agreement or any other Transaction Document, and agrees that any such action or proceeding shall be tried before a court and not before a jury. IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. THE ELDER-BEERMAN STORES CORP., as Purchaser By: -------------------------------------- Name: Title: THE EL-BEE CHARGIT CORP., as Purchaser By: -------------------------------------- Name: Title: ELDER-BEERMAN PURCHASE AGREEMENT EX-10.A.IX 11 EXHIBIT 10(A)(IX) 1 Exhibit 10(a)(ix) THE EL-BEE RECEIVABLES CORPORATION SUBORDINATED NOTE Due: December __, 2017 No. 1 THE EL-BEE RECEIVABLES CORPORATION (the "ISSUER"), for value received, hereby promises to pay to THE EL-BEE CHARGIT CORP. (the "HOLDER"), or its registered assigns, at its address for payments set forth in Section 7.08 of the Purchase Agreement hereinafter referred to, all principal sums owing from time to time under Section 2.02(d) of the Purchase Agreement, upon the earlier to occur of (i) December __, 2017, and (ii) the first date following the end of the Effective Period (as defined in the Purchase Agreement) upon which the aggregate Invested Amount for each Series is zero (the "STATED MATURITY"), unless earlier prepaid pursuant to the provisions for repayment referred to herein, and to pay interest (computed on the basis of a 360-day year and the actual number of days in each calendar year) on the unpaid principal sum from the date such principal sum is advanced, such interest being payable on (i) the first day of the month immediately following the initial advance and the first day of each month thereafter, (ii) each date of prepayment (with respect to the amount prepaid) and (iii) the Stated Maturity at a rate per annum equal to the equivalent of the rate for commercial paper having a maturity of 30 days reported on such day by the Board of Governors of the Federal Reserve System in "Statistical Release H.15 (519), Selected Interest Rates" or any successor thereto, under the heading "Commercial Paper", converted to a money marked yield, or if no such rate for commercial paper is reported on such date, the applicable rate in effect with respect to the most recent day on which such rate was reported, plus 1.5%, until the principal hereof is paid in full. Prior to any transfer hereof, the Holder shall enter on Schedule A information reflecting the date and amount of each advance and the amount of any payments made hereon. Notwithstanding anything contained herein to the contrary, the principal sum hereof and all accrued interest thereon shall not exceed ten percent (10%) of the excess of the Net Receivables Balance over the Trust Invested Amount at any given time. Payments of the principal of and interest on this Subordinated Note (this "NOTE") will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts by check mailed to, or wire transfer in federal funds to the account of, the Holder as directed by the Holder. All amounts paid with respect to this Note shall be allocated first to accrued interest until all such interest is paid, and then to outstanding principal. If any payment on this Note shall remain unpaid on 2 2 the due date thereof, the same shall thereafter be payable with interest thereon (to the extent permitted by law) at the Certificate Rate for the then most recently issued Series, from such due date to the date of payment thereof. This Note is issued under the Purchase Agreement dated as of December 30, 1997 between the Issuer and the Holder (as amended, supplemented or otherwise modified from time to time, the "PURCHASE AGREEMENT"). This Note represents all or a portion of the Purchase Price for Receivables purchased by the Issuer pursuant to the terms of the Purchase Agreement. Each capitalized term used herein which is defined in the December 30, 1997 Purchase Agreement or the Pooling and Servicing Agreement dated as of December 30, 1997 among the Issuer, as Transferor, the Holder, as Servicer and Bankers Trust Company, as Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"), shall have the meaning ascribed to it in the Purchase Agreement or the Pooling and Servicing Agreement, as the case may be. This Note may be prepaid in whole or in part at the option of the Issuer at any time without a premium or penalty. The Issuer shall be entitled to borrow, prepay and reborrow hereunder. The payment of this Note is hereby expressly subordinated in right of payment to the extent and in the manner set forth below to the prior payment and performance by the Issuer of the following obligations ("SENIOR DEBT") of the Issuer: (i) all obligations of the Issuer under the Pooling and Servicing Agreement, the Purchase Agreement, any Supplement or any other Transaction Document to which the Issuer is a party and (ii) all renewals, extensions, refinancings or refundings of any such obligations (and, in the case of each such indebtedness or obligation, whether for principal, interest (including but not limited to any interest accruing after the filing of a petition initiating any Bankruptcy Proceeding (as defined below) whether or not such interest is allowed in such Bankruptcy Proceeding), fees, indemnities, repurchase price, expenses or otherwise). (a) In the event of any dissolution, winding up, liquidation, arrangement, adjustment, reorganization, composition or other similar event relating to the Issuer or its debts, whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency, arrangement, reorganization, liquidation, receivership or other similar proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of the Issuer or any sale of all or substantially all of the assets of the Issuer except pursuant to the Pooling and Servicing Agreement (such proceedings being herein collectively called "BANKRUPTCY PROCEEDINGS" and individually called a "BANKRUPTCY PROCEEDING"), the Senior Debt shall first be indefeasibly paid and performed in full and in cash before the holder of this Note shall be entitled to receive and to retain any payment or distribution (whether in cash, 3 3 property or securities) in respect of this Note. In order to implement the foregoing: (x) all payments and distributions of any kind or character in respect of this Note to which the holder of this Note would be entitled except for this clause (a) shall be made directly to the Trustee (for the benefit of the holders of the Senior Debt); (y) if a Bankruptcy Proceeding has been commenced, the holder of this Note shall promptly file a claim or claims, in the form required in such Bankruptcy Proceeding, for the full outstanding amount of this Note, and shall use reasonable efforts to cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Trustee (for the benefit of the holders of the Senior Debt) until the Senior Debt shall have been paid and performed in full and in cash; and (z) the holder of this Note hereby irrevocably agrees that the Trust (or the Trustee acting on the Trust's behalf), in the name of the holder of this Note or otherwise, may, if the holder of this Note does not take the actions required pursuant to the preceding clause (y) and upon notice to the holder of this Note, demand, sue for, collect, receive and give receipt for any and all such payments or distributions, and file, prove and vote or consent in any such Bankruptcy Proceedings with respect to any and all claims of the holder of this Note relating to this Note, in each case until the Senior Debt shall have been paid and performed in full and in cash. (b) In the event that any Termination Event or Early Amortization Event or event which with the giving of notice or lapse of time, or both, would become a Termination Event or an Early Amortization Event shall have occurred and be continuing, which Termination Event or Early Amortization Event has not been waived (a "BLOCKING EVENT"), then no payment shall be made by or on behalf of the Issuer for or on account of any amounts owing in respect of this Note, unless and until the Senior Debt shall first be indefeasibly paid and performed in full and in cash. (c) In the event that the holder of this Note receives any payment or other distribution of any kind or character from the Issuer or from any other source whatsoever in respect of this Note after the commencement of any Bankruptcy Proceeding or while any Blocking Event has occurred and is continuing, such payment or other distribution shall be received in trust for the holders of the Senior Debt and shall be turned over by the holder of this Note to the Trustee (for the benefit of the holders of the Senior Debt) forthwith, until all Senior Debt shall have been paid and performed in full and in cash. All payments and distributions received by the Trustee in respect of this Note, to the extent received in or converted into cash, may be applied by the Trustee (for the benefit of the holders of the Senior Debt) first to the payment of any and all reasonable expenses (including reasonable attorneys fees and legal expenses) paid or incurred by the Trustee or the holders of the Senior Debt in enforcing these subordination provisions, or in endeavoring to collect or realize upon this Note, and any balance thereof shall, solely as between the holder of this Note and the holders 4 4 of the Senior Debt, be applied by the Trustee toward the payment of the Senior Debt in a manner determined by the Trustee to be in accordance with the Transaction Documents; but as between the Issuer and its creditors no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Debt. (d) Upon the indefeasible payment in full and in cash of all Senior Debt, the holder of this Note shall be subrogated to the rights of the holders of the Senior Debt to receive payments or distributions from the Issuer that are applicable to the Senior Debt until this Note is paid in full. (e) These subordination provisions are intended solely for the purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in these subordination provisions or elsewhere in this Note is intended to or shall impair, as between the Issuer, its creditors (other than the holders of the Senior Debt) and the holder of this Note, the Issuer's obligation, which is unconditional and absolute, to pay this Note as and when the same shall become due and payable in accordance with the terms hereof and of the Purchase Agreement or to affect the relative rights of the holder of this Note and creditors of the Issuer (other than the holders of the Senior Debt). (f) The holder of this Note shall not, until the Senior Debt has been finally paid and performed in full and in cash, (i) cancel, waive, amend, forgive, sell, pledge, transfer or assign or otherwise encumber or dispose of or commence legal proceedings to enforce or collect this Note or any obligation of the Issuer; PROVIDED, HOWEVER, that the holder may endorse this Note to The Elder-Beerman Stores Corp. and The Elder-Beerman Stores Corp. may pledge this Note to Citicorp USA, Inc. as security for its Obligations under and as defined in the Credit Agreement (as defined in the Pooling and Servicing Agreement), (ii) subordinate this Note to any obligation of the Issuer, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, other than to the Senior Debt or any rights in respect hereof or (iii) convert this Note into an equity interest in the Issuer, unless, in the case of each of clauses (i) and (ii) above, the holder of this Note shall have received the prior written consent of the Trustee in each case. (g) The holder of this Note shall not, without the prior written consent of the Trustee, commence, or join with any other Person in commencing, any Bankruptcy Proceeding with respect to the Issuer until at least one year and one day shall have passed since the Senior Debt shall have been indefeasibly paid and performed in full and in cash. 5 5 (h) If, at any time, any payment (in whole or in part) made with respect to the Senior Debt is rescinded or must be restored or returned by a holder of the Senior Debt (whether in connection with any Bankruptcy Proceeding or otherwise), these subordination provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made. (i) As between the holder of this Note and the holders of the Senior Debt, each of the holders of the Senior Debt may, from time to time, at its sole discretion, without notice to the holder of this Note, and without waiving any of its rights under these subordination provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Senior Debt; (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Debt; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter, increase or exchange any of the Senior Debt, or release or compromise any obligation of any nature with respect to any of the Senior Debt; (iv) amend, supplement, amend and restate, or otherwise modify any Transaction Document; and (v) release its ownership or security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property, securing any of the Senior Debt, or extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property. (j) By its acceptance hereof, the holder of this Note hereby waives to the maximum extent permitted by applicable law, (i) notice of acceptance of these subordination provisions by any of the holders of the Senior Debt; (ii) notice of the existence, creation, nonpayment or nonperformance of all or any of the Senior Debt; and (iii) all diligence in enforcement, collection or protection of, or realization upon, the Senior Debt, or any thereof, or any security therefor. (k) These subordination provisions constitute a continuing offer from the Issuer to all Persons who become the holders of, or who continue to hold, Senior Debt and these subordination provisions are made for the benefit of the holders of the Senior Debt, and the Trustee may proceed to enforce such provisions on behalf of each of such Persons. The obligation of the Issuer to repay this Note from the amounts paid to the Issuer with respect to Finance Charge Receivables, Principal Receivables, and other sources of funds described in the Pooling and Servicing Agreement, together with any capital or surplus of the Issuer remaining after all of its obligations under the Pooling and Servicing Agreement are repaid in full and the Trust Termination Date has occurred, shall be the sole and exclusive remedy available to the holder, and to the extent that such payments are insufficient to pay 6 6 such amounts, the holder shall not have any claim against the Issuer for such amounts and no further or additional recourse shall be available against the Issuer. This Note shall not evidence any rights in the Receivables or the Exchangeable Transferor Certificate and need not be evidenced by any separate instrument of the holder. 7 This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed manually by its undersigned officer duly authorized thereunto. Dated: December 30, 1997. THE EL-BEE RECEIVABLES CORPORATION By: ------------------------------------ Name: Title: ENDORSEMENT Pay to the order of The Elder-Beerman Stores Corp. THE EL-BEE CHARGIT CORP. By: ------------------------------------ Name: Title: ENDORSEMENT Pay to the order of Citicorp USA, Inc., as Agent. THE ELDER-BEERMAN STORES CORP. By: ------------------------------------ Name: Title: 8 SCHEDULE A Principal Interest Principal Interest Date Advanced Paid Paid Rate - ---- --------- -------- --------- -------- EX-10.B.I 12 EXHIBIT 10(B)(I) 1 EXECUTION COPY Exhibit 10(b)(i) U.S. $125,000,000 CREDIT AGREEMENT Dated as of December 30, 1997 Among THE ELDER-BEERMAN STORES CORP. AS BORROWER and THE LENDERS PARTY HERETO CITIBANK, N.A. AS ISSUER and CITICORP USA, INC. AS AGENT AND SWING LOAN BANK 2 TABLE OF CONTENTS
SECTION PAGE ARTICLE I DEFINITIONS AND ACCOUNTING TERMS...................................................................... 2 1.1. Defined Terms......................................................................................... 2 1.2. Computation of Time Periods........................................................................... 32 1.3. Accounting Terms; Changes in GAAP..................................................................... 32 1.4. Certain Pre-Reorganization Matters.................................................................... 33 1.5. Certain Terms......................................................................................... 33 ARTICLE II AMOUNTS AND TERMS OF THE LOANS........................................................................ 33 2.1. The Revolving Credit Loans............................................................................ 33 2.2. Making the Loans...................................................................................... 33 2.3. Fees ................................................................................................ 35 2.4. Reduction and Termination of the Commitments.......................................................... 36 2.5. Repayment............................................................................................. 36 2.6. Prepayments........................................................................................... 37 2.7. Conversion/Continuation Option........................................................................ 38 2.8. Interest.............................................................................................. 39 2.9. Interest Rate Determination and Protection............................................................ 40 2.10. Increased Costs....................................................................................... 41 2.11. Illegality............................................................................................ 41 2.12. Capital Adequacy...................................................................................... 42 2.13. Payments and Computations............................................................................. 42 2.14. Taxes ................................................................................................ 44 2.15. Sharing of Payments, Etc.............................................................................. 47 2.16. Letter of Credit Facility............................................................................. 48 2.17. Swing Loans........................................................................................... 54 2.18. Cash Collateral Account and Cash Management System.................................................... 55 2.19. Substitution of Lenders............................................................................... 56 ARTICLE III CONDITIONS OF LENDING................................................................................. 57 3.1. Conditions Precedent to Initial Loans and Letters of Credit.......................................................................................... 57 3.2. Additional Conditions to The Initial Loans and Letters of Credit....................................................................................... 60 3.3. Conditions Precedent to Each Loan and Letter of Credit................................................ 63
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SECTION PAGE ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................ 64 4.1. Corporate Existence; Compliance with Law.............................................................. 64 4.2. Corporate Power; Authorization; Enforceable Obligations............................................... 65 4.3. Taxes ................................................................................................ 66 4.4. Full Disclosure....................................................................................... 67 4.5. Financial Matters..................................................................................... 68 4.6. Litigation............................................................................................ 69 4.7. Margin Regulations.................................................................................... 69 4.8. ERISA ................................................................................................ 69 4.9. Liens ................................................................................................ 70 4.10. No Burdensome Restrictions; No Defaults............................................................... 70 4.11. No Other Ventures..................................................................................... 71 4.12. Securitization Documents; Interest Rate Contracts..................................................... 71 4.13. Investment Company Act................................................................................ 71 4.14. Public Utility Holding Company Act.................................................................... 72 4.15. Security Interests.................................................................................... 72 4.16. Insurance............................................................................................. 72 4.17. Use of Proceeds....................................................................................... 72 4.18. Environmental Protection.............................................................................. 72 4.19. Intellectual Property................................................................................. 74 4.20. Leased Property....................................................................................... 75 4.21. Certain Indebtedness.................................................................................. 75 4.22. Real Property......................................................................................... 75 4.23. Restricted Payments................................................................................... 75 4.24. Obligations with Respect of Gift Certificates......................................................... 76 4.25. Allowed and Disputed Claims........................................................................... 76 ARTICLE V FINANCIAL COVENANTS................................................................................... 76 5.1. Fixed Charge Coverage Ratio........................................................................... 76 5.2. Total Indebtedness.................................................................................... 77 5.3. Interest Coverage Ratio............................................................................... 77 5.4. Capital Expenditures.................................................................................. 77 ARTICLE VI . AFFIRMATIVE COVENANTS................................................................................. 77 6.1. Compliance with Laws, Etc............................................................................. 77 6.2. Conduct of Business................................................................................... 77 6.3. Payment of Taxes, Etc................................................................................. 78 6.4. Maintenance of Insurance.............................................................................. 78 6.5. Preservation of Corporate Existence, Etc.............................................................. 79 6.6. Access................................................................................................ 79
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SECTION PAGE 6.7. Keeping of Books...................................................................................... 79 6.8. Maintenance of Properties, Etc........................................................................ 79 6.9. Application of Proceeds............................................................................... 80 6.10. Financial Statements.................................................................................. 80 6.11. Reporting Requirements................................................................................ 82 6.12. Employee Plans........................................................................................ 85 6.13. Fiscal Year........................................................................................... 85 6.14. Borrowing Base Determination.......................................................................... 86 6.15. Certain Covenants Regarding the Receivables Securitization.................................................................................. 86 6.16. Environmental Matters................................................................................. 87 6.17. Termination of Receivables Securitization............................................................. 87 ARTICLE VII NEGATIVE COVENANTS.................................................................................... 88 7.1. Liens, Etc............................................................................................ 88 7.2. Indebtedness.......................................................................................... 90 7.3. Restricted Payments................................................................................... 91 7.4. Mergers, Stock Issuances, Sale of Assets, Etc......................................................... 92 7.5. Investments in Other Persons.......................................................................... 93 7.6. Change in Nature of Business.......................................................................... 94 7.7. Modification of Securitization Documents, Etc......................................................... 94 7.8. Modification of Material Agreements................................................................... 94 7.9. Compliance with ERISA................................................................................. 95 7.10. Accounting Changes.................................................................................... 96 7.11. Transactions with Affiliates.......................................................................... 96 7.12. Adverse Transactions.................................................................................. 96 7.13. Cancellation of Indebtedness Owed to It............................................................... 96 7.14. No Negative Pledge.................................................................................... 96 7.15. Capital Structure..................................................................................... 97 7.16. No Speculative Transactions........................................................................... 97 7.17. Environmental Matters................................................................................. 97 7.18. Change in Ownership Under Section 382 of the Code..................................................... 97 ARTICLE VIII EVENTS OF DEFAULT..................................................................................... 98 8.1. Events of Default..................................................................................... 98 8.2. Remedies..............................................................................................101 8.3 Actions in Respect of Letters of Credit...............................................................102 ARTICLE IX . THE AGENT.............................................................................................103 9.1. Authorization and Action..............................................................................103 9.2. Agent's Reliance, Etc.................................................................................103
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SECTION PAGE 9.3. CUSA and Affiliates...................................................................................104 9.4. Lender Credit Decision................................................................................105 9.5. Indemnification.......................................................................................105 9.6. Successor Agent.......................................................................................106 ARTICLE X MISCELLANEOUS........................................................................................106 10.1. Amendments, Etc......................................................................................106 10.2. Notices, Etc.........................................................................................107 10.3. No Waiver; Remedies..................................................................................108 10.4. Costs; Expenses; Indemnities.........................................................................108 10.5. Right of Set-off.....................................................................................111 10.6. Binding Effect.......................................................................................112 10.7. Assignments and Participations.......................................................................112 10.8. Governing Law........................................................................................116 10.9. Submission to Jurisdiction; Service of Process.......................................................116 10.10. Section Titles.......................................................................................117 10.11. Execution in Counterparts............................................................................117 10.12. Entire Agreement.....................................................................................117 10.13. Confidentiality......................................................................................117 10.14. Acknowledgments......................................................................................117 10.15. Waiver of Trial by Jury..............................................................................118
iv 6 SCHEDULES --------- Schedule I - Commitment Schedule II - Applicable Lending Offices and Addresses for Notices Schedule III - Addresses for Notices to the Issuers Schedule IV - Advance Rates Schedule V - Securitization Documents Schedule 2.16(b) - Letters of Credit Outstanding Schedule 3.2(a) - Other Secured Lenders Schedule 4.3(b) - Tax Returns Schedule 4.3(d) - Open Tax Matters Schedule 4.6 - Disclosed Litigation Schedule 4.8(b) - Contribution Failures Schedule 4.8(d) - ERISA Actions Schedule 4.11 - Other Ventures Schedule 4.12(b) - Swap Agreements Schedule 4.18 - Environmental Protection Schedule 4.20 - Leased Property Schedule 4.21 - Certain Indebtedness Schedule 4.22 - Real Property Schedule 6.11(p) - Ownership of Stock Schedule 6.19 - Collection Account Banks Schedule 7.5 - Existing Investments v 7 EXHIBITS -------- Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Notice of Conversion or Continuation Exhibit D - Form of Letter of Credit Request Exhibit E - Form of Borrowing Base Certificate Exhibit F - Form of Bee-Gee Guaranty Exhibit G - Form of Chargit Guaranty Exhibit H - Form of Security Agreement Exhibit I - Form of Opinion of Counsel for the Loan Parties Exhibit J - Form of Assignment and Acceptance Exhibit K - Form of Store Account Letter Exhibit L - Letter of Credit Reimbursement Agreement Exhibit M - Form of Intercreditor Agreement Exhibit N - Form of Borrower Pledge Agreement Exhibit O - Form of Chargit Pledge Agreement Exhibit P - Third Amended Joint Plan of Reorganization Exhibit Q - Form of Local Bank Blocked Account Letter vi 8 CREDIT AGREEMENT, dated as of December 30, 1997, among THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "BORROWER"), the financial institutions listed on the signature pages hereof as lenders hereunder (each individually a "LENDER" and collectively the "LENDERS"), Citibank, N.A., as issuer ("CITIBANK"), and CITICORP USA, INC. ("CUSA"), as agent for the Lenders, the Issuer (as defined herein) and the Swing Loan Bank (in such capacity, the "AGENT") and as Swing Loan Bank (as defined herein). W I T N E S E T H: WHEREAS, on October 16, 1995, the Borrower and certain of its Subsidiaries each filed a voluntary petition for relief commencing a reorganization case under chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"), Case No. 95-33643; and WHEREAS, the Borrower and such Subsidiaries have filed with the Bankruptcy Court the Plan of Reorganization; and WHEREAS, in connection with the consummation of the Plan of Reorganization, the Borrower has requested that the Lenders make revolving credit advances to the Borrower of up to $125,000,000 in aggregate principal amount outstanding at any one time for the purposes hereinafter specified; and WHEREAS, the Lenders are willing to make funds available for such purposes upon the terms and subject to the conditions set forth herein; and WHEREAS, the Borrower has also requested that Citibank provide the Borrower with letters of credit and Citibank is willing to issue letters of credit upon the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1 9 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. DEFINED TERMS. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCOUNT" means any "account," as such term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by any Loan Party. "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9-105(1)(a) of the UCC. "ADVANCE RATE" means, at any time, the rates set forth on Schedule IV as such rates may be increased or decreased from time to time by the Agent in its sole discretion, exercised reasonably; PROVIDED, HOWEVER, that the Agent shall not increase such rates above the rates set forth on Schedule IV as of the Closing Date without the consent of all of the Lenders. "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and includes each officer or director or general partner of such Person, and each Person who is the beneficial owner of 10% or more of any class of voting Stock of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Credit Agreement, together with all Exhibits and Schedules hereto, as the same may be amended, supplemented or otherwise modified from time to time. 2 10 "APPLICABLE BASE RATE MARGIN" means, through January 31, 1999, 37.5 bps per annum and, thereafter, subject to Section 2.9(d), the Applicable Base Rate Margin as set forth below:
Average Total Debt/EBITDA (previous Applicable Base Rate 12 Mos.) Margin (Bps) --------------------- --------------------- more than or equal to 4.00 75.0 more than or equal to 3.50 less than 4.00 37.5 more than or equal to 3.00 less than 3.50 12.5 more than or equal to 2.50 less than 3.00 0 more than or equal to 2.00 less than 2.50 0 more than or equal to 1.75 less than 2.00 0
"APPLICABLE EURODOLLAR RATE MARGIN" means, through January 31, 1999, 137.5 bps per annum and, thereafter, subject to Section 2.9(d), the Applicable Eurodollar Rate Margin as set forth below:
Average Total Debt/EBITDA (previous Applicable Eurodollar 12 Mos.) Margin (Bps) ---------------------- -------------------- more than or equal to 4.00 175.0 more than or equal to 3.50 less than 4.00 137.5 more than or equal to 3.00 less than 3.50 112.5 more than or equal to 2.50 less than 3.00 87.5 more than or equal to 2.00 less than 2.50 75.0 more than or equal to 1.75 less than 2.00 62.5
"APPLICABLE LENDING OFFICE" means, with respect to each Lender, its Domestic Lending Office in the case of a Base Rate Loan and its Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "APPLICABLE MARGIN" means the Applicable Base Rate Margin and the Applicable Eurodollar Rate Margin. "ASSET SALE" means any sale or other disposition, or series of sales or other dispositions (including, without limitation, by merger or consolidation, and whether by operation of law or otherwise) made on or after the Closing Date by the Borrower or any of its Subsidiaries to any Person, except: (i) sales by the Borrower to Chargit and sales by Chargit to El-Bee of Chargit Receivables and (ii) 3 11 sales by the Borrower and its Subsidiaries of Inventory or obsolete or used Equipment in the ordinary course of business. "ASSET SALE PROCEEDS" means, with respect to any Asset Sale, the aggregate amount of cash received from time to time by or on behalf of such Person in connection therewith after deducting therefrom only (a) reasonable expenses incurred directly in connection with such transaction, including, without limitation, reasonable and customary brokerage commissions, underwriting fees and discounts, legal and accounting fees and expenses, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction, (c) the amount of any Indebtedness secured by a Lien on such asset that, by the terms of such Indebtedness, is required to be repaid upon such disposition and (d) amounts received with respect to the sublease of any asset to the extent such amounts received are paid to the lessor of such asset, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of the Borrower and are properly attributable to such transaction or to the asset that is the subject thereof; PROVIDED, HOWEVER, that Asset Sale Proceeds shall not include any proceeds received from a Sale/Leaseback Transaction where the property was owned by the Borrower or a Subsidiary of the Borrower for less than one year. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of EXHIBIT J. "ATTRIBUTED VALUE" means, at any time, the value of all Eligible Inventory computed at the lower of market or cost on a first in first out basis. Unless disputed by the Agent, the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 6.10(e) shall be prima facie evidence of such value. "AVAILABLE CREDIT" means, at any time, an amount equal to (a) the lower of (i) the then effective Commitments of the Lenders and (ii) the Borrowing Base at such time, MINUS (b) the sum of (i) the principal amount of the Loans outstanding at such time, and (ii) the Letter of Credit Obligations outstanding at such time. 4 12 "AVERAGE TOTAL DEBT" means, for any period of four consecutive Fiscal Quarters, the average of the month-end balances of Debt of the Borrower outstanding during such four Fiscal Quarters. "BANKRUPTCY CODE" means title 11, United States Code, as amended from time to time. "BANKRUPTCY COURT" has the meaning specified in the recitals hereto. "BASE RATE" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall be equal at all times to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; and (b) the sum (adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent) of (i) 1/2 of one percent per annum, PLUS (ii) the rate per annum obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% MINUS the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for Citibank in respect of liabilities consisting of or including (among other liabilities) three-month U.S. dollar non-personal time deposits in the United States, PLUS (iii) the average during such three-week period of the maximum annual assessment rates payable to the Federal Deposit Insurance Corporation 5 13 (or any successor) by banks which are members of the Bank Insurance Fund for insuring U.S. dollar deposits in the United States; and (c) the sum (adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent) of (i) 1/2 of one percent per annum PLUS (ii) the Federal Funds Rate. "BASE RATE LOAN" means any outstanding principal amount of the Loans of any Lender that bears interest with reference to the Base Rate. "BEE-GEE" means The Bee-Gee Shoe Corp., an Ohio corporation and wholly-owned Subsidiary of the Borrower. "BLOCKED ACCOUNT LETTER" means a letter agreement, in substantially the form of EXHIBIT Q (with such changes as may be agreed to by the Agent), executed by the Borrower and/or any Subsidiary and acknowledged and agreed to by a depository bank. "BORROWER PLEDGE AGREEMENT" means an agreement substantially in the form of EXHIBIT N, executed by the Borrower, as such agreement may be amended, supplemented or modified from time to time. "BORROWING" means, collectively, a Revolving Credit Borrowing and a Swing Loan Borrowing. "BORROWING BASE" means, at any time, (a) the sum of (i) 95% of the cash on deposit at such time in the Cash Collateral Account and (ii) the product of the applicable Advance Rate at such time multiplied by the Attributed Value of Eligible Inventory at such time LESS (b) such reserves as the Agent, in its sole discretion in accordance with its customary practice, exercised reasonably, deems appropriate. "BORROWING BASE CERTIFICATE" means a certificate of the Borrower substantially in the form of EXHIBIT E. "BORROWING BASE DEFICIENCY" means, at any time, the failure of the Borrowing Base to exceed the sum of (i) the then outstanding Loans PLUS (ii) the then outstanding Letter of Credit Obligations. "BPS" means basis points, i.e., one-hundredth of one percent (.01%). 