-----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, BjDTvAWTUtZs+dGkemJCsRtvpudD46LmtN2UjU3MrFncoApHSeDOYey+EQ9DjrhU qthiFeXQcR/2qhv3XbvKBg== 0000906555-97-000014.txt : 19970501 0000906555-97-000014.hdr.sgml : 19970501 ACCESSION NUMBER: 0000906555-97-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970429 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFFITTS INC CENTRAL INDEX KEY: 0000812900 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 620331040 STATE OF INCORPORATION: TN FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15907 FILM NUMBER: 97590435 BUSINESS ADDRESS: STREET 1: 3455 HIGHWAY 80 W CITY: JACKSON STATE: MS ZIP: 39209 BUSINESS PHONE: 6159837000 MAIL ADDRESS: STREET 1: P.O. BOX 9388 CITY: ALCOA STATE: TN ZIP: 37701 10-K 1 Commission File Number 0-15907 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Fiscal Year Ended: February 1, 1997 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File Number: 0-15907 Exact name of registrant as specified in its charter: PROFFITT'S, INC. State of Incorporation: Tennessee I.R.S. Employer Identification Number: 62-0331040 Address of principal executive offices (including zip code): P.O. Box 20080, Jackson, Mississippi 39289 Registrant's telephone number, including area code: (601) 968-4400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.10 and Preferred Stock Purchase Rights Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 21, 1997 was approximately $958,639,644. As of March 21, 1997, the number of shares of the Registrant's Common Stock outstanding was 28,128,846. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Proffitt's, Inc. Annual Report to Shareholders for the Fiscal Year Ended February 1, 1997 are incorporated by reference into Part II. (2) Portions of the Proffitt's, Inc. Proxy Statement dated May 1, 1997 for the Annual Shareholders' Meeting to be held on June 19, 1997 are incorporated by reference into Part III. The Exhibit Index is on page __________ of this document. TABLE OF CONTENTS Item Page ----- ----- Part I 1 Business. 3 2 Properties. 9 3 Legal Proceedings. 18 4 Submission of Matters to a Vote of Security Holders. 18 Executive Officers of the Registrant. 18 Part II 5 Market for Registrant's Common Equity and Related Stockholder Matters. 24 6 Selected Financial Data. 24 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. 24 8 Financial Statements and Supplementary Data. 24 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 24 Part III 10 Directors and Executive Officers of the Registrant. 25 11 Executive Compensation. 25 12 Security Ownership of Certain Beneficial Owners and Management. 25 13 Certain Relationships and Related Transactions. 25 Part IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 26 Signatures 28 PART I Item 1. Business. General. Founded in 1919, Proffitt's, Inc. ("Proffitt's" or the "Company") is a leading regional department store company primarily offering moderate to better brand name fashion apparel, shoes, accessories, cosmetics, and decorative home furnishings. Proffitt's stores are principally anchor stores in leading regional or community malls. Proffitt's operates five store divisions. The Proffitt's Division, headquartered in Knoxville, Tennessee, operates 19 stores in Tennessee (12), Georgia (2), Kentucky (2), North Carolina (1), Virginia (1), and West Virginia (1). The McRae's Division, headquartered in Jackson, Mississippi, operates 29 stores in Alabama (14), Mississippi (12), Florida (2), and Louisiana (1). The Younkers Division, headquartered in Des Moines, Iowa, operates 48 stores in Iowa (18), Wisconsin (17), Michigan (5), Nebraska (5), Illinois (1), Minnesota (1), and South Dakota (1). The Parisian Division, headquartered in Birmingham, Alabama, operates 40 stores in Alabama (15), Georgia (7), Florida (4), Ohio (4), South Carolina (3), Tennessee (3), Indiana (2), Michigan (1), and Mississippi (1). The Herberger's Division, headquartered in St. Cloud, Minnesota, operates 39 stores in Minnesota (14), Montana (5), Nebraska (5), Wisconsin (4), North Dakota (3), South Dakota (3), Iowa (2), Colorado (1), Illinois (1), and Wyoming (1). Proffitt's has experienced significant growth since 1992. During 1992 and 1993, Proffitt's purchased certain real and personal property and assumed certain operating leases of eighteen store locations from Hess Department Stores, Inc. and Crown American Corporation. The acquired locations were in Tennessee, Virginia, Georgia, and Kentucky. These stores were renovated and placed in service as Proffitt's Division stores in 1992 and 1993. Seven of these stores, located in Virginia, were subsequently sold to Dillard Department Stores, Inc. in April 1997. In March 1994, Proffitt's acquired all of the outstanding Common Stock of Macco Investments, Inc., a holding company for McRae's, Inc., a privately-owed retail department store chain with 28 stores headquartered in Jackson, Mississippi. The transaction was accounted for as a purchase. In April 1995, Proffitt's completed the purchase of Parks-Belk Company, the owner/operator of four Parks-Belk stores located in northeastern Tennessee. Three stores were renovated and opened as Proffitt's Division stores during 1995; one store was permanently closed. The transaction was accounted for as a purchase. Effective February 3, 1996 (immediately preceding the Company's prior fiscal year end), Proffitt's combined its business with Younkers, Inc., a 51 unit, publicly-owned retail department store chain headquartered in Des Moines, Iowa. This combination was accounted for as a pooling of interests. Each outstanding share of Younkers, Inc. Common Stock was converted into ninety-eight one-hundredths (.98) shares of Proffitt's Common Stock, with approximately 8.8 million shares issued in the transaction. Outstanding options to purchase Younkers Common Stock were converted into options to purchase approximately 677,000 shares of Proffitt's Common Stock. On October 11, 1996, Proffitt's acquired Parisian, Inc., a closely-held 38 unit specialty department store company headquartered in Birmingham, Alabama. This business combination was accounted for as a purchase. Proffitt's paid Parisian shareholders approximately $110 million in cash and issued approximately 2.9 million shares of Common Stock. Outstanding options to purchase Parisian Common Stock were converted into options to purchase approximately 406,000 shares of Proffitt's Common Stock. Effective February 1, 1997 (immediately preceding the Company's current fiscal year end), Proffitt's combined its business with G.R. Herberger's, Inc., a 40 unit, employee-owned retail department store chain headquartered in St. Cloud, Minnesota. This combination was accounted for as a pooling of interests. Each outstanding share of G.R. Herberger's, Inc. Common Stock was converted into approximately .4985 shares of Proffitt's Common Stock, with 4.0 million shares issued in the transaction. Proffitt's closed three unproductive units (one Proffitt's store and two Younkers stores) in January 1996, an additional unproductive Younkers unit in August 1996, and an unproductive Herberger's store in January 1997. Two additional Younkers stores were sold to a third party in March 1996. A new McRae's store in Selma, Alabama was opened in March 1996, a new Proffitt's Division store was opened in Morgantown, West Virginia in October 1996, and new Parisian stores were opened in Macon, Georgia and Tupelo, Mississippi in February 1997 and April 1997, respectively. Proffitt's has announced the planned openings of a new Proffitt's Division store in Parkersburg, West Virginia in 1998; new McRae's stores in Biloxi and Meridian, Mississippi and Baton Rouge, Louisiana in 1997; new Younkers units in Grandville, Michigan and Iowa City, Iowa in 1998; and new Parisian stores in Birmingham, Alabama and metropolitan Atlanta, Georgia in 1997. Proffitt's is currently negotiating several other new unit opportunities. In addition, several store renovations and expansions are planned for 1997. During 1995 and 1996, in order to improve efficiencies and reduce overhead costs, Proffitt's centralized certain administrative and support functions, such as accounting, information systems, credit, and store planning, for the Proffitt's, McRae's, and Younkers Divisions. Proffitt's is in the process of further consolidating these functions to include the Parisian Division, with the majority of this restructuring to be completed by fall 1997. Consolidation of these functions for the Herberger's division will begin in 1997 and be completed in 1998. Merchandising, stores, sales promotion/advertising, visual, and various support functions for the Proffitt's, McRae's, Younkers, Parisian, and Herberger's Divisions will remain headquartered in Knoxville, Jackson, Des Moines, Birmingham, and St. Cloud, respectively. Merchandising. Proffitt's merchandising strategy is to provide middle to upper income customers a wide assortment of quality fashion apparel, shoes, accessories, cosmetics, and decorative home furnishings at competitive prices. Proffitt's commitment to a branded merchandising strategy, enhanced by its merchandise presentation and high level of customer service, makes it a preferred distribution channel for premier brand-name merchandise. Key brands featured include Liz Claiborne, Marisa Christina, Susan Bristol, Karen Kane, Jones New York, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Calvin Klein, Guess, Haggar, Estee Lauder, Clinique, Lancome, Vanity Fair, Nine West, Enzo, Coach, Brighton, Birkenstock, and Timberland. Proffitt's supplements its branded assortments with high-quality private-label merchandise in selected areas. Private label offerings are intended to provide national brand quality at lower prices. Proffitt's has developed a thorough knowledge of each of its regional markets and customer bases. This market knowledge is gained through the Company's regional merchandising structure in conjunction with store visits by senior management and merchandising personnel and use of on-line merchandise information. Proffitt's strives to tailor each store's merchandise assortments to the unique characteristics of its markets. The Company recently formed the Proffitt's Merchandising Group (the "Group") headquartered in Birmingham, Alabama. The Group coordinates merchandising planning and execution, as well as visual, marketing, and advertising activities between the merchandising divisions. Certain departments in Proffitt's stores are leased to independent companies in order to provide high quality service and merchandise where specialization and expertise are critical and economics do not justify Proffitt's direct participation in the business. The leased departments vary by store to complement Proffitt's own merchandising departments. Leased departments include fine jewelry, beauty salon, and maternity departments. The terms of the lease agreements typically are between one and three years and require the lessee to pay for fixtures and provide its own employees. Leased department sales are included in Proffitt's total sales. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. The shoe business was a leased operation at the Younkers Division until August 1996, when it was converted to an owned operation. Management believes this conversion has positive sales and gross margin implications for the Company. The shoe departments at the other Divisions are also owned. For the year ended February 1, 1997, Proffitt's percentages of net sales by major merchandise category (by division) were as follows:
Category: Proffitt's McRae's Younkers Parisian Herberger's Total - -------- ---------- --------- ---------- ----------- ---------- -------- Women's 32.6% 25.9% 31.7% 27.5% 39.0% 31.3% Men's 13.7 16.6 16.1 25.0 15.3 16.9 Home 11.1 15.3 15.6 2.1 9.4 12.1 Cosmetics 15.0 11.4 10.9 10.9 8.6 11.2 Children's 7.8 7.3 6.8 9.5 12.9 8.4 Accessories 6.7 7.1 6.2 8.2 5.6 6.6 Shoes 7.3 8.0 2.9 10.1 5.4 6.1 Lingerie 4.2 3.9 4.6 3.2 3.8 4.0 ------ ------ ------ ------ ------ ----- Owned 98.4 95.5 94.8 96.5 100.0 96.6 Leased 1.6 4.5 5.2 3.5 0.0 3.4 ------ ------ ------ ------ ------ ----- Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Note: Percentages above represent the entire year even though the Parisian Division was not owned by Proffitt's for the entire year. Pricing Proffitt's primary merchandise focus is on moderate to better-priced nationally branded merchandise. Management believes that customers respond to promotional events more favorably than they do to "everyday low pricing." Accordingly, while the Company continues to maintain a pricing structure that provides value to its customers, Proffitt's business is somewhat promotional. Proffitt's runs various promotional events throughout the year. Proffitt's recognizes that competitors sometimes price merchandise below Proffitt's prices. In such situations, it is Proffitt's policy to match competitors' prices. Accordingly, sales associates have the authority to reduce the price of any merchandise if the customer has seen the same item advertised or sold at a lower price in the same market. Purchasing and Distribution Proffitt's purchases merchandise from numerous suppliers. Management monitors Proffitt's profitability and sales history with each supplier and believes it has alternative sources available for each category of merchandise it purchases. Management believes it has good relationships with its suppliers. The 85,000 square foot distribution facility serving the Proffitt's Division is located in metropolitan Knoxville, Tennessee, and the 164,000 square foot distribution center for the McRae's Division is located in Jackson, Mississippi. The Younkers Division is served by two distribution facilities. An 182,000 square foot center in Green Bay, Wisconsin serves the Division's northern stores, and an 120,000 square foot facility in Ankeny, Iowa serves the Division's southern stores. Parisian's 125,000 square foot distribution facility is located in Birmingham, Alabama. Herberger's operates a 98,000 square foot distribution center near St. Cloud, Minnesota. The distribution centers utilize the latest technology. Proffitt's utilizes UPC barcode technology which is designed to move merchandise onto the selling floor quicker and more cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. For example, high speed automated conveyor systems are capable of scanning bar coded labels and diverting cartons to the proper merchandise processing areas. Some types of merchandise are being processed in the receiving area and immediately "cross docked" to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor's bar code and transmit the necessary information to a computer to check-in merchandise. This technology, when fully utilized, will create a nearly paperless environment for the distribution function. Management Information Systems Proffitt's information systems provide information necessary for management operating decisions, cost reduction programs, and customer service enhancements. Individual data processing systems include point-of-sale and sales reporting, purchase order management, receiving, merchandise planning and control, payroll, human resources, general ledger, credit, and accounts payable systems. Bar code ticketing is used, and scanning is utilized at all point-of-sale terminals. Information is made available on-line to merchandising staff and store management on a timely basis, thereby reducing the need for paper reports. Proffitt's uses electronic data interchange technology (EDI) with many of its top vendors to facilitate timely merchandise replenishment. Proffitt's continually upgrades its information systems to improve operations and support future growth. Marketing Proffitt's advertising and promotions are coordinated to reinforce its market position as a fashion department store selling quality merchandise at competitive prices. Advertising is balanced among fashion advertising, price promotions, and special events. Proffitt's uses a multi-media approach, including newspaper, television, radio, and direct mail. The Company's advertising and special events are produced by divisional in-house sales promotion staffs in conjunction with outside advertising agencies, when needed. Proffitt's utilizes data captured through the use of the Proffitt's, McRae's, Younkers, and Parisian credit cards to develop segmented advertising and promotional events targeted at specific customers who have established purchasing patterns for certain brands, departments, and store locations. To promote its image as the fashion leader in its markets, Proffitt's also sponsors fashion shows and in-store special events highlighting Proffitt's key brands. Proprietary Credit Cards The Company issues proprietary credit cards for each of the Proffitt's, McRae's, Younkers, and Parisian Divisions. Frequent use of the Company's proprietary credit cards by customers is an important element in the Company's marketing and growth strategies. The Company believes that proprietary credit card holders shop more frequently with the Company, purchase more merchandise, and are generally more loyal to the Company than are customers who pay with cash or third-party credit cards. As previously mentioned, the Company also makes frequent use of the names and addresses of its proprietary credit card holders in direct marketing efforts. The Company seeks to expand the number and use of its proprietary credit cards by, among other things, providing incentives to sales associates to open "instant credit" accounts, which can generally be opened within approximately three minutes. Also, customers who open accounts are entitled to certain discounts on initial and subsequent purchases. The Company has approximately 1.9 million credit accounts which have been active within the prior six months. The Herberger's Division does not currently issue a proprietary credit card but will introduce such a card to its customer base beginning in May 1997. Customer Service Proffitt's believes that personal customer attention builds loyalty and that Proffitt's sales associates generally provide a level of customer service superior to its competitors. Each store is staffed with knowledgeable, friendly sales associates skilled in salesmanship and customer service. Sales associates maintain customer records, send personalized thank-you notes, and communicate personally with customers to advise them of special promotions and new merchandise offerings. Superior customer service is encouraged through the development and monitoring of sales/productivity goals and through specific award and recognition programs. Seasonality Proffitt's business, like that of most retailers, is subject to seasonal influences, with a significant portion of its net sales and net income realized during the fourth quarter of each year, which includes the Christmas selling season. Generally, more than 30% of the Company's sales and over 50% of its net income are generated during the fourth quarter. Competition The retail department store business is highly competitive. Proffitt's stores compete with several national and regional department stores, specialty apparel stores, and other retail stores, some of which have greater financial and other resources than Proffitt's. Management believes that its knowledge of Proffitt's regional markets and customer base, combined with providing superior customer service and a broad selection of quality fashion merchandise at competitive prices in prime store locations, provides a competitive advantage. Associates At March 31, 1997, the Company employed approximately 27,000 associates, of which approximately 13,000 were employed on a part-time basis. Proffitt's hires additional temporary employees and increases the hours of part-time employees during seasonal peak selling periods. Approximately 20 associates in the Younkers Division are covered by a collective bargaining agreement. Proffitt's considers its relations with its employees to be good. Item 2. Properties. The Proffitt's Division's leased administrative offices are located in metropolitan Knoxville, Tennessee and consist of approximately 44,000 square feet. The Division's owned distribution center is located in metropolitan Knoxville and contains approximately 85,000 square feet. The McRae's Division owns its administrative office building in Jackson, Mississippi, which consists of 272,000 square feet of space. McRae's 164,000 square foot distribution center in metropolitan Jackson is owned. The Younkers Division's leased administrative office space is located with the Downtown store in Des Moines, Iowa and consists of 127,000 square feet of space. The 120,000 and 182,000 square foot distribution centers in Ankeny, Iowa and Green Bay, Wisconsin, respectively, are owned. The Parisian Division's owned administrative office building is located in Birmingham, Alabama and consists of 125,000 square feet. The 125,000 square foot Parisian distribution facility in Birmingham is owned. The Herberger's Division's owned administrative offices are located with the St. Cloud, Minnesota store and consist of 58,000 square feet of space. The 98,000 square foot distribution center in Sartell, Minnesota, near St. Cloud, is owned. The following table summarizes all owned and leased store locations. Store leases generally require Proffitt's to pay the greater of a fixed minimum rent or an amount based on a percentage of sales. Generally, Proffitt's is responsible under its store leases for a portion of mall promotion and common area maintenance expenses and for certain utility, property tax, and insurance expenses. Typically, Proffitt's contributes to common mall promotion, maintenance, property tax, and insurance expenses at its owned locations.
APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ PROFFITT'S DIVISION: KNOXVILLE, TN METROPOLITAN MARKET: College Square (Morristown, TN) 50,000 43,000 Owned 1993 - East Towne 102,000 85,600 Owned 1984 1992 Foothills (Maryville, TN)* 145,000 121,000 Owned 1983 1993 Oak Ridge (Oak Ridge, TN)* 111,000 94,600 Leased 1974 1993 Proffitt's Plaza (Athens, TN) 54,000 48,200 Leased 1965 1992 West Town 161,800 141,000 Leased 1972 1995 CHATTANOOGA, TN METROPOLITAN MARKET: Bradley Square (Cleveland, TN) 50,000 45,800 Leased 1992 1992 Hamilton Place* 245,000 202,300 Owned 1988 1993 Mt. Berry Square (Rome, GA) 65,000 56,300 Leased 1993 1993 Northgate 94,500 80,800 Owned 1989 1993 Walnut Square (Dalton, GA) 55,000 48,400 Owned 1988 1988 TRI-CITIES, TN/VA METROPOLITAN MARKET: Bristol Mall (Bristol, VA) 46,000 39,300 Leased 1992 - Fort Henry (Kingsport, TN)* 141,500 121,300 Leased 1992 1995 Greeneville Commons (Greeneville, TN) 41,700 35,800 Leased 1995 - Mall at Johnson City (Johnson City, TN)* 152,000 127,700 Leased 1992 1995 ASHEVILLE, NC METROPOLITAN MARKET: Biltmore Square Mall 80,000 71,100 Owned 1989 - KENTUCKY: Ashland Town Center (Ashland, KY) 65,000 56,600 Leased 1993 1993 Towne Mall (Elizabethtown, KY) 50,000 41,800 Leased 1993 1993 WEST VIRGINIA: Morgantown (Morgantown, WV) 85,700 75,800 Leased 1996 1996 TOTAL PROFFITT'S DIVISION (19 stores) 1,795,200 1,536,400 *Dual store operation. APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ MCRAE'S DIVISION: JACKSON, MS METROPOLITAN MARKET: Meadowbrook Mart 68,900 57,600 Leased 1955 1987 Metrocenter 231,400 188,000 Owned 1978 1992 Northpark (Ridgeland, MS) 207,200 176,100 Owned 1984 - BIRMINGHAM, AL METROPOLITAN MARKET: Brookwood Village 108,800 89,900 Leased 1975 1993 Century Plaza 125,100 109,900 Leased 1980 1991 Riverchase Galleria (Hoover, AL) 136,200 121,200 Leased 1986 - Roebuck Plaza 65,600 55,800 Leased 1960 - Western Hills (Fairfield, AL) 129,600 109,200 Leased 1980 1986 HUNTSVILLE, AL: Madison Square 99,700 86,400 Leased 1984 - Parkway City 75,700 60,800 Leased 1961 - FLORIDA PANHANDLE: Santa Rosa (Mary Ester, FL) 83,900 75,100 Owned 1986 - University (Pensacola, FL) 145,300 114,000 Owned 1974 1986 MOBILE, AL: Springdale 168,300 141,800 Owned 1984 - OTHER MISSISSIPPI MARKETS: Barnes Crossing (Tupelo, MS) 100,200 88,900 Owned 1976 1990 Greenville (Greenville, MS) 68,100 59,100 Leased 1973 - Natchez (Natchez, MS) 67,300 57,100 Leased 1979 1993 Pemberton (Vicksburg, MS) 63,200 54,500 Owned 1970 1985 Sawmill Square (Laurel, MS) 65,800 58,500 Owned 1981 - Singing River (Gautier, MS) 89,300 79,200 Owned 1980 - TurtleCreek (Hattiesburg, MS) 129,000 110,400 Owned 1973 1995 University (Columbus, MS) 75,700 66,700 Owned 1983 - Village Fair (Meridian, MS) 78,700 67,300 Leased 1972 - OTHER ALABAMA MARKETS: Eastdale (Montgomery, AL) 69,200 62,400 Leased 1977 - Gadsden (Gadsden, AL) 80,500 69,400 Leased 1974 1994 Regency Square (Florence, AL) 41,000 35,200 Leased 1978 - Selma (Selma, AL) 74,200 63,900 Leased 1996 - University (Tuscaloosa, AL) 90,900 80,000 Leased 1980 - Wiregrass Commons (Dothan, AL) 96,200 87,000 Leased 1986 - LOUISIANA: Pecanland (Monroe, LA) 106,500 94,800 Owned 1985 - TOTAL MCRAE'S DIVISION (29 stores) 2,941,500 2,520,200 APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ YOUNKERS DIVISION DES MOINES, IA METROPOLITAN MARKET: Downtown 113,800 104,100 Leased 1900 1994 Merle Hay 195,000 154,900 Leased 1959 1995 Southridge 105,000 91,200 Leased 1975 1994 Valley West 164,000 143,300 Leased 1972 1995 CEDAR RAPIDS, IA: Lindale 100,000 89,200 Leased 1960 - Westdale 100,000 79,000 Leased 1980 1995 SIOUX CITY, IA: Sioux City Mall 90,000 77,000 Leased 1980 - Town Square Downtown 60,000 47,300 Leased 1986 - QUAD CITIES, IA/IL METROPOLITAN MARKET: Duck Creek Plaza (Bettendorf, IA) 60,000 53,800 Leased 1960 - Northpark (Davenport, IA) 100,000 86,100 Leased 1973 1994 Southpark (Moline, IL) 100,000 91,600 Leased 1974 1990 MILWAUKEE, WI: Northridge 167,400 142,000 Leased 1992 - Southridge 204,400 163,700 Leased 1992 1996 MADISON, WI: East Towne 138,400 123,700 Leased 1992 1994 West Towne 139,600 126,100 Leased 1992 - OMAHA, NE: Crossroads 190,000 160,800 Leased 1987 - Oakview 150,000 129,100 Leased 1991 - Westroads 172,000 142,000 Leased 1968 1994 OTHER IOWA MARKETS: College Square (Cedar Falls, IA) 83,500 75,800 Leased 1986 1986 Crossroads Center (Fort Dodge, IA) 54,200 48,800 Leased 1979 1994 Kennedy Center (Dubuque, IA) 126,300 107,000 Leased 1968 1993 Marshalltown Plaza (Marshalltown, IA) 40,000 33,700 Leased 1992 1994 North Grand (Ames, IA) 50,000 43,600 Leased 1987 - Old Capitol (Iowa City, IA) 60,000 50,800 Leased 1980 - Southbridge (Mason City, IA) 59,500 51,600 Leased 1984 1994 Westland (West Burlington, IA) 47,000 42,600 Leased 1977 1994 APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ YOUNKERS DIVISION (cont.): OTHER WICONSIN MARKETS: Downtown (Sheboygan, WI) 136,900 98,800 Leased 1992 - Downtown (Sturgeon Bay, WI) 57,100 42,000 Leased 1992 - Edgewater Plaza (Manitowoc, WI) 44,300 40,300 Leased 1992 - Forest (Fond du Lac, WI) 78,400 71,400 Leased 1992 - Fox River (Appleton, WI) 113,000 102,600 Leased 1992 - London Square (Eau Claire, WI) 98,800 91,900 Leased 1992 - Mariner (Superior, WI) 43,300 40,300 Leased 1992 - Northway (Marshfield, WI) 44,400 39,700 Leased 1992 - Pine Tree (Marinette, WI) 43,300 40,200 Leased 1992 - Port Plaza (Green Bay, WI) 255,000 167,900 Leased 1992 - Rapids (Wisconsin Rapids, WI) 44,400 40,200 Leased 1992 - Regency (Racine, WI) 113,600 85,600 Leased 1992 - Wausau Center (Wausau, WI) 98,900 88,600 Leased 1992 - MICHIGAN MARKETS: Bay City (Bay City, MI) 67,700 60,500 Leased 1992 - Birchwood (Port Huron, MI) 67,900 60,800 Leased 1992 - Cherryland (Traverse City, MI) 48,800 45,500 Leased 1992 - Marquette Plaza (Marquette, MI) 44,300 40,100 Leased 1992 - West Shore (Holland, MI) 67,900 58,200 Leased 1992 - MINNESOTA: Oak Park (Austin, MN) 45,000 36,900 Leased 1975 1993 SOUTH DAKOTA: The Empire Mall (Sioux Falls, SD) 105,000 95,500 Leased 1975 1989 NEBRASKA MARKETS: Conestoga (Grand Island, NE) 60,000 51,500 Leased 1974 1993 Gateway (Lincoln, NE) 103,000 89,200 Leased 1987 1989 TOTAL YOUNKERS DIVISION (48 stores) 4,651,100 3,946,500 APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ PARISIAN DIVISION: BIRMINGHAM, AL METROPOLITAN MARKET: AmSouth-Harbert Center 21,500 15,500 Leased 1933 1989 Eastwood 130,000 85,600 Leased 1969 1990 Five Points West 60,000 46,800 Leased 1963 1992 Riverchase Galleria (Hoover, AL) 200,000 149,200 Owned/ 1986 1995 leased Vestavia Hills Shopping Center 52,500 41,100 Leased 1965 - Wildwood Centre (clearance center) 50,000 25,000 Leased 1986 1991 HUNTSVILLE, AL METROPOLITAN MARKET: Madison Square 115,000 76,700 Leased 1984 - Parkway City 77,000 66,500 