6 14 "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to a Eurodollar Rate Loan, a day on which dealings are also carried on in the London interbank market. "CAPITAL EXPENDITURES" means, for any Person for any period, without duplication, the aggregate of (i) all expenditures by such Person and its consolidated Subsidiaries, except interest capitalized during construction, during such period for property, plant or equipment, including, without limitation, renewals, improvements, replacements and capitalized repairs, that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person and its Subsidiaries prepared in conformity with GAAP and (ii) the principal amount of all Indebtedness incurred or assumed in connection with any such additions to property, plant and equipment. For the purpose of this definition, the purchase price of equipment which is acquired simultaneously with the trade-in of existing equipment owned by such Person or any of its Subsidiaries or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment being traded in at such time or the amount of such proceeds, as the case may be. "CAPITALIZED LEASE" means, as to any Person, any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in conformity with GAAP. "CAPITALIZED LEASE OBLIGATIONS" means, as to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capitalized Leases, as determined on a consolidated basis in conformity with GAAP. "CASH COLLATERAL ACCOUNT" has the meaning specified in Section 2.18. "CASH EQUIVALENTS" means any of the following, to the extent owned by any Loan Party free and clear of all Liens and having a maturity of not greater than 90 days from the date of acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of 7 15 the Government of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that is a Lender or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c), is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $250,000,000, or (c) commercial paper in an aggregate amount of no more than $5,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's Corporation. "CHANGE OF CONTROL" means any one of the following events: (i) the merger or consolidation of the Borrower with or into another Person or the merger of another Person with or into the Borrower, or the sale of all or substantially all the assets of the Borrower to another Person, and, in the case of any such merger or consolidation, the securities of the Borrower that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Borrower are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the surviving corporation; (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) directly or indirectly, of securities representing more than 40% of the total voting power of the Company, except that such person shall be deemed to have "beneficial ownership" of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; (iii) individuals who, on the completion of the Borrower's chapter 11 reorganization under the Bankruptcy Code, constitute the Board of Directors of the Borrower (the 8 16 "Incumbent Directors") cease for any reason to constitute at least a majority of the Board of Directors of the Borrower, provided that any person becoming a director subsequent to such completion whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then in office (either by a specific vote or by approval of the proxy statement of the Borrower in which such individual is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; PROVIDED, HOWEVER, that no individual elected or nominated as a director of the Borrower initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors of the Borrower shall be deemed to be an Incumbent Director. In no event may "Change of Control" be construed to include any change of control of the Borrower or any Subsidiary that occurs solely as a result of any exchange or distribution of equity securities of the Borrower or any Subsidiary of the Borrower upon consummation of a plan of reorganization for the Borrower or any Subsidiary in its chapter 11 case. "CHARGIT" means The El-Bee Chargit Corp., an Ohio corporation and a wholly-owned Subsidiary of the Borrower. "CHARGIT PLEDGE AGREEMENT" means an agreement substantially in the form of EXHIBIT O, executed by Chargit, as such agreement may be amended, supplemented or modified from time to time. "CHARGIT RECEIVABLES" means the private-label credit card Receivables sold or otherwise conveyed by the Borrower to Chargit and by Chargit to El-Bee pursuant to the Securitization Documents. "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by any Loan Party. "CITIBANK" has the meaning specified in the preamble hereto. "CLOSING DATE" means the first date on which any Loan is made or Letter of Credit is issued, which date shall 9 17 not be earlier than the date of consummation of the Plan of Reorganization. "CODE" means the Internal Revenue Code of 1986 (or any successor legislation thereto), as amended from time to time. "COLLATERAL" means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party in or upon which a Lien is granted under any of the Collateral Documents. "COLLATERAL DOCUMENTS" means the Security Agreement and any other document executed and delivered by a Loan Party granting a Lien on any of its property to secure payment of the Obligations. "COMMITMENT" means, as to each Lender, the commitment of such Lender to make Revolving Credit Loans to the Borrower pursuant to Section 2.1 in the aggregate principal amount outstanding not to exceed the amount set forth opposite such Lender's name on Schedule I hereto under the caption "COMMITMENT," as such amount may be reduced or modified pursuant to this Agreement. "COMMITMENT FEE" has the meaning specified in Section 2.3(a). "CONFIRMATION DATE" means the date on which the Confirmation Order is entered by the Bankruptcy Court. "CONFIRMATION ORDER" means that certain order, dated December 15, 1997, by the Bankruptcy Court, confirming the Plan of Reorganization. "CONTINGENT OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness or Contractual Obligation of another Person, if the purpose or intent of such Person in incurring the Contingent Obligation is to provide assurance to the obligee of such Indebtedness or Contractual Obligation that such Indebtedness or Contractual Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness or Contractual Obligation will be protected (in whole or in part) against loss in respect thereof. Contingent Obligations of a Person include, without limitation, (a) the 10 18 direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of an obligation of another Person, and (b) any liability of such Person for an obligation of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such obligation or to assure the holder of such obligation against loss, or (v) to supply funds to or in any other manner invest in such other Person (including, without limitation, to pay for property or services irrespective of whether such property is received or such services are rendered), if in the case of any agreement described under subclause (i), (ii), (iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. "CONTRACTUAL OBLIGATION" of any Person means any obligation, agreement, undertaking or similar provision of any security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding a Loan Document) to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject. "CUSA" shall have the meaning provided in the preamble hereto. "DEBT" means the sum of all (A) obligations of the type set forth in clauses (i) through (vii) of the definition of Indebtedness, including, without limitation, the principal amount of all outstanding Loans and the amount of all outstanding Letter of Credit Obligations, but in no event shall Debt include obligations of the type permitted 11 19 by Section 7.2(ii) and (B) Receivables Securitization Attributed Indebtedness. "DEFAULT" means any event which with the passing of time or the giving of notice or both would become an Event of Default. "DIP FACILITY" means the Post-Petition Loan and Security Agreement dated as of October 16, 1995, as amended, among the Borrower, Chargit, the Subsidiaries of the Borrower, the Lenders named therein, Citibank, N.A., as Issuer and Citicorp USA, Inc. as Agent and Swing Loan Bank. "DISCLOSURE STATEMENT" means the Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code for the Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and Its Subsidiaries, dated October 16, 1997, filed by the Borrower and certain of its Subsidiaries with the Bankruptcy Court, as the same may be amended, supplemented or modified from time to time to the date hereof. "DOL" means the United States Department of Labor, or any successor thereto. "DOLLARS" and the sign "$" each mean the lawful money of the United States of America. "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule II or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "EBITDA" means, for any Person for any period, the Net Income (Loss) of such Person for such period taken as a single accounting period, PLUS (a) the sum of the following amounts of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) depreciation expense, (ii) amortization expense, (iii) Net Interest Expense, (iv) Reorganization Expenses, (v) income tax expense, (vi) losses that are extraordinary items under GAAP (and other losses on Asset Sales not otherwise included in extraordinary losses determined on a consolidated basis in conformity with GAAP), (vii) non-recurring and non-cash writeoffs of deferred and unamortized assets and (ix) non-cash and recurring charges 12 20 related to changes in the market value of any interest rate contract (to the extent not included in Net Interest Expense); LESS (b) the sum of the following amounts of such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) gains that are extraordinary items under GAAP (and in the case of the Borrower and its Subsidiaries, other gains on Asset Sales not otherwise included in extraordinary gains determined on a consolidated basis in conformity with GAAP), (ii) the Net Income (Loss) of any other Person that is accounted for by the equity method of accounting except to the extent of the amount of dividends or distributions paid to such Person, (iii) the Net Income (Loss) of any other Person acquired by such Person or a Subsidiary of such Person in a transaction accounted for as a pooling of interests for any period prior to the date of such acquisition and (iv) income tax benefit. "EL-BEE" means The El-Bee Receivables Corporation, a Delaware corporation and wholly-owned Subsidiary of Chargit. "ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD or the Cayman Islands; (iii) the central bank of any country which is a member of the OECD; (iv) a corporation organized under the laws of the United States, or any State thereof, and having total assets in excess of $3,000,000,000; (v) an insurance company organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (vi) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $3,000,000,000; (vii) any Lender; (viii) any Affiliate of any Lender; and (ix) if an Event of Default has occurred and is continuing, "ELIGIBLE ASSIGNEE" shall also mean any Person other than a Person a substantial portion of whose 13 21 business competes with the Borrower or any Subsidiary or Affiliate of such Person. "ELIGIBLE INVENTORY" means such of the Inventory of the Borrower and Bee-Gee as constitutes Collateral in which the Agent has a fully perfected first priority security interest and, as the Agent, in its sole discretion exercised reasonably, deems eligible. "ENVIRONMENTAL LAWS" means all federal, state and local laws (including common law), statutes, ordinances, rules, regulations and other legally binding requirements, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including, without limitation, any judicial or administrative order, consent decree or judgment relating to the regulation and protection of human health, safety, the environment or natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. Section 180 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 ET SEQ.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 ET SEQ.) ("RCRA"); the Toxic Substance Control Act, as amended (42 U.S.C. Section 7401 ET SEQ.); the Clean Air Act, as amended (42 U.S.C. Section 740 ET SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 ET SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651 ET SEQ.); and the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f ET SEQ.), and their state and local counterparts or equivalents and any transfer of ownership notification or approval statute, including, without limitation, the New Jersey Industrial Site Recovery Act (N.J. Stat. Ann. Section 13:1K-6 ET SEQ.) ("ISRA"). "ENVIRONMENTAL LIABILITIES AND COSTS" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, 14 22 sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any thereof arising under any Environmental Law, Permit, order or agreement with any Governmental Authority or other Person, and which relate to any environmental, health or safety condition, or a Release or threatened Release, and result from the past, present or future operations of, or ownership of property by, such Person or any of its Subsidiaries. "ENVIRONMENTAL LIEN" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "EQUIPMENT" means any "equipment," as such term is defined in Section 9-109(2) of the UCC, now owned or hereafter acquired by any Loan Party and, in any event, includes, without limitation, all machinery, equipment, furnishings, fixtures, vehicles, computers and other electronic data-processing and office equipment now owned or hereafter acquired by any Loan Party and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "ERISA" means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with any Loan Party or any of its Subsidiaries within the meaning of Section 414 (b), (c), (m) or (o) of the Code. "ERISA EVENT" means (i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of any Loan Party, any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of any Loan Party, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title IV Plan having any Unfunded Pension Liability or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (v) the institution 15 23 of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vi) the failure to make any required contribution to a Qualified Plan; or (vii) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA. "EUROCURRENCY LIABILITIES" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" below its name on Schedule II (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "EURODOLLAR RATE" means, for any Interest Period, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate of interest determined by the Agent to be the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Loan of Citibank during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% MINUS the Eurodollar Rate Reserve Percentage for such Interest Period. "EURODOLLAR RATE LOAN" means any outstanding principal amount of the Loans of any Lender that, for an Interest Period, bears interest at a rate determined with reference to the Eurodollar Rate. "EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of 16 24 Governors of the Federal Reserve System for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities which includes deposits by reference to which the Eurodollar Rate is determined) having a term equal to such Interest Period. "EVENT OF DEFAULT" has the meaning specified in Section 8.1. "FACILITY" means the aggregate of all of the Commitments. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, as entered on the docket in any pending chapter 11 case or the docket of any other court of competent jurisdiction, which has not been reversed, stayed, modified, or amended, and as to which the time to appeal or seek certiorari has expired and no appeal or petition for certiorari has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been timely filed has been resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought. "FISCAL QUARTER" means a fiscal quarter of the Borrower and its consolidated Subsidiaries for financial accounting purposes. "FISCAL YEAR" means the period of 52 or 53 weeks, as the case may be, ending on the Saturday nearest to January 31 of each calendar year. 17 25 "FIXED CHARGES" means, for any Person for any period, the sum of (i) the Net Interest Expense of such Person for such period, (ii) all principal amounts of Debt having a scheduled due date during such period payable by such Person and each of its Subsidiaries, (iii) all cash dividends payable by such Person on preferred stock in respect of such period or payable by any Subsidiaries of such Person other than to such Person or any of its Subsidiaries, and (iv) the total federal income tax liability actually currently payable by such Person in respect of such period. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination except that, for purposes of Article V, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements referred to in Section 4.5. "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by any Loan Party and, in any event, includes, without limitation, all customer lists, trademarks, patents, rights in intellectual property, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether patented or patentable or not) and technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill, rights of indemnification and all right, title and interest which any Loan Party may now or hereafter have in or under any Contract (as defined in the UCC), now owned or hereafter acquired by any Loan Party. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 18 26 "GUARANTORS" means Bee-Gee and Chargit. "HAZARDOUS MATERIALS" means any substance, material or waste regulated or forming the basis of liability under any Environmental Law, including, without limitation, any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, asbestos containing materials, polychlorinated biphenyls, radon or any constituent or byproduct of any such substance or waste. "INDEBTEDNESS" of any Person means, without duplication, (i) all indebtedness of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured) or for the deferred purchase price of property or services, (ii) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (iii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) Capitalized Lease Obligations, (v) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Stock of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus related accrued and unpaid dividends, (vi) all obligations of such Person under Interest Rate Contracts, and (vii) all Indebtedness referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, and general intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness provided that the amount of any such Indebtedness shall not exceed the value of any property so secured, (viii) in the case of the Borrower, the Obligations, (ix) all liabilities of such Person for the return of deposits or payments on account, (x) all liabilities of such Person under Title IV of ERISA, and (xi) all liabilities of such Person that would be shown on a balance sheet of such Person prepared in conformity with GAAP including, without limitation, in the case of the 19 27 Borrower, the Receivables Securitization Attributable Indebtedness. "INDEMNITEE" has the meaning specified in Section 10.4(b). "INSTRUMENT" means any "instrument," as such term is defined in Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by any Loan Party other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "INTERCREDITOR AGREEMENT" means an agreement, substantially in the form of EXHIBIT M, executed by the Agent, the Borrower, Chargit and the trustee, as such agreement may be amended, supplemented or modified from time to time. "INTEREST PERIOD" means in the case of any Eurodollar Rate Loan, (i) initially, the period commencing on the date such Eurodollar Rate Loan is made or on the date of conversion of a Base Rate Loan to a Eurodollar Rate Loan and ending one, two or three months thereafter, as selected by the Borrower in its Notice of Borrowing or Notice of Conversion or Continuation given to the Agent pursuant to Section 2.2 or 2.7, and (ii) thereafter, if such Loan is continued, in whole or in part, as a Eurodollar Rate Loan pursuant to Section 2.7, a period commencing on the last day of the immediately preceding Interest Period therefor and ending one, two or three months thereafter, as selected by the Borrower in its Notice of Conversion or Continuation given to the Agent pursuant to Section 2.7; PROVIDED, HOWEVER, that all of the foregoing provisions relating to Interest Periods in respect of Eurodollar Rate Loans are subject to the following: (A) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless, in the case of Eurodollar Rate Loans only, the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period of one month or more that begins on the last Business Day of a calendar 20 28 month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (C) the Borrower may not select any Interest Period which ends after the Termination Date; (D) the Borrower may not select any Interest Period in respect of Loans having an aggregate principal amount of less than $5,000,000; and (E) there shall be outstanding at any one time no more than six Interest Periods in the aggregate. "INTEREST RATE CONTRACTS" means interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance, and other agreements or arrangements designed to provide protection against fluctuations in interest rates. "INVENTORY" means any "inventory," as such term is defined in Section 9-109(4) of the UCC, now owned or here after acquired by the Borrower or any of its Subsidiaries, and wherever located, and, in any event, includes, without limitation, all inventory, merchandise, goods and other personal property now owned or hereafter acquired by the Borrower or any of its Subsidiaries which are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in the business of the Borrower or any of its Subsidiaries, or the processing, packaging, delivery or shipping of the same, and all finished goods. "INVESTMENT" has the meaning specified in Section 7.5. "IRS" means the Internal Revenue Service, or any successor thereto. "ISSUER" means Citibank or any successor thereto and any other Lender approved by the Majority Lenders who agrees to issue one or more Letters of Credit. 21 29 "LETTER OF CREDIT" means any letter of credit issued for the account of the Borrower by an Issuer pursuant to Article II. "LETTER OF CREDIT OBLIGATIONS" means, at any time, all liabilities at such time of the Borrower to all Issuers with respect to Letters of Credit, whether or not any such liability is contingent, and includes the sum of (i) the Reimbursement Obligations at such time and (ii) the Letter of Credit Undrawn Amounts at such time. "LETTER OF CREDIT REIMBURSEMENT AGREEMENT" has the meaning specified in Section 2.16(d). "LETTER OF CREDIT REQUEST" has the meaning specified in Section 2.16(e). "LETTER OF CREDIT UNDRAWN AMOUNTS" means, at any time, the aggregate undrawn face amount of all Letters of Credit outstanding at such time. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation, including, without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a Capitalized Lease Obligation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing, under the UCC or comparable law of any jurisdiction, of any financing statement naming the owner of the asset to which such Lien relates as debtor. "LOAN" means a Revolving Credit Loan or Swing Loan. "LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the Subsidiary Guarantees, the Collateral Documents, each Letter of Credit Reimbursement Agreement and each certificate, agreement or document executed by a Loan Party and delivered to the Agent or any Lender in connection with or pursuant to any of the foregoing. 22 30 "LOAN PARTY" means the Borrower or any of its Subsidiaries which executes and delivers a Loan Document and "LOAN PARTIES" means all of them. "MAJORITY LENDERS" means, at any time, Lenders holding at least 51% of the then aggregate unpaid principal amount of the Loans and Letter of Credit Obligations or, if no Loans or Letter of Credit Obligations are then outstanding, Lenders having at least 51% of the Commitments. "MATERIAL ADVERSE CHANGE" means a material adverse change in any of (i) the condition (financial or otherwise), business, performance, prospects, operations or properties of the Borrower and its Subsidiaries taken as a whole, (ii) the legality, validity or enforceability of any Loan Document, (iii) the perfection or priority of the Liens granted or purported to be granted by or pursuant to the Loan Documents, (iv) the ability of the Borrower to repay the Obligations or of any Loan Party to perform its obligations under any Loan Document or (v) the rights and remedies of the Lenders or the Agent under the Loan Documents. "MATERIAL ADVERSE EFFECT" means an effect that results in or causes, or has a reasonable likelihood of resulting in or causing, a Material Adverse Change. "MIDDLETOWN BONDS" means the Industrial Development First Mortgage Revenue Bonds in the original aggregate principal amount of $4 million, issued by the County of Warren, Ohio on May 1, 1976, the proceeds of which were used to finance the acquisition and construction of the Borrower's Towne Mall Store located in Franklin, Ohio. "MIDDLETOWN LEASE PAYMENTS" means the lease payments required to made by the Borrower to the trustee for holders of the Middletown Bonds pursuant to that certain Lease, dated May 1, 1976 between the Borrower, as lessee and the County of Warren, Ohio, as lessor, which lease payments are used by the trustee of the holders of the Middletown Bonds to pay the scheduled principal and interest on the Middletown Bonds. "MORAINE MORTGAGE" means that certain mortgage dated March 26, 1990 by and between the Borrower as mortgagor and Principal Mutual Life Insurance Company as mortgagee. 23 31 "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party, any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "NET INCOME (LOSS)" means, for any Person for any period, the aggregate net income (or loss) from continuing operations of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP. "NET INTEREST EXPENSE" means, for any Person for any period, gross interest expense of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP LESS the following for such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP: (a) the sum of (i) interest capitalized during construction for such period, (ii) interest income (other than in respect of Chargit Receivables) for such period and (iii) gains for such period on Interest Rate Contracts (to the extent not included in interest income above and to the extent not deducted in the calculation of such gross interest expense) PLUS the following for such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP: (b) the sum of (i) losses for such period on Interest Rate Contracts (to the extent not included in such gross interest expense) and (ii) the amortization of upfront costs or fees for such period associated with any interest rate contract (to the extent not otherwise included in gross interest expense). "NON-FUNDING LENDER" has the meaning specified in Section 2.13(f). "NOTES" means the Revolving Credit Notes. "NOTICE OF BORROWING" has the meaning specified in Section 2.2(a). "NOTICE OF CONVERSION OR CONTINUATION" means a notice in the form of EXHIBIT C hereto. "OBLIGATIONS" means the Loans, the Letter of Credit Obligations and all other advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Agent, any Lender, any Issuer, the Swing 24 32 Loan Bank, any Affiliate of any of them or any Indemnitee, of every type and description, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or under any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange transaction or in any other manner, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired and all obligations of the Borrower to Citibank under Interest Rate Contracts. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Borrower under this Agreement or any other Loan Document and all obligations of the Borrower to cash collateralize Letter of Credit Obligations. "OTHER TAXES" has the meaning specified in Section 2.14(b). "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "PENSION PLAN" means an employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an individual account plan, as defined in Section 3(34) of ERISA, and which any Loan Party, any of its Subsidiaries or, if subject to Title IV of ERISA, any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "PERMIT" means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under an applicable Requirement of Law. "PERMITTED LIENS" has the meaning specified in Section 7.1. "PERSON" means an individual, partnership, limited liability company, corporation (including, without limitation, a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Authority. 25 33 "PLAN" means an employee benefit plan, as defined in Section 3(3) of ERISA, which any Loan Party, or any of its Subsidiaries maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "PLAN OF REORGANIZATION" means the Third Amended Joint Plan of Reorganization of the Borrower and certain of its Subsidiaries attached hereto as EXHIBIT P, as the same may be amended, supplemented or modified from time to time to the date hereof. "POOLING AND SERVICING AGREEMENT" means that certain Pooling and Servicing Agreement, dated as of December 30, 1997, among El-Bee, Chargit, as Servicer, and Bankers Trust Company, as trustee. "PROCEEDS" means "proceeds," as such term is defined in Section 9-306(1) of the UCC. "QUALIFIED PLAN" means an employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is intended to be tax-qualified under Section 401(a) of the Code, and which any Loan Party, any of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "RATABLE PORTION" or "RATABLY" means, with respect to any Lender, the quotient obtained by dividing the Commitment of such Lender by the Commitments of all Lenders, or, if the Commitments have been terminated, by dividing the aggregate amount of outstanding Loans and Letter of Credit Obligations owed to such Lender by the aggregate amount of outstanding Loans and Letter of Credit Obligations. "REAL PROPERTY" means all of those plots, pieces or parcels of land now owned or hereafter acquired by the Borrower or any of its Subsidiaries ("Land"), together with the right, title and interest of the Borrower or such Subsidiary, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, the air space and development rights pertaining to any such Land and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, all fixtures, 26 34 all easements now or hereafter benefiting any such Land and all royalties and rights appertaining to the use and enjoyment of any such Land, including, without limitation, all alley, vault, drainage, mineral, water, oil and gas rights, together with all of the buildings and other improvements now or hereafter erected on any such Land, and any fixtures appurtenant thereto. "RECEIVABLES" has the meaning set forth in the Pooling and Servicing Agreement. "RECEIVABLES SECURITIZATION" means the transactions described in and contemplated by the Pooling and Servicing Agreement or any successor arrangement approved by the Agent. "RECEIVABLES SECURITIZATION ATTRIBUTED INDEBTEDNESS" at any time shall mean the aggregate amount theretofore paid to El-Bee in respect of the Receivables sold by Chargit to El-Bee pursuant to the Receivables Securitization, in each case to the extent the respective underlying Receivables have not yet been repaid or deemed repaid by the respective account debtor or repurchased by the Borrower or Chargit (it being the intent of the parties that the amount of Receivables Securitization Attributed Indebtedness at any time outstanding approximate as closely as possible the principal amount of Indebtedness that would be outstanding at such time under the Receivables Securitization if the same were structured as a secured lending agreement rather than a purchase agreement). "REGISTER" has the meaning specified in Section 10.7(c). "REIMBURSEMENT OBLIGATIONS" means all matured reimbursement or repayment obligations of the Borrower to any Issuer with respect to Letters of Credit pursuant to Letter of Credit Reimbursement Agreements. "RELEASE" means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration, in each case of any Hazardous Material, into the indoor or outdoor environment or into or out of any property owned by such Person, including, without limitation, the movement of contaminants through or in the air, soil, surface water, ground water or property. 27 35 "REMEDIAL ACTION" means all actions required to (i) clean up, remove, treat or in any other way address contaminants in the indoor or outdoor environment, (ii) prevent the Release or threat of Release or minimize the further Release of contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care. "REORGANIZATION CASES" means the cases of the Borrowers and its Subsidiaries pursuant to chapter 11 of the Bankruptcy Code pending in the Bankruptcy Court. "REORGANIZATION EXPENSES" means fees or expenses paid by (or other amounts exceeding ordinary course operating expenditures of) the Borrower and its Subsidiaries (other than El-Bee) constituting (i) allowances of compensation for services rendered or reimbursement of expenses awarded by the Bankruptcy Court under sections 330 or 331 of the Bankruptcy Code, to accountants, attorneys and other professionals retained in the Reorganization Cases by the Borrowers or the Guarantors in accordance with section 327 of the Bankruptcy Code (collectively, the "Borrowers' Professionals"), (ii) allowances of compensation for services rendered or reimbursement of expenses awarded by the Bankruptcy Court under sections 330 or 331 of the Bankruptcy Code, to accountants, attorneys and other professionals retained in the Reorganization Cases by any unsecured creditors' committee appointed in accordance with section 1102 of the Bankruptcy Code or any examiner appointed in accordance with section 1104 of the Bankruptcy Code other than an examiner of the type referred to in Section 8.1(m) hereof, (iii) allowances of compensation for services rendered or reimbursement of expenses awarded by the Bankruptcy Court under section 503 of the Bankruptcy Code, to accountants, attorneys and other professionals retained in the Reorganization Cases by the Elder-Beerman Stores Corp. Profit Sharing and Stock Ownership Plan Administrative Committee, (iv) fees required to be paid to the Office of the United States Trustee under section 1930(a), title 28, United States Code, (v) the actual, necessary expenses, other than compensation, and reimbursements pursuant to section 503(b)(4) of the Bankruptcy Code, incurred by a member of a committee appointed under section 1102 of the Bankruptcy Code, if such expenses are incurred in the performance of the duties of such committee and are allowed by the Bankruptcy Court and 28 36 (vi) claims for reclamation allowed in accordance with Section 546(c)(2) of the Bankruptcy Code and the corresponding Bankruptcy Court order, to the extent not previously paid, and (vii) claims of The First National Bank of Chicago in connection with an interest rate swap and related guaranty that were accorded administrative priority by the Bankruptcy Court on October 17, 1995. "REPORTABLE EVENT" means any of the events described in Sections 4043(c)(1), (2), (3), (5), (6) or (9) of ERISA. "REQUIREMENT OF LAW" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and all federal, state and local laws, rules and regulations, and all orders, judgments, decrees or other determinations of any Governmental Authority or arbitrator, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER" means, with respect to any Person, any of the principal executive officers of such Person. "REVOLVING CREDIT BORROWING" means a borrowing consisting of Revolving Credit Loans made on the same day by the Lenders ratably accordingly to their respective Commitments. "REVOLVING CREDIT LOAN" means a Loan made by a Lender to the Borrower pursuant to Section 2.1. "REVOLVING CREDIT NOTE" means a promissory note of the Borrower payable to the order of any Lender in a principal amount equal to the amount of such Lender's Commitment as originally in effect, in substantially the form of EXHIBIT A, evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from the Revolving Credit Loans made by such Lender. "SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now owned or hereafter acquired whereby the Borrower or a Subsidiary of the Borrower transfers such property to a Person and the Borrower or a Subsidiary of the Borrower leases it from such Person. 29 37 "SECURED PARTIES" means the Lenders, the Swing Loan Bank, the Issuer and the Agent, and Citibank as obligee of the Borrower under Interest Rate Contracts. "SECURITIZATION DOCUMENTS" means each agreement, document and instrument entered into by the Borrower or any Subsidiary of the Borrower in connection with the Receivables Securitization, including, without limitation, the documents listed on Schedule V, any promissory note of El-Bee in favor of Chargit and any of Chargit in favor of the Borrower in each case made in connection therewith. "SECURITY AGREEMENT" means an agreement, substantially in the form of EXHIBIT H, executed by the Borrower and the Guarantors, as such agreement may be amended, supplemented or modified from time to time. "SOLVENT" means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including, without limitation, contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STOCK" means shares of capital stock, beneficial or partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or non-voting, and includes, without limitation, common stock and preferred stock. "STOCK EQUIVALENTS" means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any stock, whether or not presently convertible, exchangeable or exercisable. "STORE ACCOUNT LETTER" means a letter agreement, in substantially the form of EXHIBIT K (with such changes as may be agreed to by the Agent), executed by the Borrower 30 38 and/or any Subsidiary and acknowledged and agreed to by a depository bank. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership or other business entity 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, managers, trustees or other controlling persons, is, at the time, directly or indirectly, owned or controlled by such Person and/or one or more Subsidiaries of such Person (irrespective of whether, at the time, Stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency). "SUBSIDIARY GUARANTY" means a guaranty, in substantially the form of EXHIBITS F and G, executed by the Guarantors, as such guaranty may be amended, supplemented or otherwise modified from time to time. "SWING LOAN" has the meaning set forth in Section 2.17(a). "SWING LOAN AVAILABLE CREDIT" means the Ratable Portion of the Available Credit of the Lender that is the Swing Loan Bank. "SWING LOAN BANK" means CUSA or such other Lender who shall also be the Agent or who, with the agreement of the Agent, shall agree to act hereunder as Swing Loan Bank. "SWING LOAN BORROWING" means a borrowing consisting of a Swing Loan. "TAX AFFILIATE" means, as to any Person, (i) any Subsidiary of such Person, and (ii) any Affiliate of such Person with which such Person files or is eligible to file consolidated, combined or unitary tax returns. "TAXES" has the meaning specified in Section 2.14(a). "TERMINATION DATE" means the earliest of (i) December 20, 2000, (ii) the third anniversary of the Closing Date and (iii) the date of termination in whole of the Commitments pursuant to Section 2.4 or 8.2. 31 39 "TITLE IV PLAN" means a Pension Plan which is covered by Title IV of ERISA. "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Agent's and the Secured Parties' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "UNFUNDED PENSION LIABILITY" means, as to any Loan Party at any time, the sum of (i) the aggregate amount, if any, by which the present value of all accrued benefits under each Title IV Plan of such Loan Party, any of its Subsidiaries or any ERISA Affiliate exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (ii) for a period of five years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the aggregate amount, if any, of liabilities (whether or not accrued) that could be avoided by any Loan Party, any of its Subsidiaries or any ERISA Affiliate as a result of such transaction. "WELFARE BENEFIT PLAN" means an employee welfare benefit plan, as defined in Section 3(1) of ERISA, to which any Loan Party or any of its Subsidiaries has any obligation or liability, contingent or otherwise. "WITHDRAWAL LIABILITY" means, as to any Loan Party at any time, the aggregate amount of the unsatisfied liabilities of any Loan Party, any of its Subsidiaries or any ERISA Affiliate pursuant to Section 4201 of ERISA with respect to all Multiemployer Plans. "ZANESVILLE BONDS" means the Variable Rate Demand Industrial Development Revenue Bonds in the original aggregate principal amount of $4.1 million, issued by the County of Muskingum, Ohio, on March 1, 1985, the proceeds of which were used to finance the construction of the 32 40 Borrower's Colony Square Shopping Center Store located in Zanesville, Ohio. 1.2. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including". 1.3. ACCOUNTING TERMS; CHANGES IN GAAP. All accounting terms not specifically defined herein shall be construed in conformity with GAAP and all accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in conformity with GAAP. Upon any change in GAAP that would affect in any material respect the calculations required by Article V, the Borrower and the Agent agree to negotiate in good faith to modify Article V to reflect in such financial ratios and covenants such changes in GAAP and still maintain the original economic terms of such financial ratios and covenants as in effect under this Agreement on the date hereof. The Agent shall promptly notify the Lenders in writing of any negotiated changes to such financial ratios, covenants and definitions and propose that this Agreement shall be amended in accordance with the terms of Section 10.1 to reflect such changes as may be necessary to maintain the original economic terms of such financial ratios and covenants. 1.4. CERTAIN PRE-REORGANIZATION MATTERS. For the purpose of calculating compliance with the financial covenants in Article V for periods prior to the Closing Date, Average Total Debt shall exclude liabilities subject to compromise (in accordance with GAAP) and any requirement to pay on or prior to the Closing Date principal in respect of such liabilities shall be ignored in the calculation of Fixed Charges. 1.5. CERTAIN TERMS. (a) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, and not to any particular Article, Section, subsection or clause in this Agreement. References herein to an Exhibit, Schedule, Article, Section, subsection or clause refer to the appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in this Agreement. 33 41 (b) The terms "Lender", "Issuer", "Swing Loan Bank" and "Agent" include their respective successors and the term "Lender" includes each assignee of such Lender who becomes a party hereto pursuant to Section 10.7. ARTICLE II AMOUNTS AND TERMS OF THE LOANS 2.1. THE REVOLVING CREDIT LOANS. On the terms and subject to the conditions contained in this Agreement, each Lender severally and not jointly agrees to make loans (each a "REVOLVING CREDIT LOAN") to the Borrower from time to time on any Business Day during the period from the Closing Date until the Termination Date in an aggregate amount not to exceed at any time outstanding such Lender's Commitment; PROVIDED, HOWEVER, that at no time shall any Lender be obligated to make a Revolving Credit Loan in excess of such Lender's Ratable Portion of the Available Credit. Within the limits of each Lender's Commitment, amounts prepaid pursuant to Section 2.6 may be reborrowed under this Section 2.1. The Revolving Credit Loans of each Lender shall be evidenced by the Revolving Credit Note to the order of such Lender. 2.2. MAKING THE LOANS. (a) Revolving Credit Loans shall be made pursuant to a Revolving Credit Borrowing. Each Revolving Credit Borrowing shall be made on notice, given by the Borrower to the Agent not later than 11:00 A.M. (New York City time) on the Business Day prior to the date of the proposed Revolving Credit Borrowing; PROVIDED, HOWEVER, that in the case of Eurodollar Rate Loans, the Borrower shall give notice to the Agent three Business Days prior to the date of the proposed Revolving Credit Borrowing. Each such notice (a "NOTICE OF BORROWING") shall be in substantially the form of EXHIBIT B. Revolving Credit Loans shall be made as Base Rate Loans unless (subject to Section 2.11) the Notice of Borrowing specifies that all or a pro rata portion thereof shall be Eurodollar Rate Loans; PROVIDED, HOWEVER, that the aggregate of the Eurodollar Rate Loans for each Interest Period must be in an amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (b) Each Swing Loan shall be made upon such notice as the Swing Loan Bank and the Borrower shall agree. All Swing Loan Borrowings shall be made as Base Rate Loans. 34 42 (c) The Agent shall give to each Lender prompt notice of the Agent's receipt of a Notice of Borrowing with respect to Revolving Credit Loans and, if Eurodollar Rate Loans are properly requested in such Notice of Borrowing, the information required under Section 2.9. Each Lender shall, before 11:00 A.M. (New York City time) on the date of the proposed Revolving Credit Borrowing, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 10.2, in immediately available funds, such Lender's Ratable Portion of such proposed Revolving Credit Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower in a bank account maintained by the Borrower at CUSA. (d) Each Borrowing shall be in an aggregate amount of not less than $1,000,000. (e) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any proposed Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Loans, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such proposed Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including, without limitation, loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund any Eurodollar Rate Loan to be made by such Lender as part of such proposed Borrowing when such Eurodollar Rate Loan, as a result of such failure, is not made on such date. There shall be no more than six separate Interest Periods in the aggregate outstanding at any one time in respect of Eurodollar Rate Loans. (f) Unless the Agent shall have received notice from a Lender prior to the date of any proposed Borrowing that such Lender will not make available to the Agent such Lender's Ratable Portion of such Borrowing, the Agent may assume that such Lender has made such Ratable Portion available to the Agent on the date of such Revolving Credit Borrowing in accordance with this Section 2.2 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the 35 43 extent that such Lender shall not have so made such Ratable Portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. If the Borrower shall repay to the Agent such corresponding amount, such payment shall not relieve such Lender of any obligation it may have to the Borrower hereunder. (g) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing. 2.3. FEES. (a) The Borrower shall pay to each Lender a commitment fee (the "COMMITMENT FEE") computed on the daily unused portion of such Lender's Commitment from the date hereof until the Termination Date at the rate of .375% per annum, payable (i) quarterly in arrears on the first Business Day of the month following the close of each calendar quarter during the term of such Lender's Commitment, commencing April 1, 1998 and (ii) on the Termination Date. (b) The Borrower has agreed to pay CUSA additional fees, the amount, terms and dates of payment of which are embodied in a separate agreement dated July 1, 1997 between the Borrower and CUSA. 2.4. REDUCTION AND TERMINATION OF THE COMMITMENTS. (a) The Borrower may, upon at least three Business Days' prior notice to the Agent, terminate in whole or reduce ratably in part the unused portions of the respective Commitments; PROVIDED, HOWEVER, that each partial reduction shall be in the aggregate amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. 