Leased 1976 1986 MONTGOMERY, AL METROPOLITAN MARKET: Eastdale 59,000 52,300 Leased 1977 - Montgomery 113,000 77,900 Owned 1988 - OTHER ALABAMA MARKETS: Bel Air (Mobile, AL) 122,500 100,300 Leased 1984 1996/97 Regency Square (Florence, AL) 50,000 42,000 Leased 1978 - River Oaks (Decatur, AL) 90,300 57,300 Leased 1963 1988 University (Tuscaloosa, AL) 77,000 60,300 Leased 1981 1993/94 Wiregrass Commons (Dothan, AL) 65,000 55,100 Owned 1986 - ATLANTA, GA METROPOLITAN MARKET: Gwinnett Place 128,000 95,700 Leased 1993 - Northlake 103,000 74,000 Leased 1994 - Phipps Plaza 170,000 110,000 Leased 1992 - Town Center at Cobb 131,000 91,000 Leased 1992 - OTHER GEORGIA MARKETS: Macon (Macon, GA) 105,000 78,800 Leased 1997 - Peachtree (Columbus, GA) 87,600 78,100 Owned 1985 - Savannah (Savannah, GA) 102,200 73,600 Leased 1991 - FLORIDA: Cordova (Pensacola, FL) 75,000 65,000 Owned 1987 - Tallahassee (Tallahassee, FL) 115,000 80,200 Leased 1992 - The Avenues (Jacksonville, FL) 116,300 85,700 Leased 1994 - Seminole Towne Center (Orlando, FL) 132,000 93,300 Leased 1995 - APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ PARISIAN DIVISION (cont.): INDIANAPOLIS, IN METROPOLITAN MARKET: Circle Centre 143,000 91,200 Leased 1995 - Keystone at the Crossings 128,000 92,700 Leased 1993 - MICHIGAN: Laurel Park Place (Livonia, MI) 148,800 106,800 Leased 1994 - MISSISSIPPI: Barnes Crossing (Tupelo, MS) 84,000 62,000 Owned 1997 - CINCINNATI, OH METROPOLITAN MARKET: Beechmont 133,000 86,400 Leased 1993 - Forest Fair 144,700 103,000 Leased 1989 - Kenwood Towne Centre 147,500 100,000 Leased 1993 - OTHER OHIO MARKETS: Fairfield Commons (Dayton, OH) 130,000 93,800 Leased 1993 - COLUMBIA, SC METROPOLITAN MARKET: Columbiana Centre 95,000 82,000 Leased 1996 - Richland Fashion 100,000 65,100 Leased 1989 - OTHER SOUTH CAROLINA MARKETS: Greenville (Greenville, SC) 120,200 79,800 Leased 1995 - TENNESSEE: CoolSprings Galleria (Nashville, TN) 132,600 95,800 Leased 1994 - Hamilton Place (Chattanooga, TN) 92,500 63,600 Owned 1987 1996 West Town (Knoxville, TN) 143,300 96,900 Leased 1994 - TOTAL PARISIAN DIVISION (40 stores) 4,290,500 3,096,100 APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ HERBERGER'S DIVISION: COLORADO: Mesa (Grand Junction, CO) 72,300 66,100 Leased 1991 - ILLINOIS: Lincoln Square (Urbana, IL) 104,000 86,800 Leased 1994 - IOWA: Crossroads (Waterloo, IA) 86,800 73,500 Leased 1989 - Quincy Place (Ottumwa, IA) 55,300 50,400 Leased 1989 - MINNESOTA: Apache Plaza (St. Anthony, MN) 43,100 39,300 Leased 1987 1988 Centre Square (St. Cloud, MN) 93,300 74,400 Owned 1927 1984 Kandi (Willmar, MN) 77,500 70,700 Leased 1981 1992 Marketplatz (New Ulm, MN) 47,300 39,300 Leased 1946 1992 Moorhead Center (Moorhead, MN) 106,200 92,200 Leased 1983 1992 Northbridge (Albert Lea, MN) 64,400 58,100 Leased 1967 1994 Paul Bunyan (Bemidji, MN) 56,400 50,400 Leased 1994 - River Hills (Mankato, MN) 71,000 63,900 Leased 1991 - Signal Hills (West St. Paul, MN) 66,000 50,800 Leased 1981 1991 St. Croix (Stillwater, MN) 67,300 55,400 Leased 1990 1994 Thunderbird (Virginia, MN) 66,600 61,900 Leased 1954 1991 Viking Plaza (Alexandria, MN) 70,300 63,600 Leased 1963 1993 Westgate (Brainerd, MN) 61,500 55,600 Leased 1985 1992 Westridge (Fergus Falls, MN) 39,500 35,700 Leased 1978 1992 MONTANA: Butte Plaza (Butte, MT) 65,000 61,300 Leased 1994 - Holiday Village (Great Falls, MT) 80,100 66,800 Leased 1976 1991 Holiday Village (Havre, MT) 35,200 32,600 Leased 1980 - Kalispell Center (Kalispell, MT) 54,000 49,400 Leased 1986 1989 Rimrock (Billings, MT) 41,500 37,900 Leased 1976 - NEBRASKA: Hilltop (Kearney, NE) 40,700 36,000 Leased 1984 1987 Imperial (Hastings, NE) 53,000 46,400 Leased 1982 1992 Monument (Scottsbluff, NE) 72,700 66,200 Leased 1986 1993 Sunset Plaza (Norfolk, NE) 77,400 69,000 Leased 1982 1994 The Mall (North Platte, NE) 43,500 37,600 Leased 1982 1985 NORTH DAKOTA: Dakota Square (Minot, ND) 52,500 47,600 Leased 1980 1988 Kirkwood (Bismarck, ND) 92,500 83,800 Leased 1971 1993 Prairie Hills (Dickinson, ND) 43,000 38,500 Leased 1979 1991 APPROX. APPROX. YEAR RENOVATED GROSS SELLING OWNED/ OPENED OR OR STORE LOCATIONS FOOTAGE FOOTAGE LEASED ACQUIRED EXPANDED _____________________________ _________ _________ _______ _________ _________ HERBERGER'S DIVISION (cont.): SOUTH DAKOTA: Lakewood (Aberdeen, SD) 79,700 74,000 Leased 1990 1996 Rushmore (Rapid City, SD) 89,000 82,000 Leased 1978 1992 Watertown Mall (Watertown, SD) 40,300 36,400 Leased 1943 1978 WISCONSIN: Beaver Dam Mall (Beaver Dam, WI) 35,400 31,000 Leased 1981 - Cedar (Rice Lake, WI) 54,700 48,500 Leased 1945 1995 The Avenue (Appleton, WI) 120,000 102,600 Leased 1993 - Valley View (LaCrosse, WI) 41,300 36,400 Leased 1965 1980 WYOMING: White Mountain (Rock Springs, WY) 37,500 33,900 Leased 1979 - TOTAL HERBERGER'S DIVISION (39 stores) 2,497,800 2,206,000 TOTAL COMPANY (175 stores) 16,176,100 13,305,200 Item 3. Legal Proceedings. The Company is involved in several legal proceedings arising from its normal business activities, and reserves have been established where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Registrant. The name, age, and position held with the Company for each of the executive officers of the Company are set forth below. Name Age Position - ----- ----- --------- Proffitt's, Inc. Corporate Officers: R. Brad Martin 45 Chairman of the Board of Directors and Chief Executive Officer James A. Coggin 54 President and Chief Operating Officer Robert M. Mosco 47 President and Chief Executive Officer of Proffitt's Merchandising Group David W. Baker 60 Senior Vice President of Operations Julia A. Bentley 38 Senior Vice President of Investor Relations and Planning and Secretary Douglas E. Coltharp 35 Executive Vice President and Chief Financial Officer Peggy Eskenasi 41 Senior Vice President of Private Label and Brand Development Fran U. Jose 36 Senior Vice President of Marketing and Visual Brian J. Martin 40 Senior Vice President of Human Resources and Law and General Counsel Michael R. Molitor 37 Senior Vice President of Merchandise Planning and Analysis James E. VanNoy 57 Senior Vice President of Management Information Systems John J. White 46 Senior Vice President of Profit Improvement and Special Projects Sharron Williams 47 Senior Vice President and Corporate General Merchandise Manager of Cosmetics Donald E. Wright 39 Senior Vice President of Finance and Accounting Proffitt's Division Officers: Position open -- President and Chief Executive Officer A. Coleman Piper 50 Executive Vice President of Stores McRae's Division Officers: Gary L. Howard 54 President and Chief Executive Officer Robert Oliver 62 Executive Vice President of Stores Younkers Division Officers: Position open -- President and Chief Executive Officer Toni E. Browning 40 Senior Vice President of Stores Parisian Division Officers: Donald E. Hess 48 Division Chairman William D. Cappiello 53 President and Chief Executive Officer Howard Finkelstein 53 Executive Vice President of Merchandising Jim W. Adams 53 Executive Vice President of Stores Herberger's Division Officers: Frank E. Kulp, III 53 President and Chief Executive Officer John B. Brownson 44 Executive Vice President and Chief Operating Officer Gary L. Pralle 44 Vice President of Stores Proffitt's, Inc. Corporate Officers: R. Brad Martin has served as a Director since 1984 and became Chairman of the Board in February 1987 and Chief Executive Officer in July 1989. Mr. Martin previously served as President from July 1989 until March 1994 and from September 1994 to March 1995. James A. Coggin was named President and Chief Operating Officer of Proffitt's in March 1995 and served as Executive Vice President and Chief Administrative Officer of Proffitt's from March 1994 to March 1995. From June 1978 to March 1994, Mr. Coggin served as Executive Vice President and Chief Administrative Officer of McRae's, Inc. Mr. Coggin joined McRae's, Inc. in 1971. Robert M. Mosco was promoted to President and Chief Executive Officer of Proffitt's Merchandising Group in October 1996. Between February 1996 and October 1996, Mr. Mosco served as President and Chief Executive Officer of the Younkers Division of Proffitt's, Inc. Mr. Mosco served as President and Chief Operating Officer of Younkers, Inc. between 1992 and January 1996. From 1989 to 1992, he held the position of Executive Vice President of Merchandising and Marketing for Younkers, Inc. Mr. Mosco joined Younkers, Inc. in 1987. Mr. Mosco began his retail career with Gimbel's and later worked for Rich's. David W. Baker was named Senior Vice President of Operations for Proffitt's in March 1994. Mr. Baker joined McRae's, Inc. in February 1985 and served as Senior Vice President of Operations until March 1994. Julia A. Bentley was named Senior Vice President of Investor Relations and Planning and Secretary of Proffitt's in March 1994. From January 1993 to March 1994, Ms. Bentley served as Senior Vice President of Finance, Chief Financial Officer, Secretary, and Treasurer, and from March 1989 to January 1993, she served as Vice President, Chief Financial Officer, Secretary, and Treasurer of the Company. Ms. Bentley is a Certified Public Accountant and joined Proffitt's in 1987 after several years with an international public accounting firm. Douglas E. Coltharp joined Proffitt's in November 1996 as Executive Vice President and Chief Financial Officer. Mr. Coltharp was with NationsBank from 1987 to November 1996, where he held a variety of senior positions including his most recent post of Senior Vice President of Corporate Finance. Peggy Eskenasi joined Proffitt's in February 1997 as Senior Vice President of Private Label and Brand Development. Ms. Eskenasi was with Frederick Atkins, Inc., a buying cooperative based in New York, between 1980 and January 1997, where she held a variety of merchandising positions, including Senior Vice President and General Merchandise Manager of Accessories, Intimate Apparel, Children's, Cosmetics, and Shoes. Fran U. Jose was named Senior Vice President of Marketing and Visual in February 1997. Mr. Jose served as Vice President of Merchandising Strategies at the Younkers Division between June 1996 and January 1997. Prior to that, he held various merchandising and financial positions with Saks Fifth Avenue and May Department Stores Company. Brian J. Martin was promoted to Senior Vice President of Human Resources and Law and General Counsel in August 1995 and served as Senior Vice President and General Counsel of Proffitt's from March 1995 to August 1995. He joined Proffitt's in 1994 as Vice President and General Counsel. From June 1990 to May 1994, Mr. Martin was affiliated with the Indianapolis, Indiana law firm of Barnes and Thornburg. Mr. Martin served as Assistant Solicitor General of the United States between January 1988 and June 1990. Michael R. Molitor was appointed Senior Vice President of Merchandise Planning and Analysis in February 1996. Mr. Molitor served as Vice President of Merchandise Strategies at Younkers, Inc. between March 1994 and January 1996. Mr. Molitor held various merchandising and financial positions with Saks Fifth Avenue between September 1993 and February 1994 and with May Department Stores Company between January 1988 and August 1993. James E. VanNoy was named Senior Vice President of Management Information Systems in February 1996. He served as Senior Vice President and Chief Information Officer of Proffitt's from March 1994 to February 1996. Mr. VanNoy joined McRae's, Inc. in February 1980 as Director of Management Information Systems and was promoted to Vice President of Management Information Systems in February 1982. John J. White was named Senior Vice President of Profit Improvement and Special Projects for Proffitt's in February 1996. Mr. White served as Vice President and Controller of Younkers, Inc. from July 1995 to January 1996. Prior to that, Mr. White served as Vice President and Controller form January 1987 to December 1994 with Broadway Stores. Mr. White obtained previous experience with Allied Stores and May Department Stores Company. Sharron Williams was promoted to Senior Vice President and Corporate General Merchandise Manager of Cosmetics in February 1997. Ms. Williams most recently held the position of Senior Vice President and General Merchandise Manager of Cosmetics, Fashion Accessories, Intimate Apparel, Children's, and Shoes for the McRae's Division of Proffitt's, Inc. She joined McRae's in 1971. Donald E. Wright was named to the post of Senior Vice President of Finance and Accounting for the Company in April 1997. Mr. Wright is a Certified Public Accountant and was a Partner with the international accounting firm of Coopers & Lybrand. He joined Coopers & Lybrand in 1979. Proffitt's Division Officers: A. Coleman Piper was named Executive Vice President of Stores for the Proffitt's Division of Proffitt's, Inc. in March 1995. He served with Proffitt's, Inc. as Executive Vice President of Human Resources and Proffitt's Division Stores from September 1994 to March 1995 and Executive Vice President of Operations and Real Estate from March 1994 to September 1994. He has been with Proffitt's since 1972 and previously served as its Vice President of Operations. McRae's Division Officers: Gary L. Howard was promoted to President and Chief Executive Officer of the McRae's Division of Proffitt's, Inc. in February 1996 and served as President of the McRae's Division between March 1995 and January 1996. Between March 1994 and March 1995, Mr. Howard served as Executive Vice President for Merchandising and Marketing for the McRae's Division. Mr. Howard joined McRae's, Inc. in November 1993 as Executive Vice President of Merchandising and Marketing. Mr. Howard has over 30 years of prior experience in the retail industry, including service as Senior Vice President and General Merchandise Manager of Maas Brothers and Woodward and Lothrop. Robert Oliver was promoted to Executive Vice President of Stores for the McRae's Division in March 1995. Mr. Oliver served as Vice President of Stores for the McRae's Division from March 1994 to March 1995. He joined McRae's, Inc. in 1991 as Vice President of Stores after gaining 33 years of merchandising and store management experience with Foley's. Younkers Division Officers: Toni E. Browning was named Senior Vice President of Stores in February 1996 for the Younkers Division of Proffitt's, Inc. She served as Senior Vice President of Stores for Younkers, Inc. from February 1994 to January 1996. She joined Younkers, Inc. in February 1993 as Vice President, Regional Director of the Western Stores and was promoted to Senior Vice President of Southern Stores that same year. Ms. Browning was in store management with Dayton Hudson Department stores from 1989 to January 1993 and gained prior experience with Federated-Allied Stores. Parisian Division Officers: Donald E. Hess was named Chairman of the Parisian Division of Proffitt's, Inc. in April 1997 and became a Director of Proffitt's in October 1996. He served as President and Chief Executive Officer of the Parisian Division from October 1996 to April 1997. Mr. Hess served as President of Parisian, Inc. between 1976 and October 1996 and as Chief Executive Officer between 1986 and October 1996. William D. Cappiello was named President and Chief Executive Officer of the Parisian Division in April 1997. Mr. Cappiello held a variety of management and executive positions in both the merchandising and stores areas with R.H. Macy & Co. between 1971 and April 1997. Between June 1993 and April 1997, he served as President of Merchandising for Macy's West, Inc., and between August 1985 and May 1993, he was Director of Stores for Macy's West. Howard Finkelstein was named Executive Vice President of Merchandising for the Parisian Division in October 1996. Mr. Finkelstein served as Senior Vice President of Merchandising for Parisian, Inc. from June 1994 to October 1996. From February 1992 until June 1994, he was Senior Vice President and General Merchandise Manager, and from 1983 to February 1992, he was Vice President and General Merchandise Manager. He joined Parisian, Inc. in 1983. Jim W. Adams was named Executive Vice President of Stores for the Parisian Division in October 1996. Between February 1992 and October 1996, Mr. Adams served as Senior Vice President of Stores for Parisian, Inc. From February 1986 to February 1992, he was Vice President of Stores and Sales Promotion. He joined Parisian, Inc. in 1977. Herberger's Division Officers: Frank E. Kulp, III was named President and Chief Executive Officer of the Herberger's Division of Proffitt's, Inc. in March 1997. Between November 1995 and March 1997, he was a Senior Vice President and General Merchandise Manager for Younkers. Prior to that, Mr. Kulp held the post of President and Chief Operating Officer of Lamonts, a department store chain headquartered in Bellevue, Washington. He also held previous merchandising management positions with Donaldson's and Lazarus. John B. Brownson was named Executive Vice President and Chief Operating Officer of the Herberger's Division in March 1997. Mr. Brownson joined Herberger's in 1992 as Vice President of Finance and Operations and was promoted to Executive Vice President and Chief Financial Officer in 1995. Prior to joining Herberger's, he held various financial and operations management positions with Highland Superstores, Inc. and Donaldson's. Gary L. Pralle was named Senior Vice President of Stores for the Herberger's Division in February 1997. He served as Senior Vice President of Stores for Herberger's, Inc. between 1993 and January 1997, and prior to that, held various other store positions. He joined Herberger's in 1971. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The information set forth under the caption "Market Information," appearing on page 34 of the Proffitt's, Inc. Annual Report to Shareholders for the Fiscal Year Ended February 1, 1997 (the "Annual Report"), is incorporated herein by reference. Item 6. Selected Financial Data. The information set forth under the caption "Five-Year Financial Summary" appearing on page 7 of the Annual Report is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information set forth under the caption "Management's Discussion and Analysis" appearing on pages 8 through 14 of the Annual Report is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The consolidated Financial Statements and the Report of Independent Accountants appearing on pages 15 through 33 of the Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information set forth under the caption "Election of Directors" contained on pages 8 through 10 of the Proffitt's, Inc. Proxy Statement dated May 1, 1997 (the "Proxy Statement"), with respect to Directors of the Company, is incorporated herein by reference. The information required under this item with respect to the Company's Executive Officers is incorporated by reference from Part I of this report under "Executive Officers of the Registrant." The information set forth under the caption "Section 16(a) of the Securities Exchange Act of 1934" contained on page 17 of the Proxy Statement, with respect to Director and Executive Officer compliance with Section 16(a), is incorporated herein by reference. Item 11. Executive Compensation. The information set forth under the captions "Directors' Fees" and "Executive Compensation" contained on pages 10 and 12 through 13, respectively, of the Proxy Statement with respect to executive compensation is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information set forth under the caption "Outstanding Voting Securities" contained on pages 4 through 5 of the Proxy Statement with respect to security ownership of certain beneficial owners and management is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information set forth under the captions "Further Information Concerning Directors" and "Certain Transactions" contained on pages 10 through 11 and 17, respectively, of the Proxy Statement with respect to certain relationships and related transactions is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this report. (3) The response to this portion of Item 14 is submitted as a separate section of this report. (b) Reports on Form 8-K filed during the fourth quarter. A report on Form 8-K was filed with the Commission on December 17, 1996 regarding the acquisition of Parisian, Inc. by Proffitt's, Inc. A report on Form 8-K was filed with the Commission on February 10, 1997 regarding the merger of G.R. Herberger's, Inc. and Proffitt's, Inc. A report on Form 8-K was filed with the Commission on April 1, 1997 regarding consolidated sales and net income for February 1997. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial statement schedules The response to this portion of Item 14 is submitted as a separate section of this report. FORM 10-K ITEM 14(a)(1) AND (2) AND (d) PROFFITT'S, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements The following consolidated financial statements and Report of Independent Accountants of Proffitt's, Inc. and subsidiaries, included on pages 15 through 33 of the Proffitt's, Inc. Annual Report to Shareholders for the Fiscal Year Ended February 1, 1997, are incorporated by reference in Item 8: Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996 Consolidated Statements of Income for Fiscal Years Ended February 1, 1997, February 3, 1996, and January 28, 1995 Consolidated Statements of Shareholders' Equity for Fiscal Years Ended February 1, 1997, February 3, 1996, and January 28, 1995 Consolidated Statements of Cash Flows for Fiscal Years Ended February 1, 1997, February 3, 1996, and January 28, 1995 Notes to Consolidated Financial Statements Reports of Independent Accountants Note: The first paragraph of Note 1 to the Consolidated Financial Statements as presented on page 19 of the Annual Report is amended to read as follows: ORGANIZATION The Company is a retail organization operating regional department store divisions under the store names of Proffitt's, McRae's, Younkers, Parsian, and Herberger's. The Company's fiscal year ends on Saturday nearest January 31. Years 1996 and 1994 consisted of 52 weeks and ended February 1, 1997 and January 28, 1995, respectively. Year 1995 consisted of 53 weeks and ended on February 3, 1996. The financial statements include the accounts of Proffitt's and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Note: The first and second paragraphs of Note 4 to the Consolidated Financial Statements as presented on page 23 of the Annual Report are amended to read as follows: In April 1994, the company began selling an undivided ownership interest in its accounts receivable. In January 1997, the Company through its subsidiary Proffitt's Credit Corporation (a qualifying special purpose entity), entered into an agreement to sell a revolving undivided ownership interest in the accounts receivable of the Proffitt's, McRae's and Parisian Divisions. The agreement, which expires in January 1998, provides for the sales of receivables up to $300,000 and contains certain covenants requiring the maintenance of various financial ratios. Prior to February 3, 1996, Younkers utilized an accounts receivable securitization program under which its receivables were used as collateral for commercial paper issued by a wholly-owned special purpose subsidiary. Effective with the February 3, 1996 merger, Younkers, through its subsidiary Younkers Credit Corporation (a qualifying special purpose entity), replaced amounts borrowed under the securitization program by selling a revolving undivided ownership interest in its accounts receivable. The agreement expires in 2000 and provides for the sale of receivables up to $125,000, of which $75,000 is a fixed ownership interest and remains fixed until 2000 at which time a portion of collections of outstanding receivables will be retained by the purchaser until the $75,000 is extinguished. (2)Schedules to Financial Statements The following consolidated financial statement schedule of Proffitt's, Inc. and subsidiaries and the related report of independent accountants are included in item 14(d): Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Proffitt's, Inc. Date: April 28, 1997 /s/ Douglas E. Coltharp ------------------------- Douglas E. Coltharp Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated. /s/ R. Brad Martin ------------------------- R. Brad Martin Chairman of the Board and Chief Executive Officer /s/ James A. Coggin ------------------------- James A. Coggin President and Chief Operating Officer /s/ Bernard E. Bernstein ------------------------- Bernard E. Bernstein Director /s/ Edmond D. Cicala ------------------------- Edmond D. Cicala Director /s/ Ronald de Waal ------------------------- Ronald de Waal Director /s/ Gerard K. Donnelly ------------------------- Gerard K. Donnelly Director /s/ Donald F. Dunn ------------------------- Donald F. Dunn Director /s/ W. Thomas Gould ------------------------- W. Thomas Gould Director /s/ Michael S. Gross ------------------------- Michael S. Gross Director /s/ Donald E. Hess ------------------------- Donald E. Hess Director /s/ G. David Hurd ------------------------- G. David Hurd Director /s/ Richard D. McRae ------------------------- Richard D. McRae Director /s/ C. Warren Neel ------------------------- C. Warren Neel Director /s/ Harwell W. Proffitt ------------------------- Harwell W. Proffitt Director /s/ Marguerite W. Sallee ------------------------- Marguerite W. Sallee Director /s/ Gerald Tsai, Jr. ------------------------- Gerald Tsai, Jr. Director /s/ Julia A. Bentley ------------------------- Julia A. Bentley Senior Vice President and Secretary INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Younkers, Inc. We have audited the accompanying consolidated balance sheet of Younkers, Inc. and subsidiary as of January 28, 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The Company's financial statements as of January 29, 1994 and January 30, 1993 were audited by other auditors whose report, dated March 3, 1994, expressed an unqualified opinion on those financial statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1995 consolidated financial statements present fairly, in all material respects, the consolidated financial position of Younkers, Inc. and subsidiary at January 28, 1995, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Des Moines, Iowa March 3, 1995 Report of Independent Accountants To the Directors and Stockholders Profitt's, Inc. Jackson, Mississippi Our report on the consolidated financial statements of Profitt's, Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from page 33 of the 1996 Annual Report to Stockholders of Proffitt's, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 34 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Birmingham, Alabama March 20, 1997 PROFFITT'S, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
Balance Balance at Charged to Charged to at end beginning cost and other Deduct- of Description of period expenses accounts ions(b) period - ------------- -------- -------- --------- --------- -------- Year ended February 1, 1997: Allowance for doubtful accounts 6,601,082 13,430,345 4,057,719 (c) (14,548,414) 9,540,732 Year ended February 3, 1996: Allowance for doubtful accounts 4,723,170 8,723,463 0 (6,845,551) 6,601,082 Year ended January 28, 1995: Allowance for doubtful accounts 3,255,043 4,956,351 1,431,988 (a) (4,920,212) 4,723,170 (a) Balance in account of company (McRae's, Inc.) acquired at March 31, 1994. (b) Uncollectible accounts written off, net of recoveries. (c) Balance in account of company (Parisian, Inc.) acquired at October 11, 1996.
FORM 10-K -- ITEM 14(a)(3) AND 14(c) PROFFITT'S, INC. AND SUBSIDIARIES EXHIBITS Exhibit No. Description ------ -------------- 2.1 Agreement and Plan of Merger, dated October 22, 1995, among Proffitt's, Inc., Baltic Merger Corporation and Younkers, Inc. (13) 2.2 Agreement and Plan of Merger, dated as of July 8, 1996, among Proffitt's, Inc., Casablanca Merger Corp., and Parisian, Inc. (23) 2.3 Agreement and Plan of Merger, dated November 8, 1996, among Proffitt's, Inc., Prairie Merger Corporation and G.R. Herberger's, Inc. (24) 3.1 Charter of the Company, as amended (1), (6), (9), (12), (21) 3.2 Amended and Restated Bylaws of the Company (12) 4.1 Form of 7.5% Junior Subordinated Debentures due 2004 (6) 4.2 Form of 4.75% Convertible Subordinated Debentures due 2003 (4) 4.3 Form of Supplemental Indenture to the Indenture dated July 15, 1993 between Parisian, Inc. and AmSouth Bank of Alabama, as Trustee (27) 10.1 Registration Rights Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994 (6) 10.2 Registration Rights Agreement between Proffitt's, Inc. and Parisian, Inc. dated July 8, 1996 (26) 10.3 Registration Rights Agreement by and among Proffitt's, Inc. and Apollo Specialty Retail Partners, Inc. dated March 3, 1994 (6) 10.4 Securities Purchase Agreement between Proffitt's, Inc. and Apollo Specialty Retail Partners, L.P. dated March 3, 1994 (6) 10.5 Non-competition Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994 (6) 10.6 Credit Facilities and Reimbursement Agreement by and among Proffitt's, Inc., certain lenders, and NationsBank of Texas, N.A., as agent, dated October 11, 1996 (25) 10.7 * Amendment No. 1 and waiver to Credit Facilities and Reimbursement Agreement between Proffitt's, Inc. and NationsBank of Texas, National Association, as agent, dated January 14, 1997 10.8 * Transfer and Administration Agreement dated by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 15, 1997 10.9 * Amendment to Transfer and Administration Agreement by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 30, 1997 10.10 * Receivables Purchase Agreement between Proffitt's, Inc. and Proffitt's Credit Corporation dated January 15, 1997 10.11 * Receivables Purchase Agreement between McRae's, Inc. and Proffitt's Credit Corporation dated January 15, 1997 10.12 * Receivables Purchase Agreement between Parisian Services, Inc. and Parisian, Inc. and Proffitt's Credit Corporation dated January 15, 1997 10.13 Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Park Real Estate Company dated April 1, 1994 (6) 10.14 Secured Promissory Note for the principal amount of $3,906,558 by McRae's, Inc. payable to Park Real Estate Company dated April 1, 1994 (6) 10.15 Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994 (6) 10.16 Amended and Restated Promissory Note for the principal amount of $2,075,000 by McRae's, Inc. payable to First Tennessee Bank National Association (Gautier) dated April 1, 1994 (6) 10.17 Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994 (6) 10.18 Secured Promissory Note for the principal amount of $556,851 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Gautier) (6) 10.19 Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994 (6) 10.20 Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994 (Gautier) (6) 10.21 Secured Promissory Note for the principal amount of $1,487,919 by McRae's, Inc. payable to Green's Crossing Real Estate Company dated April 1, 1994 (6) 10.22 Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994 (6) 10.23 Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Green's Crossing Real Estate Company dated April 1, 1994 (6) 10.24 Secured Promissory Note for the principal amount of $1,779,223 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Laurel) (6) 10.25 Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and AmSouth Bank National Association dated April 1, 1994 (6) 10.26 Leasehold Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994 (Laurel) (6) 10.27 Indemnification and Confirmation of Lease Agreement entered into among McRae's, Inc., Richard D. McRae, Jr., Susan McRae Shanor, and Vaughan McRae dated March 31, 1994 (Heritage Building) (6) 10.28 Guaranty Agreement of McRae's, Inc. to guarantee Richard D. McRae, Jr., Carolyn McRae, Susan McRae Shanor, and Vaughan W. McRae giving or extending credit to Proffitt's, Inc., dated March 31, 1994 (6) 10.29 Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, Green's Grossing Real Estate Company dated April 1, 1994 (6) 10.30 Guaranty Agreement by Proffitt's, Inc. to AmSouth Bank guaranteeing credit extended to McRae's, Inc. (6) 10.31 Promissory Note by McRae's, Inc. payable to Selby W. McRae in the principal sum of $1,346,442 dated January 25, 1938 (5) 10.32 Form of Rights Certificate and Rights Agreement between Proffitt's, Inc. and Union Planters National Bank, as rights agent, dated March 28, 1995 (9) 10.33 Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Union Planters National Bank, as rights agent, dated March 28, 1995 (20) 10.34 Series 1995-1 Supplement to Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated June 13, 1995 (20) 10.35 * Amendment No. 2 to Pooling and Servicing Agreement among Younkers Credit Corporation, Proffitt's, Inc. (successor-by-merger to Younkers, Inc.), and The Chase Manhattan Bank (formerly known as Chase Bank), as Trustee, dated February 1, 1997 10.36 Receivables Purchase Agreement between Younkers Credit Corporation and Younkers, Inc. dated June 13, 1995 (20) 10.37 Series 1995-2 Supplement to Pooling and Servicing Agreement dated as of June 13, 1995 among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated July 18, 1995 (20) 10.38 ISDA Master Agreement and Schedule thereto, each dated as of July 19, 1995, between Younkers, Inc. and NationsBank of Texas, N.A., with Confirmation of Interest Rate Cap Transaction dated July 19, 1995, and Assignment Agreement dated as of July 19, 1995 between Younkers Credit Corporation, Younkers, Inc. and Chemical Bank, as Trustee (20) MANAGEMENT CONTRACTS, COMPENSATORY PLANS, OR ARRANGEMENTS, ETC. 10.39 Proffitt's, Inc. 1987 Stock Option Plan, as amended (3) 10.40 Proffitt's, Inc. Employee Stock Purchase Plan (8) 10.41 Proffitt's, Inc. 1994 Long-Term Incentive Plan (7) 10.42 Proffitt's, Inc. 401(k) Retirement Plan (28) 10.43 * G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan 10.44 * Third Amendment and Restatement of The Parisian, Inc. Stock Option Plan for Officers 10.45 * First Amendment and Restatement of The Parisian, Inc. Management Incentive Plan 10.46 Younkers, Inc. Stock and Incentive Plan (14) 10.47 Younkers, Inc. Management Stock Option Plan (14) 10.48 Younkers, Inc. 1993 Long-Term Incentive Plan (16) 10.49 Form of Younkers, Inc. Deferred Compensation Plan (17) 10.50 Form of Severance Agreement between Younkers, Inc. and its executive officers (19) 10.51 $500,000 Loan Agreement between Proffitt's, Inc. and R. Brad Martin dated February 1, 1989 (2) 10.52 Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, as amended (14) 10.53 * Amendment to Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, dated February 13, 1997 10.54 Form of Deferred Compensation Agreement between Younkers, Inc. and Robert M. Mosco, as amended (14) 10.55 Form of Employment Agreement by and between Proffitt's, Inc. and Gary L. Howard dated March 28, 1995 (10) 10.56 Form of Employment Agreement by and between Proffitt's, Inc. and John White dated February 2, 1996 (21) 10.57 Form of Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated October 22, 1995 (21) 10.58 * Form of Amendment to Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated February 13, 1997 10.59 Form of Employment Agreement by and between Proffitt's, Inc. and Robert M. Mosco dated October 28, 1996 (22) 10.60 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Robert M. Mosco dated October 28, 1996 (22) 10.61 Form of Employment Agreement by and between Proffitt's, Inc. and John B. Brownson dated November 8, 1996 (22) 10.62 Form of Employment Agreement by and between Proffitt's, Inc. and Douglas E. Coltharp dated November 25, 1996 (22) 10.63 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Douglas E. Coltharp dated November 25, 1996 (22) 10.64 Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Hess dated July 8, 1996 (22) 10.65 Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and Brian J. Martin dated October 11, 1996 (22) 10.66 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Brian J. Martin dated October 11, 1996 (22) 10.67 Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and James A. Coggin dated October 11, 1996 (22) 10.68 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to James A. Coggin dated October 11, 1996 (22) 10.69 Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and R. Brad Martin dated October 11, 1996 (22) 10.70 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to R. Brad Martin dated October 11, 1996 (22) 10.71 * Form of Employment Agreement by and between Proffitt's, Inc. and Frank E. Kulp dated March 24, 1997 10.72 * Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Wright dated April 1, 1997 10.73 * Form of Employment Agreement by and between Proffitt's, Inc. and William D. Cappiello dated April 3, 1997 11.1 * Statement re: computation of earnings per share 13.1 * Annual Report to Shareholders for the fiscal year ended February 1, 1997 (not to be deemed filed except for those portions thereof which are incorporated herein by reference in this filing) 21.1 * Subsidiaries of the registrant 23.1 * Consents of Independent Accountants 27.1 * Financial Data Schedule __________________________________________________ * Previously unfiled documents are noted with an asterisk. (1) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-13548 of Proffitt's, Inc. dated June 3, 1987. (2) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1989. (3) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-46306 of Proffitt's, Inc. dated March 10, 1992. (4) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 33-70000 of Proffitt's, Inc. dated October 19, 1993. (5) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 29, 1994. (6) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 14, 1994. (7) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-80602 of Proffitt's, Inc. dated June 23, 1994. (8) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-88390 of Proffitt's, Inc. dated January 11, 1995. (9) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 3, 1995. (10) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1995. (11) Not applicable. (12) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended July 29, 1995. (13) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-00029 of Proffitt's, Inc. dated January 3, 1996. (14) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc. (15) Not applicable. (16) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-59224 of Younkers, Inc. (17) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended May 1, 1993. (18) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 31, 1993. (19) Incorporated by reference from Exhibit 4 of Younkers, Inc. Solicitation/Recommendation Statement of Schedule 14D-9 dated January 9, 1995. (20) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995. (21) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 3, 1996. (22) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997. (23) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated July 18, 1996. (24) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated November 22, 1996. (25) Incorporated by reference from the Exhibits to Amendment No. 1 to Form 8-K/A of Proffitt's, Inc. dated December 16, 1996. (26) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-09043 of Proffitt's, Inc. dated August 16, 1996. (27) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 333-09941 of Proffitt's, Inc. dated August 9, 1996. (28) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 333-25213 of Proffitt's, Inc. dated April 15, 1997. EX-10 2 EXHIBIT 10.7 AMENDMENT NO. 1 TO CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (this "Agreement") is made and entered into as of this 14th day of January, 1997 among: PROFFITT'S, INC., a Tennessee corporation having a principal place of business in Alcoa, Tennessee (the "Borrower"); and Each lender executing and delivering a signature page hereto (hereinafter such lenders may be referred to individually as a "Lender" or collectively as the "Lenders"); and NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America ("NationsBank"), in its capacity as agent for the Lenders (in such capacity, the "Agent"); W I T N E S S E T H: WHEREAS, the Borrower, the Lenders and the Agent have entered into a Credit Facilities and Reimbursement Agreement dated as of October 11, 1996 (the "Credit Agreement"), pursuant to which the Lenders agreed to make certain Advances to the Borrower; WHEREAS, the Borrower has requested that the Credit Agreement be amended in the manner set forth herein and the Agent and the Lenders are willing to agree to such amendment; NOW, THEREFORE, in consideration of the mutual covenants and the fulfillment of the conditions set forth herein, the parties hereto do hereby agree as follows: 1. Definitions. Any capitalized terms used herein without definition shall have the meaning set forth in the Credit Agreement. 2. Amendment. Subject to the terms and conditions set forth herein, and in accordance with Section 11.06 of the Credit Agreement, the Credit Agreement is hereby amended as follows: Section 8.09 is amended to add a new subsection (ix) thereto which shall read in its entirety as follows: "(ix) wholly owned Subsidiaries of the Borrower or its Subsidiaries created and operating for the exclusive purpose of conducting the accounts receivable securitization of the Borrower and its Subsidiaries in the ordinary course of business and consistent with past practice not to exceed $30,000,000; provided further, investments made in such Subsidiaries on or prior to the date hereof and the retained earnings of such Subsidiaries as of the date hereof may be transferred between such Subsidiaries or between the parent and such Subsidiary without limitation." 3. Representations and Warranties. In order to induce the Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lenders as follows: (a) The representations and warranties made by Borrower in Article VI of the Credit Agreement are true and correct on and as of the date hereof; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, since the most recent financial reports of the Borrower dated November 2, 1996 received by the Agent and the Lenders under Section 7.01(b) of the Credit Agreement, other than changes in the ordinary course of business; (c) The business and properties of the Borrower and its Subsidiaries, taken as a whole, are not, and since the most recent financial report of the Borrower and its Subsidiaries dated November 2, 1996 received by the Agent and the Lenders under Section 7.01(b) of the Credit Agreement, have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and is continuing which constitutes, and no condition exists which upon the consummation of the transaction contemplated hereby would constitute, a Default or an Event of Default on the part of the Borrower under the Credit Agreement. 4. Conditions Precedent. The effectiveness of this Agreement is subject to the following: (a) The Agent shall have received: (i) eighteen (18) counterparts of this Agreement duly executed by the Required Lenders; and (ii) copies of all additional agreements, instruments and documents which the Agent may reasonably request, such documents, when appropriate, to be certified by appropriate governmental authorities. (b) All proceedings of the Borrower relating to the matters provided for herein shall be satisfactory to the Lenders, the Agent and their counsel. 5. Entire Agreement. This Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and not one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. None of the terms or conditions of this Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 6. Full Force and Effect of Agreement. Except as hereby specifically amended, modified, waived or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 7. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 8. Governing Law. This Amendment Agreement shall in all respects be governed by the laws and judicial decisions of the state of Tennessee. 9. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 10. Credit Agreement. All references in any of the Loan Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. 11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of each of the Borrower, the Lenders and the Agent and their respective successors, assigns and legal representatives; provided, however, that the Borrower, without the prior consent of the Agent, may not assign any rights, powers, duties or obligations hereunder. 12. Consent of Guarantors. Each of the Guarantors by their execution and delivery hereof (i) consent and agree to the amendments to the Credit Agreement set forth herein and (ii) reaffirm their obligations set forth in the Guaranty. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. PROFFITT'S, INC. By: _______________________________ Title: Chief Financial Officer and Executive Vice President ATTEST: - ------------------------ Asst. Secretary (Seal) Agent: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as Agent for the Lenders By: _________________________ Title: Vice President Lenders: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION By: __________________________ Title: _______ Vice President NATIONAL CITY BANK, KENTUCKY By: __________________________ Title: __________ Vice President SOUTHTRUST BANK OF ALABAMA, N.A. By: __________________________ Title: ________________________ DG BANK DEUTSCHE GENOSSENSCHAFTSBANK Cayman Islands Branch By: __________________________ Title: ________________________ By: __________________________ Title: ________________________ DEPOSIT GUARANTY NATIONAL BANK By: __________________________ Title: Senior Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: __________________________ Title: Senior Vice President THE BANK OF NOVA SCOTIA By: __________________________ Title: Relationship Manager AMSOUTH BANK OF ALABAMA By: __________________________ Title: Vice President BANK OF AMERICA ILLINOIS By: __________________________ Title: Vice President HIBERNIA NATIONAL BANK By: __________________________ Title: National Accounts Representative FIRST AMERICAN NATIONAL BANK By: __________________________ Title: Vice President NORWEST BANK IOWA, N.A. By: __________________________ Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: __________________________ Title: Managing Director CREDIT LYONNAIS ATLANTA AGENCY By: __________________________ Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By:_______________________________ Title: Senior Vice President Acknowledged, agreed and consented to, this the _____ day of January, 1996. PROFFITT'S INVESTMENTS, INC. PDS AGENCY, INC. McRAE'S, INC. McRAE'S OF ALABAMA, INC. YOUNKERS, INC. PARISIAN, INC. PROFFITT'S OF TRI-CITIES, INC. PARISIAN OF TENNESSEE, INC. PARISIAN MANAGEMENT CO. HESS SPECIALTY DEPARTMENT STORE, LLC By: ________________________ Name: Douglas E. Cotharp Nations Bank 600 Peachtree Street, N.E. 21st Floor Atlanta, GA 30308-2213 NATIONS BANK February 24, 1997 Proffitt's, Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Attention: Mr. Douglas E. Coltharp Re: $275,000,000 Credit Facilities and Reimbursement Agreement among NationsBank of Texas, National Association, as Agent, the Lenders party thereto and Proffitt's, Inc. Dear Ladies and Gentlemen: Reference is hereby made to that certain Credit Facilities and Reimbursement Agreement dated as of October 11, 1996, as amended by that certain Amendment No. 1 to Credit Facilities and Reimbursement Agreement dated as of January 14, 1997 (the "Credit Agreement") by and among Proffitt's, Inc. (the "Borrower"), NationsBank of Texas, National Association, as Agent (the "Agent"), and the Lenders party thereto (the "Lenders"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. As set forth in that certain request letter dated February 11, 1997 from Mr. Douglas E. Coltharp (the "Request Letter"), a copy of which is attached hereto, the Borrower is considering selling seven (7) Virginia based Proffitt's division stores to Dillard Department Stores, Inc. The proposed sale is only for the fixed assets of such stores. The Borrower warrants that the representations set forth in the Request Letter are true and accurate and further acknowledges that the Agent and Lenders are each relying on such representations. Section 2.09(b) of the Credit Agreement requires that Net Proceeds in excess of $10,000,000 during any consecutive twelve (12) month period be used to reduce permanently the Total Revolving Credit Commitment. The Borrower estimates the excess Net Proceeds will be approximately $7,950,000 and request that the Agent and Lenders to waive the requirements of Section 2.09(b) as it pertains to the sale of the fixed assets of the seven (7) Virginia stores and the application of excess Net Proceeds as a permanent reduction to the Total Revolving Credit Commitment. Pursuant to the request of the Borrower as set forth in the Request Letter and in accordance with Section 11.06 of the Credit Agreement, the Agent and the Lenders hereby waive the requirements of Section 2.09(b) of the Credit Agreement solely as it pertains to the application of excess Net Proceeds from the sale of the fixed assets of the seven (7) Virginia stores and further agree that none of the sale proceeds from the sale of the fixed assets of the seven (7) Virginia stores shall count against the $10,000,000 Net Proceeds threshold set forth in Section 2.09(b) as measured during any twelve (12) month period which includes the date on which such sale occurs; provided, however, nothing contained herein shall be deemed a future waiver of Section 2.09(b) or a waiver of any other term or provision of the Credit Agreement or any other Loan Document. The Borrower hereby acknowledges that the waivers contained in this letter are granted by the Agent and the Lenders only for the limited purpose set forth herein and each term and provision of the Credit Agreement continues in full force and effect. The waivers are granted only for the specific instance specified herein and in no manner creates a course of dealing or otherwise impairs the further ability of the Agent or the Lenders to declare a default under or otherwise enforce the terms of the Credit Agreement. None of the terms or conditions of this Letter Agreement may be changed, modified, waived, or canceled, except by writing signed by all the parties hereto, specifying such change, modification, waiver, or cancellation. Except as otherwise specifically set forth herein, the Credit Agreement and all the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. This Letter Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one instrument. Sincerely yours, Kathryn W. Robinson Senior Vice President CONSENT TO this 28th day of February, 1997 Agent: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as Agent for the Lenders By: ------------------------ Kathryn W. Robinson Lenders: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION By: -------------------------- Title: Senior Vice President NATIONAL CITY BANK, KENTUCKY By: --------------------------- Title: Vice President SOUTHTRUST BANK OF ALABAMA, N.A. By: --------------------------- Title: Vice President DG BANK DEUTSCHE GENOSSENSCHAFTBANK Cayman Islands Branch By: ---------------------------- Title: Senior Vice President By: ---------------------------- Title: Assistant Vice President DEPOSIT GUARANTY NATIONAL BANK By: ---------------------------- Title: Senior Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: ---------------------------- Title: Senior Vice President THE BANK OF NOVA SCOTIA By: ---------------------------- Title: Relationship Manager AMSOUTH BANK OF ALABAMA By: ---------------------------- Title: Vice President BANK OF AMERICA ILLINOIS By: ---------------------------- Title: Vice President HIBERNIA NATIONAL BANK By: ---------------------------- Title: National Accounts Representative FIRST AMERICAN NATIONAL BANK By: ----------------------------- Title: Vice President NORWEST BANK IOWA, N.A. By: ----------------------------- Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: ---------------------------- Title: Managing Director CREDIT LYONNAIS ATLANTA AGENCY By: ---------------------------- Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: ---------------------------- Title: Senior Vice President Acknowledged, agreed and consented to, this the 28th day of February, 1997. Borrower: PROFFITT'S, INC. By:__________________________ Name:________________________ Title:_________________________ Guarantors: McRAE'S, INC. McRAE'S OF ALABAMA, INC. YOUNKERS, INC. PARISIAN, INC. PROFFITT'S OF TRI-CITIES, INC. McRAE'S STORES PARTNERSHIP G.R. HERBEGERS, INC. By: ________________________________ Name:________________________________ Title: ______________________________ AMENDMENT TO YOUNKERS, INC. DEFERRED COMPENSATION AGREEMENT It is agreed that the distribution provisions of each of the Deferred Compensation Agreements between Younkers, Inc. ("Younkers") and W. Thomas Gould (the "Employee"), dated June 10, 1985, January 1, 1987, January 1, 1988 and December 28, 1988, as amended effective September 30, 1991 (the "1991 Amendment"), are hereby amended effective February 13, 1997, as follows: 1. The first sentence of Paragraph 2 (a) of the 1991 Amendment is amended to read in its entirety as follows: (a) Following termination of the services of the Employee with Proffitt's, Inc. ("Proffitt's) for any reason (including but not limited to death, total and limited disability, retirement and voluntary termination as an employee), Proffitt's shall distribute to Employee or his beneficiary(ies), pursuant to paragraph (b) below, shares of Proffitt's stock represented by the units in said Stock Account, together with any assets credited to the Cash Account (including interest). 2. Paragraph 2 (b) of the 1991 Amendment is amended to read in its entirety as follows: (b) Upon the first to occur of the Employee's termination of employment, death or total and permanent disability, all benefits payable hereunder (including without limitation, all interest credits thereof) shall be paid on the first business day in January of the year immediately following such event. IN WITNESS WHEREOF, the parties have execute this Amendment on the date and year first above written. PROFFITT'S, INC. By: __________________________ R. Brad Martin Chairman of the Board of Directors and Chief Executive Officer EXECUTIVE ____________________________ W. Thomas Gould X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-7.ASC EX-10 3 EXHIBIT 10.8 ===================================================================== TRANSFER AND ADMINISTRATION AGREEMENT between ENTERPRISE FUNDING CORPORATION, as Company and PROFFITT'S CREDIT CORPORATION as Transferor and McRAE'S, INC. as Servicer and PROFFITT'S, INC. as Servicer Guarantor and NATIONSBANK, N.A. as Agent and Bank Investor Dated as of January 15, 1997 ====================================================================== TABLE OF CONTENTS Page ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . .1 SECTION 1.2. Other Terms . . . . . . . . . . . . . . . . . . . . . 29 SECTION 1.3. Computation of Time Periods . . . . . . . . . . . . . 29 ARTICLE II PURCHASES AND SETTLEMENTS. . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.1. Facility. . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.2. Transfers; Certificates; Eligible Receivables . . . . 30 SECTION 2.3. Fundings. . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 2.4. Carrying Costs, Fees and Other Costs and Expenses . . 38 SECTION 2.5. Allocations of Collections; Non-Liquidation Settlement and Reinvestment Procedures; Servicer Advances. . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 2.6. Liquidation Settlement Procedures. . . . . . . . . . . 42 SECTION 2.7. Fees. . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 2.8. Protection of Ownership Interest of the Company and the Bank Investors. . . . . . . . . . . . . . . . . . 43 SECTION 2.9. Deemed Collections; Application of Payments . . . . . 45 SECTION 2.10. Payments and Computations, Etc. . . . . . . . . . . . 46 SECTION 2.11. Reports.. . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 2.12. Collection Account. . . . . . . . . . . . . . . . . . 47 SECTION 2.13. Sharing of Setoff . . . . . . . . . . . . . . . . . . 48 SECTION 2.14. Right of Setoff . . . . . . . . . . . . . . . . . . . 49 ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 50 SECTION 3.1. Representations and Warranties of the Transferor. . . 50 SECTION 3.2. Representations and Warranties of the Servicer. . . . 55 SECTION 3.3. Reaffirmation of Representations and Warranties by the Transferor and Servicer . . . . . . . . . . . . . 56 ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.1. Conditions to Closing.. . . . . . . . . . . . . . . . 58 ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 5.1. Affirmative Covenants of Transferor . . . . . . . . . 62 SECTION 5.2. Negative Covenants of the Transferor. . . . . . . . . 