36 44 (b) The then current Commitments shall be reduced (and the Commitment of each Lender shall be reduced by its Ratable Portion of such amount) on each date determined pursuant to paragraph (c) below in an amount equal to (i) as long as no Default or Event of Default shall have occurred and be continuing (A) with respect to each Asset Sale that includes Eligible Inventory, an amount equal to the Advance Rate then in effect multiplied by the Attributed Value of such Eligible Inventory sold, determined on the basis of the most recent Borrowing Base Certificate and (B) with respect to all other Asset Sales, (x) 50% of the amount of such Asset Sale Proceeds received by any Loan Party or any of its Subsidiaries on or after the Closing Date in excess of $10,000,000 and up to $15,000,000 per year and (y) 100% of the aggregate amount of such Asset Sale Proceeds in excess of $15,000,000 per year and (ii) following the occurrence of a Default or Event of Default, 100% of all Asset Sale Proceeds. (c) If pursuant to paragraph (b) above the Commitments are to be reduced as a result of an Asset Sale, such reduction shall be made on the date of receipt of such Asset Sale Proceeds by any Loan Party. 2.5. REPAYMENT. (a) The Borrower shall repay the entire unpaid principal amount of the Loans on the Termination Date. (b) For a period of not less than 45 consecutive days (i) during the three-month period commencing on January 1, 1998 and ending on March 31, 1998 the Borrower shall repay the Loans to the extent necessary so that the outstanding principal amount of the Loans do not exceed an aggregate of $30,000,000, (ii) during the three-month period commencing on January 1, 1999 and ending on March 31, 1999 the Borrower shall repay the Loans to the extent necessary so that the outstanding principal amount of the Loans do not exceed an aggregate of $7,500,000, and (iii) during the three month period commencing on January 1, 2000 and ending on March 31, 2000 the Borrower shall repay the Loans in full such that there are no Loans outstanding during such period. 2.6. PREPAYMENTS. (a) The Borrower may, upon at least one Business Day's prior notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of the Loans in whole or 37 45 ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; PROVIDED, HOWEVER, that any such prepayment shall be applied first to the Swing Loans outstanding, and then to the Revolving Credit Loans outstanding; and, PROVIDED, FURTHER, that each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 or integral multiples of $1,000,000 in excess thereof. Upon the giving of such notice of prepayment, the principal amount of the Loans specified to be prepaid shall become due and payable on the date specified for such prepayment. The notice requirement in this Section 2.6(a) shall not apply to any application of available funds pursuant to Section 2.6(c). (b) (i) Upon receipt by the Borrower or any Subsidiary of the Borrower of Asset Sale Proceeds, the Borrower shall forthwith prepay, in an amount equal to such Asset Sale Proceeds, the Swing Loans outstanding, and if no Swing Loans are outstanding (determined after the foregoing application), the Revolving Credit Loans, together with accrued interest to the date of such prepayment. (ii) If, at any time, the sum of the aggregate principal amount of the outstanding Swing Loans, Revolving Credit Loans and Letter of Credit Obligations exceeds either the Commitments at such time or a Borrowing Base Deficiency exists, the Borrower shall forthwith prepay the Swing Loans then outstanding in an amount equal to such excess, together with accrued interest thereon, and if there are no Swing Loans outstanding or if such prepayment does not eliminate such excess, the Revolving Credit Loans then outstanding to the extent necessary to eliminate such excess, together with accrued interest thereon, and if no Revolving Credit Loans are then outstanding, the Borrower shall forthwith cash collateralize such excess by paying to the Agent immediately available funds in the amount of such excess, which funds shall be held by the Agent as cash collateral on terms satisfactory to the Agent as long as and to the extent such excess exists. (c) The Borrower agrees that all available funds in the Cash Collateral Account shall be applied first to accrued and unpaid interest on the Loans to the extent then due and payable, next, PRO RATA, to the amount of the Swing Loans and any Reimbursement Obligations then outstanding, next to the outstanding principal amount of the Revolving Credit Loans and Loans deemed to be made by the Lenders pursuant to Section 2.16(m), and next to any other 38 46 Obligations then due and payable, then on any Business Day that any funds are on deposit in the Cash Collateral Account and no Default or Event of Default has occurred, the Borrower may direct the Agent to disburse such funds to the Borrower's disbursement account. The Borrower shall utilize funds on deposit in the Cash Collateral Account that are available to it pursuant to the terms hereof prior to requesting Loans to be made hereunder. 2.7. CONVERSION/CONTINUATION OPTION. The Borrower may elect (i) at any time to convert Base Rate Loans or any portion thereof to Eurodollar Rate Loans or (ii) at the end of any Interest Period with respect thereto, to convert Eurodollar Rate Loans or any portion thereof into Base Rate Loans, or to continue such Eurodollar Rate Loans or any portion thereof for an additional Interest Period; PROVIDED, HOWEVER, that the aggregate amount of the Eurodollar Loans for each Interest Period therefor must be in the amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. Each conversion or continuation shall be allocated among the Loans of all Lenders in accordance with their Ratable Portions. Each such election shall be in substantially the form of EXHIBIT C (a "NOTICE OF CONVERSION OR CONTINUATION") and shall be made by giving the Agent at least three Business Days prior written notice thereof specifying (A) the amount and type of conversion or continuation, (B) in the case of a conversion to or a continuation of Eurodollar Rate Loans, the Interest Period therefor, and (C) in the case of a conversion, the date of conversion (which date shall be a Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the last day of the Interest Period therefor). The Agent shall promptly notify each Lender of its receipt of a Notice of Conversion or Continuation and of the contents thereof. Notwithstanding the foregoing, no conversion in whole or in part of Base Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in part of Eurodollar Rate Loans upon the expiration of any Interest Period therefor, shall be permitted at any time at which an Event of Default shall have occurred and be continuing. If, within the time period required under the terms of this Section 2.7, the Agent does not receive a Notice of Conversion or Continuation from the Borrower containing a permitted election to continue any Eurodollar Rate Loans for an additional Interest Period or to convert any such Loans, then, upon the expiration of the Interest Period therefor, such Loans will be automatically converted to Base Rate Loans. Each Notice of Conversion or Continuation shall be irrevocable. 39 47 2.8. INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Loan from the date thereof until the principal amount thereof shall be paid in full, at the following rates per annum: (a) For Base Rate Loans, at a rate per annum equal at all times to the Base Rate in effect from time to time PLUS the Applicable Base Rate Margin, payable quarterly in arrears on the first day of each quarter, on the Termination Date and on the date any Base Rate Loan is paid in full; PROVIDED, HOWEVER, that during the continuance of an Event of Default, interest shall be payable on demand and all Base Rate Loans shall bear interest at a rate per annum equal at all times to 2.0% per annum above the Base Rate in effect from time to time PLUS the Applicable Base Rate Margin. (b) For Eurodollar Rate Loans, at a rate per annum equal at all times during the applicable Interest Period for each Eurodollar Rate Loan to the sum of the Eurodollar Rate for such Interest Period PLUS the Applicable Eurodollar Rate Margin in effect on the first day of such Interest Period, payable on the last day of such Interest Period, on the Termination Date and on the date any Eurodollar Rate Loan is paid in full; PROVIDED, HOWEVER, that during the continuance of an Event of Default, all Eurodollar Rate Loans shall bear interest, payable on demand, at a rate per annum equal at all times to 2.0% above the Eurodollar Rate in effect from time to time PLUS the Applicable Eurodollar Rate Margin until the maturity of the Loans or the end of such Interest Period, whichever occurs first, and thereafter at the greater of (x) 2.0% per annum above the Base Rate in effect from time to time and (y) 2.0% per annum above the rate per annum required to be paid on such Loan immediately prior to the date on which such Event of Default occurred. 2.9. INTEREST RATE DETERMINATION AND PROTECTION. (a) The Eurodollar Rate for each Interest Period for Eurodollar Rate Loans shall be determined by the Agent two Business Days before the first day of such Interest Period in the case of Eurodollar Rate Loans. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.9(a). 40 48 (c) If, with respect to Eurodollar Rate Loans, the Majority Lenders notify the Agent that the Eurodollar Rate for any Interest Period therefor will not adequately reflect the cost to such Majority Lenders of making such Loans or funding or maintaining their respective Eurodollar Rate Loans for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Loan; and (ii) the obligations of the Lenders to make Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended until the Agent shall notify the Borrower that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) The initial Applicable Base Rate Margin and Eurodollar Rate Margin shall be 37.5 bps and 137.5 bps, respectively. Any change in the Applicable Margin shall be based on the Average Total Debt to EBITDA ratio for the four Fiscal Quarters ending on the last day of each Fiscal Quarter for which the Borrower delivers financial statements and certificates pursuant to Section 6.10(b) and shall take effect on the third Business Day following receipt by the Agent of such financial statements and certificates in the case of Base Rate Loans and on the first day of the next Interest Period commencing on or after such third Business Day in the case of Eurodollar Loans. 2.10. INCREASED COSTS. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation (other than any change by way of imposition or increase of reserve requirements included in determining the Eurodollar Rate Reserve Percentage) or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans (excluding for purposes of this Section 2.10 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable 41 49 Lending Office or any political subdivision thereof), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. Such demand shall be accompanied by a statement of the amount of such compensation and include a summary of the basis for such demand. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. If the Borrower so notifies the Agent within five Business Days after any Lender notifies the Borrower of any increased cost pursuant to the foregoing provisions of this Section 2.10, the Borrower may either (A) prepay in full all Eurodollar Rate Loans, as the case may be, of such Lender then outstanding in accordance with Section 2.6(a) and, additionally, reimburse such Lender for such increased cost in accordance with this Section 2.10 or (B) convert all Eurodollar Rate Loans, as the case may be, of all Lenders then outstanding into Base Rate Loans in accordance with Section 2.7 and, additionally, reimburse such Lender for such increased cost in accordance with this Section 2.10. 2.11. ILLEGALITY. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand therefor by such Lender to the Borrower through the Agent, (i) the obligation of such Lender to make or to continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar Rate Loans shall terminate and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Loans of such Lender then outstanding, together with interest accrued thereon, unless the Borrower, within five Business Days of such notice and demand, converts all Eurodollar Rate Loans of all Lenders then outstanding into Base Rate Loans; provided, however, that, to the extent permitted by law, the Borrower may defer such prepayment or conversion to the end of the applicable Interest Period. 2.12. CAPITAL ADEQUACY. If (i) the introduction of or any change in or in the interpretation of any law or regulation, (ii) compliance with any law or regulation, or 42 50 (iii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by any Lender or any corporation controlling any Lender and such Lender reasonably determines that such amount is based upon the existence of such Lender's Commitments, Loans and commitments in respect of Letters of Credit and its other commitments and loans of such type, including, without limitation, its other commitments in respect of letters of credit (or similar contingent obligations), then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of any or all of such Lender's Commitments, Loans and agreements herein with respect to Letters of Credit. Such demand shall be accompanied by a statement as to the amount of such compensation and shall include a summary of the basis for such demand. A certificate as to such amounts submitted to the Borrower and the Agent by such Lender shall be conclusive and binding for all purposes absent manifest error. 2.13. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment hereunder and under the Notes not later than 1:00 P.M. (New York City time) on the day when due, in Dollars, to the Agent at its address referred to in Section 10.2 in immediately available funds without set-off or counterclaim. The Agent will promptly thereafter cause to be distributed immediately available funds relating to the payment of principal or interest or fees (other than amounts payable pursuant to Sections 2.10, 2.11, 2.12, 2.14, 2.16 and 2.17) to the Lenders, in accordance with the respective amounts owed to each, for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Payment received by the Agent after 1:00 P.M. (New York City time) shall be deemed to be received on the next Business Day. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made 43 51 when due hereunder or under any Loan held by such Lender, to charge from time to time against any or all of the accounts of the Borrower with such Lender any amount so due. (c) All computations of interest based on the Base Rate, the Eurodollar Rate or the Federal Funds Rate and of fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days occurring in the period for which such interest and fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; PROVIDED, HOWEVER, that if such extension would cause payment of interest on or principal of any Eurodollar Rate Loan to be made in the next calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due hereunder to the Lenders that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. (f) If any Lender (a "NON-FUNDING LENDER") has (i) failed to make a Revolving Credit Loan required to be made by it hereunder or (ii) given notice to the Borrower or the Agent that it will not make, or that it has disaffirmed or repudiated any obligation to make, Revolving Credit Loans, (A) any payment made on account of the principal of the Revolving Credit Loans outstanding shall be made as follows: 44 52 (x) in the case of any such payment made on any date when due and to the extent that, in the determination of the Agent, the Borrower would be able, under the terms and conditions hereof, to reborrow the amount of such payment under the Commitments and to satisfy any applicable conditions precedent set forth in Section 3.3 to such reborrowing, such payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders other than the Non-Funding Lender PRO RATA according to the respective outstanding principal amounts of the Revolving Credit Loans of such Lenders; (y) otherwise, such payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders PRO RATA according to the respective outstanding principal amounts of such Revolving Credit Loans; and (B) any payment made on account of interest on the Revolving Credit Loans shall be made PRO RATA according to the respective amounts of accrued and unpaid interest due and payable on the Revolving Credit Loans with respect to which such payment is being made. 2.14. TAXES. (a) Any and all payments by the Borrower under each Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including, without limitation, deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would 45 53 have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (iv) the Borrower shall deliver to the Agent evidence of such payment to the relevant taxation or other authority. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any political subdivision thereof or any applicable foreign jurisdiction which arise from any payment made under any Loan Document or from the execution, delivery or registration of, or otherwise with respect to, any Loan Document (collectively, "OTHER TAXES"). (c) The Borrower shall indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Agent (as the case may be) and any liability (including, without limitation, for penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. A certificate as to the amount of such indemnification submitted to the Borrower or to the Agent by such Lender or the Agent setting forth the calculation thereof in reasonable detail shall be conclusive and binding for all purposes, absent manifest error. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Agent, at its address referred to in Section 10.2, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of the Borrower through an account or branch outside the United States or by or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Agent, at such address, an opinion of counsel acceptable to the Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "UNITED STATES" and "UNITED STATES 46 54 PERSON" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement (if lawfully able to do so), and from time to time thereafter as requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Borrower with two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001 or 4224, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form described in Section 2.14(e) (OTHER THAN if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; PROVIDED, HOWEVER, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. 47 55 (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions, and at the Borrower's expense) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the sole judgment of such Lender, be otherwise disadvantageous to such Lender. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.14 shall survive the payment in full of the Obligations. 2.15. SHARING OF PAYMENTS, ETC. (a) If any Lender (other than the Swing Loan Bank) shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set off on otherwise) on account of Loans made by it (other than pursuant to Section 2.10, 2.11, 2.12 or 2.14), and there is any Swing Loan outstanding in respect of which the Swing Loan Bank has not received payment in full from the Lenders pursuant to Section 2.17(c) or there is any Reimbursement Obligation outstanding in respect of which the relevant Issuer has not received payment in full from the Lenders pursuant to Section 2.16(i), such Lender (a "PURCHASING LENDER") shall purchase a participation in all such Swing Loans and Reimbursement Obligations (pro rata as between each, if both Swing Loans and Reimbursement Obligations are then outstanding) in an amount equal to the lesser of such payment and the amount of such Swing Loan and Reimbursement Obligation for which the Swing Loan Bank and the relevant Issuer has not so received payment in full. If, after giving effect to the foregoing, any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Loans made by it (other than pursuant to Section 2.10, 2.11, 2.12 or 2.14) in excess of its Ratable Portion of payments on account of the Revolving Credit Loans obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in their Loans as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them. (b) If all or any portion of any payment received by a Purchasing Lender is thereafter recovered from such 48 56 Purchasing Lender, such purchase from each selling Lender described in paragraph (a) above (a "SELLING LENDER") shall be rescinded and such Selling Lender shall repay to the Purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Selling Lender's ratable share (according to the proportion of (i) the amount of such Selling Lender's required repayment to (ii) the total amount so recovered from the Purchasing Lender) of any interest or other amount paid or payable by the Purchasing Lender in respect of the total amount so recovered. (c) The Borrower agrees that any Purchasing Lender purchasing a participation from a Selling Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including, without limitation, the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 2.16. LETTER OF CREDIT FACILITY. (a) On the terms and subject to the conditions contained in this Agreement, each Issuer agrees to issue one or more Letters of Credit at the request of the Borrower for the account of the Borrower from time to time during the period commencing on the date hereof and ending on December 20, 2000 (or if earlier on the Termination Date); PROVIDED, HOWEVER, that no Issuer shall be under any obligation to issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain such Issuer from issuing such Letter of Credit or any Requirement of Law applicable to such Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuer shall prohibit, or request that such Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuer is not otherwise compensated) not in effect on the date hereof or result in any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuer as of the date hereof and which such Issuer in good faith deems material to it; 49 57 (ii) such Issuer shall have received written notice from the Agent, any Lender or the Borrower, on or prior to the Business Day prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article III is not then satisfied; (iii) after giving effect to the issuance of such Letter of Credit, the Letter of Credit Obligations exceed $30,000,000; (iv) the amount of the Letter of Credit requested exceeds the Available Credit; or (v) fees due in connection with a requested issuance have not been paid. Only an Issuer shall have an obligation hereunder to issue any Letter of Credit. (b) Notwithstanding anything to the contrary contained in this Agreement, any and all letters of credit issued and outstanding on the Closing Date pursuant to the DIP Facility shall automatically and without any further action on the part of any party, be deemed to be Letters of Credit issued by the Issuer pursuant to this Section 2.16 and covered by the terms hereof and any reimbursement agreement pertaining to any such Letter of Credit shall be deemed to be a Letter of Credit Reimbursement Agreement hereunder. Schedule 2.16(b) reflects all Letters of Credit outstanding under the DIP Facility and deemed to be Letters of Credit for purposes of this Agreement. (c) In no event shall: (i) the expiration date of (x) any standby Letter of Credit be more than 360 days after the date of issuance thereof, or (y) any other Letter of Credit be more than 180 days after the date of issuance thereof, other than the Letter of Credit in the face amount of $3,133,287.67 issued in respect of the Zanesville Bonds, which may be up to 360 days; (ii) any Issuer issue any Letter of Credit for the purpose of supporting the issuance of any letter of credit by any other Person; or 50 58 (iii) the expiration date of any Letter of Credit be later than the seventh calendar day preceding the Termination Date unless on the date of issuance thereof, the Borrower shall have cash collateralized such Letter of Credit to the satisfaction of the Agent in an amount equal to 105% of the undrawn face amount thereof. (d) Prior to the issuance of each Letter of Credit, the Borrower shall have delivered to the Issuer thereof a letter of credit reimbursement agreement, in a form attached hereto as EXHIBIT L (a "LETTER OF CREDIT REIMBURSEMENT AGREEMENT"), signed by the Borrower, and such other documents or items as may be required pursuant to the terms thereof. In the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall govern. (e) In connection with the issuance of each Letter of Credit, the Borrower shall give the Issuer thereof and the Agent at least two Business Days' prior written notice (a "LETTER OF CREDIT REQUEST"), in substantially the form of EXHIBIT D, of the requested issuance of such Letter of Credit. Such notice shall be irrevocable and shall specify the stated amount of the Letter of Credit requested, the date of issuance of such requested Letter of Credit (which day shall be a Business Day), the date on which such Letter of Credit is to expire (which date shall be a Business Day), and the Person for whose benefit the requested Letter of Credit is to be issued. Such notice, to be effective, must be received by such Issuer and the Agent not later than 11:00 A.M. (New York City time) on the last Business Day on which notice can be given under the immediately preceding sentence. (f) Subject to the terms and conditions of this Section 2.16 and provided that the applicable conditions set forth in Article III are satisfied, such Issuer shall, on the requested date, issue a Letter of Credit on behalf of the Borrower in accordance with the Issuer's usual and customary business practices. On the date of the proposed issuance of the Letter of Credit the Agent shall confirm to the Issuer of the requested Letter of Credit that the applicable conditions in Article III are satisfied. The Issuer shall give prompt notice to the Agent of the issuance, modification or surrender of Letters of Credit. 51 59 (g) Immediately upon the issuance by an Issuer of a Letter of Credit in accordance with the terms and conditions of this Agreement, such Issuer shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Ratable Portion, in such Letter of Credit and the obligations of the Borrower with respect thereto (including, without limitation, all Letter of Credit Obligations with respect thereto) and any security therefor and guaranty pertaining thereto. (h) In determining whether to pay under any Letter of Credit, no Issuer shall have any obligation relative to the Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuer under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put such Issuer under any resulting liability to any Lender. (i) In the event that any Issuer makes any payment under any Letter of Credit and the Borrower shall not have repaid such amount to such Issuer pursuant to Section 2.16(m), such Issuer shall promptly notify the Agent, which shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Agent for the account of such Issuer the amount of such Lender's Ratable Portion of such payment in Dollars and in immediately available funds. If the Agent so notifies such Lender prior to 11:00 A.M. (New York City time) on any Business Day, such Lender shall make available to the Agent for the account of such Issuer its Ratable Portion of the amount of such payment on such Business Day in immediately available funds. If and to the extent such Lender shall not have so made such Lender's Ratable Portion of the amount of such payment available to the Agent for the account of such Issuer, such Lender agrees to pay to the Agent for the account of such Issuer forthwith on demand such amount together with interest thereon, for each day from such date until the date such amount is repaid to the Agent for the account of such Issuer, at the Federal Funds Rate. The failure of any Lender to make available to the Agent for the account of such Issuer its Ratable Portion of 52 60 any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Agent for the account of such Issuer its Ratable Portion of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Agent for the account of any Issuer such other Lender's Ratable Portion of any such payment. (j) Whenever any Issuer receives a payment of a Reimbursement Obligation as to which the Agent has received for the account of such Issuer any payment from a Lender pursuant to Section 2.15 or 2.16(i), the Issuer shall pay to the Agent and the Agent shall promptly pay to each Lender, in immediately available funds, an amount equal to such Lender's pro rata share of such payment based on the respective amounts the Lenders have paid in respect of such Reimbursement Obligation. (k) Upon the request of any Lender, each Issuer shall furnish to such Lender copies of any Letter of Credit Reimbursement Agreement to which such Issuer is a party and such other documentation as may reasonably be requested by such Lender. (l) The obligations of the Lenders to make payments to the Agent for the account of each Issuer with respect to Letters of Credit shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances (except as expressly provided in Section 2.16(h)), including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement; (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, any Issuer, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit or any unrelated transaction (including, without limitation, any underlying transaction between the Borrower and the beneficiary named in any Letter of Credit); 53 61 (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Default or Event of Default. (m) The Borrower agrees to pay to each Issuer the amount of all Reimbursement Obligations owing to such Issuer under any Letter of Credit immediately when due, irrespective of any claim, set-off, defense or other right which the Borrower may have at any time against such Issuer or any other Person. The Borrower agrees to reimburse each Issuer for all amounts which such Issuer pays under such Letter of Credit no later than the time specified in such Letter of Credit Reimbursement Agreement. If the Borrower does not pay (either from the proceeds of a Borrowing or otherwise) any such Reimbursement Obligation when due, such Reimbursement Obligation shall bear interest computed from the date on which such Reimbursement Obligation arose to the date of repayment in full of such loan, at the rate of interest applicable to past due Revolving Credit Loans bearing interest at a rate based on the Base Rate during such period. If any payment made by or on behalf of the Borrower and received by an Issuer with respect to any Letter of Credit is rescinded or must otherwise be returned by such Issuer for any reason and if such Issuer has made payment to the Agent on account thereof pursuant to Section 2.16(j), each Lender shall, upon notice by such Issuer, forthwith pay over to such Issuer an amount equal to such Lender's pro rata share of the amount which must be so returned by such Issuer based on the respective amounts paid in respect thereof to the Lenders pursuant to Section 2.16(j). (n) The Borrower agrees to pay the following amounts with respect to Letters of Credit issued: (i) to each Issuer, with respect to each Letter of Credit issued by such Issuer, a fee equal to 1/4 of 1% per annum of the Letter of Credit Undrawn Amount thereof, payable monthly in arrears on the first of each 54 62 month and on the termination of such Letter of Credit, and calculated on the basis of a 360-day year and the actual number of days elapsed; (ii) to the Agent for the account of the Lenders, an amount equal to the product of the Letter of Credit Undrawn Amount thereof times the Applicable Eurodollar Rate Margin, payable monthly in arrears on the first of each month and on the termination of such Letter of Credit, and calculated on the basis of a 360-day year and the actual number of days elapsed; and (iii) to each Issuer, with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with such Issuer's standard schedule for such charges in effect at the time of issuance, amendment, transfer or drawing, as the case may be. 2.17. SWING LOANS. (a) The Swing Loan Bank, in its sole discretion, on the terms and subject to the conditions contained in this Agreement, may make advances (each a "SWING LOAN") to the Borrower from time to time on any Business Day during the period from the date hereof until the day preceding the Termination Date in an aggregate amount not to exceed at any time outstanding the lesser of (i) the Swing Loan Available Credit, and (ii) the difference between the Swing Loan Bank's Commitment and the aggregate outstanding principal amount of the Swing Loans and the Loans made by it and its Ratable Portion of all Letter of Credit Obligations then outstanding. The Swing Loan Bank shall be entitled to rely on the most recent Borrowing Base Certificate delivered to the Agent. Within the limits set forth above, Swing Loans repaid may be reborrowed under this Section 2.17. (b) Each Swing Loan shall be made upon such notice as the Swing Loan Bank and the Borrower shall agree. Upon fulfillment of the applicable conditions set forth in Article III and if the Swing Loan Bank elects, in its sole discretion, to make such Swing Loan, the Swing Loan Bank will make each Swing Loan available to the Borrower at the Agent's address referred to in Section 10.2. Unless the Borrower advises the Swing Loan Bank to the contrary, the Swing Loan Bank may make a Swing Loan to pay any of the Obligations that are due and payable without notice or further request from the Borrower. 55 63 (c) The Agent shall notify each Lender no less frequently than weekly, as determined by the Agent, of the amount of the Swing Loans outstanding as of 1:00 P.M. (New York City time) as of such date (the "COMPUTATION DATE") and each Lender's Ratable Portion thereof. Each Lender shall before 11:00 A.M. (New York City time) on the next Business Day (the "SETTLEMENT DATE") make available to the Agent, in immediately available funds, the amount of its Ratable Portion of the principal amount of all such Swing Loans. Upon such payment by a Lender, such Lender shall be deemed to have made a Revolving Credit Loan to the Borrower in the amount of such payment. The Agent shall use such funds to repay the Swing Loan to the Swing Loan Bank. To the extent that any Lender fails to make such payment to the Swing Loan Bank, the Borrower shall repay such Swing Loan on demand and in any event on the Termination Date. The Agent's books and records shall be conclusive and binding, absent manifest error, for all purposes of determining the Swing Loans outstanding at any time. 2.18. CASH COLLATERAL ACCOUNT AND CASH MANAGEMENT SYSTEM. (a) The Borrower shall, and shall cause its Subsidiaries to, cause all cash, checks, notes, drafts or other similar items of payment relating to or constituting Proceeds from the sale of any Collateral, and any other similar payments to be deposited via wire transfer in immediately available funds, to a bank account maintained at Citibank, Account No. 4068-3555 (the "CASH COLLATERAL ACCOUNT"), which shall be under the sole dominion and control of the Agent and administered as provided in this Section 6.15 and in Section 2.6(c). (b) The Borrower hereby pledges, and grants to the Agent a Lien on all of its right, title and interest in and to all funds held in the Cash Collateral Account from time to time, and all proceeds thereof, as security for the payment the Obligations from the Borrower to the Lenders and Issuers under the Loan Documents. (c) All immediately available funds on deposit in the Cash Collateral Account shall be applied by the Agent against the outstanding balance of the Obligations in accordance with Section 2.6(c). Notwithstanding anything contained herein to the contrary, upon the occurrence of any Event of Default, the Agent shall have the continuing exclusive right to reverse and reapply any and all proceeds from the Cash Collateral Account to any portion of and such 56 64 of the Obligations as it, in its discretion, shall determine. (d) Neither the Borrower nor any Person claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Cash Collateral Account. (e) The Borrower agrees that it will not (i) sell or otherwise dispose of any interest in the Cash Collateral Account or any funds held therein or (ii) create or permit to exist any Lien upon or with respect to the Cash Collateral Account or any funds held therein, except as provided in or contemplated by this Agreement. 2.19. SUBSTITUTION OF LENDERS. In the event that (a)(i) any Lender makes a claim under Section 2.10 or 2.12, (ii) it becomes illegal for any Lender to continue to fund or make any Eurodollar Rate Loan pursuant to Section 2.1, (iii) the Borrower is required to make any payment pursuant to Section 2.14 that is attributable to any Lender, or (iv) any Lender is in default of any of its obligations hereunder or shall take or be the subject of any action or proceeding of a type described in Subsection 8.1(e), (b) in the case of clause (a)(i) above, as a consequence of increased costs in respect of which such claim is made, the effective rate of interest payable to such Lender under this Agreement with respect to its Loans materially exceeds the effective average annual rate of interest payable to the Majority Lenders under this Agreement and (c) Lenders holding at least 75% of the Commitments are not subject to such increased costs or illegality, payment or proceedings (any such Lender, an "Affected Lender"), the Borrower or the Majority Lenders may substitute another financial institution for such Affected Lender hereunder, upon reasonable prior written notice (which written notice must be given within 90 days following the occurrence of any of the events described in clauses (a)(i), (ii), (iii) or (iv)) by the Borrower or the Majority Lenders, as the case may be, to the Agent and the Affected Lender that the Borrower or the Majority Lender intends to make such substitution, which substitute financial institution must be an Eligible Assignee and, if not a Lender, reasonably acceptable to the Agent, provided that if more than one Lender claims increased costs, illegality or right to payment arising from the same act or condition and such claims are received by the Borrower or the Majority Lender within 30 days of each other, then the Borrower or the Majority Lenders may 57 65 substitute all, but not (except to the extent the Borrower or the Majority Lenders has already substituted one of such Affected Lenders before the Borrower's or the Majority Lenders' receipt of the other Affected Lenders' claim) less than all, Lenders making such claims. In the event that the proposed substitute financial institution is reasonably acceptable to the Agent and the written notice was properly issued under this Section 2.19, the Affected Lender shall sell and the substitute financial institution shall purchase, pursuant to an Assignment and Acceptance, all rights and claims of such Affected Lender under the Loan Documents and the substitute financial institution shall assume and the Affected Lender shall be relieved of its Commitment and all other theretofore unperformed obligations of the Affected Lender under the Loan Documents (other than in respect of any damages (other than exemplary or punitive damages, to the extent permitted by applicable law) in respect of any such unperformed obligations). Upon the effectiveness of such sale, purchase and assumption (which, in any event shall be conditioned upon the payment in full by the Borrowers to the Affected Lender in cash of all fees, unreimbursed costs and expenses and indemnities accrued and unpaid through such effective date), the substitute financial institution shall become a "Lender" hereunder for all purposes of this Agreement having a Commitment in the amount of such Affected Lender's Commitment assumed by it and such Commitment of the Affected Lender shall be terminated, provided that all indemnities under the Loan Documents shall continue in favor of such Affected Lender. ARTICLE III CONDITIONS OF LENDING 3.1. CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTERS OF CREDIT. The obligation of each Lender to make its initial Loan and the obligation of the Issuer to issue the initial Letter of Credit is subject to satisfaction of the conditions precedent that the Agent shall have received, on the Closing Date, the following, each dated the Closing Date unless otherwise indicated, in form and substance satisfactory to the Agent and (except for the Notes) in sufficient copies for each Lender: 58 66 (a) This Agreement, duly executed and delivered by the Borrower, in form and substance satisfactory to the Agent and the Lenders. (b) The Notes to the order of the Lenders. (c) Certified copies of (i) the resolutions of the Board of Directors of each Loan Party approving the Loan Documents to which it is a party, and (ii) all documents evidencing other necessary corporate action and required governmental and third party approvals, licenses and consents with respect to each Loan Document and the transactions contemplated thereby. (d) A copy of the articles or certificate of incorporation of each Loan Party certified as of a recent date by the Secretary of State of the state of incorporation of such Loan Party, together with certificates of such official attesting to the good standing of each such Loan Party, and a copy of the certificate of incorporation and the By-Laws of each Loan Party certified as of the Closing Date by the Secretary or an Assistant Secretary of each such Loan Party. (e) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of each officer of such Loan Party who has been authorized to execute and deliver any Loan Document or other document required hereunder to be executed and delivered by or on behalf of such Loan Party. (f) A Subsidiary Guaranty, duly executed by each Guarantor. (g) The Security Agreement duly executed by the Borrower and each Guarantor together with: (i) acknowledgment copies or other evidence satisfactory to the Agent of proper financing statements (Form UCC-1) (the "FINANCING STATEMENTS") duly filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the Lien created by such Security Agreement, (ii) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent 59 67 reports, listing the Financing Statements referred to in paragraph (i) above and all other effective financing statements which name any Loan Party (under its present name and or previous name) as debtor and which are filed in the jurisdictions referred to in said paragraph (i) above, together with copies of such other financing statements (none of which shall cover the Collateral purported to be covered by such Security Agreement except as otherwise permitted by the Loan Documents); and (iii) evidence that the insurance required by the terms of the Collateral Documents and by Section 6.4 is in full force and effect. (h) The Intercreditor Agreement, duly executed by each party thereto. (i) The Borrower Pledge Agreement and the Chargit Pledge Agreement (collectively, the "Pledge Agreements") duly executed by the Borrower and Chargit, together with the certificates evidencing the Pledged Shares referred to therein, accompanied by appropriate executed stock powers endorsed in blank and the instruments evidencing the Pledged Debt referred to therein, accompanied by executed assignments endorsed in blank. (j) The Blocked Account Letter, duly executed by each party thereto. (k) The mortgage and pledge agreement with respect to the Zanesville Bonds shall have been assigned to the Agent pursuant to an assignment, in form and substance satisfactory to the Agent, as security for the Reimbursement Obligations in connection with the Letter of Credit issued in connection with the Zanesville Bonds. (l) A favorable opinion of Jones, Day, Reavis & Pogue, counsel to the Loan Parties, in substantially the form of EXHIBIT I, and as to such other matters as any Lender or Issuer through the Agent may reasonably request, together with a copy of the opinion rendered by such firm with respect to the enforceability of the Securitization Documents and related matters accompanied by a letter to the effect that the Agent, the Lenders and the Issuer may rely thereon. 60 68 (m) A certificate, signed by a Responsible Officer of the Borrower, stating that each of the conditions specified in Sections 3.2(a), (b), (c), (d) and (n) and 3.3(b) has been satisfied. (n) A copy of the most recent business and financial plan of the Borrower and its Subsidiaries, in form and substance satisfactory to the Lenders, setting forth, INTER ALIA, by month for 1998 the expected amount and payment dates of all material liabilities. (o) Pro forma consolidated and consolidating statements of capitalization of the Borrower and its Subsidiaries as of the consummation of the Plan of Reorganization, giving effect to the consummation of the Plan of Reorganization, this Agreement, the transactions contemplated hereby and thereby and the payment or accrual of all fees and expenses payable on the consummation of the Plan of Reorganization. (p) Such additional documents, information and materials as any Lender or Issuer, through the Agent, may reasonably request. 3.2. ADDITIONAL CONDITIONS TO THE INITIAL LOANS AND LETTERS OF CREDIT. It shall be a further condition to the making of the initial Revolving Credit Loan and the initial issuance of the Letters of Credit that: (a) There shall be no existing secured lenders to the Borrower other than those specified in Schedule 3.2(a). (b) No Borrowing Base Deficiency shall exist. (c) On the Closing Date, except as set forth in or contemplated by the Plan of Reorganization, the following statements shall be true: (i) there has been no change since February 1, 1997 in the corporate, capital or legal structure of the Borrower or any of its Subsidiaries without the consent of the Lenders and the Agent; (ii) all necessary governmental and third party approvals required to be obtained by any Loan Party in connection with (A) the Plan of Reorganization, (B) the transactions contemplated thereby and (C) the financing to be provided pursuant 61 69 to this Agreement, shall have been obtained and remain in effect; (iii) there exists no judgment, order, injunction or other restraint prohibiting or in the reasonable judgment of the Majority Lenders imposing materially adverse conditions upon the Borrower or any of its Subsidiaries; and (iv) there exists no claim, action, suit, investigation or proceeding (including, without limitation, shareholder or derivative litigation) pending or, to the knowledge of the Borrower, threatened in any court or before any arbitrator or Governmental Authority which relates to the financing hereunder or which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. (d) All costs and accrued and unpaid fees and expenses (including, without limitation, legal fees and expenses) required to be paid to the Lenders on or before the Closing Date, including, without limitation, those referred to in Sections 2.3 and 10.4, to the extent then due and payable, shall have been paid. (e) The Lenders shall have received satisfactory October 31, 1997 and latest monthly financial statements prepared by management of the Borrower on the same basis as the financial statements reported on by the Borrower's independent public accountants. (f) There shall not exist any judgment, order, injunction or other restraint prohibiting or, in the reasonable judgment of the Lenders, imposing materially adverse conditions upon the Borrower or any of its Subsidiaries. (g) Nothing contained in any disclosure made by the Borrower or any of its subsidiaries after the date hereof shall lead the Agent or any Lender to determine that, and neither the Agent nor any Lender shall have become aware of any fact or condition not disclosed to them prior to the date hereof which shall lead the Agent or any Lender to determine that, the Borrower's condition (financial or otherwise), operations, performance, properties or prospects are different in any material and adverse respect from that 62 70 derived by the Agent or such Lender from the public filings of the Borrower or prior to such date. (h) There shall have occurred no adverse change since February 1, 1997, which the Agent or any Lender deems material, in the condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole, and nothing shall have occurred since the date hereof which, in the judgment of the Agent or any Lender, has or can reasonably be expected to have a material adverse effect on the rights and remedies of the Lenders or the Agent or on the ability of the Borrower to perform its obligations to them. (i) There shall exist no event of default (or event which would constitute an event of default with the giving of notice or lapse of time) under any of the existing debt instruments of the Borrower or any of its Subsidiaries or of any of the Loan Documents and the representations and warranties in the Loan Documents shall be true and correct in all material respects. (j) Each Lender shall have received such financial and other information regarding the Borrower and its subsidiaries as such Lender shall have reasonably requested through the Agent. (k) There shall not have occurred any material change in loan syndication, financial or capital market conditions generally that, in the Agent's judgment, would materially impair syndication of the Facility. (l) The Confirmation Order shall not have been reversed, vacated, amended, supplemented, modified or remanded and the Plan of Reorganization shall not have been amended, supplemented or modified, and no provision of either the Confirmation Order or the Plan of Reorganization shall have been waived, in each case without the prior written consent of the Lenders, and all transactions in connection with the Plan of Reorganization shall have been or will be consummated on terms and conditions reasonably satisfactory to all Lenders and in compliance with all relevant laws and regulations. (m) The Plan of Reorganization and the Confirmation Order shall be in form and substance reasonably satisfactory to the Lenders. 63 71 (n) All conditions precedent to Confirmation and to the Effective Date under and as defined in the Plan of Reorganization shall have been satisfied (or the waiver thereof shall have been consented to by the Agent and the Lenders) and the Effective Date shall have occurred or shall be scheduled to occur but for the initial extension of credit contemplated for the Facility. (o) Except as consented to by the Agent and Lenders, the Bankruptcy Court's retention of jurisdiction under the Confirmation Order shall not govern the enforcement of the Loan Documents or any rights or remedies relating thereto. (p) All sources and uses of funds to consummate the Plan of Reorganization shall otherwise be substantially as described in the Disclosure Statement. (q) The Agent and the Lenders shall be satisfied in all respects with the terms and extent of all material liabilities of the Borrower which are not otherwise being discharged upon consummation of the Plan or Reorganization as contemplated by the terms thereof. (r) Each Lender shall be satisfied, in its sole judgment, exercised reasonably, with the corporate, capital, legal and management structure of the Borrower and shall be satisfied, in its sole judgment exercised reasonably, with the nature and status of all Contractual Obligations, securities, labor, tax, ERISA, employee benefit, environmental, health and safety matters, in each case, involving or affecting the Borrower or any of its Subsidiaries. (s) Either the Confirmation Order shall have become a Final Order or the Majority Lenders shall have agreed in writing that the Closing Date may occur prior to the date on which the Confirmation Order becomes a Final Order and no appeal or petition for certiorari is pending. 3.3. CONDITIONS PRECEDENT TO EACH LOAN AND LETTER OF CREDIT. The obligation of each Lender to make any Loan and of each Issuer to issue any Letter of Credit and Letters of Credit being issued by such Issuer (including the Loans being made by such Lender on the Closing Date) shall be subject to the further conditions precedent that: (a) No Borrowing Base Deficiency shall exist. 64 72 (b) The following statements shall be true on the date of such Loan or issuance, before and after giving effect thereto and to the application of the proceeds therefrom and to such issuance (and the acceptance by the Borrower of the proceeds of such Loan shall constitute a representation and warranty by the Borrower that on the date of such Loan or issuance such statements are true): (i) The representations and warranties of the Borrower contained in Article IV and of each Loan Party in the other Loan Documents are true and correct on and as of such date as though made on and as of such date other than any such representations and warranties that, by their terms, refer specifically to a date other than the date of such Borrowing or issuance; and (ii) No Default or Event of Default has occurred and is continuing or would result from the Loans being made or any Letter of Credit being issued on such date. (c) The Borrower shall have delivered to Lender a Borrowing Base Certificate, required by Section 6.10(e), as of no more than nine days prior to the date on which a Revolving Credit Loan is to be made or a Letter of Credit is to be issued, which Borrowing Base Certificate shall include supporting schedules as required by the Agent. (d) No Revolving Credit Loans shall be made if any Swing Loans are outstanding unless, to the extent necessary, proceeds of such Revolving Credit Loans are used to repay in full the outstanding Swing Loans. (e) The making of the Loans on such date does not violate any Requirement of Law and is not stayed or enjoined, temporarily, preliminarily or permanently. (f) The Agent shall have received such additional documents, information and materials as any Lender or Issuer, through the Agent, may reasonably request. 65 73 ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lenders and the Agent to enter into this Agreement, the Borrower represents and warrants to the Lenders and the Agent that: 4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) is duly qualified as a foreign corporation, except for failures which in the aggregate have no Material Adverse Effect; (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (iv) is in compliance with its certificate of incorporation and by-laws; (v) is in compliance with all other applicable Requirements of Law except for such non-compliances as in the aggregate have no Material Adverse Effect; and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate have no Material Adverse Effect. The only Subsidiaries of the Borrower are Chargit, Bee-Gee and El-Bee, each of which is wholly owned by the Borrower. 4.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. (a) The execution, delivery and performance by each Loan Party of the Loan Documents and the Securitization Documents to which it is a party and the consummation of the transactions related to the financing contemplated hereby, including, without limitation, the consummation of the Plan of Reorganization: (i) are within such Loan Party's corporate powers; 66 74 (ii) have been duly authorized by all necessary corporate action, including, without limitation, the consent of shareholders where required; (iii) do not and will not (A) contravene any Loan Party's or any of its Subsidiaries' respective certificate of incorporation or by-laws or other comparable governing documents, (B) violate any other applicable Requirement of Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any Contractual Obligation of any Loan Party or any of its Subsidiaries, or (D) result in the creation or imposition of any Lien upon any of the property of any Loan Party or any of its Subsidiaries, other than those in favor of the Agent pursuant to the Loan Documents; and (iv) do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person. (b) This Agreement has been, and each of the other Loan Documents and the Securitization Documents will have been upon delivery thereof pursuant to Section 3.1, duly executed and delivered by each Loan Party thereto. This Agreement is, and the other Loan Documents will be, when delivered hereunder, the legal, valid and binding obligation of each Loan Party thereto, enforceable against it in accordance with its terms. 4.3. TAXES. (a) All federal, state, local and foreign tax returns, reports and statements (collectively, the "Tax Returns") required to be filed by each Borrower or any of its respective Tax Affiliates have been filed with the appropriate governmental agencies in all jurisdictions in which such Tax Returns, are required to be filed, all such Tax Returns are true and correct in all material respects, and all taxes, charges and other impositions due and payable have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof, except where contested in good faith and by appropriate proceedings if (i) adequate 67 75 reserves therefor have been established on the books of the Borrower or such Tax Affiliate in conformity with GAAP and (ii) all such nonpayments in the aggregate have no Material Adverse Effect. Proper and accurate amounts have been withheld by the Borrower and each of its Tax Affiliates from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities, except where the Borrower or a Tax Affiliate, as the case may be, has not withheld and paid such taxes on the basis of a good faith determination that one or more individuals are not employees for applicable employment tax purposes and a contrary determination by a Government Authority as to the employment status of such individual or individuals would not have a Material Adverse Effect. Except as set forth on Schedule 4.3(a), neither the Borrower nor any of its Tax Affiliates has any obligation under any written tax sharing agreement. (b) Set forth on Schedule 4.3(b) is a complete and accurate list, as of the date hereof, of each taxable year of the Borrower (or of the consolidated group of which the Borrower was a member prior to the Effective Date of the Plan of Reorganization) for which Federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an "OPEN YEAR"). (c) The aggregate unpaid amount, as of the date hereof, of adjustments to the Federal income tax liability of the Borrower proposed by the IRS with respect to Open Years does not exceed $17,000,000. No issues have been raised by the IRS in respect of Open Years that, in the aggregate, could be reasonably be expected to have a Material Adverse Effect. (d) The aggregate unpaid amount, as of the date hereof, of adjustments to the state, local and foreign tax liability of the Borrower and its Subsidiaries proposed by all state, local and foreign taxing authorities (other than amounts arising from adjustments to Federal income tax returns) does not exceed $4,000,000. Except as set forth on Schedule 4.3(d), no issues have been raised by such taxing authorities that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. 68 76 4.4. FULL DISCLOSURE. (a) No information, exhibit or report (whether or not in writing) furnished by or on behalf of any Loan Party or any of its Affiliates to the Agent or any Lender in connection with any of the Loan Documents or the consummation of the transactions contemplated thereby and no financial statement delivered pursuant hereto or thereto, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made therein not misleading. All facts known to the Borrower which are material to an understanding of the financial condition, business, properties or prospects of the Borrower and its Subsidiaries taken as one enterprise have been disclosed to the Lenders. (b) The Borrower has delivered to each Lender a true, complete and correct copy of the Disclosure Statement. As of the Closing Date, the Disclosure Statement does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading and as of the Closing Date, the Disclosure Statement complies as to form in all material respects with all applicable requirements of the Bankruptcy Code and related rules. (c) The pro forma forecasted balance sheets, income statements and cash flow statements of the Borrower and its Subsidiaries delivered to the Lenders pursuant to this Agreement were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. 4.5. FINANCIAL MATTERS. (a) The consolidated balance sheet of the Borrower and its Subsidiaries at February 1, 1997 and the related consolidated statements of operations, shareholders' equity and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, certified by Deloitte & Touche and the consolidated balance sheets of the Borrower and its Subsidiaries at October 4, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows of the Borrower and its Subsidiaries for the thirty-five weeks then ended, certified by the chief financial officer of the Borrower copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheets 69 77 at October 4, 1997, and said statements of operations, shareholders' equity and cash flows for the thirty-five weeks then ended, to year-end audit adjustments, the consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the consolidated results of the operations of the Borrower and its Subsidiaries for the period ended on such dates, all in conformity with GAAP. (b) Since February 1, 1997, there has been no Material Adverse Change and there have been no events or developments that in the aggregate have had a Material Adverse Effect. (c) The unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries, a copy of which has been delivered to each Lender prior to the date of this Agreement, gives effect to the consummation of the Plan of Reorganization, the financing thereof and all fees and expenses payable in connection therewith and reflect as of the date thereof, on a pro forma basis, the consolidated financial condition of the Borrower and its Subsidiaries assuming the consummation of the Plan of Reorganization and the financing thereof had actually occurred on such date, and the projections and assumptions expressed therein were reasonably based on the information available to the Borrower at the time so furnished and on the Closing Date. (d) The Borrower is, and on a consolidated basis the Borrower and its Subsidiaries are, Solvent. 4.6. LITIGATION. Schedule 4.6 sets forth, as of the date hereof, each action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, pending or, to the best of the Loan Parties' knowledge, threatened before any court, Governmental Authority or arbitrator that in the aggregate (i) if adversely determined would have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any Note or any other Loan Document or the consummation of the transactions contemplated hereby and thereby. 4.7. MARGIN REGULATIONS. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Borrowing will be used to purchase or carry any margin stock or to 70 78 extend credit to others for the purpose of purchasing or carrying any margin stock in contravention of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 4.8. ERISA. (a) Each Qualified Plan is qualified under Section 401 of the Code, and the trusts created thereunder are exempt from tax under the provisions of Section 501 of the Code, except where all such failures to be qualified or exempt, as the case may be, in the aggregate, have no Material Adverse Effect. (b) Except as set forth on Schedule 4.8(b) attached hereto, none of the Borrower, any of its Subsidiaries or any ERISA Affiliate, with respect to any Qualified Plan, has failed to make any contribution or pay any amount due as required by Section 412 of the Code or Section 302 of ERISA. (c) There has been no, nor, to the knowledge of the Borrower, is there reasonably expected to occur, any ERISA Event or event described in Section 4068 of ERISA with respect to any Title IV Plan or Multiemployer Plan which has a Material Adverse Effect. (d) Except as set forth on Schedule 4.8(d), there are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (i) any Qualified Plan or Multiemployer Plan, or its assets, (ii) any fiduciary with respect to any Qualified Plan or Multiemployer Plan, or (iii) the Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to any Qualified Plan or Multiemployer Plan, other than those that in the aggregate, if adversely determined, have no Material Adverse Effect. (e) None of the Borrower, any of its Subsidiaries or any ERISA Affiliate intends to take or is contemplating actions which reasonably could be expected to result in any Withdrawal Liability under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in any such liability) that would have a Material Adverse Effect. (f) None of the Borrower nor any of its Subsidiaries has incurred any obligation or liability with 71 79 respect to one or more prohibited transactions, as defined in Section 4975 of the Code or Section 406 of ERISA, in connection with any Qualified Plan or Multiemployer Plan, which would subject or has any reasonable likelihood of subjecting the Borrower or any of its Subsidiaries (after giving effect to any exemption) to a tax on prohibited transactions imposed by Section 4975 of the Code or any other liability, in either case, which in the aggregate could reasonably be expected to have a Material Adverse Effect. 4.9. LIENS. There are no Liens of any nature whatsoever on any properties of any Loan Party or any of its Subsidiaries other than Permitted Liens. The Liens granted by the Loan Parties to the Agent pursuant to the Collateral Documents are fully perfected first priority Liens in and to the Collateral. 4.10. NO BURDENSOME RESTRICTIONS; NO DEFAULTS. (a) No Loan Party or Subsidiary of any Loan Party (i) is a party to any Contractual Obligation the compliance with which would have a Material Adverse Effect or the performance of which by any thereof, either unconditionally or upon the happening of an event, will result in the creation of a Lien (other than a Lien granted pursuant to the Loan Documents and Permitted Liens) on the property or assets of any thereof, or (ii) is subject to any charter or corporate restriction which has a Material Adverse Effect. (b) No Loan Party or Subsidiary of any Loan Party is in default under or with respect to any Contractual Obligation owed by it and, to the knowledge of the Borrower, no other party is in default under or with respect to any Contractual Obligation owed to any Loan Party or to any Subsidiary of a Loan Party, other than those defaults which in the aggregate have no Material Adverse Effect. (c) No Event of Default or Default has occurred and is continuing. (d) There is no Requirement of Law the compliance with which by any Loan Party would have a Material Adverse Effect. (e) No Subsidiary of the Borrower is subject to any Contractual Obligation restricting or limiting its ability to declare or make any dividend payment or other 72 80 distribution on account of any shares of any class of its Stock or its ability to purchase, redeem, or otherwise acquire for value or make any payment in respect of any such shares or any shareholder rights. 4.11. NO OTHER VENTURES. Except as set forth on Schedule 4.11, neither the Borrower nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person. 4.12. SECURITIZATION DOCUMENTS; INTEREST RATE CONTRACTS. (a) The Agent has been provided with true and complete copies of the Securitization Documents, none of which has been amended or modified since the date hereof. (b) Schedule 4.12(b) sets forth a description of each Interest Rate Contract to which any Loan Party or Subsidiary thereof is party as of the date hereof. The Agent has been provided true and complete copies of all documentation relating to the Interest Rate Contracts. 4.13. INVESTMENT COMPANY ACT. The Borrower is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. The making of the Loans by the Lenders, the application of the proceeds and repayment thereof by the Borrower and the consummation of the transactions contemplated by the Loan Documents will not violate any provision of such Act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. 4.14. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.15. SECURITY INTERESTS. On and after the Closing Date, each of the Security Documents creates, as security for the Obligations, a valid and enforceable perfected security interest in and Lien on all of the Collateral, superior to and prior to the rights of all third parties and subject to no other Liens except Permitted 73 81 Liens, in favor of the Agent for the benefit of the Lenders. No filings or recordings are required in order to perfect the security interests created under any Collateral Document except for filings or recordings required in connection with any such Collateral Document which shall have been made on or prior to the Closing Date. 4.16. INSURANCE. All policies of insurance of any kind or nature owned by or issued to any Loan Party or any of its Subsidiaries, including, without limitation, policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers' compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of the size and character of such Person. No Loan Party or any of its Subsidiaries has been refused insurance for which it applied or had any policy of insurance terminated (other than at its request). 4.17. USE OF PROCEEDS. The proceeds of the Loans and the Letters of Credit shall be used solely to make payments required pursuant to the Plan of Reorganization, for working capital and for general corporate purposes. 4.18. ENVIRONMENTAL PROTECTION. (a) Except as disclosed on Schedule 4.18: (i) The operations of each Loan Party and each of their respective Subsidiaries or tenants comply with all Environmental Laws other than such non-compliance the consequences of which in the aggregate could not result in material liability under Environmental Laws; (ii) Each Loan Party and each of their respective Subsidiaries have obtained all environmental, health and safety Permits necessary for their operations, and all such Permits are in good standing and each Loan Party and each of their respective Subsidiaries are in compliance with the terms and conditions of such Permits other than such non-compliance the consequences of which individually or in the aggregate could not result in material liability under Environmental Laws; (iii) No Loan Party or any of its Subsidiaries or any of its currently or, to the knowledge of the Borrower, previously owned or leased property or operations is subject to any outstanding or, to the knowledge of the Borrower, 74 82 threatened order from or agreement with any Governmental Authority or other Person or is subject to any judicial or docketed administrative proceeding respecting (x) Environmental Laws, (y) Remedial Action or (z) any Environmental Liabilities and Costs arising from a Release or threatened Release, other than those the consequences of which individually or in the aggregate could not result in material liability under Environmental Laws; (iv) There are no conditions or circumstances associated with the currently or, to the knowledge of the Borrower, previously owned or leased properties or operations of any Loan Party or any of its Subsidiaries or tenants which may give rise to the Borrower incurring any Environmental Liabilities and Costs other than those which in the aggregate could not result in material liability under Environmental Laws; (v) No Loan Party or any of its Subsidiaries is a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the regulations thereunder or any state analog; (vi) No Loan Party nor any of its Subsidiaries has filed or failed to file any notice required under any applicable Environmental Law reporting a Release under CERCLA or RCRA, other than those which individually or in the aggregate could not result in material liability under Environmental Laws; (vii) There is not now on or in the property owned, leased or operated by any Loan Party or any of its Subsidiaries (w) any underground storage tanks or surface impoundments, (x) any friable asbestos-containing material, the presence of which violates any Environmental Law, or (y) any polychlorinated biphenyls ("PCBS") used in electrical or other equipment owned by any Loan Party or any of its Subsidiaries or (z) any other Environmental Liabilities and Costs, other than, in case of any of clauses (w) through (z), those that could not result in material liability under Environmental Laws. (b) Each Loan Party has made available to the Lenders copies of all environmental audits, reports, and assessments relating to any currently or formerly owned or operated real estate currently in its possession, custody or control. 75 83 (c) None of the exceptions listed on Schedule 4.18 could have a Material Adverse Effect. (d) The transactions contemplated by this Agreement do not trigger any environmental property transfer laws, including, but not limited to ISRA. 4.19. INTELLECTUAL PROPERTY. The Loan Parties and their Subsidiaries own or license or otherwise have the right to use all material licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights that are necessary for the operations of their respective businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, including, without limitation, all trade names associated with any private label brands of any Loan Party or any of its Subsidiaries. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or component, or other material now employed, or now contemplated to be employed, by any Loan Party or any of their respective Subsidiaries infringes upon or conflicts with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened. 4.20. LEASED PROPERTY. Set forth on Schedule 4.20 is a complete and accurate list at the date hereof of all leases of real property under which any of the Loan Parties, or any of their Subsidiaries is the lessee, showing the street address, state, lessor and lessee. To the Borrower's knowledge, each such lease is the legal, valid and binding obligation of the lessor thereof. 4.21. CERTAIN INDEBTEDNESS. Schedule 4.21 separately identifies all Indebtedness at the date hereof (other than trade payables) of each Loan Party and its Subsidiaries which is either (i) for borrowed money, (ii) incurred outside of the ordinary course of the business or in a manner and to the extent consistent with past practice, or (iii) material to the financial condition, business, operations or prospects of such Loan Party or such Subsidiary (or will be material to the financial condition, business, operations or prospects of such Loan Party or such Subsidiary), $1,000,000 being hereby deemed material for purposes of this Section 4.21. 76 84 4.22. REAL PROPERTY. Set forth on Schedule 4.22 is a complete and accurate list of all Real Property owned by each Loan Party and its Subsidiaries. Such Loan Party or such Subsidiary has good, marketable and insurable fee simple title to such real property located in the United States or any of its territories, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. 4.23. RESTRICTED PAYMENTS. Since August 30, 1997, the Borrower has not (a) declared or made any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its Stock, (b) except as permitted under Section 7.3 or pursuant to the Plan of Reorganization, made any payment or distribution on account of any Indebtedness for or in respect of borrowed money (other than the making of regularly scheduled interest payments) including, without limitation, to secure any waiver or consent in respect of any such Indebtedness, (c) purchased, redeemed, or otherwise acquired for value or made any payment in respect of any of its Stock or Stock Equivalents (d) purchased, redeemed, prepaid, defeased or otherwise, acquired for value any Indebtedness for or in respect of borrowed money or (e) in the case of clauses (b) and (d) above, permitted any of its Subsidiaries to do so. 4.24. OBLIGATIONS WITH RESPECT OF GIFT CERTIFICATES. To the knowledge of the Borrower, as of the Confirmation Date, the aggregate amount of all claims arising or that are deemed to have arisen prior to the Confirmation Date in respect of the Loan Parties' obligations to customers incurred in the ordinary course of business (including honoring obligations arising from deposits, prepayments, gift certificates, warranties, refunds, returns, exchanges and other credit balances) totaled approximately $3,500,000, and there has been no material change in such amount since the Confirmation Date. 4.25. ALLOWED AND DISPUTED CLAIMS. The allowed amount of administrative expense claims (including claims of professionals for services rendered and expenses incurred), priority tax claims, and claims in Class C-2B (other secured claims), Class C-3 (unsecured priority claims), and Class C- 4 (convenience claims) under the Plan of Reorganization, and any amount reserved on account of disputed claims in such classes in accordance with the Plan, do not exceed $90,000,000. 77 85 ARTICLE V FINANCIAL COVENANTS As long as any of the Obligations or Commitments remain outstanding, unless the Majority Lenders otherwise consent in writing, the Borrower agrees with the Lenders and the Agent that: 5.1. FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain at the end of each Fiscal Quarter during the Fiscal Years set forth below, commencing with the Fiscal Quarter ending on January 31, 1998, a ratio of EBITDA minus Capital Expenditures to Fixed Charges, in each case determined on the basis of the four Fiscal Quarters ending on the date of determination, not less than the ratio set forth below for such Fiscal Quarter:
For each Fiscal Quarter Minimum Fixed Charge Ending Coverage Ratio - ----------------------- --------------------- Closing Date through 1.50:1 January 31, 1999 February 1, 1999 and 1.75:1 thereafter
5.2. TOTAL INDEBTEDNESS. The Borrower shall not permit the total outstanding Indebtedness of the Borrower and its Subsidiaries on a consolidated basis, including, without limitation, Average Total Debt, at the end of any Fiscal Quarter commencing with the Fiscal Quarter ending on January 31, 1998 to exceed 4.75 times EBITDA determined on the basis of the four Fiscal Quarters ending on the date of determination. 5.3. INTEREST COVERAGE RATIO. The Borrower shall maintain at the end of each Fiscal Quarter a ratio of EBITDA to Net Interest Expense, in each case determined on the basis of the four Fiscal Quarters ending on the date of determination as follows: (i) not less than 2.5:1 through and including January 31, 1999 and (ii) not less than 3:1 thereafter. 78 86 5.4. CAPITAL EXPENDITURES. The Borrower shall not permit any Capital Expenditures to be made during each of the periods set forth below to be in excess of the maximum amount set forth below for such period:
Maximum Amount of Period Capital Expenditures ------ -------------------- Closing Date - January 31, 1998 $ 9,000,000 February 1, 1998 - January 31, 1999 $ 23,000,000 February 1, 1999 - January 29, 2000 $ 21,000,000 January 30, 2000 - Termination Date $ 27,000,000
ARTICLE VI AFFIRMATIVE COVENANTS As long as any of the Obligations or the Commitments remain outstanding, unless the Majority Lenders otherwise consent in writing, the Borrower agrees with the Lenders and the Agent that: 6.1. COMPLIANCE WITH LAWS, ETC. The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA, except where the failure to comply in the aggregate have no Material Adverse Effect. 6.2. CONDUCT OF BUSINESS. The Borrower shall, subject to the provisions of Section 6.5, (a) conduct, and cause each of its Subsidiaries to conduct, its business in the ordinary course and consistent with past practice; (b) use, and cause each of its Subsidiaries to use, its reasonable efforts, in the ordinary course and consistent with past practice, to (i) preserve its business and the goodwill and business of the customers, advertisers, suppliers and others having business relations with the Borrower or any of its Subsidiaries, and (ii) keep available the services and goodwill of its present employees; (c) preserve, and from and after the date hereof cause each of its Subsidiaries to preserve, all registered patents, trademarks, trade names, copyrights and service marks with respect to its business; and (d) perform and observe, and cause each of its Subsidiaries to perform and observe, all the terms, covenants and conditions required to be performed and observed by it under its Contractual Obligations (including, without limitation, to pay all rent and other 79 87 charges payable under any lease and all debts and other obligations as the same become due), and do, and cause its Subsidiaries to do, all things necessary to preserve and to keep unimpaired its rights under such Contractual Obligations; PROVIDED, HOWEVER, that, in the case of each of clauses (a) through (d), the Borrower shall not be deemed in default of this Section 6.2 if all such failures in the aggregate have no Material Adverse Effect. 6.3. PAYMENT OF TAXES, ETC. The Borrower shall pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent all lawful governmental claims, taxes, assessments, charges and levies imposed upon it or upon its property; PROVIDED, HOWEVER, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors. 6.4. MAINTENANCE OF INSURANCE. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates and as otherwise satisfactory to the Agent, in its sole judgment exercised reasonably, and, in any event, all insurance required by the Collateral Documents. All such insurance shall name the Agent and the Lenders as additional insured or loss payees, as the Agent shall determine. The Borrower will furnish to the Agent from time to time such information as may be requested as to such insurance. 6.5. PRESERVATION OF CORPORATE EXISTENCE, ETC. The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises, except as permitted under Section 7.4; PROVIDED, HOWEVER, that neither the Borrower nor any Subsidiary shall be prohibited from withdrawing its qualification to do business in any jurisdiction from which it no longer is conducting business. 80 88 6.6. ACCESS. The Borrower shall, at any reasonable time and from time to time, upon prior reasonable notice, permit the Agent and any of the Lenders, or any agents or representatives thereof, to (a) examine and make copies of and abstracts from the records and books of account of such Borrower and each of its Subsidiaries, (b) visit the properties of the Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and accounts of the Borrower and each of its Subsidiaries with any of their respective officers or directors, and (d) communicate directly with the Borrower's independent certified public accountants. The Borrower shall authorize its independent certified public accountants to disclose to the Agent or any Lender any and all financial statements and other information of any kind, including, without limitation, copies of any management letter, or the substance of any oral information that such accountants may have with respect to the business, financial condition, results of operations or other affairs of the Borrower or any of its Subsidiaries. 6.7. KEEPING OF BOOKS. The Borrower shall keep, and shall cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries in all material respects shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary. 6.8. MAINTENANCE OF PROPERTIES, ETC. The Borrower shall maintain and preserve, and shall cause each of its Subsidiaries to maintain and preserve, (i) all of its properties which are used or useful or necessary in the conduct of its business in good working order and condition, and (ii) all rights, permits, licenses, approvals and privileges (including, without limitation, all Permits) which are used or useful or necessary in the conduct of its business; PROVIDED, HOWEVER, that the Borrower shall not be deemed in default of this Section 6.8 if all such failures in the aggregate have no Material Adverse Effect. 6.9. APPLICATION OF PROCEEDS. The Borrower shall use the entire amount of the proceeds of the Loans as provided in Section 4.17. 6.10. FINANCIAL STATEMENTS. The Borrower shall furnish to the Lenders: (a) Within 30 days after the end of each fiscal month the unaudited consolidated balance sheet of the 81 89 Borrower and its Subsidiaries as of the end of such month and the related consolidated statements of operations and consolidated statements of cash flows for that portion of the Fiscal Year ending as of the end of such month setting forth in comparative form with respect to the balance sheet and statements of income the results from both the comparable period for the preceding Fiscal Year, and the projected consolidated figures for the current period, accompanied by the certification of the treasurer or controller of the Borrower stating (i) that all such financial statements are complete and correct (subject to year-end audit adjustments), (ii) the consolidated and consolidating financial position, the consolidated and consolidating results of operations and consolidated statements of cash flows of the Borrower and its Subsidiaries as at the end of such months and for the periods then ended, and (iii) that there was no Default or Event of Default in existence as of such time; (b) as soon as available and in any event within 45 days after the end of each Fiscal Quarter of each Fiscal Year, consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and consolidated and consolidating statements of operations and retained earnings and consolidated statements of cash flow of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, setting forth in comparative form the results from the comparable period for the preceding Fiscal Year all prepared in conformity with GAAP (subject to year-end audit adjustments) and certified by the treasurer or controller of the Borrower as fairly presenting the financial condition and results of operations of the Borrower and its Subsidiaries at such dates and for such periods, together with (i) a certificate of said officer stating that no Default or Event of Default has occurred and is continuing or, if a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto, (ii) a schedule in form satisfactory to the Agent of the computations used by the Borrower in determining compliance with all financial covenants contained herein, and (iii) a written discussion and analysis by the management of the Borrower of the financial statements furnished in respect of such Fiscal Quarter; 82 90 (c) as soon as available and in any event within 90 days after the end of each Fiscal Year, consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such year and consolidated statements of operations and retained earnings and consolidated statements of cash flow of the Borrower and its Subsidiaries and divisional operating results for such Fiscal Year, setting forth in comparative form the results from the preceding Fiscal Year, all prepared in conformity with GAAP and certified, in the case of such consolidated financial statements, without qualification as to the scope of the audit by Deloitte and Touche or other independent public accountants of recognized national standing acceptable to the Majority Lenders, together with (i) a certificate of such accounting firm stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default or Event of Default has occurred and is continuing, or, if in the opinion of such accounting firm, a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, the Borrower's compliance with all financial covenants contained herein, and (iii) a written discussion and analysis by the management of the Borrower of the financial statements furnished in respect of such Fiscal Year; (d) promptly after the same are received by the Borrower, a copy of each management letter provided to the Borrower by its independent certified public accountants which refers in whole or in part to any inadequacy, defect, problem, qualification or other lack of fully satisfactory accounting controls utilized by the Borrower or any of its Subsidiaries; and (e) no later than Friday of each week, a Borrowing Base Certificate as of the immediately preceding Wednesday of such week executed by a Responsible Officer of the Borrower. 