69 SECTION 5.3. Minimum Net Worth of Transferor . . . . . . . . . . . 73 SECTION 5.4. Covenants of the Servicer . . . . . . . . . . . . . . 73 ARTICLE VI ADMINISTRATION AND COLLECTIONS . . . . . . . . . . . . . . . . . . . 77 SECTION 6.1. Appointment of Servicer . . . . . . . . . . . . . . . 77 SECTION 6.2. Duties of Servicer. . . . . . . . . . . . . . . . . . 77 SECTION 6.3. Rights After Designation of New Servicer. . . . . . . 49 SECTION 6.4. Servicer Default. . . . . . . . . . . . . . . . . . . 80 SECTION 6.5. Responsibilities of the Transferor and the Designated Sellers. . . . . . . . . . . . . . . . . . 82 ARTICLE VII TERMINATION EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 7.1. Termination Events. . . . . . . . . . . . . . . . . . 83 SECTION 7.2. Termination . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS . . . . . . . . . . . . . 86 SECTION 8.1. Indemnities by the Transferor . . . . . . . . . . . . 86 SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. . . . . . 90 SECTION 8.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 8.4. Other Costs, Expenses and Related Matters . . . . . . 94 SECTION 8.5. Reconveyance Under Certain Circumstances. . . . . . . 95 ARTICLE IX SERVICER GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 9.1. Guaranty of Obligations . . . . . . . . . . . . . . . 96 SECTION 9.2. Validity of Obligations. Irrevocability . . . . . . . 96 SECTION 9.3. Rights of Set-Off . . . . . . . . . . . . . . . . . . 97 SECTION 9.4. Representations and Warranties. . . . . . . . . . . . 97 SECTION 9.5. Guarantor Default . . . . . . . . . . . . . . . . . . 99 ARTICLE X THE AGENT; BANK COMMITMENT . . . . . . . . . . . . . . . . . . . . .100 SECTION 10.1. Authorization and Action. . . . . . . . . . . . . . .101 SECTION 10.2. Agent's Reliance, Etc.. . . . . . . . . . . . . . . .102 SECTION 10.3. Credit Decision . . . . . . . . . . . . . . . . . . .103 SECTION 10.4. Indemnification of the Agent. . . . . . . . . . . . .104 SECTION 10.5. Successor Agent . . . . . . . . . . . . . . . . . . .104 SECTION 10.6. Payments by the Agent . . . . . . . . . . . . . . . .105 ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .111 SECTION 11.1. Term of Agreement . . . . . . . . . . . . . . . . . .111 SECTION 11.2. Waivers; Amendments . . . . . . . . . . . . . . . . .111 SECTION 11.3. Notices . . . . . . . . . . . . . . . . . . . . . . .111 SECTION 11.4. Governing Law; Submission to Jurisdiction; Integration . . . . . . . . . . . . . . . . . . . . .114 SECTION 11.5. Severability; Counterparts. . . . . . . . . . . . . .115 SECTION 11.6. Successors and Assigns. . . . . . . . . . . . . . . .115 SECTION 11.7. Waiver of Confidentiality . . . . . . . . . . . . . .116 SECTION 11.8. Confidentiality Agreement . . . . . . . . . . . . . .116 SECTION 11.9. No Bankruptcy Petition Against the Company. . . . . .117 SECTION 11.10. No Recourse Against Stockholders, Officers or Director. . . . . . . . . . . . . . . . . . . . . . .117 SECTION 11.11. Characterization of the Transactions Contemplated by the Agreement. . . . . . . . . . . . . . . . . . .117 SCHEDULES SCHEDULE A Account Schedule EXHIBITS EXHIBIT A Form of Account EXHIBIT B Credit Guidelines EXHIBIT C List of Lock-Box Banks and Accounts EXHIBIT D Form of Lock-Box Agreement EXHIBIT E Form of Investor Report EXHIBIT F Form of Transfer Certificate EXHIBIT G Form of Assignment and Assumption Agreement EXHIBIT H List of Actions and Suits EXHIBIT I Location of Records EXHIBIT J List of Subsidiaries, Divisions and Tradenames EXHIBIT K Form of Transferor's Counsel's Opinion EXHIBIT L Forms of Secretary's Certificate EXHIBIT M Form of Certificate EXHIBIT N Financial Covenant Definitions EXHIBIT O Financial Covenants and Ratios EXHIBIT P Form of Cycle Certificate TRANSFER AND ADMINISTRATION AGREEMENT TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"), dated as of January 15, 1997, by and among PROFFITT'S CREDIT CORPORATION, a Nevada corporation, as transferor (in such capacity, the "Transferor"), PROFFITT'S, INC., a Tennessee corporation ("Proffitt's") in its capacity as servicer guarantor ("Servicer Guarantor"), MCRAE'S, INC., a Mississippi corporation, as servicer (the "Servicer" or "McRae's"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK, N.A., a national banking association ("NationsBank"), as agent for the Company and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor. PRELIMINARY STATEMENTS WHEREAS, the Transferor may desire to convey, transfer and assign, from time to time, undivided percentage interests in certain accounts receivable, and the Company may desire to, and the Bank Investors, if requested, shall, accept such conveyance, transfer and as- signment of such undivided percentage interests, subject to the terms and conditions of this Agreement. NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. As used in this Agree- ment, the following terms shall have the following meanings: "Account" shall mean each credit account established pursuant to an Account Agreement between a Designated Seller and an Obligor as of the Cut-Off Date and on any day thereafter, which is identified by account number and by the Outstanding Principal Balance as of the Cut-Off Date and referred to in the Account Schedule delivered to the Agent on the Closing Date pursuant to Section 2.8, including any Related Account, and any such Account established after the Cut-Off Date shall be identified on the Account Schedule as such schedule may be amended from time to time pursuant to Section 2.8. "Account Agreement" shall mean the agreements and Federal Truth in Lending Statement for Accounts, in substantially the form attached as Exhibit A to this Agreement, as such agreements or statement may be amended, modified or otherwise changed from time to time. "Account Schedule" shall mean the schedule of Accounts (which schedule may be in the form of a computer file or microfiche) of the Transferor attached as Schedule A to this Agreement, as amended or modified from time to time pursuant to the terms of this Agreement. "Accrued Interest Component" means, for any Collection Period, that portion of the Interest Component of all Related Commercial Paper outstanding at any time during such Collection Period which has accrued from the first day through the last day of such Collection Period wheth- er or not such Related Commercial Paper matures during such Collection Period, based on the actual number of days in such Collection Period that such Related Commercial Paper was outstanding. "Adjusted LIBOR Rate" means, with respect to any period during which the return to any Bank Investor or the Liquidity Provider is to be calculated by reference to the London interbank offered rate, a rate which is 0.875% in excess of a rate per annum equal to the sum (rounded upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100% minus the reserve percentage used for determining the maximum reserve requirement as specified in Regulation D (including, without limitation, any marginal, emergency, supplemental, special or other reserves) that is applicable to the Agent during such period in respect of eurocurrency or eurodollar funding, lending or liabilities (or, if more than one percentage shall be so applicable, the daily average of such percentage for those days in such period during which any such percentage shall be applicable) plus (B) the then daily net annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Agent for determining the current annual assessment payable by the Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or eurodollar funding, lending or liabilities. "Administrative Agent" means NationsBank, N.A., as administra- tive agent. "Administrative Fee" means the fee payable by the Transferor to the Company pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person (including any UCC financing statement or any similar instrument filed against such Person's assets or properties), provided, however, that an Adverse Claim shall not be considered to exist with respect to a Receivable solely as a result of an interest in such Receivable existing in favor of either (x) the con- signor of the merchandise sold in connection with the creation of such Receivable or (y) the owner of a leased department which sold the merchandise the sale of which resulted in the creation of such Receiv- able. "Affected Assets" means, collectively, the Receivables and the Related Security, Collections and Proceeds relating thereto. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of voting stock, by contract or otherwise. "Agent" means NationsBank, N.A., in its capacity as agent for the Company and the Bank Investors, and any successor thereto appointed pursuant to Article X. "Aggregate Interest Component" means aggregate sum of the Interest Components of all issued and outstanding Related Commercial Paper. "Aggregate Unpaids" means, at any time, an amount equal to the sum of (i) the aggregate accrued and unpaid Carrying Costs at such time, (ii) all amounts of the type included in the definition of "Carrying Costs" which may accrue after such time, (iii) the Net Investment at such time, and (iv) all other amounts owed (whether due or accrued) hereunder by the Transferor to the Company, the Agent or any Bank Investor at such time. "Arrangement Fee" means the fee payable by the Transferor to the Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Assignment Amount" with respect to a Bank Investor shall mean at any time an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share of the Net Investment at such time and (ii) such Bank Investor's unused Commitment. "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit G attached hereto. "Bank Investors" shall mean NationsBank, N.A. and each other financial institution that becomes a Bank Investor pursuant to an Assignment and Assumption Agreement and the respective successors and permitted assigns of any of the foregoing. "Bankruptcy Code" means Title 11 of the United States Code, as amended and modified from time to time. "Base Rate" means, a rate per annum equal to the greater of (i) the prime rate of interest announced by the Liquidity Provider (or if more than one Liquidity Provider, then by NationsBank) from time to time, changing when and as said prime rate changes (such rate not neces- sarily being the lowest or best rate charged by the Liquidity Provider (or if more than one Liquidity Provider, by NationsBank)) and (ii) the sum of (a) 1.50% and (b) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Liquidity Provider (or, if more than one Liquidity Provider, then by NationsBank) from three Federal funds brokers of recognized standing se- lected by it. "Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Transferor, any Designated Seller or any ERISA Affiliate of the Transferor, or a Designated Seller is, or at any time during the immediately preceding six years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day excluding Saturday, Sunday and any day on which banks in New York, New York, Charlotte, North Carolina, Memphis, Tennessee, Birmingham, Alabama or Jackson, Mississippi are authorized or required by law to close, and, when used with respect to the determination of any Eurodollar Rate or any notice with respect thereto, any such day which is also a day for trading by and between banks in United States dollar deposits in the London interbank market. "Buyers' Percentage Factor" shall mean the percentage computed in accordance with Section 2.2(e) as follows: NI/NRB Where: NI = the Net Investment at the time of such computation. NRB = the Net Receivables Balance at the time of such computation. Notwithstanding the foregoing computation, (i) the Buyers' Percentage Factor shall not exceed 100%, and (ii) the Buyers' Percentage Factor with respect to Principal Collections at any time on and after the Termination Date shall be the percentage equivalent of a fraction the numerator of which is the Net Investment as of the Termination Date and the denominator of which is the lesser of (x) the Net Receivables Balance on the last day of the Collection Period immediately prior to the Termination Date or (y) the Net Receivables Balance on the last day of the immediately preceding Collection Period. "Capitalized Leases" shall mean capital leases and subleases, as defined in the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 13, dated November 1976, as amended. "Carrying Costs" shall mean for a Collection Period the sum of (i) the sum of the dollar amount of the Company's obligations for such Collection Period determined on an accrual basis in accordance with GAAP consistently applied (a) to pay interest with respect to Purchased Interests pursuant to the provisions of the Liquidity Provider Agreement (such interest to be calculated based on the Adjusted LIBOR Rate, pro- vided that if a Termination Event shall have occurred, such interest shall be calculated at the Base Rate plus 2.00%) outstanding at any time during such Collection Period accrued from the first day through the last day of such Collection Period whether or not such interest is payable during such Collection Period and to pay interest with respect to amounts disbursed by a Credit Support Provider pursuant to the Credit Support Agreement outstanding at any time during such Collection Period accrued from the first day through the last day of such Collection Period whether or not such interest is payable during such Collection Period, (b) to pay the Accrued Interest Component of Related Commercial Paper with respect to any Collection Period (and, for purposes of this clause (b), Related Commercial Paper shall include Commercial Paper issued to fund the Net Investment even if such Commercial Paper is issued in an amount in excess of the Net Investment), (c) to pay the Dealer Fee with respect to Related Commercial Paper issued during such Collection Period, (d) to pay any past due interest not paid in clause (a) and (b) with respect to prior Collection Periods, and (e) to pay the costs of the Company with respect to the operation of Sections 8.1, 8.2, 8.3 and 8.4, and (ii) the Program Fee, the Administrative Fee and the Facility Fee accrued from the first day through the last day of such Collection Period whether or not such amount is payable during such Collection Period, and all interest amounts due the Bank Investors in accordance with Section 2.3(c), (d) and (e). "Certificate" means the certificate issued to the Agent for the benefit of the Company and the Bank Investors pursuant to Section 2.2(d) hereof. "Closing Date" means January 16, 1997. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Agent" means NationsBank, N.A., as collateral agent for any Liquidity Provider, any Credit Support Provider, the holders of Commercial Paper and certain other parties. "Collection Account" means the account, established by the Agent, for the benefit of the Company and the Bank Investors, pursuant to Section 2.12. "Collection Period" shall mean each calendar month; provided, that the first Collection Period shall begin on the Closing Date and shall end on the last day of the calendar month containing the Closing Date. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all Recoveries and Finance Charges, if any, and cash proceeds of Related Security with respect to such Receivable. "Commercial Paper" means the promissory notes of the Company issued by the Company in the commercial paper market. "Commitment" means, (i) with respect to each Bank Investor party hereto, the commitment of such Bank Investor to make acquisitions from the Transferor or the Company in accordance herewith in an amount not to exceed the dollar amount set forth opposite such Bank Investor's signature on the signature page hereto under the heading "Commitment", minus the dollar amount of any Commitment or portion thereof assigned pursuant to an Assignment and Assumption Agreement plus the dollar amount of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination, (ii) with re- spect to any assignee of a Bank Investor party hereto taking pursuant to an Assignment and Assumption Agreement, the commitment of such assignee to make acquisitions from the Transferor or the Company not to exceed the amount set forth in such Assignment and Assumption Agreement minus the dollar amount of any Commitment or portion thereof assigned pursuant to an Assignment and Assumption Agreement prior to such time of determination and (iii) with respect to any assignee of an assignee re- ferred to in clause (ii), the commitment of such assignee of such as- signee to make acquisitions from the Transferor or the Company not to exceed the amount set forth in an Assignment and Assumption Agreement between such assignee and its assign. "Commitment Termination Date" means January 14, 1998, or such later date to which the Commitment Termination Date may be extended by Transferor, the Agent and the Bank Investors not later than 30 days prior to the then current Commitment Termination Date. "Company" means Enterprise Funding Corporation, and its successors and assigns. "Credit Guidelines" shall mean the Designated Sellers' credit and collection policy or policies and practices, relating to Accounts and Receivables existing on the date hereof and referred to in Exhibit B attached hereto, as modified and as supplemented from time to time in compliance with Section 5.2(c). "Credit Support Agreement" means the agreement between the Company and the Credit Support Provider evidencing the obligation of the Credit Support Provider to provide credit support to the Company in connection with the issuance by the Company of Commercial Paper. "Credit Support Provider" means the Person or Persons who provides credit support to the Company in connection with the issuance by the Company of Commercial Paper. "Cut-Off Date" shall mean January 14, 1997. "Cycle Certificate" shall mean the certificate of the Servicer in the form of Exhibit P hereto. "Date of Processing" shall mean, with respect to any transaction giving rise to a Receivable, the date on which such transaction is first recorded on the Servicer's computer master file of Accounts (without regard to the effective date of such recordation). "Dealer Fee" shall have the meaning assigned in the Fee Letter. "Deemed Collections" means any Collections on any Receivable deemed to have been received pursuant to Section 2.9(a) or (b) hereof. "Default Ratio" means, with respect to any Collection Period, the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the product of (x) 12 and (y) the aggregate amount of Receivables which became Defaulted Receivables during such Collection Period by (ii) the aggregate amount of all Re- ceivables (other than Defaulted Receivables) as of the last day of the prior Collection Period. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 181 days or more from the original due date for such Receivable; (ii) as to which an Event of Bankruptcy has occurred and is continuing with respect to the Obligor thereof; (iii) which has been identified by the Transferor, the Designated Seller or the Servicer as uncollectible; or (iv) which, consistent with the Credit Guidelines, should be written off as uncol- lectible. "Delinquency Ratio" means, the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the aggregate amount of all Delinquent Receivables as of such date by (ii) the aggregate amount of all Receivables (other than Defaulted Receivables) as of such date. "Delinquent Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for more than 30 days from the original due date for such Receivable and (ii) which is not a Defaulted Receivable. "Designated Seller" means (i) Proffitt's, Inc., a Tennessee corporation, (ii) McRae's, Inc. a Mississippi corporation, and (iii) any other Person designated with the written consent of the Agent as the "seller" under any Receivables Purchase Agreement, and in each case such Person's successors and permitted assigns. "Determination Date" shall mean with respect to any Collection Period, the twelfth day of the succeeding calendar month or, if such twelfth day is not a Business Day, the Business Day next succeeding such twelfth day. "Dilution Ratio" shall mean the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the aggregate amount by which Receivables are reduced or cancelled as a result of any defective, rejected or returned merchandise or services and all credits, rebates, discounts, disputes, warranty claims, repossessed or returned goods, chargebacks, allowances, or any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, (whether effected through the granting of credits against the applicable Receivables or by the issuance of a check or other payment in respect of (and as payment for) such reduction) by a Designated Seller, the Transferor or the Servicer, provided to Obligors in respect of Receivables during such month by (ii) the aggregate Outstanding Principal Balance of all Receivables as of the last day of the preceding Collection Period. "Discount Percentage" shall mean the percentage designated by the Transferor pursuant to Section 2.5(e). "Discount Receivables" shall have the meaning specified in Section 2.5(e). "Discount Receivable Collections" shall mean, for any day, the product of (a) a fraction the numerator of which is the amount of Dis- count Receivables and the denominator of which is the sum of the Principal Receivables and the Discount Receivables, in each case at the end of the prior Collection Period and (b) Principal Collections (without giving effect to Discount Receivables Collections) on such day. "Early Collection Fee" means, for any funding period during which the portion of the Net Investment that was allocated to such funding period is reduced for any reason whatsoever, the excess, if any, of (i) the additional interest that would have accrued during such funding period if such reductions had not occurred, minus (ii) the income, if any, received by the recipient of such reductions from investing the proceeds of such reductions. "Eligible Account" shall mean, as of the Cut-Off Date (or, with respect to Accounts arising after the Cut-Off Date, as of the date of creation), each Account in existence and owned by a Designated Seller: (a) which is payable in United States Dollars; (b) the credit card or cards related thereto have not been reported lost or stolen or designated fraudulent; (c) the Obligor on which has provided, as its most recent billing address, an address located in the United States or its territories or possessions, or Canada, or which is a United States military address; (d) which is not an Account as to which any of the Receivables existing thereunder are Defaulted Receivables; (e) which has been created by a Designated Seller (or another entity which sells Receivables to a Designated Seller as permitted by a Receivables Purchase Agreement) in the ordinary course of its business in accordance with, or under standards no less stringent than, the Credit Guidelines; (f) with respect to which the applicable Designated Seller has good title thereto, free and clear of all Adverse Claims; and (g) the Obligor on which has not been identified by the Servicer or the Transferor, as applicable, in its computer files as having (i) died, (ii) commenced, or had commenced in respect of such Obligor, a case, action or proceeding under any law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking relief with respect to such Obligor's debts, or seeking to have such Obligor adjudicated bankrupt or insolvent, or to have a receiver, trustee, custodian or other similar official appointed for such Obligor or for all or any substantial part of such Obligor's assets or (iii) made a general assignment of such Obligor's assets for the benefit of such Obligor's creditors, which assignment is then in full force and effect. "Eligible Investments" means any of the following (a) negotia- ble instruments or securities represented by instruments in bearer or registered or in book-entry form which evidence (i) obligations fully guaranteed by the United States of America; (ii) time deposits in, or bankers acceptances issued by, any depositary institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by Federal or state banking or depositary institution authorities; provided, however, that at the time of investment or contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall have a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in the case of the certificates of deposit or short-term deposits, or a rating not lower than one of the two highest investment categories granted by Moody's and by S&P; (iii) certificates of deposit having, at the time of investment or contractual commitment to invest therein, a rating from Moody's and S&P of at least "P-1" and "A-1", respectively; or (iv) investments in money market funds rated in the highest investment category or otherwise approved in writing by the applicable rating agencies; (b) demand deposits in any depositary institution or trust company referred to in (a)(ii) above; (c) commercial paper (having original or remaining maturities of no more than 30 days) having, at the time of investment or contractual commitment to invest therein, a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively; (d) Eurodollar time deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively; and (e) repurchase agreements involving any of the Eligible Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the other party to the repurchase agreement has at the time of investment therein, a rating from Moody's and S&P of at least "P-1" and "A-1", respectively. "Eligible Receivable" means, at any time, any Receivable: (a) with respect to which, the related Account is an Eligible Account; (b) which has been originated by a Designated Seller (or another entity which sells Receivables to a Designated Seller as permitted by a Receivables Purchase Agreement) in the ordinary course of its business, sold to the Transferor pursuant to (and in accordance with) the Receivables Purchase Agreement and to which the Transferor has good title thereto, free and clear of all Adverse Claims; (c) which (together with the Collections and Related Security related thereto) has been the subject of either a valid trans- fer and assignment from the Transferor to the Agent, on behalf of the Company and the Bank Investors, of all of the Transferor's right, title and interest therein or the grant of a first priority perfected security interest therein (and in the Collections and Related Security related thereto), effective until the termination of this Agreement; (d) which arises pursuant to an Account with respect to which each of the applicable Designated Seller (or another entity which sells Receivables to a Designated Seller as permitted by a Receiv- ables Purchase Agreement) and the Transferor has performed all obliga- tions required to be performed by it thereunder, including without limitation shipment of the merchandise and/or the performance of the services purchased thereunder; (e) a purchase of which with the proceeds of Com- mercial Paper would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (f) which is an "account" or a "general intangible" or "chattel paper" within the meaning of Article 9 of the UCC of all appli- cable jurisdictions; (g) which arises under an Account that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms and is not subject to any litigation, right of rescission, dispute, offset, counterclaim or other defense; (h) which was created in compliance, in all material respects, with all laws, rules or regulations applicable thereto (in- cluding, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and pursuant to an Account Agreement which complies, in all material re- spects, with all such laws, rules and regulations; (i) which (A) satisfies all applicable requirements of the Credit Guidelines, (B) has not been waived or modified except in accordance with the Credit Guidelines, and (C) is assignable without the consent of, or notice to, the Obligor thereunder; (j) the Obligor of which has been directed to make all payments to a specified account of the Servicer with respect to which there shall be a Lock-Box Agreement in effect; (k) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the Transferor or by the applicable Designated Seller (or another entity which sells Receivables to a Designated Seller as permitted by a Receivables Purchase Agreement) in connection with the creation of such Receivable or the execution, delivery, creation and performance by the Transferor or by the applicable Designated Seller (or another entity which sells Receivables to a Designated Seller as permitted by a Receivables Purchase Agreement) of the Account Agreement pursuant to which such Receivable was created, have been duly obtained, effected or given and are in full force and effect; (l) the assignment of which under the Receivables Pur- chase Agreement by the applicable Designated Seller and hereunder by the Transferor (and, if applicable, the assignment by the entity which originated such Receivable to a Designated Seller as permitted by a Re- ceivables Purchase Agreement) does not violate, conflict or contravene any applicable laws, rules, regulations, orders or writs or any contrac- tual or other restriction, limitation or encumbrance; and (m) as to which the Obligor has not exceeded its credit limit by an amount in excess of the greater of (i) $300 or (ii) 10% of such credit limit as determined as of each cycle closing date, except for exceptions which are immaterial in the aggregate. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code (as in effect from time to time, the "Code")) as such Person; (ii) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with such Person; or (iii) a member of the same affiliated service group (within the meaning of Sec- tion 414(n) of the Code) as such Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above. "Event of Bankruptcy" means, with respect to any Person, (i) that such Person (a) shall generally not pay its debts as such debts become due or (b) shall admit in writing its inability to pay its debts generally or (c) shall make a general assignment for the benefit of creditors; (ii) any proceeding shall be instituted by or against such Person seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debt- ors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or (iii) if such Person is a corporation, such Person or any Subsidiary shall take any corporate action to authorize any of the actions set forth in the preceding clauses (i) or (ii). "Excluded Taxes" shall have the meaning specified in Section 8.3 hereof. "Facility Fee" means the fee payable by the Transferor to the Agent for distribution to the Bank Investors pursuant to Section 2.7(a) hereof, the terms of which are set forth in the Fee Letter. "Facility Limit" means $175,000,000; provided that such amount may not at any time exceed the aggregate Commitments at any time in effect; provided, further, that from and after the Termination Date the Facility Limit shall at all times equal the Net Investment plus the Aggregate Interest Component. "Fee Letter" means, collectively, the letter agreement or agreements dated the date hereof (i) between the Transferor and the Company and (ii) between the Transferor and the Agent on behalf of the Bank Investors, in each case with respect to the fees to be paid by the Transferor hereunder, as amended, modified or supplemented from time to time. "Finance Charge Collections" shall mean that portion of the Collections with respect to the Receivables which are properly designated in the Accounts as Finance Charges, together with (i) any Recoveries (net of liquidation expenses, if any) in respect of Defaulted Receivables and Related Security with respect thereto and (ii) all Dis- count Receivable Collections. "Finance Charges" means, with respect to an Account, any periodic finance charges, late fees, returned check or NSF charges or similar charges owing by an Obligor pursuant to such Account. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such accounting profession, which are in effect as of the date of this Agreement. "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor Default" shall have the meaning specified in Section 9.5 hereof. "Guaranty" means, with respect to any Person any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any other creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract and shall include, without limitation, the contingent liability of such Person in connection with any application for a letter of credit. "Incremental Transfer" means a Transfer which is made pursuant to Section 2.2(a) hereof. "Indebtedness" means, with respect to any Person, without duplication, such Person's (i) obligations for borrowed money evidenced by a promissory note, bond or similar written obligation, including, without limitation, conditional sales or similar title retention agreements, (ii) obligations representing the deferred purchase price of property other than accounts payable arising in the ordinary course of such Person's business on terms customary in the trade, (iii) obliga- tions, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptan- ces, or other instruments, and all liabilities of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), (v) Capitalized Lease obligations, (vi) obligations for which such Person is obligated pursuant to a Guaranty, (vii) all Contingent Obligations (as defined in Exhibit N hereto), (viii) all obligations arising in connection with such Person's interest rate hedging activities, but excluding all accounts payable and accruals, in each case in the ordinary course of business and only so long as payment therefor is due within one year; provided, that in no event shall the term Indebtedness include surplus and retained earnings, minority interest in Subsidiaries, lease obligations (other than pursuant to Capitalized Lease obligations), reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations. "Indemnified Amounts" has the meaning specified in Section 8.1 hereof. "Indemnified Parties" has the meaning specified in Section 8.1 hereof. "Interest Component" shall mean, (i) with respect to any Commercial Paper issued on an interest-bearing basis, the interest payable on such Commercial Paper at its maturity and (ii) with respect to any Commercial Paper issued on a discount basis, the portion of the face amount of such Commercial Paper representing the discount incurred in respect thereof (including any dealer commissions to the extent included as part of such discount). "Investor Report" means a report, in substantially the form attached hereto as Exhibit E or in such other form as is mutually agreed to by the Transferor and the Agent, furnished by the Servicer pursuant to Section 2.11 hereof. "Law" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "LIBOR Rate" means, with respect to any Collection Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at ap- proximately 11:00 a.m. (London time) two London Business Days prior to the first day of such Collection Period for a term of one month. If for any reason such rate is not available, the term "LIBOR Rate" shall mean, for any Collection Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in dollars at ap- proximately 11:00 a.m. (London time) two London Business Days prior to the first day of such Collection Period for a term of one month; provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Liquidity Provider" means the Person or Persons who will provide liquidity support to the Company in connection with the issuance by the Company of Commercial Paper. "Liquidity Provider Agreement" means the agreement between the Company and the Liquidity Provider evidencing the obligation of the Liquidity Provider to provide liquidity support to the Company in connection with the issuance by the Company of Commercial Paper. "Lock-Box Account" means an account maintained by the Servicer at a Lock-Box Bank for the purpose of receiving Collections from Receiv- ables. "Lock-Box Agreement" means an agreement between the Servicer and a Lock-Box Bank in substantially the form of Exhibit D hereto. "Lock-Box Bank" means each of the banks set forth in Exhibit C hereto and such banks as may be added thereto or deleted therefrom pursuant to Section 2.8 hereof. "Majority Investors" shall have the meaning specified in Section 10.1(a) hereof. "Material Adverse Effect" means any event or condition which would have a material adverse effect on (i) the collectibility of the Receivables, (ii) the condition (financial or otherwise), businesses or properties of the Transferor or any Designated Seller, (iii) the ability of the Transferor or any Designated Seller to perform its respective obligations under the Transaction Documents to which it is a party and (iv) the interests of the Agent, the Company or the Bank Investors under the Transaction Documents. "Maximum Buyers' Percentage Factor" means 82%. "McRae's" shall mean McRae's, Inc., a Mississippi corporation. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by the Transferor, the Designated Seller or any ERISA Affiliate of the Transferor or the Designated Seller on behalf of its employees. "Net Asset Test" means, in connection with any assignment by the Company to the Bank Investors of an interest in the Net Investment pursuant to Section 10.7 hereof, that on the day immediately prior to the day on which such assignment is to take effect, the Net Receivables Balance shall be greater than or equal to the Net Investment. "Net Investment" means the sum of the initial Transfer Price plus the sum of the cash amounts paid to the Transferor for each Incremental Transfer less the aggregate amount of Collections received and applied by the Agent to reduce such Net Investment pursuant to Section 2.5, 2.6 or 2.9 hereof; provided that the Net Investment shall be restored and reinstated in the amount of any Collections so received and applied if at any time the distribution of such Collections is rescinded or must otherwise be returned for any reason; and provided further that the Net Investment may be increased by the amount described in Section 10.7(d) as described therein. "Net Portfolio Yield" shall mean, with respect to any Collection Period, the annualized percentage equivalent of a fraction the numerator of which is Finance Charge Collections less the Carrying Costs for such Collection Period less the aggregate outstanding balance of all Receivables which became Defaulted Receivables during such Collection Period less the Servicing Fee with respect to such Collection Period and the denominator of which is the daily average aggregate Outstanding Principal Balance of all Receivables during such Collection Period. "Net Receivables Balance" at any time shall mean the aggregate Outstanding Principal Balance of all Eligible Receivables, excluding (i) the aggregate balance of any Discount Receivables at such time and (ii) the amount by which the aggregate Outstanding Principal Balance of all Eligible Receivables the Obligor of which is an employee of the Transferor, any Designated Seller or any of their Affiliates exceeds 5.0% of the aggregate Outstanding Principal Balance of all Eligible Receivables and (iii) all amounts owing at such time by any Designated Seller (and any other entity which sells Receivables to a Designated Seller as permitted by a Receivables Purchase Agreement) to (x) any con- signor of merchandise the sale of which may result in the creation of a Receivable or (y) any owner of a leased department which sells merchan- dise the sale of which may result in the creation of a Receivable. "Net Worth" means, with respect to the Transferor and at any time, an amount equal to the aggregate Outstanding Principal Balance of all Eligible Receivables at such time minus the amount of the Net Investment at such time minus the outstanding principal amount at such time of the subordinated note issued by the Transferor in connection with the Receivables Purchase Agreement entered into with any Designated Seller minus any other liabilities of the Transferor plus, if all of the subordinated notes of the Transferor have zero balances outstanding, all cash of the Transferor. "Obligor" means any Person obligated to make payments under an Account, including any guarantor thereunder. "Obligations" shall have the meaning specified in Section 9.1 hereof. "Official Body" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of any such government or political subdivision, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Other Transferor" means any Person other than the Transferor that has entered into a receivables purchase agreement or transfer and administration agreement with the Company. "Outstanding Principal Balance" means, with respect to any Re- ceivable at any time, the then outstanding principal amount thereof excluding any accrued and outstanding Finance Charges related thereto and giving effect to the amount of any credit balances and other adjust- ments existing with respect to such Receivable on such day. The out- standing principal amount of any Defaulted Receivables shall be considered to be zero for the purposes of any determination hereunder of the aggregate Outstanding Principal Balance of the Receivables or the aggregate Outstanding Principal Balance of Eligible Receivables. "Payment Rate" shall mean, for any Collection Period, the percentage equivalent of a fraction, the numerator of which is equal to the amount of all Principal Collections during such Collection Period and the denominator of which is equal to the aggregate Outstanding Principal Balance of all Receivables as of the last day of the prior Collection Period. "Person" means any corporation, limited liability company, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Potential Termination Event" means an event which but for the passage of time or the giving of notice, or both, would constitute a Termination Event. "Principal Collections" shall mean with respect to any Collection Period, all Collections received during such period other than Finance Charge Collections. "Pro Rata Share" means, for a Bank Investor, the Commitment of such Bank Investor divided by the sum of the Commitments of all Bank Investors. "Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC. "Proffitt's" shall mean Proffitt's, Inc., a Tennessee corporation. "Program Fee" means the fee payable by the Transferor to the Company pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Purchased Interest" means the interest in the Receivables acquired by a Liquidity Provider through purchase pursuant to the terms of the Liquidity Provider Agreement. "Purchase Termination Date" means the date upon which the Transferor shall cease, for any reason whatsoever, to make purchases of Receivables from the Designated Seller under the Receivables Purchase Agreement or the Receivables Purchase Agreement shall terminate for any reason whatsoever. "Receivable" means the indebtedness owed to a Designated Seller by any Obligor (without giving effect to any purchase under the Receivables Purchase Agreement by the Transferor at any time) under an Account and sold by such Designated Seller to the Transferor pursuant to the Receivables Purchase Agreement, whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of services, and includes the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. A Receivable shall be deemed to have been created or the amount thereof increased as of the end of the day on the Date of Processing of such Receivable or such increase to the amount thereof. "Receivables Purchase Agreement" means, collectively, (i) the Receivables Purchase Agreement dated as of January 15, 1997 by and between Proffitt's, as seller, the Transferor, as purchaser, and McRae's, as servicer (ii) the Receivables Purchase Agreement dated as of January 15, 1997 by and between McRae's, as seller and servicer, and the Transferor, as purchaser, and (iii) any other receivables purchase agreement entered into by the Transferor, with the prior written consent of the Agent, between the person designated as the 'seller' thereunder with the Transferor, as purchaser, in each case as such agreement may be amended, modified or supplemented and in effect from time to time. "Records" means all Account Agreements and other documents, books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Receivables and the related Obligors. "Recoveries" shall mean all amounts received or collected by the Servicer with respect to Defaulted Receivables. "Reinvestment Termination Date" means the second Business Day after the delivery by the Company to the Transferor of written notice that the Company elects to commence the amortization of its interest in the Net Investment pursuant to Section 2.6 or otherwise liquidate its interest in the Transferred Interest. "Related Account" shall mean an Account having the following characteristics: (i) such Related Account was originated in accordance with the Credit Guidelines; (ii) the Obligor or Obligors with respect to such Related Account is the same Person or Persons as the Obligor or Obligors of an Account; (iii) such Related Account is originated as a result of the credit card with respect thereto being lost or stolen; and (iv) such Related Account can be traced or identified as a successor ac- count to an Account by reference to or by way of the computer or other records of the Servicer or the Transferor. "Related Commercial Paper" shall mean Commercial Paper issued by the Company the proceeds of which were used to acquire, or refinance the acquisition of, an interest in Receivables with respect to the Transferor. "Related Security" means with respect to any Receivable, all of the Transferor's rights, title and interest in, to and under: (i) all of the Transferor's interest, if any, in the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing state- ments signed by an Obligor describing any collateral securing such Receivable; (iii) all guarantees, indemnities, warranties, insurance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (iv) all Records related to such Receivable; (v) all rights and remedies of the Transferor under the Receivables Purchase Agreement, together with all financing state- ments filed by the Transferor against a Designated Seller in connection therewith; and (vi) all rights and remedies of the Transferor under the Receivables Purchase Agreement against any entity which sells Re- ceivables to a Designated Seller as permitted by a Receivables Pur- chase Agreement, together with all rights of the Transferor in all financing statements filed by the Transferor or a Designated seller against such an entity in connection therewith; and (vii) all Proceeds of any of the foregoing. "Remittance Date" shall mean the sixteenth day of each month of the Transferor beginning January 16, 1997, or, if such day is not a Business Day, the Business Day next succeeding such sixteenth day. "Requirements of Law" for any Person shall mean the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or Govern- mental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof. "Servicer" means at any time the Person then authorized pursuant to Section 6.1 to service, administer and collect Receivables. "Servicer Advance" shall have the meaning specified in Section 2.5(d). "Servicer Default" has the meaning specified in Section 6.4 hereof. "Servicing Fee" means the fees payable by the Company or the Bank Investors to the Servicer in an amount equal to 2.0% per annum (calculated on the basis of actual days elapsed divided by a year consisting of 360 days) on the average daily amount of the Net Invest- ment. Such fee shall accrue from the date of the initial purchase of an interest in the Receivables to the date on which the Buyers' Percentage Factor is reduced to zero. Such fee shall be payable only from Collec- tions pursuant to, and subject to the priority of payments set forth in, Section 2.5 hereof. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. "Subordinated Note" shall have the meaning specified in the Receivables Purchase Agreement. "Subsidiary" of a Person means any Person more than 50% of the outstanding voting interests of which shall at any time be owned or con- trolled, directly or indirectly, by such Person or by one or more Sub- sidiaries of such Person or any similar business organization which is so owned or controlled. "Taxes" shall have the meaning specified in Section 8.3 hereof. "Telerate Page 3750" shall mean the British Bankers Association Libor Rates (determined at 11:00 a.m. London time) that are published by Dow Jones Telerate, Inc. "Termination Date" means the earliest of (i) the Business Day designated by the Transferor to the Company as the Termination Date at any time following 60 days' written notice to the Company, (ii) the date of termination of the commitment of the Liquidity Provider under the Liquidity Provider Agreement, (iii) the date of termination of the commitment of the Credit Support Provider under the Credit Support Agreement, (iv) the day upon which a Termination Date is declared or automatically occurs pursuant to Section 7.2(a) hereof, (v) two Business Days prior to the Commitment Termination Date, (vi) the day on which a Reinvestment Termination Date shall occur unless the Transferred Interest shall have been assigned (or is concurrently so assigned) to the Bank Investors pursuant to Section 10.7 hereof, (vii) the Purchase Termination Date, or (viii) January 14, 1998. "Termination Event" means an event described in Section 7.1 hereof. "Transaction Costs" has the meaning specified in Section 8.4(a) hereof. "Transaction Documents" means, collectively, this Agreement, the Receivables Purchase Agreement, the Fee Letter, the Lock-Box Agreements, the Certificate, the Transfer Certificates and all of the other instruments, documents and other agreements executed and delivered by the Designated Seller or the Transferor in connection with any of the foregoing, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Transfer" means a conveyance, transfer and assignment by the Transferor to the Company or the Bank Investors of an undivided per- centage ownership interest in Receivables hereunder (including, without limitation, as a result of any reinvestment of Collections in Trans- ferred Interests pursuant to Section 2.2(b) and 2.5). "Transfer Certificate" has the meaning specified in Section 2.2(a) hereof. "Transfer Date" means, with respect to each Transfer, the Business Day on which such Transfer is made. "Transfer Price" means with respect to any Incremental Transfer, the amount paid to the Transferor by the Company or the Bank Investors as described in the applicable Transfer Certificate. "Transferor" means Proffitt's Credit Corporation, a Nevada corporation, and its successors and permitted assigns. "Transferor's Percentage Factor" means at any time 1 minus the Buyers' Percentage Factor. "Transferred Interest" means, at any time of determination, an undivided percentage ownership interest in (i) each and every then outstanding Receivable, (ii) all Related Security with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) other Proceeds of the foregoing, which undivided ownership interest shall be equal to the Buyers' Percentage Factor at such time, and only at such time (without regard to prior calculations). The Transferred Interest in each Receivable, together with Related Security, Collections and Proceeds with respect thereto, shall at all times be equal to the Transferred Interest in each other Receivable, together with Related Security, Collections and Proceeds with respect thereto. To the extent that the Transferred Interest shall decrease as a result of a recalcu- lation of the Buyers' Percentage Factor, the Company or the Bank Investors, as applicable, shall be considered to have reconveyed to the Transferor an undivided percentage ownership interest in each Receiv- able, together with Related Security, Collections and Proceeds with respect thereto, in an amount equal to such decrease such that in each case the Transferred Interest in each Receivable shall be equal to the Transferred Interest in each other Receivable. "UCC" means, with respect to any state, the Uniform Commercial Code as from time to time in effect in such state. "U.S." or "United States" means the United States of America. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including", the words "to" and "until" each means "to but excluding", and the word "within" means "from and excluding a specified date and to and including a later specified date". ARTICLE II PURCHASES AND SETTLEMENTS SECTION 2.1. Facility. Upon the terms and subject to the conditions herein set forth at any time prior to the Termination Date (x) the Transferor may, at its option, convey, transfer and assign to the Company or the Bank Investors, as applicable, and (y) the Company may, at its option, or the Bank Investors shall, if so requested, accept such conveyance, transfer and assignment from the Transferor of, without recourse except as provided herein, undivided percentage ownership interests in the Receivables, together with Related Security, Collec- tions and Proceeds with respect thereto, from time to time. By accepting any conveyance, transfer and assignment hereunder, neither the Company, any Bank Investor nor the Agent assumes or shall have any obligations or liability under any of the Accounts, all of which shall remain the obligations and liabilities of the Transferor and the Designated Seller. SECTION 2.2. Transfers; Certificates; Eligible Receivables (a) Incremental Transfers. Upon the terms and subject to the conditions herein set forth the Transferor may, at its option, convey, transfer and assign to the Company or the Bank Investors, as applicable, and from time to time prior to the occurrence of the Termination Date the Company may, at its option, or the Bank Investors, shall, if so requested by the Transferor, accept such conveyance, transfer and assignment from the Transferor, without recourse except as provided herein, of undivided percentage ownership interests in the Receivables, together with Related Security, Collections and Proceeds with respect thereto (each, an "Incremental Transfer"); provided that after giving effect to the issu- ance of Related Commercial Paper to fund the Transfer Price of any Incremental Transfer and the payment to the Transferor of such Transfer Price the sum of the Net Investment plus the Interest Component of all outstanding Related Commercial Paper would not exceed the Facility Limit; and, provided further, that, after giving effect to such Incre- mental Transfer, the Transferor's Percentage Factor, as of the latest cycle closing date reported in any Cycle Certificate delivered by the Servicer to the Agent pursuant to Section 2.11(b), shall not be less than the decimal equivalent of 1.00 minus the Maximum Buyers' Percentage Factor and provided further however, that the representations and warranties set forth in Sections 3.1 and 3.2 shall be true and correct both immediately before and immediately after giving effect to any such Incremental Transfer and the payment to the Transferor of the Transfer Price related thereto and a Cycle Certificate shall have been delivered with respect to such Incremental Transfer as required by Section 3.3 hereof. The Transferor shall, by notice to the Agent given by telecopy, offer to convey, transfer and assign to the Company or the Bank Investors, as applicable, undivided percentage ownership interests in the Receivables and the other Affected Assets relating thereto at least two (2) Business Days prior to the proposed date of any Incre- mental Transfer. Each such notice shall specify (w) whether such request is made to the Company or the Bank Investors (it being understood and agreed that once the Bank Investors acquire any Transferred Interest hereunder, the Bank Investors shall be required to purchase all Transferred Interests held by the Company in accordance with Section 10.7 and thereafter the Company shall no longer accept any additional Incremental Transfers hereunder), (x) the desired Transfer Price (which shall be at least $1,000,000 or integral multiples of $100,000 in excess thereof) or, to the extent that the then available unused portion of the Facility Limit is less than such amount, such lesser amount equal to such available portion of the Facility Limit), and (y) the desired date of such Incremental Transfer. The Agent will promptly notify the Company or each of the Bank Investors, as the case may be, of the Agent's receipt of any request for an Incremental Trans- fer to be made to such Person. To the extent that any such Incremental Transfer is requested of the Company, the Company shall accept or reject such offer by notice given to the Transferor and the Agent by telephone or telecopy by no later than the close of its business on the Business Day following its receipt of any such request. Each notice of proposed