6.11. REPORTING REQUIREMENTS. The Borrower shall furnish to the Lenders: 83 91 (a) to the extent practicable prior to any Asset Sale anticipated to generate in excess of $1,000,000 in Asset Sale Proceeds, a notice (i) describing the assets being sold and (ii) stating the estimated Asset Sale Proceeds in respect of such Asset Sale; (b) as soon as available and in any event no later than 30 days prior to the end of each Fiscal Year, an annual budget of the Borrower and each of its Subsidiaries for the succeeding Fiscal Year, displaying on a monthly and quarterly basis anticipated balance sheets, forecasted revenues, net income and cash flow and annual business and financial plans, such business and financial plans being updated quarterly; (c) as soon as available and in any event within 30 days prior to the end of each Fiscal Year, a forecast of annual sales, EBITDA, Capital Expenditures, working capital requirements and projected cash flow results of the Borrower and its Subsidiaries on a consolidated and consolidating basis for the next succeeding twelve months; (d) (i) promptly and in any event within 30 days after the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, and (ii) promptly and in any event within 10 days after the Borrower, any of their Subsidiaries or any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Qualified Plan, a written statement of the chief financial officer or other appropriate officer of the Borrower describing such ERISA Event or waiver request and the action, if any, which the Borrower, its Subsidiaries and ERISA Affiliates propose to take with respect thereto and a copy of any notice filed with the PBGC or the IRS pertaining thereto; (e) promptly and in any event within 30 days after the filing thereof by the Borrower, any of its Subsidiaries or any ERISA Affiliate, a copy of each annual report (Form 5500 Series, including Schedule B thereto) filed with respect to a Pension Plan, and upon request by any Lender through the Agent, with respect to any other Plan; (f) promptly and in any event within 30 days after receipt thereof, a copy of any adverse notice, determination letter, ruling or opinion the Borrower, any of 84 92 its Subsidiaries or any ERISA Affiliate receives from the PBGC, DOL or IRS with respect to any Qualified Plan; (g) promptly and in any event within 10 days after receipt thereof, a copy of any correspondence the Borrower, any of its Subsidiaries or any ERISA Affiliate receives from the plan sponsor (as defined by Section 4001 (a)(10) of ERISA) of any Multiemployer Plan concerning potential withdrawal liability of the Borrower, any of its Subsidiaries or any ERISA Affiliate, or notice of any reorganization with respect to any Multiemployer Plan, together with a written statement of the chief financial officer or other appropriate officer of the Borrower of the action which the Borrower, its Subsidiaries and ERISA Affiliates propose to take with respect thereto; (h) promptly and in any event within 30 days after the adoption thereof, notice of (i) any amendment to a Title IV Plan which results in any material increase in benefits or the adoption of any new Title IV Plan and (ii) any amendment to a, or adoption of a new, Welfare Benefit Plan, which results in material new or increased benefits for retirees, their spouses or their beneficiaries; (i) promptly and in any event after receipt of written notice of commencement thereof, notice of any action, suit or proceeding before any Governmental Authority or arbitrator affecting the Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to any Plan, except those which in the aggregate, if adversely determined, would have no Material Adverse Effect; (j) promptly and in any event within 30 days after notice or knowledge thereof, notice that the Borrower or any of its Subsidiaries has become subject to a material amount of tax on prohibited transactions imposed by Section 4975 of the Code, together with a copy of any Form 5330 filed in respect thereof; (k) promptly after the commencement thereof, notice of all actions, suits and proceedings before any domestic or foreign Governmental Authority or arbitrator, affecting the Borrower or any of its Subsidiaries, except those which in the aggregate, if adversely determined, would have no Material Adverse Effect; (l) promptly and in any event within two Business Days after the Borrower becomes aware of the existence of 85 93 (i) any Default or Event of Default, (ii) any breach or non-performance of, or any default under, any Contractual Obligation which is material to the business, prospects, operations or financial condition of the Borrower and its Subsidiaries taken as one enterprise, or (iii) any Material Adverse Change or any event, development or other circumstance which has any reasonable likelihood of causing or resulting in a Material Adverse Change, telephonic or telegraphic notice in reasonable detail specifying the nature of the Default, Event of Default, breach, non-performance, default, event, development or circumstance, including, without limitation, the anticipated effect thereof, which notice shall be promptly confirmed in writing within five days; (m) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to its security holders generally, and copies of all reports and registration statements which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange or the National Association of Securities Dealers, Inc.; (n) upon the request of any Lender, through the Agent, copies of all federal, state and local tax returns and reports filed by the Borrower or any of its Subsidiaries in respect of taxes measured by income (excluding sales, use and like taxes); (o) promptly and in any event within five days after any Loan Party or any Subsidiary thereof learning of any of the following, written notice of any of the following: (i) the Release or threatened Release of any Hazardous Material on or from any property owned, operated or leased by such Loan Party or any of its Subsidiaries required to be reported to any Governmental Authority under Environmental Laws; (ii) any Remedial Action taken by any Loan Party or any of its Subsidiaries or any other Person in response to any Hazardous Material on, under or about any real property owned, operated or leased by such Loan Party or any of its Subsidiaries, unless such Remedial Action is not reasonably likely to subject such Loan Party or any of its Subsidiaries to Environmental Liabilities and Costs in excess of $1,000,000; (iii) receipt by such Loan Party or any of its Subsidiaries of any notice of violation of, or knowledge by such Loan Party or any of its Subsidiaries that there exists a condition which may result in a violation by such Loan Party or any of its Subsidiaries of, any 86 94 Environmental Law, unless such violation is not reasonably likely to subject such Loan Party to Environmental Liabilities and Costs in excess of $1,000,000; (iv) the commencement of any judicial or administrative proceeding or investigation alleging a material violation of any Environmental Law; (v) any material non-compliance by any Loan party or any of its Subsidiaries under Environmental Laws; or (vi) any facts or circumstances at any real property owned, operated or leased by any Loan Party or any of its Subsidiaries that could reasonably be expected to result in such Loan Party incurring Environmental Liabilities and costs in excess of $1,000,000 or cause any such property to be subject of any material restrictions on ownership, occupancy, use or transferability under Environmental Laws; and (p) a schedule (Schedule 6.11(p)) listing those Persons who, within sixty days after the date hereof, own of record or, to the knowledge of the Borrower, beneficially ten percent or more of any class of its outstanding capital stock; and (q) such other information respecting the business, properties, condition, financial or otherwise, or operations of the Borrower or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request. 6.12. EMPLOYEE PLANS. With respect to each Qualified Plan hereafter adopted or first maintained by the Borrower, any of its Subsidiaries or any ERISA Affiliate, the Borrower shall (i) seek, and cause its Subsidiaries and ERISA Affiliates to seek, and receive determination letters from the IRS to the effect that such Qualified Plan is qualified within the meaning of Section 401(a) of the Code; and (ii) from and after the adoption of any such Qualified Plan, cause such plan to be qualified within the meaning of Section 401(a) of the Code and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the Code. 6.13. FISCAL YEAR. The Borrower shall maintain as its Fiscal Year the period of 52 or 53 weeks ending on the Saturday nearest to January 31 of each calendar year. 6.14. BORROWING BASE DETERMINATION. (a) The Borrower shall conduct, or shall cause to be conducted, at its expense, and upon request of the Agent, and shall 87 95 present to the Agent for approval, such appraisals, investigations and reviews as the Agent shall reasonably request for the purpose of confirming the Borrowing Base, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. The Borrower shall furnish to the Agent any information which the Agent may reasonably request regarding the determination and calculation of the Borrowing Base including, without limitation, correct and complete copies of any invoices, underlying agreements, instruments or other documents and the identity of all obligors. (b) The Borrower shall promptly notify the Agent and the Lenders in writing in the event that at any time the Borrower receives or otherwise gains knowledge that (i) the Borrowing Base is less than 90% of the Borrowing Base reflected in the most recent Borrowing Base Certificate delivered pursuant to Section 6.10(e) or that (ii) the outstanding Loans and the Letter of Credit Obligations exceed the Borrowing Base as a result of a decrease therein, and the amount of such excess. (c) The Agent may make physical verifications of the Inventory in any manner and through any medium that the Agent considers advisable, and the Borrower shall furnish all such assistance and information as the Agent may require in connection therewith. 6.15. CERTAIN COVENANTS REGARDING THE RECEIVABLES SECURITIZATION. The Borrower shall: (a) cause El-Bee to remain the sole record and beneficial owner of the Exchangeable Transferor Certificate and the Subordinated Transferor Certificate provided for in the Receivables Securitization; (b) cause El-Bee to direct Bankers Trust Company, as Trustee of the Elder-Beerman Master Trust (in that capacity, the Trustee), established as part of the Receivables Securitization, to make payment to an account of El-Bee at Citibank; and (c) cause El-Bee not to modify the foregoing payment instructions to the Trustee; (d) cause El-Bee to make all payments to Chargit for purchases pursuant to the Purchase Agreement between Chargit as seller and El-Bee as purchaser entered into as part of 88 96 the Receivables Securitization to be made to an account of Chargit at Citibank; and (e) cause Chargit to make all payments to the Borrower for purchases pursuant to the Purchase Agreement between the Borrower as seller and Chargit as purchaser entered into as part of the Receivables Securitization to be made to the Cash Collateral Account; and (f) cause El-Bee to make all payments on the Subordinated Note issued by El-Bee to Chargit as part of the Receivables Securitization and assigned by Chargit to the Borrower as part of the Receivables Securitization to be made to the Cash Collateral Account. 6.16. ENVIRONMENTAL MATTERS. (a) Each Loan Party shall comply and shall cause each of its Subsidiaries to comply in all material respects with all applicable Environmental Laws currently or hereafter in effect. (b) If the Agent or the Lenders at any time have a reasonable basis to believe that there may be a violation of any Environmental Law in excess of $1,000,000, by any Loan Party or any of its Subsidiaries related to any real property owned, leased or operated by such Loan Party or any of its Subsidiaries, such Loan Party agrees, upon request from the Agent, to provide the Agent, at such Loan Party's expense, with such reports, certificates, engineering studies or other written material or data as the Agent or the Lenders may reasonably require so as to reasonably satisfy the Agent and the Lenders that such Loan Party or such Subsidiary is in material compliance with all applicable Environmental Laws. (c) Each Loan Party shall, and shall cause each of its Subsidiaries to, take such Remedial Action or other action as required by Environmental Laws, as any Governmental Authority requires, except to the extent contested in good faith and by proper proceedings, or as is appropriate and consistent with good business practice. 6.17. TERMINATION OF RECEIVABLES SECURITIZATION. The Borrower shall cease selling Accounts pursuant to the Receivables Securitization upon notice to the Borrower by the Agent if at the date such notice is given (i) an Event of Default has occurred and is continuing and (ii) the Available Credit is less than $12,000,000. 89 97 6.18. REDUCTION OF SUBORDINATED NOTE. The Borrower shall each day cause El-Bee and Chargit each to repay the outstanding principal amount of the Pledged Debt (as defined in the Borrower Pledge Agreement) to the extent of any cash not needed that day to purchase Accounts pursuant to the Securitization Documents. 6.19 COLLECTION ACCOUNT LETTERS. The Borrower shall provide the Agent not later than 60 days after the date hereof with executed copies of a Collection Account Letter in the form of EXHIBIT Q from each bank listed on Schedule 6.19. ARTICLE VII NEGATIVE COVENANTS As long as any of the Obligations or the Commitments remain outstanding, without the written consent of the Majority Lenders, the Borrower agrees with the Lenders, the Issuer and the Agent that: 7.1. LIENS, ETC. The Borrower shall not create or suffer to exist, and shall not permit any of its Subsidiaries to create or suffer to exist, any Lien upon or with respect to any of their or such Subsidiary's properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, except for (collectively, the following are hereinafter referred to as the "PERMITTED LIENS"): (a) Liens in favor of the Agent and the Lenders created pursuant to the Loan Documents or to secure the Borrower's obligations under Interest Rate Contracts with Citibank; (b) Purchase money Liens or purchase money security interests upon or in any property acquired or held by the Borrower or any Subsidiary of the Borrower in the ordinary course of business or in connection with the acquisition of new stores to secure the purchase price of such property or to secure Indebted ness incurred solely for the purpose of financing the acquisition of such property; PROVIDED, HOWEVER, that the aggregate principal amount of the Indebtedness secured by the Liens referred to in this clause 90 98 (b) shall not exceed $20,000,000 at any time outstanding; (c) Any Lien securing the renewal, extension or refunding of any Indebtedness or other Obligation secured by any Lien permitted by subsections (b) or (i) of this Section 7.1 without any increase in the amount secured thereby or in the assets subject to such Lien; (d) Liens arising by operation of law in favor of materialmen, mechanics, warehousemen, carriers, lessors or other similar Persons incurred by either Borrower or any of its Subsidiaries in the ordinary course of business which secure its obligations to such Person; PROVIDED, HOWEVER, that (i) the Borrower or such Subsidiary is not in default with respect to such payment obligation to such Person, (ii) the Borrower or such Subsidiary is in good faith and by appropriate proceedings diligently contesting such obligation and adequate provision is made for the payment thereof, and (iii) all such failures in the aggregate have no Material Adverse Effect; (e) Liens (excluding Environmental Liens) securing taxes, assessments or governmental charges or levies; PROVIDED, HOWEVER, that (i) neither the Borrower nor any of its Subsidiaries is in default in respect of any payment obligation with respect thereto unless the Borrower or such Subsidiary is in good faith and by appropriate proceedings diligently contesting such obligation and adequate provision is made for the payment thereof, and (ii) all such failures in the aggregate have no Material Adverse Effect; (f) Liens incurred or pledges and deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance, old-age pensions and other social security benefits; (g) Liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety and appeal bonds and other obligations of like nature, incurred as an incident to and in the ordinary course of business, and judgment liens; PROVIDED, HOWEVER, that all such Liens (i) in the aggregate have no Material Adverse Effect and (ii) do not secure 91 99 directly or indirectly judgments in excess of $500,000 in the aggregate; (h) Zoning restrictions, easements, licenses, reservations, restrictions on the use of real property or minor irregularities incident thereto which do not in the aggregate materially detract from the value or use of the property or assets of the Borrower or any of its Subsidiaries or impair, in any material manner, the use of such property for the purposes for which such property is held by the Borrower or any such Subsidiary; and (i) Liens to secure Capitalized Lease Obligations if the incurrence of such Indebtedness is permitted by Section 7.2; PROVIDED, HOWEVER, that: (i) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including, without limitation, the cost of construction) of the property subject thereto, (ii) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost, (iii) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item and (iv) the aggregate principal amount of Indebtedness secured by the Liens referred to in this clause (i) shall not exceed $20,000,000 at any time outstanding. 7.2. INDEBTEDNESS. The Borrower shall not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Indebtedness except: (i) the Obligations; (ii) current liabilities in respect of taxes, assessments and governmental charges or levies incurred, or claims for labor, materials, inventory, services, supplies and rentals incurred, or for goods or services purchased, in the ordinary course of business consistent with the past practice of the Borrower and its Subsidiaries; (iii) Indebtedness arising under any performance bond reimbursement obligation entered into consistent with the past practice of the Borrower; 92 100 (iv) Indebtedness permitted under Section 7.5; (v) Indebtedness secured by Liens permitted by Section 7.1(b); (vi) Indebtedness of the Borrower or any of its Subsidiaries under Capitalized Lease Obligations; PROVIDED, HOWEVER, that the aggregate amount of Capitalized Lease Obligations incurred under this clause (vi) by the Borrower and its Subsidiaries and the aggregate principal amount of Indebtedness incurred pursuant to clause (v) above by the Borrower and their Subsidiaries shall not exceed $20,000,000 at any one time outstanding; (vii) Indebtedness in respect of amounts awarded by a court of competent jurisdiction for fees and expenses under Sections 330 and 503(b) of the Bankruptcy Code in an amount not to exceed $4,000,000; and (viii) Indebtedness of the Borrower arising under any third-party credit card issued to certain employees of the Borrower for the incurrence of business expenses in the ordinary course of business and consistent with past practices; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness shall not exceed $200,000 at any time outstanding; and (ix) Receivables Securitization Attributed Indebtedness not to exceed $125,000,000 in aggregate principal amount outstanding at any one time. 7.3. RESTRICTED PAYMENTS. The Borrower shall not and shall not permit any of its Subsidiaries to (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account or in respect of any of its Stock other than dividends paid to the Borrower or any wholly owned Subsidiary of the Borrower by any Subsidiary of the Borrower, including without limitation to the Borrower by Chargit or (ii) purchase, redeem, prepay, defease or otherwise acquire for value or make any payment (other than required interest payments) on account or in respect of any principal amount of Indebtedness for borrowed money, now or hereafter outstanding, except (A) the Loans, (B) the 93 101 Middletown Lease Payments, (C) in the case of a Subsidiary, payments may be made to the Borrower on account of any Indebtedness owing to the Borrower by such Subsidiary, (D) the Zanesville Bonds, and (E) the Moraine Mortgage. 7.4. MERGERS, STOCK ISSUANCES, SALE OF ASSETS, ETC. (a) The Borrower shall not and shall not permit any of its Subsidiaries to (i) merge with any Person, (ii) consolidate with any Person, (iii) acquire all or substantially all of the Stock or Stock Equivalents of any Person, (iv) acquire all or substantially all of the assets of any Person, (v) enter into any joint venture or partnership with any Person, (vi) sell, lease, transfer or otherwise dispose of, whether in one transaction or in a series of transactions all or substantially all of its assets, except as permitted pursuant to subsection (c) below, or (vii) form any Subsidiary. (b) The Borrower shall not (i) issue or transfer, or permit any of its Subsidiaries to issue or transfer, any Stock or Stock Equivalents other than any such issuance or transfer (A) by a Subsidiary of the Borrower to a wholly-owned Subsidiary of the Borrower, (B) by a wholly-owned Subsidiary of the Borrower to such Borrower, or (C) to employees and directors of the Borrower pursuant to a plan approved by the Board of Directors of the Borrower, or (ii) sell, convey, transfer, lease or otherwise dispose of, or permit any of its Subsidiaries to sell, convey, transfer, lease or otherwise dispose of, any Stock or Stock Equivalents of any of the Borrower's Subsidiaries unless, in any such case, both (A) all of the Stock and Stock Equivalents of such Subsidiary owned by the Borrower and its Subsidiaries is transferred and (B) such issuance, sale, conveyance, transfer, lease or disposition would be permitted by subsection (c) below. (c) The Borrower shall not and shall not permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise dispose of any of its assets or any interest therein to any Person, or permit or suffer any other Person to acquire any interest in any of the assets of the Borrower or any such Subsidiary except (i) the sale or disposition of Inventory or other assets in the ordinary course of business or other tangible personal property which has become obsolete or is replaced in the ordinary course of business, (ii) sales by the Borrower of Chargit Receivables to Chargit and by Chargit to El-Bee, (iii) any sale or other disposition approved by the Agent pursuant to Section 10.1 94 102 and (iv) Sale/Leaseback Transactions, provided that no Default or Event of Default is continuing or would result from the consummation of any such Sale/Leaseback Transaction and the cash proceeds are deposited in the Cash Collateral Account and applied in accordance with Section 6.15(b). In connection with any Asset Sale permitted under this Section 7.4(c), at the request of the Borrower, the Agent shall release any Lien granted to it by the Borrower or any Subsidiary of the Borrower upon any assets disposed of in such Asset Sale. (d) The Borrower shall not sell or otherwise dispose of, or factor at maturity or collection, or permit any of its Subsidiaries to sell or otherwise dispose of, or factor at maturity or collection, any Accounts, except pursuant to the Receivables Securitization and the bulk sale of written-off receivables. 7.5. INVESTMENTS IN OTHER PERSONS. The Borrower shall not, directly or indirectly, make or maintain, or permit any of its Subsidiaries to make or maintain, any loan or advance to any Person or own, purchase or otherwise acquire, or permit any of its Subsidiaries to own, purchase or otherwise acquire, any Stock, other equity interest, obligations or other securities of, or any assets constituting the purchase of a business or line of business, or make or maintain, or permit any of its Subsidiaries to make or maintain, any capital contribution to, or otherwise invest in, any Person (any such transaction being an "INVESTMENT"), except: (i) loans or advances to employees of the Borrower or any of its Subsidiaries, which loans and advances shall not in the aggregate exceed $250,000 outstanding at any time; (ii) travel advances to employees of the Borrower or any of its Subsidiaries in the ordinary course of business, consistent with past practices; (iii) extensions of consumer credit by the Borrower or any of its Subsidiaries to their respective employees, in the ordinary course of business and consistent with past practices, in connection with its private-label credit card; (iv) Investments (in the form of either cash contributions, loans or advances) in Bee-Gee; PROVIDED, 95 103 HOWEVER, that the net aggregate amount of such Investments from and after the Closing Date shall not exceed $7,500,000 in the aggregate at any time outstanding in excess of the Investment existing on the Closing Date; (v) Investments in Cash Equivalents; (vi) Investments existing on the date hereof and set forth on Schedule 7.5; or (vii) Investments in El-Bee arising from the transfer by the Borrower to Chargit and by Chargit to El-Bee of Chargit Receivables or the issuance by El-Bee of one or more promissory notes to Chargit, in each case in connection with the Receivables Securitization; PROVIDED, HOWEVER, that at the time of and immediately after giving effect to each such Investment, no Default or Event of Default exists or would result and the aggregate amount of such Investments in El-Bee does not exceed the amount necessary to consummate the sales of Receivables and related assets contemplated by the Securitization Documents. 7.6. CHANGE IN NATURE OF BUSINESS. The Borrower shall not make, or permit any of its Subsidiaries to make, any material change in the nature or conduct of its business as carried on at the date hereof, except as expressly permitted hereunder. 7.7. MODIFICATION OF SECURITIZATION DOCUMENTS, ETC. The Borrower shall not and shall not permit any of its Subsidiaries to (i) alter, rescind, terminate, amend, supplement, waive or otherwise modify any provision of or permit any breach or default to exist under any Securitization Document, or (ii) take or fail to take any action thereunder, if to do so would have a Material Adverse Effect, or (iii) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms relating to the payment or prepayment of principal of, or premium or interest on, any Indebtedness incurred or arising in connection with any Securitization Document (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon). 96 104 7.8. MODIFICATION OF MATERIAL AGREEMENTS. The Borrower shall not, and shall not permit any of its Subsidiaries to, alter, amend, modify, rescind, terminate or waive any of their respective rights under, or fail to comply in all material respects with, any of its material Contractual Obligations; PROVIDED, HOWEVER, that the Borrower shall not be deemed in default of this Section 7.8 if all such failures in the aggregate have no Material Adverse Effect; and PROVIDED, FURTHER, that in the event of any breach or event of default by a Person other than the Borrower or any of its Subsidiaries, the Borrower shall promptly notify the Agent of any such breach or event of default and take all such action as may be reasonably necessary in order to endeavor to avoid having such breach or event of default have a Material Adverse Effect. 7.9. COMPLIANCE WITH ERISA. (a) The Borrower shall not, directly or indirectly, and shall not permit any of its Subsidiaries or any ERISA Affiliate to, directly or indirectly, by reason of an amendment, or the adoption of, a Title IV Plan, permit the present value of all benefit liabilities, as defined in Title IV of ERISA (using the actuarial assumptions utilized by the PBGC upon termination of the respective plans), of such Title IV Plan immediately after such amendment or adoption to increase by more than $500,000 over what such amount was immediately prior to such amendment or adoption; PROVIDED, HOWEVER, that this limitation shall not be applicable to the extent (i) that the fair market value of assets allocable to such benefit liabilities, all determined as of the most recent valuation date for each such Title IV Plan for which a valuation is available, is in excess of the benefit liabilities or (ii) that any such amendment is required by applicable law. (b) Neither the Borrower nor any of its Subsidiaries shall establish or become obligated with respect to any new Welfare Benefit Plan, or modify any existing Welfare Benefit Plan, which would result in the accumulated benefit obligations (in excess of plan assets) of post-retirement benefit obligations (determined for SFAS 106 purposes) under all such plans immediately after such establishment or modification to increase by more than $500,000 over what such amount was immediately prior to such establishment or modification. (c) Neither the Borrower nor any of its Subsidiaries shall establish or become obligated to contribute to any new unfunded Pension Plan, or modify any 97 105 existing unfunded Pension Plan, which would result in the present value of future liabilities under all such plans (using the actuarial assumptions used for valuation purposes for the respective plans) immediately after such establishment or modification to increase by more than $500,000 over what such amount was immediately prior to such establishment or modification. (d) The Borrower shall not, directly or indirectly, and shall not permit any of its Subsidiaries or any ERISA Affiliate, directly or indirectly, to (i) satisfy any liability under any Qualified Plan with a policy or other contract from an insurance company or (ii) invest the assets of any Qualified Plan in the general account of or in an obligation of an insurance company, unless in each case at the time of application for any such policy or contract or of such investment, as the case may be, such insurance company is rated AA or better by Standard & Poor's Corporation or an equivalent or higher rating by another nationally recognized rating agency. 7.10. ACCOUNTING CHANGES. The Borrower shall not make, or permit any of its Subsidiaries to make, any "Change in Accounting Principle" as defined in APB Opinion #20, except as required by GAAP or law, in each case, as disclosed to the Lenders and the Agent. 7.11. TRANSACTIONS WITH AFFILIATES. The Borrower shall not and shall not permit any of its Subsidiaries to, except as otherwise expressly permitted herein, enter into any other transaction directly or indirectly with or for the benefit of any Affiliate of the Borrower which is not a wholly-owned Subsidiary of the Borrower (including, without limitation, guaranties and assumptions of obligations of any such Affiliate) except for (A) transactions in the ordinary course of business on a basis no less favorable to the Borrower or such Subsidiary as would be obtained in a comparable arm's length transaction with a Person not an Affiliate, (B) reasonable salaries and other employee compensation to officers or directors of the Borrower or any of its Subsidiaries commensurate with current compensation levels and (C) any transaction required or otherwise expressly permitted by this Agreement. 7.12. ADVERSE TRANSACTIONS. The Borrower shall not enter into or be a party to, or permit any of its Subsidiaries to enter into or be a party to, any transaction the performance of which in the future would be inconsistent 98 106 with or has any reasonable likelihood of resulting in a breach of any covenant contained herein or give rise to a Default or Event of Default. 7.13. CANCELLATION OF INDEBTEDNESS OWED TO IT. The Borrower shall not cancel, or permit any of its Subsidiaries to cancel, any claim or Indebtedness owed to it except for adequate consideration or in the ordinary course of business. 7.14. NO NEGATIVE PLEDGE. The Borrower shall not enter into, or permit any of its Subsidiaries to enter into, any agreement that restricts its ability to create or suffer to exist any Lien, other than one which expressly permits the Liens contemplated by this Agreement and any agreement for the refinancing of the Facility. 7.15. CAPITAL STRUCTURE. The Borrower shall not make, or permit any of its Subsidiaries to make, any change in its capital structure (including, without limitation, in the terms of its outstanding Stock) or amend its certificate of incorporation or by-laws other than for amendments which in the aggregate have no Material Adverse Effect. 7.16. NO SPECULATIVE TRANSACTIONS. The Borrower shall not and shall not permit any of its Subsidiaries to engage in any speculative transaction or in any transaction involving commodity options or futures contracts except for the sole purpose of hedging in the normal course of business and consistent with industry practices. 7.17. ENVIRONMENTAL MATTERS. The Borrower shall not permit any Loan Party or any Subsidiary of a Loan Party to, and to the extent practicable, any other Person to, (a) dispose of any Hazardous Material by placing it in or on the ground or waters of any property owned, operated or leased by such Loan Party or any of its Subsidiaries, except in compliance with all Environmental Laws, provided that no Loan Party or Subsidiary of a Loan Party shall undertake any activities that would require it to obtain a permit as a treatment, storage or disposal facility under Environmental Laws; or (b) dispose or to arrange for the disposal of any Hazardous Material on any property owned, operated or leased by any other Person, except in material compliance with all 99 107 applicable Environmental Laws currently and hereinafter in effect. 7.18. CHANGE IN OWNERSHIP UNDER SECTION 382 OF THE CODE. The Borrower shall not take, or permit any of its Subsidiaries to take, any action which, alone or in combination with any other action, would, within the reasonable determination of the Agent, result in there being or having been an ownership change within the meaning of Section 382 of the Code, other than any such change occurring on the Effective Date pursuant to the Plan of Reorganization. 7.19. CONTINGENT OBLIGATIONS. The Borrower shall not, and shall not permit any of its Subsidiaries to, incur, assume, endorse, be or become liable for, or guarantee, directly or indirectly, or permit or suffer to exist, any Contingent Obligation, except for: (i) Contingent Obligations evidenced by a Loan Document; (ii) guarantees by the Borrower of Indebtedness of any of its Subsidiaries, to the extent such underlying Indebtedness is permitted hereunder; and (iii) the Parent Undertaking pursuant to the Securitization Documents. ARTICLE VIII EVENTS OF DEFAULT 8.1. EVENTS OF DEFAULT. Each of the following events shall be an Event of Default: (a) (i) The Borrower shall fail to pay any principal (including, without limitation, mandatory prepayments of principal) of any Loan when the same becomes due and payable or (ii) any Loan Party shall fail to make any other payment, under any other Loan Document within three days after the same becomes due and payable; or (b) Any representation or warranty made or deemed made by any Loan Party in any Loan Document or by any 100 108 Loan Party (or any of its officers) in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) Any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Article V, VI (other than Section 6.10(a), (b) and (c)), Section 6.17, 6.18 or 6.19 or VII or in any Loan Document, or (ii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (ii) shall remain unremedied for ten Business Days after the earlier of the date on which (A) a Responsible Officer of the Borrower becomes aware of such failure or (B) written notice thereof shall have been given to the Borrower by the Agent or any Lender; or (d) Any Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on Indebtedness of such Loan Party or Subsidiary having an aggregate principal amount of $5,000,000 or more (excluding Indebtedness evidenced by the Notes), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall become or be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), or any Loan Party or any of its Subsidiaries shall be required to repurchase or offer to repurchase such Indebtedness, prior to the stated maturity thereof; or (e) Any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or 101 109 relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against any Loan Party or any of its Subsidiaries (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceedings shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $1,000,000 to the extent not fully covered by insurance shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) (i) With respect to any Plan, a prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA shall occur which in the reasonable determination of the Agent has a reasonable likelihood of resulting in direct or indirect liability to any Borrower or any of its Subsidiaries, (ii) with respect to any Title IV Plan, the filing of a notice to voluntarily terminate any such Plan in a distress termination, (iii) with respect to any Multiemployer Plan, the Borrower, any of its Subsidiaries or any ERISA Affiliate shall incur any Withdrawal Liability, (iv) with respect to any Qualified Plan subject to Section 412 of the Code, the Borrower, any of its Subsidiaries or any ERISA Affiliate shall incur an accumulated funding deficiency, as defined in Section 412 of the Code, or request a funding waiver thereunder from the IRS, or (v) with respect to any Title IV Plan or Multiemployer Plan which has an ERISA Event not described in clauses (i) through (iv) hereof, in the reasonable determination of the Agent there is a reasonable likelihood for termination of any such Plan by the PBGC; PROVIDED, HOWEVER, that the events listed in clauses (i) through (v) hereof shall constitute Events of Default only if the liability, deficiency or 102 110 waiver request of the Borrower, any of its Subsidiaries or any ERISA Affiliate, whether or not assessed, exceeds $500,000 in any case set forth in (i) through (v) above, or exceeds $1,000,000 in the aggregate for all such cases; or (h) There shall occur a Change of Control; or (i) There shall occur in the reasonable judgment of the Majority Lenders a Material Adverse Change or an event which would have a Material Adverse Effect; or (j) The Borrower or any of its Subsidiaries shall have entered into any consent or settlement decree or agreement or similar arrangement with an Governmental Authority or any judgment, order, decree or similar action shall have been entered against the Borrower or any of its Subsidiaries, in either case based on or arising from the violation of or pursuant to any Environmental Law, or the generation, storage, transportation, treatment, disposal or Release of any Contaminant and, in connection with all the foregoing, thus the Borrower and its Subsidiaries are likely to incur Environmental Liabilities and Costs in excess of $1,000,000; (k) Notwithstanding the occurrence of the Closing Date, the Confirmation Order shall be revoked or there shall occur a default under the Plan of Reorganization; or (l) The Receivables Securitization shall be terminated and the Borrower or any of its Subsidiaries shall enter into a receivables securitization program without the consent of the Agent and the Majority Lenders, such consent not to be unreasonably withheld. 8.2. REMEDIES. (a) If there shall occur and be continuing any Event of Default, the Agent (i) shall at the request, or may with the consent, of the Majority Lenders by notice to the Borrower, declare the obligation of each Lender to make Loans and each Issuer to issue a Letter of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders by notice to the Borrower, declare the Loans, all interest thereon and all other amounts and Obligations payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such 103 111 interest and all such amounts and Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that upon the occurrence of the Event of Default specified in Section 8.1(e), (A) the obligation of each Lender to make Revolving Credit Loans shall automatically be terminated and (B) the Loans, all such interest and all such amounts and Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. In addition to the remedies set forth above, the Agent may exercise any remedies provided for by the Loan Documents in accordance with the terms thereof or any other remedies provided by applicable law. (b) In addition to the remedies set forth above, the Agent, on behalf of the Lenders, may exercise any of the remedies with respect to the Collateral provided for in the Collateral Documents or any other remedies provided by applicable law. 8.3 ACTIONS IN RESPECT OF LETTERS OF CREDIT. (a) Upon the Termination Date, the Borrower shall pay to the Agent in immediately available funds at the Agent's office specified in the Notes, for deposit in the Cash Collateral Account be maintained with and in the name of the Agent on behalf of the Secured Parties at such place as shall be designated by the Agent, an amount equal to all outstanding Letter of Credit Obligations. (b) Following the Termination Date the Agent may, from time to time apply funds then held in the Cash Collateral Account to the payment of any of the Obligations, in such order as the Agent may elect. (c) The Agent may also exercise, in its sole discretion, in respect of the Cash Collateral Account, in addition to the other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of New York at that time, and the Agent may, without notice except as specified below, sell the Cash Collateral Account or any part thereof in one or more sales, at public or private sale, at any of the Agent's offices or elsewhere, for cash, or credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Borrower agrees that, to 104 112 the extent notice of sale shall be required by law, at least ten days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of the Cash Collateral Account, regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (d) Any cash held in the Cash Collateral Account, and all cash proceeds received by the Agent in respect of any sale of, collection from or other realization upon all or any part of the Cash Collateral Account, may, in the discretion of the Agent, then or at any time thereafter be applied (after [all payments provided for in Section 8.3(c),] the expiration of all outstanding Letters of Credit and the payment of any amounts payable pursuant to Section 10.4) in whole or in part by the Agent against all or any part of the other Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after the indefeasible cash payment in full of all of the Obligations shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive such surplus. ARTICLE IX THE AGENT 9.1. AUTHORIZATION AND ACTION. (a) Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Lender hereby authorizes the Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Agent is a party, and to exercise all rights, powers and remedies that the Agent may have under such Loan Documents. (b) As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion 105 113 or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which the Agent in good faith believes exposes it to personal liability or is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by any Loan Party pursuant to the terms of this Agreement or the other Loan Documents. 9.2. AGENT'S RELIANCE, ETC. Neither the Agent, nor any of its Affiliates or any of the respective directors, officers, agents or employees of the Agent or any such Affiliate shall be liable for any action taken or omitted to be taken by it, him, her or them under or in connection with this Agreement or the other Loan Documents, except for its, his, her or their own gross negligence or wilful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may treat the payee of any Note as the holder thereof until such note has been assigned in accordance with Section 10.7; (ii) may rely on the Register to the extent set forth in Section 10.7(c); (iii) may consult with legal counsel (including, without limitation, counsel to the Borrower or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iv) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents; (v) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower or any other Loan Party or to inspect the property (including, without limitation, the books and records) of the Borrower or any other Loan Party; (vi) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vii) shall incur no liability under or in respect of this Agreement or any of the other Loan Documents by acting upon any notice, consent, 106 114 certificate or other instrument or writing (which may be by telegram, cable, telex or facsimile transmission) believed by it to be genuine and signed or sent by the proper party or parties. 9.3. CUSA AND AFFILIATES. With respect to its Commitment, the Loans made by it and each Note issued to it and Letters of Credit issued by it, CUSA shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include CUSA in its individual capacity. CUSA and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any other Loan Party or any of their respective Subsidiaries and any Person who may do business with or own securities of the Borrower or any other Loan Party or any of their respective Subsidiaries, all as if CUSA were not the Agent and without any duty to account therefor to the Lenders. 9.4. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Article IV and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and other Loan Documents. 9.5. INDEMNIFICATION. The Lenders agree to indemnify the Agent and its Affiliates, and their respective directors, officers, employees, agents and advisors (to the extent not reimbursed by the Borrower or other Loan Parties), ratably according to the respective principal amounts of the Notes then held by each of them and Letter of Credit Obligations (including, without limitation, participations therein) owing to them (or if no Notes and Letter of Credit Obligations are at the time outstanding, ratably according to the respective amounts of the aggregate of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements 107 115 (including, without limitation, fees and disbursements of legal counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against, the Agent in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Agent under this Agreement or the other Loan Documents; PROVIDED, HOWEVER, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's or such Affiliate's gross negligence or wilful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including, without limitation, fees and disbursements of legal counsel) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Agent is not reimbursed for such expenses by the Borrowers or another Loan Party. 9.6. SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 108 116 ARTICLE X MISCELLANEOUS 10.1. AMENDMENTS, ETC. (a) No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; (ii) reduce the principal of, or interest on, the Loans or any fees or other amounts payable hereunder; (iii) postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees or other amounts payable hereunder; (iv) change the percentage of the Commitments, the aggregate unpaid principal amount of the Loans, or the number of Lenders which shall be required for the Lenders or any of them to take any action hereunder; (v) release any Collateral except as shall otherwise be provided in (A) clause (ii) of the second proviso of this Section 10.1, (B) Section 7.4 or (C) the other Loan Documents; (vi) amend this Section 10.1; or (vii) increase the Advance Rate in effect from time to time above the rates set forth on Schedule IV as of the Closing Date; and PROVIDED, FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or the other Loan Documents and (ii) the Agent may, without the consent of the Lenders, release Collateral which has a value determined at the lower of cost or net book value not in excess of $15,000,000 in the aggregate; provided that each disposition of Collateral pursuant to clause (ii) above shall be at the fair market value of such Collateral, as determined by the Agent in its reasonable discretion based upon facts and circumstances existing at the time of such sale or other disposition as shall be presented to it by the Borrower and provided further that all net proceeds from any sale or other disposition shall be applied to prepay the Loans in the same manner provided for the application of Asset Sales in Section 2.6(b)(i) and reduce the Commitments in the same manner provided for Asset Sales in Section 2.4(b). 109 117 (b) If, in connection with any proposed amendment or waiver of any of the provisions of this Agreement as contemplated by clauses (i) through (vii) of the first proviso of Section 10.1(a) above, the consent of the Majority Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Agent shall have the right to purchase the interest of each such non-consenting Lender (so long as the interests of all non-consenting Lenders are so purchased), together with accrued and unpaid interest, and assume each such Lender's Commitment. 10.2. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing telecopied or delivered by hand or by nationally recognized overnight courier, if to the Borrower, addressed to it at 3155 El-Bee Road, Dayton, Ohio 45439 (telecopy number: (937) 296-4651) (telephone number: (937) 296-2700), Attention: Secretary; if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule II; if to any Issuer at its address set forth on Schedule III; and if to the Agent, at its address at 399 Park Avenue, sixth floor, zone 4, New York, New York 10022 (telecopy number: (212) 793-1290) (telephone number: (212) 559-3042), Attention: Claudia Slacik; or, as to the Borrowers or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrowers and the Agent. All such notices and communications shall be effective when telecopied with confirmation of receipt or delivered by hand or by nationally recognized overnight courier to the addressee or its agent, respectively, except that notices and communications to the Agent pursuant to Article II or IX shall not be effective until received by the Agent. 10.3. NO WAIVER; REMEDIES. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 10.4. COSTS; EXPENSES; INDEMNITIES. (a) The Borrower agrees to pay on demand (i) all costs and expenses 110 118 of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, each of the other Loan Documents and each of the other documents to be delivered hereunder and thereunder, including, without limitation, the fees and out-of-pocket expenses of counsel, accountants, appraisers, consultants or industry experts retained by the Agent with respect thereto, search, filing and recording fees due diligence, syndication including printing, distribution and bank meeting, transportation, computer, duplication, messenger, audit, insurance, appraisal and consultation costs and expenses and, as to the Agent, with respect to advising it as to its rights and responsibilities under this Agreement and the other Loan Documents, and (ii) all costs and expenses of the Agent, each Issuer and each Lender (including, without limitation, the fees and out-of-pocket expenses of counsel, accountants, appraisers, consultants or industry experts retained by the Agent or any Issuer or Lender) in connection with the enforcement (whether through negotiation, legal proceedings or otherwise) of this Agreement and the other Loan Documents. (b) The Borrower agrees to indemnify and hold harmless the Agent and each Issuer and Lender and their respective Affiliates, and the directors, officers, employees, agents, attorneys, consultants and advisors of or to any of the foregoing (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (each of the foregoing being an "INDEMNITEE") from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including, without limitation, fees and disbursements of counsel to any such Indemnitee) which may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not any such Indemnitee is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or on contract, tort or otherwise, in any manner relating to or arising out of this Agreement, any other Loan Document, any Obligation, any Letter of Credit, or any act, event or transaction related or attendant to any thereof, including, without limitation, (i) all Environmental Liabilities and Costs arising from or connected with the 111 119 past, present or future operations of the Borrower or any of its Subsidiaries involving any property subject to a Collateral Document, or damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of contaminants on, upon or into such property or any contiguous real estate; (ii) any costs or liabilities incurred in connection with any Remedial Action concerning the Borrower or any of its Subsidiaries; (iii) any costs or liabilities incurred in connection with any Environmental Lien; (iv) any costs or liabilities incurred in connection with any other matter under any Environmental Law, including, without limitation, CERCLA and applicable state property transfer laws, whether, with respect to any of the foregoing, such Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor in interest to the Borrower or any of its Subsidiaries, or the owner, lessee or operator of any property of the Borrower or any of its Subsidiaries by virtue of foreclosure, except, with respect to any of the foregoing referred to in clauses (i), (ii), (iii) and (iv), to the extent incurred following (A) foreclosure by the Agent or any Lender, or the Agent or any Issuer or Lender having become the successor in interest to the Borrower or any of its Subsidiaries, and (B) attributable solely to acts of the Agent or such Issuer or Lender or any agent on behalf of the Agent or such Issuer or Lender; or (v) the use or intended use of the proceeds of the Loans or in connection with any investigation of any potential matter covered hereby (collectively, the "INDEMNIFIED MATTERS"); PROVIDED, HOWEVER, that the Borrower shall not have any obligation under this Section 10.4(b) to an Indemnitee with respect to any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order, but in no event shall an Indemnitee be liable for punitive, exemplary or consequential damages. (c) If any Lender receives any payment of principal of, or is subject to a conversion of, any Euro dollar Rate Loan other than on the last day of an Interest Period relating to such Loan, as a result of any payment or conversion made by the Borrower or acceleration of the maturity of the Notes pursuant to Section 8.2 or for any other reason, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender all amounts required to compensate such Lender for any additional losses, costs or 112 120 expenses which it may reasonably incur as a result of such payment or conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Loan. (d) The Borrower shall indemnify the Agent and the Issuers and Lenders for, and hold the Agent and the Lenders harmless from and against, any and all claims for brokerage commissions, fees and other compensation made against the Agent and the Lenders for any broker, finder or consultant with respect to any agreement, arrangement or understanding made by or on behalf of any Loan Party or any of its Subsidiaries in connection with the transactions contemplated by this Agreement. (e) The Agent and each Issuer and Lender agree that in the event that any such investigation, litigation or proceeding set forth in subparagraph (b) above is asserted or threatened in writing or instituted against it or any other Indemnitee, or any Remedial Action, is requested of it or any of its officers, directors, agents and employees, for which any Indemnitee may desire indemnity or defense hereunder, such Indemnitee shall promptly notify the Borrower in writing. (f) The Borrower, at the request of any Indemnitee, shall have the obligation to defend against such investigation, litigation or proceeding or requested Remedial Action, and the Borrower, in any event, may participate in the defense thereof with legal counsel of the Borrower's choice. In the event that such Indemnitee requests the Borrower to defend against such investigation, litigation or proceeding or requested Remedial Action, the Borrower shall promptly do so and such Indemnitee shall have the right to have legal counsel of its choice participate in such defense; PROVIDED, HOWEVER, that in connection with any such investigation, litigation or proceeding or the preparation of a defense with respect thereto, the Borrower shall not be responsible for, or required to hold harmless any Indemnitee from and against the fees and disbursements of more than one counsel for all of the Indemnitees taken together, except to the extent any such Indemnitee requires its own counsel in order to be adequately represented in the reasonable judgment of counsel for such Indemnitee. No action taken by legal counsel chosen by such Indemnitee in defending against any such investigation, litigation or proceeding or requested Remedial Action, shall vitiate or in 113 121 any way impair the Borrower's obligation and duty hereunder to indemnify and hold harmless such Indemnitee. (g) The Borrower agrees that any indemnification or other protection provided to any Indemnitee pursuant to this Agreement (including, without limitation, pursuant to this Section 10.4) or any other Loan Document shall (i) survive payment of the Obligations and (ii) inure to the benefit of any Person who was at any time an Indemnitee under this Agreement or any other Loan Document. 10.5. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the Obligations now or hereafter existing whether or not such Lender shall have made any demand under this Agreement or any Note or any Reimbursement Agreement or other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. 10.6. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Lender and Issuer that such Lender and Issuer has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and Issuer and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. 10.7. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may sell, transfer, negotiate or assign to one or more other Lenders or Eligible Assignees all or a portion of its Commitment, including, without limitation, in the case of an Issuer, its commitment to issue Letters of Credit and, 114 122 in the case of each Lender, to participate in Letter of Credit Obligations and Swing Loans, the Loans and Letter of Credit Obligations owing to it and the Note held by it and a commensurate portion of its rights and obligations hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement (ii) the aggregate amount of the Commitments, Letters of Credit, Letter of Credit Obligations and Loans being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event (if less than the Assignor's entire interest) be less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, except, in either case, with the consent of the Borrower and the Agent, and (iii) each assignee hereunder shall also be an Eligible Assignee. The parties to each assignment shall execute and deliver to the Agent, for its acceptance and recording, together with a $3,500 fee payable to the Agent for processing such assignment, an Assignment and Acceptance, together with the Notes (or an Affidavit of Loss and Indemnity with respect to such Notes satisfactory to the Agent) subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (A) the assignee thereunder shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender, and if such Lender was an Issuer, of an Issuer hereunder and thereunder, and (B) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except those which survive the payment in full of the Obligations) and be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any of the statements, 115 123 warranties or representations made in or in connection with this Agreement or any other Loan Document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other Loan Document or of any other instrument or document furnished pursuant hereto or thereto; (iii) such assigning Lender confirms that it has delivered to the assignee and the assignee confirms that it has received a copy of this Agreement and each of the Loan Documents together with a copy of the most recent financial statements delivered by the Borrower to the Lenders pursuant to each of the clauses of Section 6.10 (or if no such statements have been delivered, the financial statements referred to in Section 4.5 of this Agreement) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and if such assignor Lender was an Issuer, as an Issuer. (c) The Agent shall maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, commitments to issue Letters of Credit, Letter of Credit Obligations owing to, and principal amount of the Loans owing to each Lender from time to time (the "REGISTER"). The entries in the Register shall 116 124 be conclusive and binding for all purposes, absent manifest error, and the Loan Parties, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender or Issuer, as the case may be, for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, the Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for such surrendered Notes, new Notes to the order of such Eligible Assignee in an amount equal to the Commitments assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained Commitments hereunder, new Notes to the order of the assigning Lender in an amount equal to the Commitments retained by it hereunder. Such new Notes shall be dated the same date as the Surrendered Notes and be in substantially the form of EXHIBIT A hereto, as applicable. (e) In addition to the other assignment rights provided in this Section 10.7, each Lender may assign, as collateral or otherwise, any of its rights under this Agreement (including, without limitation, rights to payments of principal or interest on the Notes) to any Federal Reserve Bank without notice to or consent of the Borrower or the Agent; PROVIDED, HOWEVER, that no such assignment shall release the assigning Lender from any of its obligations hereunder. The terms and conditions of any such assignment and the documentation evidencing such assignment shall be in form and substance satisfactory to the assigning Lender and the assignee Federal Reserve Bank. (f) Each Lender may sell participations to one or more banks or other Persons in or to all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitments, the Letter of Credit Obligations owing to it, the Loans owing to it and the Notes held by it). The terms of such 117 125 participation shall not, in any event, require the participant's consent to any amendments, waivers or other modifications of any provision of any Loan Documents, the consent to any departure by any Loan Party therefrom, or to the exercising or refraining from exercising any powers or rights which such Lender may have under or in respect of the Loan Documents (including, without limitation, the right to enforce the obligations of the Loan Parties), except if any such amendment, waiver or other modification or consent would (i) reduce the amount, or postpone any date fixed for, any amount (whether of principal, interest or fees) payable to such participant under the Loan Documents, to which such participant would otherwise be entitled under such participation or (ii) result in the release of all or substantially all of the Collateral other than in accordance with the Loan Documents. In the event of the sale of any participation by any Lender, (i) such Lender's obligations under the Loan Documents (including, without limitation, its Commitments and commitment hereunder to issue Letters of Credit) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of such Notes and Obligations for all purposes of this Agreement and (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (g) Each Issuer may at any time assign its rights and obligations hereunder to any other Issuer or to any Lender by an instrument in form and substance satisfactory to the Agent and the parties thereto. (h) Each participant shall be entitled to the benefits of Sections 2.10, 2.12 and 2.14 as if it were a Lender; PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the Borrower shall not, at any time, be obligated to pay to any participant of any interest of any Lender, under Section 2.10, 2.12 or 2.14, any sum in excess of the sum which the Borrower would at the time of such participation have been obligated to pay to such Lender any such amount in respect of such interest had such participation not been effected or had such participation not been sold. 10.8. GOVERNING LAW. This Agreement and the Notes and the rights and obligations of the parties hereto and thereto shall be governed by, and construed and 118 126 interpreted in accordance with, the law of the State of New York. 10.9. SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. (a) Any legal action or proceeding with respect to this Agreement or the Notes or any document related thereto may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, each Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably waive any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which any of them may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. (b) The Borrower irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address provided herein. (c) Nothing contained in this Section 10.9 shall affect the right of the agent, any Lender or any holder of a Note to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction. 10.10. SECTION TITLES. The Section titles 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. 10.11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 10.12. ENTIRE AGREEMENT. This Agreement, together with all of the other Loan Documents and all certificates and documents delivered hereunder or there under, and the Fee Letter embodies the entire agreement of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. 119 127 10.13. CONFIDENTIALITY. Each Lender and the Agent agrees to keep information obtained by it pursuant hereto and the other Loan Documents confidential in accordance with such Lender's or the Agent's, as the case may be, customary practices and agrees that it will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to such Lender's or the Agent's, as the case may be, employees, representatives and agents who are or are expected to be involved in the evaluation of such information in connection with the transactions contemplated by this Agreement and who are advised of the confidential nature of such information, (ii) to the extent such information presently is or hereafter becomes available to such Lender or the Agent, as the case may be, on a non-confidential basis from a source other than the Borrower, (iii) to the extent disclosure is required by law, regulation or judicial order or requested or required by any regulator having jurisdiction over such Lender or the Agent, as the case may be, or auditors, or (iv) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this sentence. 10.14. ACKNOWLEDGMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) none of the Agent, any Lender or any Issuer has any fiduciary relationship with or fiduciary duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Agent and the Lenders and the Issuers, on the one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders and Issuers or among the Borrower and the Lenders and Issuers or among the Borrower and the Agent. 10.15. WAIVER OF TRIAL BY JURY. The Borrower, the Lenders, the Issuer and the Agent hereby waive any right 120 128 to a trial by jury in any action or proceeding arising out of this Agreement or any other Loan Document. 121 129 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE ELDER-BEERMAN STORES CORP. By: ------------------------------------- Title: CITICORP USA, INC., as Agent By: ------------------------------------- Title: Vice President LENDERS CITICORP USA, INC. By: ------------------------------------- Title: Vice President ISSUER CITIBANK, N.A. By: ------------------------------------- Title: Vice President 122 130 LENDERS BANKAMERICA BUSINESS CREDIT, INC. By: __________________________ Title: BANKBOSTON, N.A. By: __________________________ Title: BANK ONE, NA By: __________________________ Title: DRESDNER BANK AG New York and Grand Cayman Branches By: __________________________ Title: By: __________________________ Title: FLEET NATIONAL BANK By: __________________________ Title: HELLER FINANCIAL, INC. By: __________________________ Title: 123 131 JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM Finance, Inc., Attorney-In-Fact By: __________________________ Title: 124 132 SCHEDULE I COMMITMENT
Lender Commitment - ------ ---------- CITICORP USA, INC. $ 20,000,000 BANKAMERICA BUSINESS CREDIT, INC. $ 15,000,000 BANKBOSTON, N.A. $ 15,000,000 BANK ONE, NA $ 15,000,000 DRESDNER BANK AG $ 15,000,000 FLEET NATIONAL BANK $ 15,000,000 HELLER FINANCIAL, INC. $ 15,000,000 JACKSON NATIONAL LIFE INSURANCE COMPANY $ 15,000,000 ============ TOTAL $125,000,000
125 133 SCHEDULE II APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES Lender Domestic Lending Office - ------ ----------------------- CITICORP USA, INC. 399 Park Avenue 6th Floor New York, NY 10043 Attn: Claudia Slacik BANKAMERICA BUSINESS CREDIT, INC. 40 East 52nd Street Second Floor New York, NY 10022 Attn: Walter Shellman BANKBOSTON, N.A. 100 Federal Street Boston, MA 02110 Attn: William Sherald BANK ONE, NA Kettering Tower 40 North Main Street Dayton, OH 45423 Attn: Michael Dunlavey DRESDNER BANK AG 190 South LaSalle Street Suite 2700 Chicago, IL 60603 Attn: Jeffrey Mumm FLEET NATIONAL BANK Mail Stop: RI-MO-M03B 111 Westminster Steet Providence, RI 02903 Attn: Kevin Chamberlain HELLER FINANCIAL, INC. 150 East 42nd Street 7th Floor New York, NY 10017 Attn: Tara Hopkins JACKSON NATIONAL LIFE INSURANCE COMPANY 225 West Wacker Drive Suite 1200 Chicago, IL 60606 Attn: Jeffrey Podwika 126 134 SCHEDULE III ADDRESSES FOR NOTICES TO THE ISSUERS Issuer Address - ------ ------- CITIBANK, N.A. 2 Penns Way - DEL2/2 New Castle, DE 19720 Attn: Richard Giandrea 127 135 SCHEDULE IV ADVANCE RATES With respect to Inventory other than shoes at Bee-Gee: - ------------------------------------------------------ January through October 60% November and December 65% -- Inventory in respect of which the Borrower's customary receiving process has not yet been completed shall in no event have an advance rate in excess of 50% which will be reflected on the Borrowing Base Certificate as "Miscellaneous Inventory" With Respect to Shoes at Bee-gee: - --------------------------------- All months 40% 128 EX-10.B.II 13 EXHIBIT 10(B)(II) 1 Exhibit 10(b)(ii) EXECUTION COPY BORROWER PLEDGE AGREEMENT PLEDGE AGREEMENT, dated December 30, 1997, made by THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "Borrower"), to Citibank, N.A., as agent for the financial institutions party to the Credit Agreement referred to below (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto (the "Lenders") and the Agent (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement" and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Borrower is the legal and beneficial owner of the shares of capital stock described in Schedule I hereto and issued by the issuers named therein (the "Pledged Shares") and the Indebtedness described in said Schedule and issued by The El-Bee Receivables Corp. to The El-Bee Chargit Corp. ("Chargit") and assigned by Chargit to the Borrower (the "Pledged Debt"); and WHEREAS, it is a condition precedent under the Credit Agreement to the making of the Loans and the issuance of Letters of Credit that the Borrower shall have made the pledge contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make the Loans and the Issuer to issue Letters of Credit, the Borrower hereby agrees with the Agent on behalf and for the ratable benefit of the Secured Parties as follows: SECTION 1. PLEDGE. The Borrower hereby pledges to the Agent on behalf and for the ratable benefit of the Secured Parties, and grants to the Agent on behalf and for the ratable benefit of the Secured Parties a security inter est in, the following (the "Pledged Collateral"): (i) all of the Pledged Shares; (ii) all additional shares of stock or other securities of any issuer of the Pledged Shares 2 from time to time acquired by the Borrower in any manner and all shares of stock or other securities of any Person who, after the date of this Agreement, becomes, as a result of any occurrence, a Subsidiary of the Borrower (any such shares being "Additional Shares"); (iii) the certificates representing the shares referred to in clauses (i) and (ii) above; (iv) all of the Pledged Debt; (v) all notes or other instruments evidencing the Indebtedness referred to in clause (iv) above; and (vi) all dividends, cash, interest, instruments and other property or proceeds, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures and the Pledged Collateral is security for the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of, and the performance of, the Obligations, whether now or hereafter existing and whether for principal, interest, fees, expenses or other wise. SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, at any time in its discretion and without notice to the Borrower, to transfer to or to register in its name or in the name of any of its nominees any or all of the Pledged Collateral. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations. 2 3 SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower makes the following representations: (a) The Pledged Shares (i) have been duly authorized and validly issued; (ii) are fully paid and non-assessable; and (iii) constitute 100% of the issued and outstanding shares of stock of the respective issuers thereof. The Pledged Debt has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof, and is not in default. (b) The Borrower is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien, except for the Lien created by this Agreement. (c) The pledge of the Pledged Shares and Pledged Debt pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Agent on behalf and for the ratable benefit of the Secured Parties securing the payment of all of the Obligations. (d) No consent, authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the pledge by the Borrower of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Borrower, or (ii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or of the remedies in respect of the Pledged Col lateral pursuant to this Agreement, except as may be required in connection with the disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally. (e) The issuers listed on Schedule I are the only direct Subsidiaries of the Borrower. SECTION 5. FURTHER ASSURANCES, ETC. (a) The Borrower agrees that at any time and from time to time, at the cost and expense of the Borrower, the Borrower will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may request, in order to perfect and protect the Lien granted or purported to be granted hereby or to enable the Agent to exercise and 3 4 enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) The Borrower agrees to defend the title to the Pledged Collateral and the Lien thereon of the Agent against the claim of any other Person and to maintain and preserve such Lien until indefeasible payment in full of all of the Secured Obligations. SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC. (a) As long as no Event of Default shall have occurred and be continuing (or, in the case of subsection (a)(i) of this Section 6, as long as no notice thereof shall have been given by the Agent to the Borrower): (i) The Borrower shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Loan Document. (ii) The Borrower shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, other than any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares or Additional Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, 4 5 all of which shall be forthwith delivered to the Agent to hold as Pledged Collateral and shall, if received by the Borrower, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Borrower, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). (iii) The Agent shall execute and deliver (or cause to be executed and delivered) to the Borrower all such proxies and other instruments as the Borrower may reasonably request for the pur pose of enabling the Borrower to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) Upon notice by the Agent to the Borrower, all rights of the Borrower to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) above shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) All rights of the Borrower to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) above shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments. (iii) All dividends and interest payments which are received by the Borrower contrary to the provisions of paragraph (ii) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Borrower and shall be forthwith paid over to the 5 6 Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). (iv) The Borrower shall, if necessary to permit the Agent to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 6(b)(i) above and to receive all dividends and distributions which it may be entitled to receive under Section 6(b)(ii) above, execute and deliver to the Agent, from time to time and upon written notice of the Agent, appropriate proxies, dividend payment orders and other instruments as the Agent may reasonably request. The foregoing shall not in any way limit the Agent's power and authority granted pursuant to Section 8 hereof. SECTION 7. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES AND ADDITIONAL DEBT. (a) The Borrower agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the Lien created pursuant to this Agreement. (b) The Borrower agrees that it will (i) cause each issuer of the Pledged Shares not to issue any shares of stock or other securities in addition to or in substitution for the Pledged Shares, except, with the written consent of the Majority Lenders, to the Borrower, (ii) pledge here under, immediately upon its acquisition (directly or indirectly) thereof, any and all Additional Shares and any and all Additional Debt and (iii) promptly (and in any event within three Business Days) deliver to the Agent a Pledge Amendment, duly executed by the Borrower, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the Additional Shares or Additional Debt, together with all certificates, notes or other instruments representing or evidencing the same. The Borrower hereby (i) authorizes the Agent to attach each Pledge Amendment to this Pledge Agreement, (ii) agrees that all Additional Shares and Additional Debt listed on any Pledge Amendment delivered to the Agent shall for all purposes hereunder constitute Pledged Shares and Pledged Debt, respectively and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Section 4 hereof with respect to such Pledged Collateral. 6 7 SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT AND PROXY. The Borrower hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact and proxy with full irrevocable power and authority in the place and stead of the Borrower and in the name of the Borrower or in its own name, from time to time in the Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Borrower representing any dividend, interest payment or other distribution or payment in respect of the Pledged Collateral or any part thereof, to give full discharge for the same, and to vote or grant any consent in respect of the Pledged Shares authorized by Section 6(b) hereof. The Borrower hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. This power, being coupled with an interest, is irrevocable until the Secured Obligations are paid in full. SECTION 9. AGENT MAY PERFORM. If the Borrower fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Borrower under Section 12 hereof and constitute Secured Obligations secured hereby. SECTION 10. REASONABLE CARE. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, it being understood that neither the Agent nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, ex changes, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent or any other Secured Party has or is deemed to have knowledge of any such matter, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. 7 8 SECTION 11. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code (the "Code") in effect in the State of New York at that time, and the Agent may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any office of the Agent or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Borrower hereby waives any claims against the Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) The Borrower recognizes that the Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Borrower acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay the sale of any of the Pledged Collateral for the period of time necessary to permit the Borrower to register 8 9 such securities for public sale under the Securities Act of 1933, or under applicable state securities laws, even if the Borrower would agree to do so. (c) If the Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Borrower shall, from time to time, furnish to the Agent all such information as the Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Agent as exempt transactions under the Act and rules of the SEC thereunder, as the same are from time to time in effect. (d) Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied by the Agent: First, to the payment of the costs and expenses of such sale, including, without limitation, reasonable expenses of the Agent and its agents including the fees and expenses of its counsel, and all expenses, liabilities and advances made or incurred by the Agent in connection therewith or pursuant to Section 9 hereof; Next, to the Secured Parties, PRO RATA, for the payment in full of the Secured Obligations; and Finally, after payment in full of all of the Secured Obligations, to the payment to the Borrower, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same as a court of competent jurisdiction may direct. SECTION 12. EXPENSES. The Borrower will upon demand pay to the Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Agent's counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights and remedies hereunder of the Agent and the Secured Parties, or (iv) the failure by 9 10 the Borrower to perform or observe any of the provisions hereof. SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Agent and security interests hereunder, and all obligations of the Borrower hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any provision of the Credit Agreement, the Notes or any other Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Secured Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Credit Agreement, the Notes or any other Loan Document; (iii) any exchange, release or non-perfection of any Lien on any other collateral, or any release or amendment or waiver of any term of any guaranty of, or consent to departure from any requirement of any guaranty of, all or any of the Secured Obligations; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a borrower or a pledgor. SECTION 14. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower herefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Borrower any Secured Party, addressed to the Borrower or such Secured Party, as the case may be, at its address specified in the Credit 10 11 Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. SECTION 16. CONTINUING SECURITY INTEREST; TRANS FER OF NOTES OR OBLIGATIONS. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon the Borrower, its successors and assigns, and (iii) inure, together with the rights and remedies of the Agent hereunder, to the benefit of and be enforceable by the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Lender may assign or otherwise transfer any Note held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Lender herein or otherwise with respect to such of the Notes or Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Credit Agreement in respect of assignments. Upon the payment in full (after the Termination Date) of the Obligations, the Borrower shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 17. GOVERNING LAW; SEVERABILITY; TERMS. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Uniform Commercial Code as in 11 12 effect in the State of New York are used herein as therein defined. SECTION 18. WAIVER OF JURY TRIAL. The Borrower waives any right it may have to a trial by jury in respect of any litigation based on, or arising out of, under or in connection with, this Agreement or any other loan document, or any course of conduct, course of dealing, verbal or written statement or other action of any loan party or any secured party. SECTION 19. SECTION TITLES. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. 12 13 IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. THE ELDER-BEERMAN STORES CORP. By: -------------------------------------- Title: Accepted and Acknowledged: CITIBANK, N.A., as Agent By: ------------------------ Title: 13 14 SCHEDULE I TO BORROWER PLEDGE AGREEMENT Attached to and forming a part of that certain Pledge Agreement, dated December 30, 1997, by The Elder-Beerman Stores Corp. to Citibank, N.A., as Agent.
Class Stock Certificate Par Number Stock Issuer of Stock No(s). Value Of Shares - ------------- -------- ----------------- ----- ---------- 1. The El-Bee Chargit Corp. common 5 none 6,000 2. The Bee-Gee Shoe Corp. common 1 none 100 Original Description Final Principal Debt Issuer of Debt Maturity Amount - ----------- ----------- -------- ------ The El-Bee Subordinated Note No. 1 12/30/17 Receivables Corp.