Transfer shall be irrevocable and binding on the Transferor and the Transferor shall indemnify the Company and each Bank Investor against any loss or expense incurred by the Company or any Bank Investor, either directly or indirectly (including, in the case of the Company, through the Liquidity Provider Agreement) as a result of any failure by the Transferor to complete such Incremental Transfer including, without limitation, any loss or expense incurred by the Company or any Bank Investor, either directly or indirectly (including, in the case of the Company, pursuant to the Liquidity Provider Agreement) by reason of the liquidation or reemployment of funds acquired by the Company (or the Liquidity Provider) or any Bank Investor (including, without limitation, funds obtained by issuing commercial paper or promissory notes or ob- taining deposits as loans from third parties) for the Company or any Bank Investor to fund such Incremental Transfer. On the date of the initial Incremental Transfer, the Agent, on behalf of the Company or the Bank Investors, as applicable, shall deliv- er written confirmation to the Transferor of the Transfer Price and the Transferor shall deliver to the Agent the Transfer Certificate in the form of Exhibit F hereto (the "Transfer Certificate"). The Agent shall indicate the amount of the initial Incremental Transfer together with the date thereof on the grid attached to the Transfer Certificate. On the date of each subsequent Incremental Transfer, the Agent shall send written confirmation to the Transferor of the Transfer Price applicable to such Incremental Transfer. The Agent shall indicate the amount of the Incremental Transfer together with the date thereof as well as any decrease in the Net Investment on the grid attached to the Transfer Certificate. The Transfer Certificate shall evidence the Incremental Transfers. Following each Incremental Transfer, the Company shall deposit to the Transferor's account at the location indicated in Section 11.3 hereof, in immediately available funds, an amount equal to the Transfer Price for such Incremental Transfer made to the Company and the Bank Investors, respectively. By no later than 11:00 a.m. (New York time) on any Transfer Date, the Company or each Bank Investor, as the case may be, shall remit its share (which, in the case of an Incremental Transfer to the Bank Investors, shall be equal to such Bank Investor's Pro Rata Share) of the aggregate Transfer Price for such Transfer to the account of the Agent specified therefor from time to time by the Agent by notice to such Persons. The obligation of each Bank Investor to remit its Pro Rata Share of any such Transfer Price shall be several from that of each other Bank Investor, and the failure of any Bank Investor to so make such amount available to the Agent shall not relieve any other Bank Investor of its obligation hereunder. Following each Incremental Transfer and the Agent's receipt of funds from the Company or the Bank Investors as aforesaid, the Agent shall remit the Transfer Price to the Transferor's account at the location indicated in Section 11.3 hereof, in immediately available funds. Unless the Agent shall have received notice from the Company or any Bank Investor, as applicable, that such Person will not make its share of any Transfer Price relating to any Incremental Transfer available on the applicable Transfer Date therefor, the Agent may (but shall have no obligation to) make the Company's or any such Bank Investor's share of any such Transfer Price available to the Transferor in anticipation of the receipt by the Agent of such amount from the Company or such Bank Investor. To the extent the Company or any such Bank Investor fails to remit any such amount to the Agent after any such advance by the Agent on such Transfer Date, the Company or such Bank Investor, on the one hand, and the Transferor, on the other hand, shall be required to pay such amount, together with interest thereon at a per annum rate equal to the Federal funds rate (as determined in accordance with clause (ii) of the definition of "Base Rate"), in the case of the Company or any such Bank Investor, or the Base Rate, in the case of the Transferor, to the Agent upon its demand therefor (provided that the Company shall have no obligation to pay such interest amounts except to the extent that it shall have sufficient funds to pay the face amount of its Commercial Paper in full). Until such amount shall be repaid, such amount shall be deemed to be Net Investment paid by the Agent and the Agent shall be deemed to be the owner of a Transferred Interest hereunder. Upon the payment of such amount to the Agent (x) by the Transferor, the amount of the aggregate Net Investment shall be reduced by such amount or (y) by the Company or such Bank Investor, such payment shall constitute such Person's payment of its share of the applicable Transfer Price for such Transfer. (b) Reinvestment Transfers. On each Business Day occur- ring after the initial Incremental Transfer hereunder and prior to the Termination Date the Transferor hereby agrees to convey, transfer and assign to the Company or the Bank Investors then owning any Transferred Interests, and in consideration of Transferor's agreement to maintain at all times prior to the Termination Date a Net Receivables Balance in an amount at least sufficient to maintain the Buyers' Percentage Factor at an amount not greater than the Maximum Buyers' Percentage Factor, the Company may, and the Bank Investors shall (in either case, to the extent such Persons then own any Transferred Interest), agree to purchase from the Transferor undivided percentage ownership interests in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, to the extent that Collections are available for such Transfer in accordance with Section 2.5 hereof, such that after giving effect to such Transfer, (i) the amount of the Net Investment at the close of business on such Business Day shall be equal to the amount of the Company's Net Investment at the close of the business on the Business Day immediately preceding such Business Day plus the Transfer Price of any Incremental Transfer made on such day, if any, and (ii) the Transferred Interest in each Receivable, together with Related Security, Collections and Proceeds with respect thereto, shall be equal to the Transferred Interest in each other Receivable, together with Related Security, Collections and Proceeds with respect thereto. (c) All Transfers. Each Transfer shall constitute a purchase of undivided percentage ownership interests in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, then existing, as well as in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, which arises at any time after the date of such Transfer. The Company's or the Bank Investors', as applicable, aggregate undivided percentage ownership interest in the Receivables, together with the Related Security, Collections and Proceeds with respect thereto, shall equal the Buyers' Percentage Factor in effect from time to time. So long as either the Company, on the one hand, or the Bank Investors, on the other hand, own all of the Transferred Interests at such time, each of the Company's and each Bank Investor's undivided percentage ownership interest in the Affected Assets shall equal such Person's ratable share (determined on the basis of the relationship that such Person's Net Investment bears to the aggregate Net Investment of the Company and all of the Bank Investors at such time) of the Buyers' Percentage Factor at such time. (d) Certificate. The Transferor shall issue to the Agent the Certificate, in the form of Exhibit M, on or prior to the date hereof. (e) Buyers' Percentage Factor. The Buyers' Percentage Factor shall be initially computed as of the opening of business of the Servicer on the date of the initial Incremental Transfer hereunder. Thereafter until the Termination Date the Buyers' Percentage Factor shall be automatically recomputed as of the close of business of the Servicer on each day (other than a day after the Termination Date). The Buyers' Percentage Factor shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputation, if any, shall be made. SECTION 2.3. Fundings. (a) Prior to the Termination Date; Transferred Interest Held by Company. At all times hereafter, but prior to the Termination Date and not with respect to any portion of the Transferred Interest held by the Bank Investors (or any of them), the Transferor may, subject to the Company's approval and the limitations described below, request that the Net Investment be allocated among one or more funding periods, so that the aggregate amounts so allocated at all times shall equal the Net Investment held by the Company. The Transferor shall give the Company irrevocable notice by telephone of the new requested funding period(s) at least two (2) Business Days prior to the expiration of any then existing funding period; provided, however, that the Company may select, in its sole discretion, any such new funding period if (i) the Transferor fails to provide such notice on a timely basis or (ii) the Company determines, in its sole discretion, that the funding period re- quested by the Transferor is unavailable or for any reason commercially undesirable. The Company confirms that it is its intention to fund all or substantially all of the Net Investment held by it by issuing Related Commercial Paper; provided that the Company may determine, from time to time, in its sole discretion, that funding such Net Investment by means of related Commercial Paper is not possible or is not desirable for any reason. If the Liquidity Provider acquires from the Company a Purchased Interest with respect to the Receivables pursuant to the terms of the Liquidity Provider Agreement, NationsBank, on behalf of the Liquidity Provider, may exercise the right of selection granted to the Company hereby. The initial funding period applicable to any such Purchased Interest shall be a period of not greater than 14 days and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter, provided that the Termination Date shall not have occurred, Carrying Costs shall accrue on the basis of either the Base Rate or the Adjusted LIBOR Rate, as determined by NationsBank. In the case of any funding period out- standing upon the Termination Date, such funding period shall end on such date. (b) After the Termination Date; Transferred Interest Held by Company. At all times on and after the Termination Date, with respect to any portion of the Transferred Interest which shall not have been transferred to the Bank Investors (or any of them), the Company or NationsBank, as applicable, shall select all funding periods and rates applicable thereto. (c) Prior to the Termination Date; Transferred Interest Held by Bank Investor. At all times with respect to any portion of the Transferred Interest transferred to the Bank Investors (or any of them) pursuant to Section 10.7, but prior to the Termination Date, the initial funding period applicable to such portion of the Net Investment alloca- ble thereto shall be a period of not greater than 14 days and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter, with respect to such portion, and with respect to any other portion of the Transferred Interest held by the Bank Investors (or any of them), provided that the Termination Date shall not have occurred, Carrying Costs shall accrue with respect thereto at either the Base Rate or the Adjusted LIBOR Rate, at the Transferor's option. The Transferor shall give the Agent irrevocable notice by telephone of the new requested funding period at least two (2) Business Days prior to the expiration of any then existing funding period. In the case of any funding period outstanding upon the occurrence of the Termination Date, such funding period shall end on the date of such occurrence. (d) After the Termination Date; Transferred Interest Held by Bank Investor. At all times on and after the Termination Date, with respect to any portion of the Transferred Interest which shall have been owned or transferred to the Bank Investors (or any of them), the Agent shall select all funding periods and rates applicable thereto. (e) Eurodollar Rate Protection; Illegality. (i) If the Agent is unable to obtain on a timely basis the information necessary to determine the LIBOR Rate for any proposed funding period, then (A) the Agent shall forthwith notify the Company or Bank Investors, as applicable and the Transferor that the Adjusted LIBOR Rate cannot be determined for such funding period, and (B) while such circumstances exist, neither the Company, the Bank Investors or the Agent shall allocate the Net Investment of any additional Transferred Interests purchased during such period or reallocate the Net Investment allocated to any then existing funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate. (ii) If, with respect to any outstanding funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate, the Company or any of the Bank Investors owning any Transferred Interest therein notifies the Agent that it is unable to obtain matching deposits in the London interbank market to fund its purchase or maintenance of such Transferred Interest or that the Adjusted LIBOR Rate applicable to such Transferred Interest will not adequately reflect the cost to the Person of funding or maintaining its respective Transferred Interest for such funding period then the Agent shall forthwith so notify the Transferor, whereupon neither the Agent nor the Company or the Bank Investors, as applicable, shall, while such circumstances exist, allo- cate any Net Investment of any additional Transferred Interest purchased during such period or reallocate the Net Interest allocated to any funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate. (iii) Notwithstanding any other provision of this Agreement, if the Company or any of the Bank Investors, as applicable, shall notify the Agent that such Person has determined (or has been notified by any Liquidity Provider) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful (either for the Company, such Bank Investor, or such Liquidity Provider, as applicable), or any central bank or other governmental authority asserts that it is unlawful, for the Company, such Bank Investor or such Liquidity Provider, as applicable, to fund the purchases or maintenance of Transferred Interests at the Adjusted LIBOR Rate, then (x) as of the effective date of such notice from such Person to the Agent, the obliga- tion or ability of the Company or such Bank Investor, as applicable, to fund its purchase or maintenance of Transferred Interests at the Adjusted LIBOR Rate shall be suspended until such Person notifies the Agent that the circumstances causing such suspension no longer exist and (y) the Net Investment allocated to each funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate in which such Person owns an interest shall either (1) if such Person may lawfully continue to maintain such Transferred Interest at the Adjusted LIBOR Rate until the last day of the applicable funding period, be reallocated on the last day of such funding period to another funding period in respect of which the Net Investment allocated thereto accrues Carrying Costs on a basis other than the Adjusted LIBOR Rate or (2) if such Person shall determine that it may not lawfully continue to maintain such Transferred Interest at the Adjusted LIBOR Rate until the end of the applicable funding period, such Person's share of the Net Investment allocated to such funding period shall be deemed to accrue Carrying Costs on the basis of the Base Rate from the effective date of such notice until the end of such funding period. SECTION 2.4. Carrying Costs, Fees and Other Costs and Expens- es. Notwithstanding the limitation on recourse under Section 2.1 hereof, the Transferor shall pay, as and when due in accordance with this Agreement, all fees hereunder, including any Early Collection Fee, Carrying Costs, all amounts payable pursuant to Article VIII hereof, if any, and the Servicing Fees. On each Remittance Date, the Transferor shall pay to the Agent, on behalf of the Company or the Bank Investors, as applicable, an amount equal to the accrued and unpaid Carrying Costs for the related Collection Period. The Transferor shall pay to the Agent, on behalf of the Company, on each day on which Related Commercial Paper is issued by the Company, the Dealer Fee with respect to such Related Commercial Paper. Nothing in this Agreement shall limit in any way the obligations of the Transferor to pay the amounts set forth in this Section 2.4. SECTION 2.5. Allocations of Collections; Non-Liquidation Set- tlement and Reinvestment Procedures; Servicer Advances. (a) On each Determination Date, the Servicer shall allocate all Collections received during the preceding Collection Period as Finance Charge Collections or Principal Collections. Principal Collections shall be applied by the Servicer as described in subsection (b) below. On each Remittance Date, the product of (A) the daily average of the Buyers' Percentage Factor over the preceding Collection Period and (B) the aggregate Finance Charge Collections for such preceding Collection Period shall be ap- plied, without duplication, by the Servicer as follows: (i) first, to the retention by the Servicer of any Servicer Advances made by the Servicer for costs accrued with respect to such Collection Period and; (ii) second, to the payment to the Agent of any accrued and unpaid Carrying Costs for such Collection Period; (iii) third, if Proffitt's, Inc. or an Affiliate is not the Servicer, to the payment to the Servicer of any Servicing Fee due and owing; (iv) fourth, to the payment of all amounts due and unpaid from the Transferor under Section 2.9(a) as a result of dilutive items and the Buyers Percentage Factor being greater than the Maximum Percentage Factor, which payment shall be treated as a portion of Principal Collections allocable to the Company and ap- plied pursuant to Section 2.5(b) below; (v) fifth, with respect to any Remittance Date occurring on or after the Termination Date, to the payment of the Buyers' Percentage Factor of the outstanding balance of Receivables which have become Defaulted Receivables during such Collection Period, which payment shall be treated as a portion of Principal Collections allocable to the Company and applied pursuant to Section 2.5(b) below; (vi) sixth, if Proffitt's, Inc. or an Affiliate is the Servicer, to the retention by the Servicer of any Servicing Fee due and owing; (vii) seventh, to the extent any Finance Charge Co- llections remain after application in accordance with clauses (i) through (vi) above, (A) if prior to the Termination Date such ex- cess amounts shall be paid to the Transferor and (B) if on or after the Termination Date such excess amounts shall be paid to the Agent in reduction of the Net Investment. On each Remittance Date, subject to Section 2.5(c), the product of (A) the daily average of the Transferor's Percentage Factor over the preceding Collection Period and (B) the aggregate Finance Charge Collections for the preceding Collection Period shall be remitted to the Transferor. (b) On each Remittance Date prior to the Termination Date, (i) the Servicer shall allocate to the Company and/or the Bank Investors the Buyers' Percentage Factor of Principal Collections re- ceived during the related Collection Period and not previously applied or accounted for and, at the Transferor's option, (A) pay such amount to the Transferor, for the benefit of the Company and/or the Bank Inves- tors, and the Transferor shall apply such amount toward the purchase of additional undivided percentage interests in each Receivable pursuant to Section 2.2(b), or (B) pay such amount to the Agent in reduction of the Net Investment and (ii) the Servicer shall pay to the Transferor the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any reallocations pursuant to Section 2.5(c) below. On each Remittance Date on or subsequent to the Termination Date, the Servicer shall allocate to the Company or the Bank Investors, as applicable, the Buyers' Percentage Factor of all Principal Collections received during the related Collection Period and not previously applied or accounted for and pay such amount to the Agent in reduction of the Net Investment. In the event the Termination Date occurred as a result of a Termination Event, the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any reallocations pursuant to Section 2.5(c) below shall be distributed to the Agent in reduction of the Net Investment and, in the case of any other Termination Date, the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any allocations pursuant to Section 2.5(c) below shall be distrib- uted to the Transferor. (c) If on any Remittance Date, after giving effect to clauses (i) through (v) of Section 2.5(a), an insufficiency exists with respect to the Buyers' Percentage Factor of Finance Charge Collections, then, in such event, on such Remittance Date the amount of Finance Charge Collections distributable or allocable to the Transferor, and to the extent any such insufficiency continues to remain, the amounts dis- tributable to the Transferor, pursuant to Section 2.5(b), shall be re- duced by the amount of such insufficiency, and such amount(s) shall be applied as Finance Charge Collections allocable to the Transferred Interest and shall be applied and distributed in accordance with the priority set forth in clauses (i) through (v) of Section 2.5(a). (d) In the event that, on any date, the Company does not have sufficient funds to pay the Interest Component of matured or maturing Related Commercial Paper or any Dealer Fee due and payable on such day, the Servicer, acting upon written notice from the Adminis- trative Agent, shall make an advance in an amount equal to such costs and any Dealer Fee due and payable on such day (a "Servicer Advance") and pay to the Agent, for the account of the Company, the amount of such advance. (e) The Transferor shall have the option to designate a fixed or variable percentage (the "Discount Percentage") of up to 4% of all Receivables other than Finance Charges, late fees, overlimit fees, return check fees and all other fees and charges and Receivables in De- faulted Accounts created on and after any date of determination to be treated as finance charge receivables ("Discount Receivables") in accordance with the provisions of this Section 2.5(e), which percentage shall remain fixed and in effect until such time as the Transferor has provided a subsequent designation to the Agent. The Transferor shall have the option to increase the Discount Percentage to a percentage not greater than 4% or to reduce the Discount Percentage, provided, that no such designation shall become effective that would cause a Termination Event to occur. SECTION 2.6. Liquidation Settlement Procedures. If, on the Termination Date the Buyers' Percentage Factor is greater than the Maximum Buyers' Percentage Factor, then the Transferor shall immediately pay to the Agent, for the benefit of the Company or the Bank Investors, as applicable, from previously received Principal Collections, an amount equal to the amount that, when applied in reduction of the Net Invest- ment, will result in a Buyers' Percentage Factor less than or equal to the Maximum Buyers' Percentage Factor. Such amount shall be applied by the Agent to the reduction of the Net Investment. On each Remittance Date occurring on and following the Termination Date, Principal Collections shall be applied in accordance with Section 2.5(b). Following the date on which the Net Investment shall be reduced to zero and all other Aggregate Unpaids have been paid in full, (i) the Servicer shall recompute the Buyers' Percentage Factor as zero, (ii) the Agent, on behalf of the Company and the Bank Investors, shall be considered to have reconveyed to the Transferor all of the Company's and the Bank Investors' right, title and interest in and to the Affected Assets (including the Transferred Interest), (iii) the Servicer shall pay to the Transferor any remaining Collections set aside and held by the Servicer and (iv) the Agent, on behalf of the Company and the Bank Investors, shall execute and deliver to the Transferor, at the Transferor's expense, such documents or instruments as are necessary to terminate the Company's and the Bank Investors' respective interests in the Affected Assets. Any such documents shall be prepared by or on behalf of the Transferor. SECTION 2.7. Fees. Notwithstanding any limitation on recourse contained in this Agreement, the Transferor shall pay the following non-refundable fees: (a) On each Remittance Date, to the Company solely for its own account, the Program Fee and the Administrative Fee, and to the Agent for distribution to the Bank Investors, the Facility Fee. (b) On the date of execution hereof, to the Administra- tive Agent solely for its own account, the Arrangement Fee. SECTION 2.8. Protection of Ownership Interest of the Company and the Bank Investors. (a) The Transferor agrees that it will, and will cause each Designated Seller to, from time to time, at its expense, promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Agent may reasonably request in order to perfect or protect the Transferred Interest or to enable the Agent, the Company or the Bank Investors to exercise or enforce any of their respective rights hereunder. Without limiting the foregoing, the Transferor will, and will cause each Designated Seller to, upon the re- quest of the Agent, the Company or any of the Bank Investors, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 10.7 hereof) as may be requested by the Agent, the Company or any of the Bank Investors. The Transferor shall, and will cause each Designated Seller to, upon re- quest of the Agent, the Company or any of the Bank Investors, obtain such additional search reports as the Agent, the Company or any of the Bank Investors shall request. To the fullest extent permitted by appli- cable law, the Agent shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Transferor's or any Designated Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. The Transferor agrees that it will, and will cause each Designated Seller to, at its expense, on or prior to the Closing Date indicate clearly and unambiguously in its master data processing records and on any storage containers containing Records that the Receivables created in connection with the Accounts have been conveyed to the Trans- feror (in the case of a Designated Seller), and transferred to the Agent, for the benefit of the Company and the Bank Investors, pursuant to this Agreement by affixing thereon the following legend: "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND CONVEYED TO PROFFITT'S CREDIT CORPORATION AND AN INTEREST THEREIN HAS BEEN ASSIGNED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE TRANSFER AND ADMINISTRATION AGREEMENT DATED AS OF JANUARY 15, 1997, AS AMENDED FROM TIME TO TIME, AMONG PROFFITT'S CREDIT CORPORATION, NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Transferor further agrees to deliver or to cause the Servicer to deliver to the Agent a computer file or microfiche list con- taining a true and complete list of all such Accounts, identified by account number and by Receivable balance as of the Cut-Off Date. Such file or list shall be marked as the Account Schedule and Schedule A to this Agreement, delivered to the Agent as confidential and proprietary, and is hereby incorporated into and made a part of this Agreement. The Transferor agrees to deliver or to cause the Servicer to deliver to the Agent within five (5) Business Days of the request therefor by the Agent either (i) a computer file or microfiche list containing a true and complete list of all Accounts, including all Accounts created on or after the Cut-Off Date, in existence as of the last day of the prior Collection Period, identified by account number and by Receivable balance as of the last day of the prior Collection Period or (ii) a computer file or microfiche list containing a true and complete list of all Accounts in existence as of the last day of the prior Collection Period, identified by account number and by Receivable balance as of the last day of the prior Collection Period. Such file or list shall be marked as the Account Schedule and Schedule A to this Agreement, delivered to the Agent as confidential and proprietary, shall