14 15 SCHEDULE II TO BORROWER PLEDGE AGREEMENT PLEDGE AMENDMENT ---------------- This Pledge Amendment, dated , 1997, is delivered pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated December 30, 1997, between the undersigned and Citibank, N.A., as Agent on behalf of and for the ratable benefit of the Secured Parties referred to therein and that the Additional Shares listed on this Pledge Amendment shall be and become part of the Pledged Collateral referred to in the Pledge Agreement and shall secure all Secured Obligations of the undersigned. The terms defined in the Pledge Agreement or Credit Agreement are being used herein as therein defined. THE ELDER-BEERMAN STORES CORP. By: ----------------------------- Title: Class Stock Certificate Par Number Stock Issuer of Stock No(s). Value of Shares - ------------ -------- ----------------- ----- ---------- Original Description Final Principal Issuer of Debt Maturity Amount - ------ ----------- --------- --------- 15 EX-10.B.III 14 EXHIBIT 10(B)(III) 1 Exhibit 10(b)(iii) EXECUTION COPY CHARGIT PLEDGE AGREEMENT PLEDGE AGREEMENT, dated December 30, 1997, made by THE EL-BEE CHARGIT CORP., an Ohio corporation (the "Pledgor"), to Citibank, N.A., as agent for the financial institutions party to the Credit Agreement referred to below (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, The Elder-Beerman Stores Corp., an Ohio corporation (the "Borrower"), has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto (the "Lenders") and the Agent (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement" and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Pledgor is a wholly-owned subsidiary of the Borrower and is the legal and beneficial owner of the shares of capital stock described in Schedule I hereto and issued by the issuer named therein (the "Pledged Shares") and the Indebtedness described in said Schedule and issued by The El-Bee Receivables Corp. to The El-Bee Chargit Corp. (the "Pledged Debt"); and WHEREAS, it is a condition precedent under the Credit Agreement to the making of the Loans and the issuance of Letters of Credit that the Pledgor shall have made the pledge contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make the Loans and the Issuer to issue Letters of Credit, the Pledgor hereby agrees with the Agent on behalf and for the ratable benefit of the Secured Parties as follows: SECTION 1. PLEDGE. The Pledgor hereby pledges to the Agent on behalf and for the ratable benefit of the Secured Parties, and grants to the Agent on behalf and for the ratable benefit of the Secured Parties a security interest in, the following (the "Pledged Collateral"): (i) all of the Pledged Shares; (ii) all additional shares of stock or other securities of any issuer of the Pledged Shares 2 from time to time acquired by the Pledgor in any manner and all shares of stock or other securities of any Person who, after the date of this Agreement, becomes, as a result of any occurrence, a Subsidiary of the Pledgor (any such shares being "Additional Shares"); (iii) the certificates representing the shares referred to in clauses (i) and (ii) above; (iv) all of the Pledged Debt; (v) all notes or other instruments evidencing the Indebtedness referred to in clause (iv) above; and (vi) all dividends, cash, interest, instruments and other property or proceeds, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures and the Pledged Collateral is security for the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of, and the performance of, the Obligations, whether now or hereafter existing and whether for principal, interest, fees, expenses or otherwise. SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in its name or in the name of any of its nominees any or all of the Pledged Collateral. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations. 2 3 SECTION 4. REPRESENTATIONS AND WARRANTIES. The Pledgor makes the following representations: (a) The Pledged Shares (i) have been duly authorized and validly issued; (ii) are fully paid and non-assessable; and (iii) constitute 100% of the issued and outstanding shares of stock of the respective issuers thereof. The Pledged Debt has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof, and is not in default. (b) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien, except for the Lien created by this Agreement. (c) The pledge of the Pledged Shares and Pledged Debt pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Agent on behalf and for the ratable benefit of the Secured Parties securing the payment of all of the Obligations. (d) No consent, authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Pledgor, or (ii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or of the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with the disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally. (e) The issuers listed on Schedule I are the only direct Subsidiaries of the Pledgor. SECTION 5. FURTHER ASSURANCES, ETC. (a) The Pledgor agrees that at any time and from time to time, at the cost and expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may request, in order to perfect and protect the Lien granted or purported to be granted hereby or to enable the Agent to exercise and 3 4 enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) The Pledgor agrees to defend the title to the Pledged Collateral and the Lien thereon of the Agent against the claim of any other Person and to maintain and preserve such Lien until indefeasible payment in full of all of the Secured Obligations. SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC. (a) As long as no Event of Default shall have occurred and be continuing (or, in the case of subsection (a)(i) of this Section 6, as long as no notice thereof shall have been given by the Agent to the Pledgor): (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Loan Document. (ii) The Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, other than any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares or Additional Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, 4 5 all of which shall be forthwith delivered to the Agent to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). (iii) The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) Upon notice by the Agent to the Pledgor, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) above shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) All rights of the Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) above shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments. (iii) All dividends and interest payments which are received by the Pledgor contrary to the provisions of paragraph (ii) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the 5 6 Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). (iv) The Pledgor shall, if necessary to permit the Agent to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 6(b)(i) above and to receive all dividends and distributions which it may be entitled to receive under Section 6(b)(ii) above, execute and deliver to the Agent, from time to time and upon written notice of the Agent, appropriate proxies, dividend payment orders and other instruments as the Agent may reasonably request. The foregoing shall not in any way limit the Agent's power and authority granted pursuant to Section 8 hereof. SECTION 7. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES AND ADDITIONAL DEBT. (a) The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the Lien created pursuant to this Agreement. (b) The Pledgor agrees that it will (i) cause each issuer of the Pledged Shares not to issue any shares of stock or other securities in addition to or in substitution for the Pledged Shares, except, with the written consent of the Majority Lenders, to the Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all Additional Shares and any and all Additional Debt and (iii) promptly (and in any event within three Business Days) deliver to the Agent a Pledge Amendment, duly executed by the Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the Additional Shares or Additional Debt, together with all certificates, notes or other instruments representing or evidencing the same. The Pledgor hereby (i) authorizes the Agent to attach each Pledge Amendment to this Pledge Agreement, (ii) agrees that all Additional Shares and Additional Debt listed on any Pledge Amendment delivered to the Agent shall for all purposes hereunder constitute Pledged Shares and Pledged Debt, respectively and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Section 4 hereof with respect to such Pledged Collateral. 6 7 SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT AND PROXY. The Pledgor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact and proxy with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in its own name, from time to time in the Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution or payment in respect of the Pledged Collateral or any part thereof, to give full discharge for the same, and to vote or grant any consent in respect of the Pledged Shares authorized by Section 6(b) hereof. The Pledgor hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. This power, being coupled with an interest, is irrevocable until the Secured Obligations are paid in full. SECTION 9. AGENT MAY PERFORM. If the Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under Section 12 hereof and constitute Secured Obligations secured hereby. SECTION 10. REASONABLE CARE. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, it being understood that neither the Agent nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, ex changes, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent or any other Secured Party has or is deemed to have knowledge of any such matter, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. 7 8 SECTION 11. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code (the "Code") in effect in the State of New York at that time, and the Agent may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any office of the Agent or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Pledgor hereby waives any claims against the Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) The Pledgor recognizes that the Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay the sale of any of the Pledged Collateral for the period of time necessary to permit the Pledgor to register 8 9 such securities for public sale under the Securities Act of 1933, or under applicable state securities laws, even if the Pledgor would agree to do so. (c) If the Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Pledgor shall, from time to time, furnish to the Agent all such information as the Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Agent as exempt transactions under the Act and rules of the SEC thereunder, as the same are from time to time in effect. (d) Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied by the Agent: First, to the payment of the costs and expenses of such sale, including, without limitation, reasonable expenses of the Agent and its agents including the fees and expenses of its counsel, and all expenses, liabilities and advances made or incurred by the Agent in connection therewith or pursuant to Section 9 hereof; Next, to the Secured Parties, PRO RATA, for the payment in full of the Secured Obligations; and Finally, after payment in full of all of the Secured Obligations, to the payment to the Pledgor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same as a court of competent jurisdiction may direct. SECTION 12. EXPENSES. The Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Agent's counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights and remedies hereunder of the Agent and the Secured Parties, or (iv) the failure by 9 10 the Pledgor to perform or observe any of the provisions hereof. SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Agent and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any provision of the Credit Agreement, the Notes or any other Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Secured Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Credit Agreement, the Notes or any other Loan Document; (iii) any exchange, release or non-perfection of any Lien on any other collateral, or any release or amendment or waiver of any term of any guaranty of, or consent to departure from any requirement of any guaranty of, all or any of the Secured Obligations; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a pledgor or a pledgor. SECTION 14. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Pledgor any Secured Party, addressed to the Pledgor or such Secured Party, as the case may be, at its address specified in the Credit 10 11 Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. SECTION 16. CONTINUING SECURITY INTEREST; TRANS FER OF NOTES OR OBLIGATIONS. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Agent hereunder, to the benefit of and be enforceable by the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Lender may assign or otherwise transfer any Note held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Lender herein or otherwise with respect to such of the Notes or Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Credit Agreement in respect of assignments. Upon the payment in full (after the Termination Date) of the Obligations, the Pledgor shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 17. GOVERNING LAW; SEVERABILITY; TERMS. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Uniform Commercial Code as in 11 12 effect in the State of New York are used herein as therein defined. SECTION 18. WAIVER OF JURY TRIAL. The Pledgor waives any right it may have to a trial by jury in respect of any litigation based on, or arising out of, under or in connection with, this Agreement or any other loan document, or any course of conduct, course of dealing, verbal or written statement or other action of any loan party or any secured party. SECTION 19. SECTION TITLES. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. 12 13 IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. THE EL-BEE CHARGIT CORP. By: ------------------------------- Title: Accepted and Acknowledged: CITIBANK, N.A., as Agent By: -------------------- Title: 13 14 SCHEDULE I TO CHARGIT PLEDGE AGREEMENT Attached to and forming a part of that certain Pledge Agreement, dated December 30, 1997, by The El-Bee Chargit Corp. to Citibank, N.A., as Agent.
Class Stock Certificate Par Number Stock Issuer of Stock No(s). Value Of Shares - ------------- -------- ------------------ ----- ---------- The El-Bee Receivables Corp. common 1 $.01 100
Original Description Final Principal Debt Issuer of Debt Maturity Amount - ----------- ----------- -------- ---------- The El-Bee Subordinated Note 12/30/17 Receivables Corp.
14 15 SCHEDULE II TO CHARGIT PLEDGE AGREEMENT PLEDGE AMENDMENT ---------------- This Pledge Amendment, dated , 1997, is delivered pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated December 30, 1997, between the undersigned and Citibank, N.A., as Agent on behalf of and for the ratable benefit of the Secured Parties referred to therein and that the Additional Shares listed on this Pledge Amendment shall be and become part of the Pledged Collateral referred to in the Pledge Agreement and shall secure all Secured Obligations of the undersigned. The terms defined in the Pledge Agreement or Credit Agreement are being used herein as therein defined. THE EL-BEE CHARGIT CORP. By: ----------------------- Title:
Class Stock Certificate Par Number Stock Issuer of Stock No(s). Value Of Shares - ------------ -------- ----------------- ----- ----------
Original Description Final Principal Issuer of Debt Maturity Amount - ------ ----------- -------- ----------
15 EX-10.B.IV 15 EXHIBIT 10(B)(IV) 1 Exhibit 10(b)(iv) EXECUTION COPY SECURITY AGREEMENT SECURITY AGREEMENT, dated December 30, 1997, made by THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "Borrower"), THE EL-BEE CHARGIT CORP., an Ohio corporation ("Chargit"), and THE BEE-GEE SHOE CORP., an Ohio corporation ("Bee-Gee" and, together with the Borrower and Chargit, each, a "Grantor" and collectively, the "Grantors") in favor of CITICORP USA, INC., as agent for the financial institutions party to the Credit Agreement referred to below (in such capacity, the "Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrower has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto (the "Lenders") and the Agent, as agent and Swing Loan Bank (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement" and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Borrower owns beneficially and of record 100% of the capital stock of each of Chargit and Bee-Gee and the Borrower and each of Chargit and Bee-Gee are members of the same consolidated group of companies and are engaged in related businesses, and each of Chargit and Bee-Gee will derive direct and indirect economic benefit from the Loans and Letters of Credit; and WHEREAS, each of Chargit and Bee-Gee has entered into a Guaranty, dated December 30, 1997 in favor of the Agent for the ratable benefit of the Guarantied Parties (as defined in each Guaranty) (as each may be amended, supplemented or otherwise modified from time to time, being a "Guaranty"); and WHEREAS, it is a condition precedent to the making of the Loans and the issuance of the Letters of Credit pursuant to the Credit Agreement that the Grantors shall have entered into this Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make the Loans and the Issuer to issue the Letters of Credit that each Grantor 2 hereby agrees with the Agent on behalf and for the ratable benefit of the Secured Parties as follows: 1. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below (such meanings being equally applicable to both the singular and plural forms of the terms defined): "ACCOUNT" means any "account," as such term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by a Grantor and, in any event, includes, without limitation, (i) all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to such Grantor (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by such Grantor or from any other transaction, whether or not the same involves the sale of goods or services by such Grantor (including, without limitation, any such obligation which might be characterized as an account or contract right under the UCC), (ii) all of such Grantor's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of such Grantor's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (iii) all moneys due or to become due to such Grantor under all contracts for the sale of goods or the performance of services or both by such Grantor (whether or not yet earned by performance on the part of such Grantor or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and (iv) all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 2 3 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9-105(1)(a) of the UCC. "BROKER" means any "broker," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by either Grantor. "CLEARING CORPORATION" means any "clearing corporation," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any (i) Person that is registered as a "clearing agency" under the federal securities laws, (ii) federal reserve bank, or (iii) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including promulgation of rules, are subject to regulation by a federal or state Governmental Authority. "COLLATERAL" has the meaning assigned to such term in Section 2 of this Agreement. "CONTRACTS" means all contracts, undertakings or other agreements (other than Chattel Paper, Documents or Instruments) in or under which either Grantor may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. "DOCUMENTS" means any "document," as such term is defined in Section 9-105(1)(f) of the UCC, now owned or hereafter acquired by either Grantor. 3 4 "ENTITLEMENT HOLDER" means any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary. "EQUIPMENT" means any "equipment," as such term is defined in Section 9-109(2) of the UCC, now owned or hereafter acquired by either Grantor and, in any event, includes, without limitation, all machinery, equipment, furnishings, fixtures, vehicles, computers and other electronic data-processing and office equipment now owned or hereafter acquired by such Grantor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "FINANCIAL ASSET" means any financial asset, and in any event shall include, but not be limited to, any (i) Security, (ii) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment and (iii) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Chapter 8 (or Article 8) of the UCC. "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by a Grantor and, in any event, includes, without limitation, all customer lists, trademarks, pa tents, rights in intellectual property, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether patented or patentable or not) and technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, 4 5 drawings, materials and records, goodwill, rights of indemnification and all right, title and interest which such Grantor may now or hereafter have in or under any Contract, now owned or hereafter acquired by such Grantor. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, county, municipal, parish, provincial or other political subdivision thereof and any department, commission, board, court, agency or other instrumentality or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INSTRUMENT" means any "instrument," as such term is defined in Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by a Grantor, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "INVENTORY" means any "inventory," as such term is defined in Section 9-109(4) of the UCC, now owned or hereafter acquired by a Grantor, and wherever located, and, in any event, includes, without limitation, all inventory, merchandise, goods and other personal property now owned or hereafter acquired by such Grantor which are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Grantor's business, or the processing, packaging, delivery or shipping of the same, and all finished goods. "INVESTMENT PROPERTY" means any investment property, now owned or hereafter acquired, and, in any event, shall include, without limitation, each of the following: (a) any Security, whether certificated or uncertificated, (b) any Security Entitlement, (c) any Securities Account, and (d) all proceeds of any of the foregoing. "ISSUER" means any "issuer," as such term is defined in Chapter 8 (or Article 8) of the UCC, 5 6 and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (i) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate, (ii) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security, (iii) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate, or (iv) becomes responsible for, or in the place of, another Issuer. "OBLIGATIONS" means, (a) with respect to the Borrower, the Obligations as defined in the Credit Agreement and all obligations, now existing or hereafter arising, of the Borrower under this Agreement and (b) with respect to Bee-Gee and Chargit, all the obligations, now existing or hereafter arising, of such Grantor under its Guaranty and all obligations, now existing or hereafter arising, of Bee-Gee and Chargit under this Agreement. "PERMITTED LIENS" means Liens permitted by Section 7.1 of the Credit Agreement existing as of the date hereof or to be created hereafter. "PERSON" means any individual, corporation, limited liability company, joint venture, general or limited partnership, association, trust, unincorporated organization or Governmental Authority, or other similar entity. "PROCEEDS" means "proceeds," as such term is defined in Section 9-306(1) of the UCC, and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to either Grantor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form 6 7 whatsoever) made or due and payable to either Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of Governmental Authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "SECURITIES ACCOUNT" means any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. "SECURITIES INTERMEDIARY" means any (i) Clearing Corporation, or (ii) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "SECURITY" means any "security," as such term is defined in Chapter 8 (or Article 8) of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer: (i) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer; (ii) which is one of a class or series or but its terms is divisible into a class or series of shares, participations, interests or obligations; and (iii) which (a) is, or is of a type, dealt in or traded on securities exchanges or securities markets or (b) is a medium for investment and by its terms expressly provides that it is a security governed by Chapter 8 (or Article 8) of the UCC. "SECURITY CERTIFICATE" means any certificate representing a Security. 7 8 "SECURITY ENTITLEMENT" means any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Agent's and the Secured Parties' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "UNCERTIFICATED SECURITY" means any "uncertificated security," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. 2. GRANT OF SECURITY INTEREST. (a) As collateral security for the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of, and the performance of, all of the Obligations for which it is responsible and to induce the Lenders to make the Loans and the Issuer to issue the Letters of Credit pursuant to the Credit Agreement, each Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to the Agent, on behalf and for the ratable benefit of the Secured Parties, and hereby grants to the Agent, on behalf and for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor's right, title and interest in, to and under the following (all of which being hereinafter collectively called the "Collateral"): (i) all Accounts; (ii) all Inventory; 8 9 (iii) all General Intangibles that related to Inventory; (iv) all of the rights (but none of the obligations) of each of the Borrower and Chargit under (x) the Purchase Agreement between the Borrower and Chargit, (y) the Purchase Agreement between Chargit and The El-Bee Receivables Corporation, each dated as of December 30, 1997, and (z) each of the other Securitization Documents, as each such Purchase Agreement or other Securitization Document may be amended, supplemented or otherwise modified from time to time, and including any and all extensions, renewals, replacements and substitutions of either such Purchase Agreement or other Securitization Document; and (v) to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, including, without limitation, Proceeds in the form of Accounts, Chattel Paper, Contracts, Documents, Equipment, General Intangibles, Instruments and Investment Property. (b) In addition, as collateral security for the prompt and complete payment when due of the Obligations, each Secured Party is hereby granted a lien and security interest in all property of the Grantor held by such Secured Party or any Affiliate of such Secured Party, including, without limitation, all property of every description, now or hereafter in the possession or custody of or in transit to such Secured Party for any purpose, including safekeeping, collection or pledge, for the account of the Grantor, or as to which a Grantor may have any right or power. 3. RIGHTS OF THE SECURED PARTIES; LIMITATIONS ON SECURED PARTIES' OBLIGATIONS. With Respect to Accounts, Contracts, Chattel Paper and Instruments Constituting Collateral: (a) It is expressly agreed by each Grantor that, anything herein to the contrary notwithstanding, such Grantor shall remain liable under each of the Contracts 9 10 to observe and perform all the conditions and obligations to be observed and performed by it thereunder and such Grantor shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract. Neither the Agent nor any Lender shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the granting of a security interest in any contract to the Agent on behalf and for the ratable benefit of and the Secured Parties of a security interest therein or the receipt by the Agent or any Lender of any payment relating to any Contract pursuant hereto, nor shall the Agent or any Lender be required or obligated in any manner to perform or fulfill any of the obligations of such Grantor under or pursuant to any Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) The Agent authorizes each Grantor to collect its Accounts, Chattel Paper and Instruments that are Collateral, provided that such collection is performed in a prudent and businesslike manner, and the Agent may, upon the occurrence and during the continuance of any Event of Default and without notice, limit or terminate said authority at any time. If required by the Agent at any time during the continuance of any Event of Default, any Proceeds, when first collected by such Grantor, received in payment of any such Account or in payment for any of its Inventory or on account of any of its Contracts, shall be promptly deposited by such Grantor in precisely the form received (with all necessary indorsements) in a special bank account maintained by the Agent and subject to withdrawal only by the Agent, as hereinafter provided, and until so turned over shall be deemed to be held in trust by such Grantor for and as the Agent's property and shall not be commingled with such Grantor's other funds or properties. Such Proceeds, when deposited, shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof 10 11 until applied as hereinafter provided. The Agent shall upon the request of the Majority Lenders apply all or a part of the funds on deposit in said special account to the principal of or interest on or both in respect of any of the Obligations in accordance with the provisions of Section 8(d) hereof and any part of such funds which the Majority Lenders elect not so to apply and deem not required as collateral security for the Obligations shall be paid over from time to time by the Agent to such Grantor. If an Event of Default has occurred and is continuing, at the request of the Agent such Grantor shall deliver to the Agent all original and other documents evidencing, and relating to, the sale and delivery of such Inventory or the performance of labor or service which created such Accounts, including, without limitation, all original orders, invoices and shipping receipts. (c) The Agent may at any time, upon the occurrence and during the continuance of any Default or Event of Default, after first notifying the relevant Grantor of its intention to do so, notify Account Debtors of such Grantor, parties to Contracts of such Grantor, obligors of Instruments of such Grantor and obligors in respect of Chattel Paper of such Grantor that the Accounts and the right, title and interest of such Grantor in and under such Contracts, such Instruments and such Chattel Paper have been assigned to the Agent and that payments shall be made directly to the Agent. Upon the request of the Agent, such Grantor will so notify such Account Debtors, parties to such Contracts, obligors of such Instruments and obligors in respect of such Chattel Paper. Upon the occurrence and during the continuance of an Event of Default, the Agent may in its own name or in the name of others communicate with such Account Debtors, parties to such Contracts, obligors of such Instruments and obligors in respect of such Chattel Paper to verify with such Persons to the Agent's satisfaction the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. (d) Upon reasonable prior notice to the relevant Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is necessary), the Agent shall have the right to make test verifications of the Accounts and physical verifications of the 11 12 Inventory of such Grantor in any manner and through any medium that it considers advisable, and each Grantor agrees to furnish all such assistance and information as the Agent may require in connection therewith. 4. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants to the Secured Parties as follows: (a) Each Grantor is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its organization. (b) The execution, delivery and performance by each Grantor of this Agreement are within such Grantor's corporate powers, have been duly authorized by all necessary corporate action, do not contravene such Grantor's certificate of incorporation or by-laws, any Requirement of Law or any order or decree of any court, or any Contractual Obligation of such Grantor, and do not result in or require the creation of any Lien (other than pursuant to the Credit Agreement) upon or with respect to any of its properties. (c) No consent, authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by each Grantor of this Agreement. (d) This Agreement has been duly executed and delivered by each Grantor and is the legal, valid and binding obligation of such Grantor, enforceable against such Grantor in accordance with its terms. (e) There are no pending or threatened actions, investigations or proceeding affecting any Grantor or any of its Subsidiaries before any court, Governmental Authority or arbitrator other than those that in the aggregate could not reasonably be expected to have a Material Adverse Effect. (f) Each Grantor is the sole owner of each item of the Collateral in which it purports to grant a security interest hereunder, having good title thereto, free and clear of any and all Liens, except for the security interest granted pursuant to this Agreement 12 13 and other Permitted Liens. No material amounts payable under or in connection with any of its Accounts or Contracts (to the extent constituting Collateral) are evidenced by Instruments which have not been delivered to the Agent. (g) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed by any Grantor in favor of the Agent pursuant to this Agreement or such as relate to other Permitted Liens. (h) Appropriate financing statements having been filed in the jurisdictions listed on Schedule I hereto, this Agreement is effective to create a valid and continuing first priority Lien on and prior to all other Liens except Permitted Liens. All action necessary or desirable to protect and perfect such security interest in each item of the Collateral has been duly taken. (i) Each Grantor's principal place of business and the place where its records concerning the Collateral are kept and the location of its Inventory and Equipment are set forth on Schedule II hereto. (j) The amount represented by each Grantor to the Agent from time to time as owing by each Account Debtor or by all Account Debtors in respect of the Accounts of such Grantor will at such time be the correct amount actually and unconditionally owing by such Account Debtors thereunder. 5. COVENANTS. Each Grantor covenants and agrees with the Agent and the Lenders that from and after the date of this Agreement and until the Obligations are fully satisfied: (a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. At any time and from time to time, upon the written request of the Agent, and at the sole expense of each Grantor, such Grantor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Agent may reasonably deem desirable to obtain the full benefits 13 14 of this Agreement and of the rights and powers herein granted, including, without limitation, using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to the Agent of any Contract (to the extent constituting part of the Collateral) held by such Grantor or in which such Grantor has any rights not heretofore assigned, the filing of any financing or continuation statements under the UCC with respect to the Liens and security interests granted hereby, transferring Collateral to the Agent's possession (if a security interest in such Collateral can be perfected by possession) and placing the interest of the Agent as lienholder on the certificate of title of any vehicle. Each Grantor also hereby authorizes the Agent to file any such financing or continuation statement without the signature of such Grantor to the extent permitted by applicable law. If any of the Collateral shall be or become evidenced by any Instrument, each Grantor agrees to pledge such Instrument to the Agent and shall duly endorse such Instrument in a manner satisfactory to the Agent and deliver the same to the Agent. (b) MAINTENANCE OF RECORDS. Each Grantor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. Each Grantor will mark its books and records pertaining to the Collateral to evidence this Agreement and the Lien and security interests granted hereby. If requested by the Agent, all Chattel Paper that is Collateral will be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of Citicorp USA, Inc., as the Agent". If requested by the Agent, the security interest of the Agent shall be noted on the certificate of title of each vehicle that is Collateral. For the Agent's and the Lenders' further security, each Grantor agrees that, upon the occurrence and during the continuance of any Event of Default, each Grantor shall deliver and turn over all of such Grantor's books and records pertaining to the Collateral to the Agent or to its representatives at any time on demand of the Agent. Prior to the occurrence of an Event of Default and upon reasonable notice from the Agent, each Grantor shall 14 15 permit any representative of the Agent to inspect such books and records and will provide photocopies thereof to the Agent all in accordance with the provisions of the Credit Agreement. (c) INDEMNIFICATION. In any suit, proceeding or action brought by the Agent or any Lender relating to any Account, Chattel Paper, Contract, General Intangible or Instrument constituting Collateral for any sum owing thereunder, or to enforce any provision of any such Account, Chattel Paper, Contract, General Intangible or Instrument, each Grantor will save, indemnify and keep each of the Agent and the Lenders harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by such Grantor of any obligation thereunder or arising out of any other agreement, Indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from such Grantor, and all such obligations of such Grantor shall be and remain enforceable against and only against such Grantor and shall not be enforceable against the Agent or the Lenders. (d) COMPLIANCE WITH LAWS, ETC. Each Grantor will comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any Governmental Authority, applicable to the Collateral or any part thereof or to the operation of such Grantor's business; PROVIDED, HOWEVER, that such Grantor may contest any act, regulation, order, decree or direction in any reasonable manner which shall not, in the sole opinion of the Agent, adversely affect the Agent's rights hereunder or adversely affect the first priority of its Lien on and security interest in the Collateral. (e) PAYMENT OF OBLIGATIONS. Each Grantor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom and all claims of any kind (including, without limitation, claims for labor, materials and supplies), except that no such charge need be paid if (i) such non-payment does not involve any danger of the sale, forfeiture or loss of any of the Collateral or 15 16 any interest therein, and (ii) such charge is adequately reserved against in accordance with and to the extent required by GAAP. (f) COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material respects, each Grantor will comply with and perform with all obligations, covenants, conditions and agreements with respect to any Account, Chattel Paper, Contract, License and all other agreements to which it is a party or by which it is bound (to the extent constituting Collateral). (g) LIMITATION ON LIENS ON COLLATERAL. No Grantor will create, permit or suffer to exist, and each Grantor will defend the Collateral against and take such other action as is necessary to remove, any Lien on the Collateral except Permitted Liens, and will defend the right, title and interest of the Agent and the Lenders in and to any of such Grantor's rights under the Chattel Paper, Contracts, Documents, General Intangibles and Instruments (to the extent constituting Collateral) and to the Inventory and in and to the Proceeds thereof against the claims and demands of all Persons whomsoever. (h) LIMITATIONS ON MODIFICATIONS OF ACCOUNTS. Upon the occurrence and during the continuance of any Event of Default, no Grantor will, without the Agent's prior written consent, grant any extension of the time of payment of any of the Accounts, Chattel Paper or Instruments that are Collateral or compromise, compound or settle the same for less than the full amount thereof, or release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon. (i) MAINTENANCE OF INSURANCE. Each Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring its Inventory against loss by fire, explosion, theft and such other casualties as are usually insured against by companies engaged in the same or similar businesses and (ii) insuring such Grantor and the Agent and the Banks against liability for personal injury and property damage relating to such Inventory, such policies to be in such amounts and against at least such risks as are usually insured against in the same general area by 16 17 companies engaged in the same or a similar business, naming the Agent as an additional insured with a lender loss payable clause in favor of the Agent on behalf and for the ratable benefit of the Secured Parties. Each Grantor shall, if so requested by the Agent, deliver to the Agent as often as the Agent may reasonably request, a report of a reputable insurance broker satisfactory to the Agent with respect to the insurance on such Inventory. All insurance with respect to such Inventory shall (i) contain a clause which provides that the Secured Parties' interest under the policy will not be invalidated by any act or omission of, or any breach of warranty by, the insured, or by any change in the title, ownership or possession of the insured property, or by the use of the property for purposes more hazardous than is permitted in the policy, and (ii) provide that no cancellation, reduction in amount or change in coverage thereof shall be effective until at least ten days after receipt by the Agent of written notice thereof. (j) LIMITATIONS ON DISPOSITION. No Grantor will sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so, except as permitted by the Credit Agreement. (k) FURTHER IDENTIFICATION OF COLLATERAL. Each Grantor will, if so requested by the Agent, furnish to the Agent, as often as the Agent reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. (l) NOTICES. Each Grantor will advise the Agent promptly, in reasonable detail, (i) of any material Lien or claim made or asserted against any of the Collateral, (ii) of any material change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or in the security interests created hereunder. (m) RIGHT OF INSPECTION. Upon reasonable notice to the relevant Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is 17 18 necessary), the Agent shall at all times have full and free access during normal business hours to all the books and records and correspondence of such Grantor, and the Agent or its representatives may examine the same, take extracts therefrom and make photocopies thereof, and such Grantor agrees to render to the Agent, at such Grantor's cost and expense after an Event of Default has occurred and is continuing, such clerical and other assistance as may be reasonably requested with regard thereto. Upon reasonable notice to the relevant Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is necessary), the Agent and its representatives shall also have the right to enter into and upon any premises where any of the Inventory is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (n) CONTINUOUS PERFECTION. No Grantor will change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of Section 9-402(7) of the UCC (or any other then applicable provision of the UCC) unless such Grantor shall have given the Agent at least 30 days' prior written notice thereof and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by the Agent to amend such financing statement or continuation statement so that it is not seriously misleading. No Grantor will change its principal place of business or remove its records or change the location of its Inventory, each as set forth on Schedule II hereto, unless it gives the Agent at least 30 days' prior written notice thereof and has taken such action as is necessary to cause the security interest of the Agent in the Collateral to continue to be perfected. 6. THE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Each Grantor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor 18 19 and in the name of such Grantor or in its own name, from time to time in the Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Agent may deem necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor to do the following: (i) to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under any Collateral and, in the name of such Grantor or in its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable; (ii) to pay or discharge taxes, Liens, security interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; and (iii) (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to the Agent or as the Agent shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral; 19 20 (C) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other Documents constituting or relating to the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; (G) to license or, to the extent permitted by an applicable license, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any patent or trademark, throughout the world for such term or terms, on such conditions, and in such manner, as the Agent shall in its sole discretion determine; and (H) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and such Grantor's expense, at any time, or from time to time, all acts and things which the Agent reasonably deems necessary to protect, preserve or realize upon the Collateral and the Agent's and the Lenders' Lien therein, in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. (b) The Agent agrees that, except upon the occurrence and during the continuance of an Event of Default, it will forbear from exercising the power of attorney or any rights granted to the Agent pursuant to this Section 6. Each Grantor hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 6, being coupled with an interest, shall be 20 21 irrevocable until the Obligations are indefeasibly paid in full. (c) The powers conferred on the Agent hereunder are solely to protect the Agent's and the Lenders' interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act, except for its own gross negligence or willful misconduct. (d) Each Grantor also authorizes the Agent, at any time and from time to time upon the occurrence and during the continuance of an Event of Default, (i) to communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts hereunder and other matters relating thereto and (ii) to execute, in connection with the sale provided for in Section 8 hereof, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. 7. PERFORMANCE BY THE AGENT OF EACH GRANTOR'S OBLIGATIONS. If any Grantor fails to perform or comply with any of its agreements contained herein and the Agent, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses of the Agent incurred in connection with such performance or compliance, together with interest thereon at the highest rate then in effect in respect of the Loans, shall be payable by such Grantor to the Agent on demand and shall constitute Obligations secured hereby. 8. REMEDIES, RIGHTS UPON AN EVENT OF DEFAULT. (a) If an Event of Default shall occur and be continuing, the Agent shall, at the request of the Majority Lenders, or may with the consent of the Majority Lenders, exercise in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights 21 22 and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, each Grantor expressly agrees that in any such event the Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon such Grantor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or any of the Agent's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption such Grantor hereby releases to the fullest extent permitted by law. Each Grantor further agrees, at the Agent's request to assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Agent shall apply the net proceeds of any such collection, recovery receipt, appropriation, realization or sale, as provided in Section 8(d) hereof, each Grantor remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by the Agent of any other amount required by any provision of law, including Section 9-504(1)(c) of the UCC, need the Agent account for the surplus, if any, to such Grantor. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against the Secured Parties arising out of the repossession, retention or sale of the Collateral. Each Grantor agrees that the Agent need not give more that ten days' notice of the time and place of any public sale or of the time after which a private sale may take place and 22 23 that such notice is reasonable notification of such matters. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the Secured Parties are entitled, such Grantor also being liable for the fees and expenses of any attorneys employed by the Agent and the Lenders to collect such deficiency. (b) Each Grantor also agrees to pay all costs of the Agent and the Lenders, including, without limitation, attorneys' fees, incurred in connection with the enforcement of any of its rights and remedies hereunder. (c) Each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral. (d) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Agent in the following order of priorities: First, to the payment of the costs and expenses of such sale, including, without limitation, all expenses of the Agent and its agents including the fees and expenses of its counsel, and all expenses, liabilities and advances made or incurred by the Agent and the Lenders in connection therewith or pursuant to Section 7 hereof; Next, to the Lenders and the Agent, pro rata, for the payment in full of the Obligations; and Finally, after payment in full of all the Obligations, to the payment to the Grantor of such Collateral, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same as a court of competent jurisdiction may direct. 9. LIMITATION ON THE SECURED PARTIES' DUTY IN RESPECT OF COLLATERAL. No Secured Party shall have any duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against 23 24 prior parties or any other rights pertaining thereto, except that each Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. Upon request of the relevant Grantor, the Agent shall account for any moneys received by it in respect of any foreclosure on or disposition of the Collateral. 10. NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy, or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to any Grantor, addressed to it at the address indicated on the signature pages hereto, and if to any Secured Party, addressed to it at the address of such Secured Party specified in the Credit Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation or receipt, delivered to the cable company, or delivered by hand to the addressee or its agent, respectively. 11. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders (except where under Section 10.1 of the Credit Agreement, the approval of each Lender is required) and signed by the Agent, and then any such waiver or consent shall only be effective in the specific instance and for the specific purpose for which given. 12. NO WAIVER; REMEDIES. (a) No failure on the part of any Secured Party to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative, may be exercised singly or concurrently, and are not exclusive of any remedies provided by law or any of the other Loan Documents. 24 25 (b) Failure by any of the Secured Parties at any time or times hereafter to require strict performance by any Grantor or any other Person of any of the provisions, warranties, terms or conditions contained in any of the Loan Documents now or at any time or times hereafter executed by such Grantor or any such other Person and delivered to any of the Secured Parties shall not waive, affect or diminish any right of any of the Secured Parties at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of any of the Secured Parties, or any agent, officer or employee of any Secured Party. 13. SUCCESSORS AND ASSIGNS. This Agreement and all obligations of each Grantor hereunder shall be binding upon the successors and assigns of such Grantor, and shall, together with the rights and remedies of the Agent here under, inure to the benefit of the Agent, the Lenders, and their respective successors and assigns. 14. GOVERNING LAW. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. 15. WAIVER OF JURY TRIAL. Each Grantor waives any right it may have to trial by jury in any action or proceeding to enforce or defend any rights or remedies hereunder, under the Credit Agreement or under any of the other Loan Documents or any other document relating to any of the foregoing. 16. FURTHER INDEMNIFICATION. Each Grantor agrees to pay, and to save the Agent and each Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 25 26 17. SECTION TITLES. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. 26 27 IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and delivered by its duly authorized officer on the date first above written. Address: THE ELDER-BEERMAN STORES CORP. By:_________________________ Title: Address: THE BEE-GEE SHOE CORP. By: ________________________ Title: Address: THE EL-BEE CHARGIT CORP. By:_________________________ Title: Accepted and acknowledged by: CITICORP USA, INC., as Agent By: ---------------------- Title: 27 28 SCHEDULE I TO SECURITY AGREEMENT -------------------------------- FILINGS JURISDICTION FILING OFFICE ------------ ------------- 29 SCHEDULE II SCHEDULE II TO SECURITY AGREEMENT LOCATION OF RECORDS AND CERTAIN COLLATERAL ------------------------------------------ Principal Place of Business and Location of Records - -------------------- Location of Inventory and Equipment - -------------- EX-10.B.V 16 EXHIBIT 10(B)(V) 1 Exhibit 10(b)(v) EXECUTION COPY SUBSIDIARY GUARANTY GUARANTY, dated December 30, 1997, made by THE EL-BEE CHARGIT CORP., an Ohio corporation (the "Guarantor"), in favor of the Guarantied Parties referred to below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "Borrower"), has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto and Citibank, N.A., as agent for said financial institutions (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement", and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Borrower owns beneficially and of record 100% of the capital stock of the Guarantor, and the Borrower and the Guarantor are members of the same consolidated group of companies and are engaged in related businesses, and the Guarantor will derive direct and indirect economic benefit from the Loans and Letters of Credit; and WHEREAS, it is a condition precedent under the Credit Agreement to the making of Loans and the issuance of Letters of Credit that the Guarantor shall have executed and delivered this Guaranty; and WHEREAS, the Lenders, the Issuers, the Agent and Citibank, as obligee of the Borrower on Interest Rate Contracts, are herein referred to collectively as the "Guarantied Parties"; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make Loans and the Issuer to issue Letters of Credit, the Guarantor hereby agrees as follows: SECTION 1. GUARANTY. The Guarantor hereby unconditionally and irrevocably guarantees the full and prompt payment when due, whether at stated maturity, by acceleration or otherwise, of, and the performance of, the Obligations, whether now or hereafter existing and whether 2 for principal, interest, fees, expenses or otherwise, and any and all expenses (including, without limitation, counsel fees and expenses) incurred by any of the Guarantied Parties in enforcing any rights under this Guaranty. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection. SECTION 2. GUARANTY ABSOLUTE. The Guarantor guaranties that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes and the other Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Guarantied Parties with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any provision of any other Loan Document or any other agreement or instrument relating to any Loan Document, or avoidance or subordination of any of the Obligations; (ii) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, the Credit Agreement, the Notes or any of the other Loan Documents; (iii) any exchange, release or non-perfection of any Lien on any collateral for, or any release or amendment or waiver of any term of any other guaranty of, or any consent to departure from any requirement of any other guaranty of, all or any of the Obligations; (iv) the absence of any attempt to collect any of the Obligations from the Borrower or for any other guarantor or any other action to enforce the same or the election of any remedy by any of the Guarantied Parties; (v) any waiver, consent, extension, forbearance or granting of any indulgence by any of the Guarantied Parties with respect to any provision of any other Loan Document; (vi) the election by any of the Guarantied Parties in any proceeding under chapter 11 of the Bankruptcy Code of 2 3 the application of section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under section 364 of the Bankruptcy Code; (viii) the disallowance, under section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Guarantied Parties for payment of any of the Obligations; or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a borrower or a guarantor. SECTION 3. WAIVER. (a) The Guarantor hereby (i) waives (A) promptness, diligence, notice of acceptance and any and all other notices with respect to any of the Obligations or this Guaranty, (B) any requirement that any of the Guarantied Parties protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any Collateral, (C) the filing of any claim with a court in the event of receivership or bankruptcy of the Borrower, (D) protest or notice with respect to nonpayment of all or any of the Obligations, (E) the benefit of any statute of limitation, (F) all demands whatsoever (and any requirement that the same be made on the Borrower as a condition precedent to the Guarantor's obligations hereunder); and (ii) covenants and agrees that this Guaranty will not be discharged except by complete performance of the Obligations and any other obligations of the Guarantor contained herein. (b) If, in the exercise of any of its rights and remedies, any of the Guarantied Parties shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against the Borrower or any other Person, whether because of any applicable law pertaining to "election of remedies" or the like, the Guarantor hereby consents to such action by such Guarantied Party and waives any claim based upon such action. Any election of remedies which results in the denial or impairment of the right of such Guarantied Party to seek a deficiency judgment against the Borrower shall not impair the obligation of the Guarantor to pay the full amount of 3 4 the Obligations or any other obligation of the Guarantor contained herein. (c) The Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the foregoing if, after the occurrence and during the continuance of an Event of Default, the Guarantied Parties are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Obligations, to collect interest on the Obligations, or to enforce or exercise any other right or remedy with respect to the Obligations, or the Agent is prevented from taking any action to realize on the Collateral, the Guarantor agrees to pay to the Agent for the account of the Guarantied Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Guarantied Parties. (d) The Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and of each other guarantor of all or any part of the Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof, that diligent inquiry would reveal. The Guarantor hereby agrees that the Guarantied Parties shall have no duty to advise the Guarantor of information known to any of the Guarantied Parties regarding such condition or any such circumstance. In the event that any Guaranty Party in its sole discretion undertakes at any time or from time to time to provide any such information to the Guarantor, such Guarantied Party shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, such Guarantied Party wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantor. (e) The Guarantor consents and agrees that the Guarantied Parties shall be under no obligation to marshall any assets in favor of the Guarantor or otherwise in connection with obtaining payment of any or all of the Obligations from any Person or source. 4 5 SECTION 4. DELAY OF SUBROGATION, ETC. The Guarantor agrees that it will not exercise any rights which it may acquire by way of subrogation, contribution or reimbursement by reason of this Guaranty or by any payment made hereunder until the Obligations have been paid in full. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and warrants to the Guarantied Parties as follows: (a) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction, except for failures which in the aggregate would have no Material Adverse Effect; (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (iv) is in compliance with its certificate of incorporation and by-laws; (v) is in compliance with all other applicable Requirements of Law except for such noncompliances as in the aggregate would have no Material Adverse Effect; and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate would have no Material Adverse Effect. (b) The execution, delivery and performance by the Guarantor of this Guaranty and the other Loan Documents to which it is a party: (i) are within its corporate powers; (ii) have been duly authorized by all necessary corporate action, including, without limitation, the consent of stockholders where required; and (iii) do not and will not (A) contravene its certificate of incorporation or by-laws or other comparable governing documents, (B) violate any other 5 6 applicable Requirement of Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any of its Contractual Obligations, (D) result in the creation or imposition of any Lien upon any of its property other than those in favor of the Agent on behalf of and for the ratable benefit of the Secured Parties, or (E) require the consent, authorization by, or approval of, or notice to, or filing or registration with, any Governmental Authority or any other Person, other than those which have been obtained and copies of which have been delivered to the Agent pursuant to Section 3.1 of the Credit Agreement, each of which is in full force and effect. (c) This Guaranty has been duly executed and delivered by the Guarantor and is the legal, valid and binding obligation of the Guarantor enforceable against it in accordance with its terms. (d) There are no pending or, to the knowledge of the Guarantor, threatened actions, investigations or proceedings affecting the Guarantor or any of its subsidiaries before any Governmental Authority or arbitrator other than those that in the aggregate could not reasonably be expected to have a Material Adverse Effect. The performance by the Guarantor under this Guaranty and under each of the other Loan Documents to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no conditions have been imposed by any Governmental Authority or arbitrator that in the aggregate could reasonably be expected to have a Material Adverse Effect. SECTION 6. AMENDMENTS, ETC. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all the Guarantied 6 7 Parties, limit the liability of the Guarantor (other than as expressly provided herein) or postpone any date fixed for payment hereunder. SECTION 7. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Guarantor, addressed to it at the address of such Guarantor specified on the signature pages hereof, if to any Guarantied Party, addressed to it at the address of such Guarantied Party specified in the Credit Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. SECTION 8. NO WAIVER; REMEDIES. (a) No failure on the part of any Guarantied Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or any of the other Loan Documents. (b) Failure by any of the Guarantied Parties at any time or times hereafter to require strict performance by the Borrower, the Guarantor or any other Person of any of the provisions, warranties, terms or conditions contained in any of the Loan Documents now or at any time or times hereafter executed by the Borrower, the Guarantor or such other Person and delivered to any of the Guarantied Parties shall not waive, affect or diminish any right of any of the Guarantied Parties at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of any of the Guarantied Parties or any agent, officer, employee of any of the Guarantied Parties. 7 8 (c) No waiver by the Guarantied Parties of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by any of the Guarantied Parties permitted hereunder shall in any way affect or impair any of the rights of the Guarantied Parties or the obligations of the Guarantor under this Guaranty or under any of the other Loan Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Obligations shall be conclusive and binding on the Guarantor irrespective of whether the Guarantor was a party to the suit or action in which such determination was made. SECTION 9. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each of the Guarantied Parties is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Guarantied Party to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Guarantied Party shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. Each of the Guarantied Parties agrees promptly to notify the Guarantor after any such set-off and application made by such Guarantied Party; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Guarantied Party under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Guarantied Party may have. SECTION 10. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until indefeasible payment in full of the Obligations and all other amounts payable under this Guaranty, (ii) be binding upon the Guarantor, its successors and assigns, and (iii) inure to the benefit of and be enforceable by the Guarantied Parties and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause (iii), any of the Guarantied Parties may assign or otherwise transfer any Note held by it or Obligation owing to it to any other 8 9 Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Guarantied Party herein or otherwise with respect to such of the Notes and Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Credit Agreement in respect of assignments. SECTION 11. LIMITATION OF GUARANTY. Any term or provision of this Guaranty or any other Loan Document to the contrary notwithstanding, the maximum aggregate amount of the Obligations for which the Guarantor shall be liable shall not exceed the maximum amount for which such Guaranty can be liable without rendering this Guaranty or any other Loan Document, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer. SECTION 12. CONTRIBUTION. To the extent that any Guarantor shall be required hereunder to pay a portion of the Obligations which shall exceed the greater of (i) the amount of the economic benefit actually received by such Guarantor from the Obligations and (ii) the amount which such Guarantor would otherwise have paid if such Guarantor had paid the aggregate amount of the Obligations (excluding the amount thereof repaid by the Borrower and the other Guarantor) in the same proportion as such Guarantor's net worth at the date enforcement hereunder is sought bears to the aggregate net worth of all the Guarantors at the date enforcement hereunder is sought, then such Guarantor shall be reimbursed by the other Guarantors for the amount of such excess, pro rata based on the respective net worths of the other Guarantors at the date enforcement hereunder is sought. SECTION 13. REINSTATEMENT. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Loan Party for liquidation or reorganization, should any Loan Party become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Loan Party's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned 9 10 by any obligee of the Obligations or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 14. GOVERNING LAW. This Guaranty shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Guaranty. SECTION 15. SUBMISSION TO JURISDICTION; JURY TRIAL. (a) Any legal action or proceeding with respect to this Guaranty or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, the Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Guarantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (b) The Guarantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor at its address provided herein, such service to become effective 30 days after such mailing. (c) Nothing contained in this Section 15 shall affect the right of any Guarantied Party to serve process in any other manner permitted by law or commence legal 10 11 proceedings or otherwise proceed against the Guarantor or any of the Guarantor's property in any other jurisdiction. (d) The guarantor waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Guaranty or any other loan document, or any course of conduct, course of dealing, verbal or written statement or other action of any loan party or any guarantied party. SECTION 16. SECTION TITLES. The Section titles contained in this Guaranty are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Guaranty. SECTION 17. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Guaranty. SECTION 18. MISCELLANEOUS. All references herein to the Borrower or to the Guarantor shall include their respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession of or for the Borrower or the Guarantor. All references to the singular shall be deemed to include the plural where the context so requires. 11 12 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized officer on the date first above written. THE EL-BEE CHARGIT CORP. By:_________________________ Title: President ADDRESS FOR NOTICES: 3155 El-Bee Road Dayton, OH 45439 Attention: Perry J. Schiller 12 EX-10.B.VI 17 EXHIBIT 10(B)(VI) 1 Exhibit 10(b)(vi) EXECUTION COPY SUBSIDIARY GUARANTY GUARANTY, dated December 30, 1997, made by THE BEE-GEE SHOE CORP., an Ohio corporation (the "Guarantor"), in favor of the Guarantied Parties referred to below. W I T N E S S E T H: WHEREAS, THE ELDER-BEERMAN STORES CORP, an Ohio corporation (the "Borrower"), has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto and Citibank, N.A., as agent for said financial institutions (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement", and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Borrower owns beneficially and of record 100% of the capital stock of the Guarantor, and the Borrower and the Guarantor are members of the same consolidated group of companies and are engaged in related businesses, and the Guarantor will derive direct and indirect economic benefit from the Loans and Letters of Credit; and WHEREAS, it is a condition precedent under the Credit Agreement to the making of Loans and the issuance of Letters of Credit that the Guarantor shall have executed and delivered this Guaranty; and WHEREAS, the Lenders, the Issuers, the Agent and Citibank, as obligee of the Borrower on Interest Rate Contracts, are herein referred to collectively as the "Guarantied Parties"; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make Loans and the Issuers to issue Letters of Credit, the Guarantor hereby agrees as follows: SECTION 1. GUARANTY. The Guarantor hereby unconditionally and irrevocably guarantees the full and prompt payment when due, whether at stated maturity, by acceleration or otherwise, of, and the performance of, the Obligations, whether now or hereafter existing and whether 2 for principal, interest, fees, expenses or otherwise, and any and all expenses (including, without limitation, counsel fees and expenses) incurred by any of the Guarantied Parties in enforcing any rights under this Guaranty. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection. SECTION 2. GUARANTY ABSOLUTE. The Guarantor guaranties that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes and the other Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Guarantied Parties with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any provision of any other Loan Document or any other agreement or instrument relating to any Loan Document, or avoidance or subordination of any of the Obligations; (ii) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, the Credit Agreement, the Notes or any of the other Loan Documents; (iii) any exchange, release or non-perfection of any Lien on any collateral for, or any release or amendment or waiver of any term of any other guaranty of, or any consent to departure from any requirement of any other guaranty of, all or any of the Obligations; (iv) the absence of any attempt to collect any of the Obligations from the Borrower or for any other guarantor or any other action to enforce the same or the election of any remedy by any of the Guarantied Parties; (v) any waiver, consent, extension, forbearance or granting of any indulgence by any of the Guarantied Parties with respect to any provision of any other Loan Document; (vi) the election by any of the Guarantied Parties in any proceeding under chapter 11 of the Bankruptcy Code of 2 3 the application of section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under section 364 of the Bankruptcy Code; (viii) the disallowance, under section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Guarantied Parties for payment of any of the Obligations; or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a borrower or a guarantor. SECTION 3. WAIVER. (a) The Guarantor hereby (i) waives (A) promptness, diligence, notice of acceptance and any and all other notices with respect to any of the Obligations or this Guaranty, (B) any requirement that any of the Guarantied Parties protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any Collateral, (C) the filing of any claim with a court in the event of receivership or bankruptcy of the Borrower, (D) protest or notice with respect to nonpayment of all or any of the Obligations, (E) the benefit of any statute of limitation, (F) all demands whatsoever (and any requirement that the same be made on the Borrower as a condition precedent to the Guarantor's obligations hereunder); and (ii) covenants and agrees that this Guaranty will not be discharged except by complete performance of the Obligations and any other obligations of the Guarantor contained herein. (b) If, in the exercise of any of its rights and remedies, any of the Guarantied Parties shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against the Borrower or any other Person, whether because of any applicable law pertaining to "election of remedies" or the like, the Guarantor hereby consents to such action by such Guarantied Party and waives any claim based upon such action. Any election of remedies which results in the denial or impairment of the right of such Guarantied Party to seek a deficiency judgment against the Borrower shall not impair the obligation of the Guarantor to pay the full amount of 3 4 the Obligations or any other obligation of the Guarantor contained herein. (c) The Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the foregoing if, after the occurrence and during the continuance of an Event of Default, the Guarantied Parties are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Obligations, to collect interest on the Obligations, or to enforce or exercise any other right or remedy with respect to the Obligations, or the Agent is prevented from taking any action to realize on the Collateral, the Guarantor agrees to pay to the Agent for the account of the Guarantied Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Guarantied Parties. (d) The Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and of each other guarantor of all or any part of the Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof, that diligent inquiry would reveal. The Guarantor hereby agrees that the Guarantied Parties shall have no duty to advise the Guarantor of information known to any of the Guarantied Parties regarding such condition or any such circumstance. In the event that any Guarantied Party in its sole discretion undertakes at any time or from time to time to provide any such information to the Guarantor, such Guarantied Party shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, such Guarantied Party wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantor. (e) The Guarantor consents and agrees that the Guarantied Parties shall be under no obligation to marshall any assets in favor of the Guarantor or otherwise in connection with obtaining payment of any or all of the Obligations from any Person or source. 4 5 SECTION 4. DELAY OF SUBROGATION, ETC. The Guarantor agrees that it will not exercise any rights which it may acquire by way of subrogation, contribution or reimbursement by reason of this Guaranty or by any payment made hereunder until the Obligations have been paid in full. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and warrants to the Guarantied Parties as follows: (a) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction, except for failures which in the aggregate would have no Material Adverse Effect; (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (iv) is in compliance with its certificate of incorporation and by-laws; (v) is in compliance with all other applicable Requirements of Law except for such noncompliances as in the aggregate would have no Material Adverse Effect; and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate would have no Material Adverse Effect. (b) The execution, delivery and performance by the Guarantor of this Guaranty and the other Loan Documents to which it is a party: (i) are within its corporate powers; (ii) have been duly authorized by all necessary corporate action, including, without limitation, the consent of stockholders where required; and (iii) do not and will not (A) contravene its certificate of incorporation or by-laws or other comparable governing documents, (B) violate any other 5 6 applicable Requirement of Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any of its Contractual Obligations, (D) result in the creation or imposition of any Lien upon any of its property other than those in favor of the Agent on behalf of and for the ratable benefit of the Secured Parties, or (E) require the consent, authorization by, or approval of, or notice to, or filing or registration with, any Governmental Authority or any other Person, other than those which have been obtained and copies of which have been delivered to the Agent pursuant to Section 3.1 of the Credit Agreement, each of which is in full force and effect. (c) This Guaranty has been duly executed and delivered by the Guarantor and is the legal, valid and binding obligation of the Guarantor enforceable against it in accordance with its terms. (d) There are no pending or, to the knowledge of the Guarantor, threatened actions, investigations or proceedings affecting the Guarantor or any of its subsidiaries before any Governmental Authority or arbitrator other than those that in the aggregate could not reasonably be expected to have a Material Adverse Effect. The performance by the Guarantor under this Guaranty and under each of the other Loan Documents to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no conditions have been imposed by any Governmental Authority or arbitrator that in the aggregate could reasonably be expected to have a Material Adverse Effect. SECTION 6. AMENDMENTS, ETC. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all the Guarantied 6 7 Parties, limit the liability of the Guarantor (other than as expressly provided herein) or postpone any date fixed for payment hereunder. SECTION 7. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Guarantor, addressed to it at the address of such Guarantor specified on the signature pages hereof, if to any Guarantied Party, addressed to it at the address of such Guarantied Party specified in the Credit Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. SECTION 8. NO WAIVER; REMEDIES. (a) No failure on the part of any Guarantied Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or any of the other Loan Documents. (b) Failure by any of the Guarantied Parties at any time or times hereafter to require strict performance by the Borrower, the Guarantor or any other Person of any of the provisions, warranties, terms or conditions contained in any of the Loan Documents now or at any time or times hereafter executed by the Borrower, the Guarantor or such other Person and delivered to any of the Guarantied Parties shall not waive, affect or diminish any right of any of the Guarantied Parties at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of any of the Guarantied Parties or any agent, officer, employee of any of the Guarantied Parties. 7 8 (c) No waiver by the Guarantied Parties of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by any of the Guarantied Parties permitted hereunder shall in any way affect or impair any of the rights of the Guarantied Parties or the obligations of the Guarantor under this Guaranty or under any of the other Loan Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Obligations shall be conclusive and binding on the Guarantor irrespective of whether the Guarantor was a party to the suit or action in which such determination was made. SECTION 9. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each of the Guarantied Parties is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Guarantied Party to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Guarantied Party shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. Each of the Guarantied Parties agrees promptly to notify the Guarantor after any such set-off and application made by such Guarantied Party; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Guarantied Party under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Guarantied Party may have. SECTION 10. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until indefeasible payment in full of the Obligations and all other amounts payable under this Guaranty, (ii) be binding upon the Guarantor, its successors and assigns, and (iii) inure to the benefit of and be enforceable by the Guarantied Parties and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause (iii), any of the Guarantied Parties may assign or otherwise transfer any Note held by it or Obligation owing to it to any other 8 9 Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Guarantied Party herein or otherwise with respect to such of the Notes and Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Credit Agreement in respect of assignments; provided, however, that in the event of a sale by the Borrower of all of the stock of the Guarantor approved by the Majority Lenders, the Guarantor's obligations hereunder shall terminate upon the consummation of such sale and the application of the proceeds in accordance with the terms of the Credit Agreement. SECTION 11. LIMITATION OF GUARANTY. Any term or provision of this Guaranty or any other Loan Document to the contrary notwithstanding, the maximum aggregate amount of the Obligations for which the Guarantor shall be liable shall not exceed the maximum amount for which such Guaranty can be liable without rendering this Guaranty or any other Loan Document, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer. SECTION 12. CONTRIBUTION. To the extent that any Guarantor shall be required hereunder to pay a portion of the Obligations which shall exceed the greater of (i) the amount of the economic benefit actually received by such Guarantor from the Obligations and (ii) the amount which such Guarantor would otherwise have paid if such Guarantor had paid the aggregate amount of the Obligations (excluding the amount thereof repaid by the Borrower and the other Guarantor) in the same proportion as such Guarantor's net worth at the date enforcement hereunder is sought bears to the aggregate net worth of all the Guarantors at the date enforcement hereunder is sought, then such Guarantor shall be reimbursed by the other Guarantors for the amount of such excess, pro rata based on the respective net worths of the other Guarantors at the date enforcement hereunder is sought. SECTION 13. REINSTATEMENT. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Loan Party for liquidation or reorganization, should any Loan Party become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Loan Party's assets, and 9 10 shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 14. GOVERNING LAW. This Guaranty shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Guaranty. SECTION 15. SUBMISSION TO JURISDICTION; JURY TRIAL. (a) Any legal action or proceeding with respect to this Guaranty or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, the Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Guarantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (b) The Guarantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor at its address provided herein, such service to become effective 30 days after such mailing. 10 11 (c) Nothing contained in this Section 15 shall affect the right of any Guarantied Party to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Guarantor or any of the Guarantor's property in any other jurisdiction. (d) The guarantor waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Guaranty or any other loan document, or any course of conduct, course of dealing, verbal or written statement or other action of any loan party or any guarantied party. SECTION 16. SECTION TITLES. The Section titles contained in this Guaranty are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Guaranty. SECTION 17. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Guaranty. SECTION 18. MISCELLANEOUS. All references herein to the Borrower or to the Guarantor shall include their respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession of or for the Borrower or the Guarantor. All references to the singular shall be deemed to include the plural where the context so requires. 11 12 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized officer on the date first above written. THE BEE-GEE SHOE CORP. By:________________________________ Title: Address for Notices: The Bee-Gee Shoe Corp. 3155 El-Bee Road Dayton, Ohio 45439 Attention: Steven D. Lipton 12 EX-10.B.VII 18 EXHIBIT 10(B)(VII) 1 Exhibit 10(b)(vii) EXHIBIT A FORM OF REVOLVING CREDIT NOTE U.S. $ * Dated: December 30, 1997 -------------- FOR VALUE RECEIVED, the undersigned, THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of [NAME OF LENDER] (the "Lender") the principal sum of United States Dollars ($ ),* or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans (as defined in the Credit Agreement referred to below) of the Lender to the Borrower, payable at such times, and in such amounts, as are specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of the Revolving Credit Loans from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to CITICORP USA, INC., as Agent, at 399 Park Avenue, New York, New York 10022, in immediately available funds. The Revolving Credit Loans made by the Lender to the Borrower, and all payments made on account of the principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on this Note. This Note is one of the Revolving Credit Notes referred to in, and is entitled to the benefits of, the Credit Agreement, dated as of December 30, 1997 (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement"), among the Borrower, the Lender, the financial institutions party thereto, Citibank, N.A., as issuer, and CITICORP USA, INC., as agent for the Lender, the Issuer and the Swing Loan Bank, and the other Loan Documents referred to therein and entered into pursuant thereto. The Credit Agreement, among other things, (i) provides for the making of Revolving Credit Loans by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the United States dollar amount first above mentioned, the indebtedness of the Borrower resulting from such Revolving Credit Loans being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity of the unpaid principal amount - ----------------------------------- * Amount of Lender's commitment. 2 of this Note upon the happening of certain stated events and also for prepayments on account of the principal hereof prior to the maturity hereof upon the terms and conditions therein specified. This Note is entitled to the benefits of certain guaranties and is secured as provided in the Loan Documents (as defined in the Credit Agreement). Demand, presentment, protest and notice of nonpayment and protest are hereby waived by the Borrower. This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. THE ELDER-BEERMAN STORES CORP. By: -------------------------------- Title: 3 LOANS AND PAYMENTS OF PRINCIPAL Amount of Amount Principal Paid Notation Date of Loan or Prepaid Made by - ---- ------- ---------- ------- EX-10.B.VIII 19 EXHIBIT 10(B)(VIII) 1 Exhibit 10(b)(viii) December 30, 1997 Citizens Federal Bank, F.S.B. One Citizens Federal Centre Dayton, Ohio 45402 Attention: Seb Melluzzo Ladies and Gentlemen: Reference is made to account no. 70-10033699 into which certain monies, instruments and other properties are deposited from time to time (the "STORE ACCOUNT") maintained with Citizens Federal Bank, F.S.B. ("YOU" or the "BANK") by The Elder-Beerman Stores Corp. (the "COMPANY"). The Company has entered into a Credit Agreement, dated as of December 30, 1997, with the financial institutions party thereto (the "Lenders"), Citibank, N.A. as issuer (the "Issuer") and Citicorp USA, Inc. as agent (the "Agent") for the Lenders (said agreement, as it may hereafter be further amended or otherwise modified from time to time, being the "Credit Agreement"). In addition, the Company and certain of its affiliates have entered into a transaction pursuant to which certain monies in the Store Account and other Trust Account Collateral (as defined below) are to be transferred to Bankers Trust Company, as trustee (the "TRUSTEE") for the Elder-Beerman Master Trust, established pursuant to a Pooling and Servicing Agreement (the "P&S AGREEMENT"), dated as of December 30, 1997, among The El-Bee Receivables Corporation, as transferor (the "TRANSFEROR"), The El-Bee Chargit Corp., as servicer (the "SERVICER"), and the Trustee. Capitalized terms used herein, without definition, are being used as defined in the Credit Agreement. Pursuant to the Credit Agreement and related documents, the Company has granted to the Agent, for the ratable benefit of the Secured Parties, a security interest in certain property of the Company, including, among other things, the following (collectively, the "AGENT COLLATERAL"): certain funds held in the Store Account and all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Agent Collateral and all proceeds of any and all of the foregoing Agent Collateral and, to the extent not otherwise included, all payments under insurance (whether or not the 2 Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Agent Collateral. In addition, pursuant to the P&S Agreement and related documents, the Company and certain of its affiliates have granted to the Trustee (as defined in the P&S Agreement), for the benefit of the Beneficiaries (as defined in the P&S Agreement), a security interest in certain property of the Company, including, among other things, the following (the "TRUST COLLATERAL"; and together with the Agent Collateral the "ACCOUNT COLLATERAL"): the Store Account, certain funds held in the Store Account and all certificates and instruments, if any, from time to time representing or evidencing such Store Account, all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Trust Collateral and all proceeds of any and all of the foregoing Trust Collateral and, to the extent not otherwise included, (i) all payments under insurance (whether or not the Trustee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Trust Collateral and (ii) cash. You hereby agree that the Agent and the Trustee, in their respective representative capacities, possess all right, title and interest in and to the Store Account, that the Agent possesses all right, title and interest with respect to all Agent Collateral now or hereinafter on deposit in the Store Account, that the Trust possesses all right, title and interest in and to the Trust Collateral now or hereinafter on deposit in the Store Account and that all funds in the Store Account shall be transferred to the Agent or the Trustee in accordance with the instructions set forth herein. The Agent and the Trustee have agreed to an Intercreditor Agreement to which the Company is a party as to how their relative rights with respect to the Store Account shall be administered. This Store Account Letter reflects that agreement. You also agree that the Agent shall have full and irrevocable right, power and authority to demand, collect, 2 3 withdraw, receive or sue for all amounts now or hereafter on deposit in the Store Account and at its discretion to take any other action which it deems necessary or appropriate to protect its interest in the Store Account. Except as provided in paragraph (i) below, the Store Account shall not be subject to deductions, set-off, banker's liens or any other right in favor of any person or entity other than the Agent, the Lenders, the Trust or the Beneficiaries referred to in the P&S Agreement. By signing this Store Account Letter you acknowledge that, as of the date hereof, you have received no notice of any other pledge or assignment of the Store Account. Further, you hereby agree with the Agent and the Trustee as follows: (a) Notwithstanding anything to the contrary in the Store Account or any other agreement relating to the Store Account, the Store Account is and will be maintained for the benefit of the Agent and the Trustee, will be entitled "Citibank, N.A. Re: THE ELDER-BEERMAN STORES CORP." and, except as otherwise provided herein, will be subject to written instructions only from an authorized officer of the Agent. The Store Account and all of the Account Collateral shall be in the sole dominion and control of the Agent, and the Company shall have no control thereover. (b) You will follow your usual operating procedures for the handling of any remittance received in the Store Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees, etc. (c) You will endorse and process all eligible checks and other remittance items not covered by paragraph (b) and deposit such checks and remittance items in the Store Account. (d) You will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Company (with a copy of the notification of return to the Agent). The Company 3 4 shall indemnify you for the uncollected amounts of any such items upon your demand. (e) You will maintain a record of all checks and other remittance items received in the Store Account and, in addition to providing the Company with photostats, vouchers, enclosures, etc. of such checks and remittance items on a daily basis, furnish to the Agent a monthly statement of the Store Account to: Citibank, N.A., as Agent, 399 Park Avenue, 6th Floor-zone 4, New York, New York 10022, Attention: Claudia Slacik, with a copy to the Company. (f) You will transfer to the Trustee, in same day funds, on each Business Day, the amount you are instructed to transfer by the Servicer in respect of the Trust Collateral, within one Business Day of deposit thereof in the Store Account to the following account (the "TRUST CONCENTRATION ACCOUNT"): ABA Number: 021001033 Bankers Trust Company Four Albany Street New York, NY 10006 Account Name: BTCO f/a/o Elder-Beerman Concentration Account Account Number: 01419647 Reference: Elder-Beerman Concentration Account Attn: Structured Finance Team or to such other account as the Trustee may from time to time designate in writing. (g) After making the transfer in paragraph (f) above, if any, you will transfer to the Agent, in same day funds, on each Business Day, the entire remaining balance in the Store Account to the following account (the "AGENT CASH COLLATERAL ACCOUNT"): ABA Number: _____________________ Citicorp USA, Inc. 399 Park Avenue 6th Floor - zone 4 New York, New York 10022 4 5 Account Name: _____________________ Concentration Account Account Number: ___________________ Reference: ________________________ Attn: _____________________________ or to such other account as the Agent may from time to time designate in writing. If the Servicer fails to instruct you on the appropriate transfer of funds under this paragraph (g) or paragraph (f) above, you will transfer all of the funds in the Store Account to the Agent Cash Collateral Account, unless otherwise directed by the Agent. (h) Subject to paragraph (i) below, all transfers referred to in paragraphs (f) and (g) above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Agent or the Trustee for any reason any such payment once made. (i) All customary service charges and fees with respect to the Store Account shall be debited to the Store Account. In the event insufficient funds remain in such Store Account to cover such customary service charges and fees, the Company shall pay and indemnify you for the amounts of such customary service charges and fees. (j) The Agent shall be entitled to exercise any and all rights of the Company in respect of the Store Account in accordance with the terms of the Transaction Documents, and the undersigned shall comply in all respects with such exercise. The Store Account Letter shall be binding upon and shall inure to the benefit of you, the Company, the Agent, the Lenders, the Program Agent, the Trustee and the Beneficiaries and their respective successors, transferees and assigns. You may terminate the Store Account Letter only upon thirty days' prior written notice to the Company, the Agent and the Trustee. The Agent may terminate this Store Account Letter upon ten days' prior written notice to you, the Company and the Trust. Upon such termination you shall close the Store Account and transfer all funds in the 5 6 Store Account to the Agent Concentration Account. After any such termination, you shall nonetheless remain obligated promptly to transfer to the Agent Concentration Account or to the Agent all funds and other property received in respect of the Store Account. This Store Account Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Store Account Letter by telecopier shall be effective as delivery of a manually executed counterpart of this Store Account Letter. This Store Account Letter supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed by the Agent, the Trustee, the Company and you. Upon acceptance of this Store Account Letter it will be the valid and binding obligation of the Company, the Agent, the Trustee and you, in accordance with its terms. 6 7 THIS STORE ACCOUNT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. Very truly yours, THE ELDER-BEERMAN STORES CORP. By: _____________________________ Name: Title: CITICORP USA, INC, as Agent By: _____________________________ Name: Title: BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By: _____________________________ Name: Title: Acknowledged and agreed to as of the date first above written: CITIZENS FEDERAL BANK, F.S.B. By: _____________________________ Name: Title: 7 -----END PRIVACY-ENHANCED MESSAGE-----