replace the previously delivered Account Schedule and Schedule A, and shall be incorporated into and made a part of this Agreement. The Servicer agrees, on behalf of the Transferor, at its own expense, by the end of each Collection Period in which any Accounts or Related Accounts have been originated to indicate clearly and unambiguously in its master data processing records and any storage containers containing Records that the Receivables created in connection with such Accounts or the Related Accounts have been conveyed to the Transferor and transferred to the Agent, for the benefit of the Company and the Bank Investors, pursuant to this Agreement. The Transferor shall not, and shall not permit any Designated Seller to, change its respective name, identity or corporate structure (within the meaning of Section 9-402(7) of the UCC as in effect in the States of New York, Nevada and Mississippi) nor relocate its respective chief executive office or any office where Records are kept unless it shall have: (i) given the Agent at least thirty (30) days prior notice thereof and (ii) prepared at Transferor's expense and delivered to the Agent all financing statements, instruments and other documents necessary to preserve and protect the Transferred Interest or reasonably requested by the Agent in connection with such change or relocation. Any filings under the UCC or otherwise that are occasioned by such change in name or location shall be made at the expense of the Trans- feror. (b) The Servicer shall instruct all Obligors to cause all Collections to be deposited directly in a Lock-Box Account maintained with a Lock-Box Bank. Any Lock-Box Account maintained by a Lock-Box Bank pursuant to the related Lock-Box Agreement shall be under the exclusive ownership and control of the Agent which is hereby granted to the Agent by the Designated Sellers and the Transferor. The Servicer shall be permitted to give instructions to the Lock-Box Banks for so long as neither a Servicer Default nor any other Termination Event has occurred hereunder. The Servicer shall not add any bank as a Lock-Box Bank to those listed on Exhibit C attached hereto unless such bank has entered into a Lock-Box Agreement. The Servicer shall not terminate any bank as a Lock-Box Bank unless the Agent shall have received fifteen (15) days' prior notice of such termination. If the Transferor, a Designated Seller or the Servicer receives any Collections, the Trans- feror, such Designated Seller or the Servicer, as applicable, shall immediately, but in any event within forty-eight (48) hours of receipt, remit such Collections to a Lock-Box Account. SECTION 2.9. Deemed Collections; Application of Payments. (a) If on any day the Outstanding Principal Balance of a Receivable is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transac- tion) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, the amount of such cancella- tion, reduction or adjustment shall thereafter be deducted from the aggregate Outstanding Principal Balance of the Receivables and the Net Receivables Balance. If such reduction would result in a Buyers' Percentage Factor greater than the Maximum Buyers' Percentage Factor, the Transferor shall pay (or direct the Servicer to pay from Collections otherwise distributable to the Transferor) to the Agent an amount equal to the amount that, when applied in reduction of the Net Investment, will result in a Buyers' Percentage Factor less than or equal to the Maximum Buyers' Percentage Factor. Such amount shall be applied by the Agent to the reduction of the Net Investment. (b) If on any day any of the representations or warran- ties in Article III was or becomes untrue with respect to a Receivable (whether on or after the date of any transfer of an interest therein to the Agent, the Company or the Bank Investors as contemplated hereunder), such Receivable shall thereafter not be included in any calculation of the aggregate Outstanding Principal Balance of the Receivables or the Net Receivables Balance. If such reduction would result in a Buyers' Percentage Factor greater than the Maximum Buyers' Percentage Factor, the Transferor shall pay (or direct the Servicer to pay from Collections otherwise distributable to the Transferor) to the Agent an amount equal to the amount that, when applied in reduction of the Net Investment, will result in a Buyers' Percentage Factor less than or equal to the Maximum Buyers' Percentage Factor. Such amount shall be applied by the Agent to the reduction of the Net Investment. SECTION 2.10. Payments and Computations, Etc. All amounts to be paid or deposited by the Transferor or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in immediately available funds; if such amounts are payable to the Company or any Bank Investor they shall be paid or deposited in the account indicated in Section 11.3 hereof, until otherwise notified by the Agent. The Trans- feror shall, to the extent permitted by law, pay to the Agent, for the benefit of the Company and the Bank Investors upon demand, interest on all amounts not paid or deposited when due hereunder at a rate equal to 2% per annum plus the Base Rate. All computations of interest and all per annum fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Any computations by the Agent of amounts payable by the Transferor hereunder shall be binding upon the Transferor absent manifest error. SECTION 2.11. Reports. (a) On each Determination Date, the Servicer shall prepare and forward to the Agent and the Administrative Agent (i) an Investor Report as of the end of the last day of the immediately preceding Collection Period, and (ii) such other information as the Agent or the Administrative Agent may reasonably request. (b) On or before the close of business on Tuesday of each calendar week (or if such day is not a Business Day, the next preceding Business Day), the Servicer will deliver to the Agent and the Admin- istrative Agent a Cycle Certificate which shall report (x) on Collec- tions processed during the time period from the date of the latest cycle closing date reported on in the previous Cycle Certificate through and including the date of the latest cycle closing date reported on in the current Cycle Certificate and (y) the Maximum Buyers' Percentage Factor and the Buyers' Percentage Factor as of the latest cycle closing date reported on in the current Cycle Certificate, and (z) the certain other information concerning the Receivables as of the most recent cycle closing date reported on in the current Cycle Certificate. The Servicer shall report information on the Cycle Certificate with respect to each cycle closing date not later than ten days after such cycle closing date. SECTION 2.12. Collection Account. There shall be established on the day of the initial Incremental Transfer hereunder and maintained, for the benefit of the Company and the Bank Investors, with the Agent, a segregated account (the "Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Company and the Bank Investors. On and after the occurrence of (i) a Servicer Default, (ii) a Guarantor Default or (iii) a Termination Event, and from and after such time as the Guaranty pro- vided by Article IX herein fails to remain in effect and enforceable, the Servicer shall remit daily and prior to the close of business on the second Business Day following receipt to the Collection Account all Col- lections received with respect to any Receivables. Funds on deposit in the Collection Account (other than investment earnings) shall be invest- ed by the Agent in Eligible Investments that will mature so that such funds will be available prior to the Remittance Date following such investment. On each Remittance Date, all interest and earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be retained in the Collection Account and be available to make any distributions required to be made pursuant to Section 2.5(a). On the date on which the Net Investment and all other Aggregate Unpaids have been paid in full, any funds remaining on deposit in the Collection Account shall be paid to the Transferor. SECTION 2.13. Sharing of Payments, Etc. If the Company or any Bank Investor (for purposes of this Section only, being a "Recipient") shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of Transferred Interest owned by it (other than pursuant to Section 2.7, or Article VIII and other than as a result of the differences in the timing of the applications of Collections pursuant to Section 2.5 or 2.6) in excess of its ratable share of payments on account of Transferred Interest obtained by the Company and/or the Bank Investors entitled thereto, such Recipient shall forthwith purchase from the Company and/or the Bank Investors entitled to a share of such amount participations in the Transferred Interests owned by such Persons as shall be necessary to cause such Recipient to share the excess payment ratably with each such other Person entitled thereto; provided, however, that if all or any portion of such excess payment is thereafter recovered from such Recipient, such purchase from each such other Person shall be rescinded and each such other Person shall repay to the Recipient the purchase price paid by such Recipient for such participation to the extent of such recovery, together with an amount equal to such other Person's rat- able share (according to the proportion of (a) the amount of such other Person's required payment to (b) the total amount so recovered from the Recipient) of any interest or other amount paid or payable by the Recipient in respect of the total amount so recovered. SECTION 2.14. Right of Setoff. Without in any way limiting the provisions of Section 2.13, each of the Company and the Bank Investors is hereby authorized (in addition to any other rights it may have) at any time after the occurrence of the Termination Date or during the continuance of a Potential Termination Event to set-off, appropriate and apply (without presentment, demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by the Company or such Bank Investor to, or for the account of, the Transferor against the amount of the Aggregate Unpaids owing by the Transferor to such Person (even if contingent or unmatured). ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of the Transferor. The Transferor represents and warrants to the Agent, the Company and the Bank Investors that: (a) Corporate Existence and Power. The Transferor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Transferor is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contraven- tion. The execution, delivery and performance by the Transferor of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the Cer- tificate, the Transfer Certificate and the other Transaction Documents to which the Transferor is a party are within the Transferor's corporate powers, have been duly authorized by all necessary corporate action, re- quire no action by or in respect of, or filing with, any Official Body or official thereof (except as contemplated by Section 2.8 hereof), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorpora- tion or Bylaws of the Transferor or of any agreement, judgment, injunction, order, writ, decree or other instrument binding upon the Transferor or result in the creation or imposition of any Adverse Claim on the assets of the Transferor or any of its Subsidiaries (except as contemplated by Section 2.8 hereof). (c) Binding Effect. Each of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the Certificate and the other Transaction Documents to which the Transferor is a party consti- tutes and the Transfer Certificate upon payment of the Transfer Price set forth therein will constitute the legal, valid and binding obligation of the Transferor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Perfection. Immediately preceding each Transfer hereunder, the Transferor shall be the owner of all of the Receivables, free and clear of all Adverse Claims. On or prior to each Transfer and each recomputation of the Transferred Interest, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Transferred Interest against all creditors of and purchasers from the Transferor and the applicable Designated Seller will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Accuracy of Information. All information heretofore furnished by the Transferor (including without limitation, the Investor Reports, any reports delivered pursuant to Section 2.11 hereof and the financial statements delivered pursuant to Section 5.1) to the Company, any Bank Investors, the Agent or the Administrative Agent for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Transfer- or to the Company, any Bank Investors, the Agent or the Administrative Agent will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Status. The Transferor has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (g) Action, Suits. Except as set forth in Exhibit H hereof, there are no actions, suits or proceedings pending, or to the knowledge of the Transferor threatened, against or affecting the Transferor or any Affiliate of the Transferor or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (h) Use of Proceeds. No proceeds of any Transfer will be used by the Transferor to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (i) Place of Business. The principal place of business and chief executive office of the Transferor are located at the address of the Transferor indicated in Section 11.3 hereof and the offices where the Transferor keeps all its Records, are located at the address(es) described on Exhibit I or such other locations notified to the Company in accordance with Section 2.8 hereof in jurisdictions where all action required by Section 2.8 hereof has been taken and completed. (j) Good Title. Upon each Transfer and each recomputation of the Transferred Interest, the Company or the Agent on behalf of the Company and the Bank Investors shall acquire a valid and perfected first priority undivided percentage ownership interest to the extent of the Transferred Interest or a first priority perfected secu- rity interest in the Receivables existing on the date of such Transfer and recomputation and in the Related Security and Collections with respect thereto free and clear of any Adverse Claim. (k) Tradenames, Etc. As of the date hereof: (i) the Transferor has only the subsidiaries and divisions listed on Exhibit J hereto; and (ii) the Transferor has, within the last five (5) years, operated only under the tradenames identified in Exhibit J hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit J hereto. (l) Nature of Receivables. Each Receivable (x) represented by the Transferor or the Servicer to be an Eligible Receiv- able (including in any Investor Report or other report delivered pursuant to Section 2.11 hereof) or (y) included in the calculation of the Net Receivables Balance, in fact satisfies at such time the defini- tion of "Eligible Receivable" set forth herein and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act, of 1940, as amended. (m) Coverage Requirement; Amount of Receivables. The Buyers' Percentage Factor does not exceed the Maximum Buyers' Percentage Factor. As of the Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in existence was $168,260,400.40 and the Net Receivable Balance was $167,778,375.87. (n) Credit Guidelines. Since January 9, 1997, there have been no material changes in the Credit Guidelines other than as permitted hereunder. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (o) No Termination Event. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or a Potential Termination Event. (p) Not an Investment Company. The Transferor is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (q) ERISA. Each of the Transferor and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (r) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit C hereto (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Collateral Agent and for which Lock-Box Agreements have been executed in accordance with Section 2.8(b) hereof and delivered to the Servicer). All Obligors have been instructed to make payment to a Lock-Box Account and only Collections are deposited into the Lock-Box Accounts. (s) Bulk Sales. No transaction contemplated hereby or by the Receivables Purchase Agreement requires compliance with any bulk sales act or similar law. (t) Transfers Under Receivables Purchase Agreement. Each Receivable which has been transferred to the Transferor by a Designated Seller has been purchased by the Transferor from such Designated Seller pursuant to, and in accordance with, the terms of the Receivables Purchase Agreement. (u) Preference; Voidability. The Transferor shall have given reasonably equivalent value to each Designated Seller in consideration for the transfer to the Transferor of the applicable Receivables and Collections and Related Security from such Designated Seller, and each such transfer shall not have been made for or on account of an antecedent debt owed by such Designated Seller to the Transferor and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. (v) Representations and Warranties of each Designated Seller. Each representation and warranty of each Designated Seller set forth in Article IV of the Receivables Purchase Agreement is true and correct in all material respects and the Transferor hereby remakes all such representations and warranties for the benefit of the Agent, the Company, the Bank Investors and the Administrative Agent. Any document, instrument, certificate or notice delivered to the Company hereunder shall be deemed a representation and warranty by the Transferor. SECTION 3.2. Representations and Warranties of the Servicer. The Servicer represents and warrants to the Agent, the Company and the Bank Investors that: (a) Corporate Existence and Power. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Servicer is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contraven- tion. The execution, delivery and performance by the Servicer of this Agreement are within the Servicer's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.8), and do not contravene, or constitute a default under, any provision of applicable law or regula- tion or of the charter or Bylaws of the Servicer or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Servicer or result in the creation or imposition of any lien on assets of the Servicer or any of its Subsidiaries (except as contemplated by Section 2.8). (c) Binding Effect. This Agreement constitutes the legal, valid and binding obligation of the Servicer enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Accuracy of Information. All information heretofore furnished by the Servicer in writing to the Transferor, the Company or the Administrative Agent for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Servicer to the Transferor, the Company or the Administrative Agent will be, true and accurate in every material respect, on the date such information is stated or certified. (e) Tax Status. The Servicer has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (f) Action, Suits. Except as set forth in Exhibit H attached hereto (as such exhibit may be amended from time to time), there are no actions, suits or proceedings pending, or to the knowledge of the Servicer threatened, against or seeking to prevent the issuance of the Certificate or the consummation of any of the transactions contemplated by this Agreement, or otherwise affecting the Servicer or any Affiliate of the Servicer or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (g) Collections and Servicing. Since November 2, 1996, there has been no material adverse change in the ability of the Servicer to service and collect the Receivables and no material adverse change has occurred in the overall rate of collections of Receivables. (h) Not an Investment Company. The Servicer is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (i) ERISA. The Servicer is in compliance in all material respects with ERISA. SECTION 3.3. Reaffirmation of Representations and Warranties by the Transferor and Servicer. On each day that a Transfer is made hereunder, the Transferor, by accepting the proceeds of such Transfer, whether delivered to the Transferor pursuant to Section 2.2(a) or Section 2.5 hereof, and the Servicer, shall be deemed to have certified that all of their respective representations and warranties described in Sections 3.1 and 3.2 hereof are correct on and as of such day as though made on and as of such day. Each Incremental Transfer shall be subject to the further condition precedent that prior to the date of such Incre- mental Transfer, the Servicer shall have delivered to the Agent and the Administrative Agent, in form and substance satisfactory to the Agent and the Administrative Agent, a completed Cycle Certificate dated the second Business Day prior to the date of such Incremental Transfer, together with such additional information as may be reasonably requested by the Administrative Agent or the Agent; and the Transferor shall be deemed to have represented and warranted that such conditions precedent have been satisfied. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing. On or prior to the date of execution hereof, the Transferor shall deliver to the Agent the following documents, instruments and fees all of which shall be in a form and substance acceptable to the Agent: (a) A copy of the resolutions of the Board of Directors of the Transferor certified by its Secretary approving the execution, delivery and performance by the Transferor of this Agreement, the Re- ceivables Purchase Agreement and the other Transaction Documents to be delivered by the Transferor hereunder or thereunder. (b) A copy of the resolutions of the Board of Directors of each Designated Seller, the Servicer and the Servicer Guarantor certified by its Secretary approving the execution, delivery and perfor- mance by such Person of this Agreement, the Receivables Purchase Agree- ment and the other Transactions Documents to be delivered by such Person hereunder or thereunder. (c) The Articles of Incorporation of the Transferor certified by the Secretary of State or other similar official of the Transferor's jurisdiction of incorporation dated a date reasonably prior to the Closing Date. (d) The Articles of Incorporation of each Designated Seller, the Servicer and the Servicer Guarantor certified by the Secretary of State or other similar official of such Person's jurisdic- tion of incorporation dated a date reasonably prior to the Closing Date. (e) A Good Standing Certificate for the Transferor issued by the Secretary of State or a similar official of the Transferor's jurisdiction of incorporation and certificates of quali- fication as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement and the other Transaction Documents, in each case, dated a date reasonably prior to the Closing Date. (f) A Good Standing Certificate for each Designated Seller, the Servicer and the Servicer Guarantor issued by the Secretary of State or a similar official of such Persons's jurisdiction of incor- poration and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction when such qualification is material to the transactions contemplated by this Agreement and the Receivables Purchase Agreement and the other Transaction Documents, in each case, dated a date reason- ably prior to the Closing Date. (g) A Certificate of the Secretary of the Transferor substantially in the form of Exhibit L attached hereto. (h) A Certificate of the Secretary of each Designated Seller, the Servicer and the Servicer Guarantor substantially in the form of Exhibit L attached hereto. (i) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Incremental Transfer naming the Transferor as the debtor in favor of the Agent, for the benefit of the Company and the Bank Investors, secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appro- priate jurisdictions or any comparable law to perfect the Agent's undivided percentage interest in all Receivables and the Related Security and Collections relating thereto. (j) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Incremental Transfer naming each Designated Seller as the debtor in favor of the Transferor as secured party and the Agent, for the benefit of the Company and the Bank Investors, as assignee of the secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appro- priate jurisdictions or any comparable law to perfect the Transferor's ownership interest in all Receivables. (k) Copies of proper financing statements (Form UCC-3), if any, necessary to terminate all security interests and other rights of any person in Receivables previously granted by Transferor. (l) Copies of proper financing statements (Form UCC-3), if any, necessary to terminate all security interests and other rights of any person in Receivables previously granted by each Designated Seller. (m) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Agent) dated a date reasonably near the date of the initial Incremental Transfer listing all effective financing statements which name the Transferor or any Designated Seller (under their respective present names and any previous names) as debtor and which are filed in jurisdictions in which the filings were made pursuant to items (i) or (j) above together with copies of such financing statements (none of which shall cover any Receivables or Contracts). (n) Executed copies of the Lock-Box Agreements relating to each of the Lock-Box Banks and the Lock-Box Accounts. (o) An opinion of Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special counsel to the Transferor, the Servicer, the Servicer Guarantor and the Designated Sellers, covering the matters set forth in Exhibit K hereto. (p) An opinion of Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special counsel to the Transferor and the Designated Sellers, covering certain bankruptcy and insolvency matters (i.e. "true sale" and nonconsolidation) in form and substance satisfactory to the Agent and Agent's counsel. (q) An opinion of Baker, Donelson, Bearman & Caldwell, special Tennessee counsel to Proffitt's, covering certain Tennessee Uniform Commercial Code matters in form and substance satisfactory to the Agent and Agent's counsel. (r) An opinion of Schreck Morris, special Nevada counsel to the Transferor, covering certain corporate and security interest matters in form and substance satisfactory to the Agent and the Agent's counsel. (s) A computer tape setting forth as of the Cut-Off Date all Receivables and the Outstanding Principal Balances thereon and such other information as the Agent may reasonably request. (t) An executed copy of this Agreement, the Receivables Purchase Agreement, the Fee Letter and each of the other Transaction Documents to be executed by the Designated Sellers, the Servicer, the Servicer Guarantor or the Transferor. (u) The Transfer Certificate, duly executed by the Transferor. (v) The Certificate, duly executed by the Transferor and appropriately completed. (w) The Arrangement Fee in accordance with Section 2.7(b). (x) An Investor Report for December 31, 1996. (y) A Cycle Certificate as of the Cut-Off Date. (z) A writing indicating the appointment by the Trans- feror and each Designated Seller of CT Corporation as agent for process pursuant to Section 11.4(d) hereof. (aa) Such other documents, instruments, certificates and opinions as the Agent or the Administrative Agent, shall reasonably re- quest. ARTICLE V COVENANTS SECTION 5.1. Affirmative Covenants of Transferor. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment and all other Aggre- gate Unpaids have been paid in full, in cash, unless the Agent shall otherwise consent in writing: (a) Financial Reporting. The Transferor will, and will cause each Designated Seller and each of such Designated Seller's Subsidiaries to, maintain, for itself and each of its respective Subsid- iaries, a system of accounting established and administered in accordance with GAAP, and furnish to the Agent: (i) Annual Reporting. Within ninety (90) days after the close of the Transferor's and Proffitt's fiscal years, (beginning with the fiscal year ending, in the case of Proffitt's, in 1997, and in the case of the Transferor, in 1998) audited financial statements, prepared in accordance with GAAP on a consolidated basis for (x) the Transferor and (y) for Proffitt's and its Sub- sidiaries, in each case, including balance sheets as of the end of such period, related statements of operations, shareholder's equity and cash flows, accompanied by an unqualified audit report certi- fied by independent certified public accountants, acceptable to the Agent, prepared in accordance with GAAP and, upon the Agent's request, any management letter prepared by said accountants and accompanied by (i) a certificate of said accountants that Proffitt's is in compliance with the financial covenants set forth in Exhibit O attached hereto or, if Proffitt's is not in compliance with such covenants, stating the nature and status thereof and (ii) a certificate of the chief financial officer or chairman, president, treasurer or any executive vice president of the Trans- feror stating that no Termination Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof and showing the computation of each of the financial ratios and restrictions set forth in Exhibit O attached hereto. (ii) Quarterly Reporting. Within forty-five (45) days after the close of the first three quarterly periods of each of the Transferor's and Proffitt's fiscal years, for (x) the Transferor and (y) for Proffitt's and its Subsidiaries, in each case, consol- idated unaudited balance sheets as at the close of each such period and consolidated related statements of operations, shareholder's equity and cash flows for the period from the beginning of such fiscal year to the end of such quarter, and showing the computation of each of the financial ratios and restrictions set forth in Exhibit O attached hereto all certified by its chief financial officer, chairman, president, treasurer or any executive vice president. (iii) Compliance Certificate. Together with the finan- cial statements required hereunder, a compliance certificate signed by the chief financial officer, chairman, president, treasurer or any executive vice president of the Transferor or Proffitt's, as applicable, stating that (x) the attached financial statements have been prepared in accordance with GAAP and accurately reflect the financial condition of the Transferor or Proffitt's as ap- plicable and (y) to the best of such Person's knowledge, no Termi- nation Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof and showing the computation of, and showing compliance with, each of the financial ratios and restric- tions set forth in Exhibit O attached hereto. (iv) Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of Proffitt's, copies of all financial statements, reports and proxy statements so fur- nished. (v) S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which Proffitt's or any subsidiary files with the Securities and Exchange Commission. (vi) Notice of Termination Events or Potential Termination Events. As soon as possible and in any event within two (2) days after the occurrence of each Termination Event or each Potential Termination Event, a statement of the chief financial officer or chief accounting officer of the Transferor setting forth details of such Termination Event or Potential Termination Event and the action which the Transferor proposes to take with respect thereto. (vii) Change in Credit Guidelines and Debt Ratings. Within thirty (30) days after the date any material change in or amendment to the Credit Guidelines is made, a copy of the Credit Guidelines then in effect indicating such change or amendment. Within fifteen (15) days after the date of any change in Proffitt's public or private debt ratings (including any related implied or "shadow" ratings), if any, a written certification of Proffitt's public and private debt ratings after giving effect to any such change. (viii) Credit Guidelines. Within ten (10) Business Days of the request of the Agent, a complete copy of the Credit Guide- lines then in effect. (ix) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event (as defined in Article IV of ERISA) which the Transferor, any Designated Seller or any ERISA Affiliate of the Transferor or any Designated Seller files under ERISA with the In- ternal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Transferor, any Designated Seller or any ERISA Affiliates of the Transferor or any Designated Seller receives from the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor. (x) Other Information. Such other information including non-financial information) as the Agent or the Administrative Agent may from time to time reasonably request with respect to any Designated Seller, the Transferor or any Subsidiary of any of the foregoing. (b) Conduct of Business. The Transferor will, and will cause each Designated Seller and each Designated Seller's Subsidiaries to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (c) Compliance with Laws. The Transferor will, and will cause each Designated Seller and each Designated Seller's Subsidiaries to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its respective properties may be subject. (d) Furnishing of Information and Inspection of Records. The Transferor will, and will cause each Designated Seller to, furnish to the Agent from time to time such information with respect to the Receivables as the Agent may reasonably request, including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Transferor will, and will cause each Designated Seller to, at any time and from time to time during regular business hours permit the Agent, or its agents or repre- sentatives, (i) to examine and make copies of and take abstracts from all Records and (ii) to visit the offices and properties of the Transferor or such Designated Seller, as applicable, for the purpose of examining such Records, and to discuss matters relating to Receivables or the Transferor's or such Designated Seller's performance hereunder and under the other Transaction Documents to which such Person is a party with any of the officers, directors, employees or independent public accountants of the Transferor or such Designated Seller, as applicable, having knowledge of such matters. (e) Keeping of Records and Books of Account. The Trans- feror will, and will cause each Designated Seller to, maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and main- tain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Transferor will, and will cause each Designated Seller to, give the Agent notice of any material change in the administrative and operating procedures of the Transferor or such Designated Seller, as applicable, referred to in the previous sentence. (f) Performance and Compliance with Accounts. The Transferor, at its expense, will, and will cause each Designated Seller to, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by the Transferor or such Designated Seller under the Accounts related to the Receivables. (g) Credit Guidelines. The Transferor will, and will cause each Designated Seller to, comply in all material respects with the Credit Guidelines in regard to each Receivable and the related Account. (h) Collections. The Transferor shall, and shall cause each Designated Seller to, instruct all Obligors to cause all Collec- tions to be deposited directly to a Lock-Box Account. (i) Collections Received. The Transferor shall, and shall cause each Designated Seller to, hold in trust, and deposit, imme- diately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to a Lock-Box Account all Collections received from time to time by the Transferor or such Designated Seller, as the case may be. (j) Sale Treatment. The Transferor will not (i) permit any Designated Seller to, account for (including for accounting and tax purposes), or otherwise treat, the transactions contemplated by the Receivables Purchase Agreement in any manner other than as a sale of an undivided percentage ownership interest in the Receivables by such Designated Seller to the Transferor, or (ii) account for (other than for tax purposes) or otherwise treat the transactions contemplated hereby in any manner other than a sale of an undivided percentage ownership interest in the Receivables by the Transferor to the Company or the Bank Investors, as applicable. In addition, the Transferor shall, and shall cause each Designated Seller to, disclose (in a footnote or otherwise) in all of its respective financial statements (including any such financial statements consolidated with any other Persons' financial statements) the existence and nature of the transaction contemplated hereby and by the Receivables Purchase Agreement and the interest of the Transferor (in the case of a Designated Seller's financial statements), the Company and the Bank Investors in the Affected Assets. (k) Separate Business. The Transferor shall at all times (a) to the extent the Transferor's office is located in the offices of Proffitt's or any Affiliate of Proffitt's, pay fair market rent for its executive office space located in the offices of Proffitt's or any Affiliate of Proffitt's, (b) have at all times at least two members of its board of directors which are not and, within the immediately preceding two years, have not been employees, officers or directors of Proffitt's or any Affiliate of Proffitt's or of any major creditor of Proffitt's or any Affiliate of Proffitt's and are persons who are familiar and have experience with asset securitization, (c) maintain the Transferor's books, financial statements, accounting records and other corporate documents and records separate from those of Proffitt's or any other entity, (d) not commingle the Transferor's assets with those of Proffitt's or any other entity, (e) act solely in its corporate name and through its own authorized officers and agents, (f) 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), (g) separately manage the Transferor's liabilities from those of Proffitt's or any Affiliates of Proffitt's and pay its own liabilities, including all administrative expenses, from its own separate assets, except that Proffitt's may pay the organizational expenses of the Transferor, and (h) pay from the Transferor's assets all obligations and indebtedness of any kind incurred by the Transferor. The Transferor shall abide by all corporate formalities, including the maintenance of current minute books, and the Transferor shall cause its financial statements to be prepared in accordance with GAAP in a manner that indicates the separate existence of the Transferor and its assets and liabilities. The Transferor shall (i) pay all its liabilities, (ii) not assume the liabilities of Proffitt's or any Affiliate of Proffitt's, (iii) not lend funds or extend credit to Proffitt's or any Affiliate of Proffitt's except pursuant to the Receivables Purchase Agreement in connection with the purchase of Receivables thereunder, (iv) not guaran- tee the liabilities of Proffitt's or any Affiliates of Proffitt's and (v) not own the stock of, or any other beneficial interest in, any subsidiaries or any other entity. The officers and directors of the Transferor (as appropriate) shall make decisions with respect to the business and daily operations of the Transferor independent of and not dictated by any controlling entity. The Transferor shall not engage in any business not permitted by its Certificate of Incorporation as in effect on the Closing Date. (l) Inventory Financings. The Transferor shall, and will cause each Designated Seller to, specifically exclude from the property subject to any Adverse Claim granted on inventory any and all accounts receivable generated by sales of such inventory and the pro- ceeds thereof, and shall provide evidence, in each case satisfactory to the Agent, that any and all accounts receivable generated by sales of such inventory and the proceeds thereof shall have been excluded from any such Adverse Claims. (m) Corporate Documents. The Transferor shall not amend, alter, change or repeal any Articles of its Articles of Incor- poration without the prior written consent of the Agent. SECTION 5.2. Negative Covenants of the Transferor. During the term of this Agreement, unless the Agent shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except as otherwise provided herein and the Receivables Purchase Agreement, the Transferor will not, and will not permit any Designated Seller to, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (x) any of the Affected Assets, (y) any goods (other than inventory), the sale of which may give rise to a Receivable or any Receivable or related Account, or (z) any account which concentrates in a Lock-Box Bank to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereof. (b) No Extension or Amendment of Receivables. Except as otherwise permitted in this Section 5.2 and in Section 6.2 hereof, the Transferor will not, and will not permit any Designated Seller to, ex- tend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto. The Transferor further covenants that, except as otherwise required by any Requirement of Law, it shall not, and shall not cause or otherwise permit the Servicer at any time to, reduce the periodic finance charges assessed on any Receivable or other fees on any Account if, as a result of such reduction, the reasonable expectation of the Net Portfolio Yield as of such date would be less than 1.00% and unless (a) such reduction is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Servicer that have char- acteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a compara- ble segment, it will not make any such change with the intent to materi- ally benefit itself over the Company and the Bank Investors. (c) Performance of Account Agreements. The Transferor shall not, and shall not permit any Designated Seller to fail to comply with and perform its obligations under the applicable Account Agreements relating to the Accounts and the Credit Guidelines except insofar as any such failure to comply or perform would not materially and adversely affect the rights of the Company, the Agent, or any Bank Investor in the Receivables or the collectibility of the Receivables. The Transferor shall not change the terms and provisions of the Account Agreements or the Credit Guidelines in any respect (including, without limitation, the calculation of the amount, and the timing, of uncollectible Receivables) except to the extent (a) such change is made applicable to the compa- rable segment of the consumer revolving credit accounts owned and serviced by the Transferor or such Designated Seller that have char- acteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a compara- ble segment, it will not make any such change with the intent to materi- ally benefit itself over the Company, the Agent, or any Bank Investor, and such change does not materially and adversely affect the rights of the Company, the Agent or any Bank Investor in the Receivables or the collectibility of the Receivables. References to the Receivables in this paragraph shall be deemed to refer to the Receivables in the aggre- gate. (d) No Change in Business or Credit Guidelines. The Transferor will not, and will not permit any Designated Seller to, make any change in the character of its business or in the Credit Guidelines, which change would, in either case, impair the collectibility of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect. (e) No Mergers, Etc. The Transferor will not, and except as otherwise permitted pursuant to the Receivables Purchase Agreement, will not permit any Designated Seller to, (i) consolidate or merge with or into any other Person (except for a merger by a Designated Seller with or into any wholly-owned subsidiary of such Designated Seller, where the Designated Seller shall be the surviving entity and except, with the express consent of the Agent, for the merger by the Transferor with Parisian Services, Inc., where the Transferor shall be the surviving entity) or (ii) sell, lease or transfer all or substan- tially all of its assets to any other Person except that McRae's, Inc. may sell substantially all of its assets to a partnership consisting only of McRae's, Inc., as a general partner with at least 90% of the partnership interest, and Parisian, Inc., as a general partner with not more than 10% of the partnership interest, provided, that such partner- ship shall enter into an agreement with McRae's which shall require the partnership to sell all of its accounts receivable to McRae's, which shall transfer all of its Receivables to the Transferor pursuant to a Receivables Purchase Agreement. (f) Change in Payment Instructions to Obligors. The Transferor will not, and will not permit any Designated Seller to, add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account to or from those listed in Exhibit C hereto or make any change in its instructions to Obligors regarding payments to be made to any Lock-Box Account, unless (i) such instructions are to deposit such payments to another existing Lock-Box Account or (ii) the Agent shall have received written notice of such addition, termination or change at least 30 days prior thereto and the Agent shall have received a Lock-Box Agreement executed by each new Lock-Box Bank or an existing Lock-Box Bank with respect to each new Lock-Box Account, as applicable. (g) Deposits to Lock-Box Accounts. The Transferor will not, and will not permit any Designated Seller to, deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Receivables. (h) Change of Name, Etc. The Transferor will not, and will not permit any Designated Seller to, change its name, identity or structure or the location of its chief executive office, unless at least 10 days prior to the effective date of any such change the Transferor or such Designated Seller, as applicable, delivers to the Agent and the Collateral Agent (i) such documents, instruments or agreements, executed by the Transferor or such Designated Seller, as applicable, as are necessary to reflect such change and to continue the perfection of the Agent's and the Collateral Agent's ownership interests or security interests in the Affected Assets and (ii) new or revised Lock-Box Agree- ments executed by the Lock-Box Banks which reflect such change and enable the Agent to continue to exercise its rights contained in Section 2.8 hereof. (i) Amendment to Receivables Purchase Agreements. The Transferor will not, and will not permit any Designated Seller to, amend, modify, or supplement any Receivables Purchase Agreement, except with the prior written consent of the Agent and the Administrative Agent; nor shall the Transferor take, or permit any Designated Seller to take, any other action under any Receivables Purchase Agreement that shall have a material adverse affect on the Agent, the Company or any Bank Investor or which is inconsistent with the terms of this Agreement. (j) Other Debt. Except as provided for herein, the Transferor will not create, incur, assume or suffer to exist any indebtedness whether current or funded, or any other liability other than (i) indebtedness of the Transferor representing fees, expenses and indemnities arising hereunder or under a Receivables Purchase Agreement for the purchase price of the Receivables under a Receivables Purchase Agreement, and (ii) other indebtedness incurred in the ordinary course of its business in an amount not to exceed $9,750 at any time out- standing. (k) ERISA Matters. The Transferor will not, and will not permit any Designated Seller to, (i) engage or permit any of its respective ERISA Affiliates to engage in any prohibited transaction (as defined in Section 4975 of the Code and Section 406 of ERISA) for which an exemption is not available or has not previously been obtained from the U.S. Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan that the Transferor, such Designated Seller or any ERISA Affiliate of the Transferor or such Designated Seller is re- quired to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability to the Transferor, such Designated Seller, or any ERISA Affiliate of the Transferor or such Designated Seller under ERISA or the Code. (l) Payment to the Designated Sellers. With respect to any Receivable sold by a Designated Seller to the Transferor, the Transferor shall, and shall cause such Designated Seller to, effect such sale under, and pursuant to the terms of, a Receivables Purchase Agree- ment, including, without limitation, the payment by the Transferor either in cash or by increase in the amount of the Subordinated Note to such Designated Seller of an amount equal to the purchase price for such Receivable as required by the terms of the Receivables Purchase Agree- ment. SECTION 5.3. Minimum Net Worth of Transferor. (a) On the Closing Date, the Transferor shall have a Net Worth of at least $10,000,000. (b) The Transferor shall make no distributions of dividends or returns of capital except to the extent that, after giving effect thereto, the Transferor shall have a Net Worth at least equal to 10% of the highest aggregate Outstanding Principal Balance of all Eligi- ble Receivables shown on any Cycle Certificate delivered with respect to the immediately preceding twelve calendar month period. SECTION 5.4. Covenants of the Servicer. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment and all other Aggregate Unpaids have been paid in full, in cash, the Servicer covenants that, unless the Agent shall otherwise consent in writing: (a) Compliance with Requirements of Law. The Servicer shall duly satisfy its obligations in all material respects on its part to be fulfilled under or in connection with each Receivable and the related Account, will maintain in effect all material qualifications required under Requirements of Law in order to service properly each Receivable and the related Account and will comply in all material respects with all other Requirements of Law in connection with servicing each Receivable and the related Account the failure to comply with which would have a material adverse effect on the Company. (b) No Rescission or Cancellation. The Servicer shall not permit any rescission or cancellation of a Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority or in the ordinary course of its business and in accordance with the Credit Guidelines. (c) Protection of Company's Rights. The Servicer shall take no action, nor omit to take any action, which would impair the rights of the Company in any Receivable or the related Account. (d) All Consents Required. All approvals, authoriza- tions, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Servicer of this Agreement, the performance by the Servicer of the transactions contemplated by this Agreement and the fulfillment by the Servicer of the terms hereof, have been obtained. (e) Custodian. The Servicer will, at its own cost and expense, (i) maintain the books and records with respect to the Accounts and the Receivables and copies of all documents relating to each Account as custodian for the Company and (ii) clearly and unambiguously mark such books and records that indicate the Receivables have been sold to the Company and simultaneously assigned to the Agent, for benefit of the Company and the Bank Investors, pursuant to this Agreement. (f) No Extension or Amendment of Receivables. Except as otherwise permitted in Sections 5.2 and 6.2 hereof, the Servicer will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto. The Servicer further covenants that, except as otherwise re- quired by any Requirement of Law, it shall not reduce the periodic fi- nance charges assessed on any Receivable or other fees on any Account if, as a result of such reduction, the reasonable expectation of the Net Portfolio Yield as of such date would be less than 1.00% and unless (a) such reduction is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Servicer that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a comparable segment, it will not make any such change with the intent to materially benefit the Transferor or itself over the Company and the Bank Investors. (g) No Change in Business. The Servicer will not make any change in the character of its business which would impair the collectibility of any Receivable or otherwise result in a Material Adverse Effect. (h) No Mergers, Etc. The Servicer will not (i) consoli- date or merge with or into any other Person (except for a merger with or into any wholly-owned subsidiary, where the Servicer shall be the surviving entity), or (ii) sell, lease or transfer all or substantially all of its assets to any other Person except that McRae's, Inc. may sell substantially all of its assets to a partnership consisting only of McRae's, Inc., as a general partner with at least 90% of the partnership interest, and Parisian, Inc., as a general partner with not more than 10% of the partnership interest, provided, that such partnership shall enter into an agreement with McRae's which shall require the partnership to sell all of its accounts receivable to McRae's, which shall transfer all of its Receivables to the Transferor pursuant to a Receivables Purchase Agreement. (i) Change in Payment Instructions to Obligors. The Servicer will not make any change in the instructions to Obligors regarding payments to be made to any Lock-Box Account, unless (i) such instructions are to deposit such payments to another existing Lock-Box Account or (ii) the Agent shall have received written notice of such change at least 30 days prior thereto and the Agent shall have received a Lock-Box Agreement executed by each new Lock-Box Bank or an existing Lock-Box Bank with respect to each new Lock-Box Account, as applicable. (j) Deposits to Lock-Box Accounts. The Servicer will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Receivables. ARTICLE VI ADMINISTRATION AND COLLECTIONS SECTION 6.1. Appointment of Servicer. The servicing, admin- istering and collection of the Receivables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 6.1. Until the Company gives notice to McRae's of the designation of a new Servicer, McRae's is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Servicer may not delegate any of its rights, duties or obligations hereunder, or designate a substitute Servicer, without the prior written consent of the Agent, and provided that the Servicer shall continue to remain solely liable for the perfor- mance of the duties as Servicer hereunder notwithstanding any such delegation hereunder. The Agent may, and upon the direction of the Majority Investors the Agent shall, after the occurrence of a Servicer Default or any other Termination Event designate as Servicer any Person (including itself) to succeed McRae's or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Agent may notify any Obligor of the Transferred Interest. SECTION 6.2. Duties of Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit Guidelines. Each of the Transferor, the Company, the Agent and the Bank Investors hereby appoints as its agent the Servicer, from time to time designated pursuant to Section 6.1 hereof, to enforce its respective rights and interests in and under the Affected Assets. To the extent permitted by applicable law, each of the Transferor and the Designated Sellers (to the extent not then acting as Servicer hereunder) hereby grants to any Servicer appointed hereunder an irrevocable power of attorney to take any and all steps in the Transferor's and/or such Designated Seller's name and on behalf of the Transferor or such Designated Seller necessary or desirable, in the reasonable determi- nation of the Servicer, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Transferor's and/or such Designated Seller's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. The Servicer shall set aside for the account of the Trans- feror and the Company their respective allocable shares of the Collec- tions of Receivables in accordance with Sections 2.5 and 2.6 hereof. The Servicer shall segregate and deposit to the Agent's account the Company's allocable share of Collections of Receivables when required pursuant to Article II hereof. The Transferor shall deliver to the Servicer and the Servicer shall hold in trust for the Transferor, the Company, the Agent and the Bank Investors, in accordance with their re- spective interests, all Records which evidence or relate to Receivables or Related Security. Notwithstanding anything to the contrary contained herein, the Agent shall have the absolute and unlimited right to direct the Servicer (whether the Servicer is Proffitt's or any other Person) to commence or settle any legal action to enforce collection of any Receivable or to foreclose upon or repossess any Related Security. The Servicer shall not make the Agent, the Company or any of the Bank Investors a party to any litigation without the prior written consent of such Person. (b) The Servicer shall, as soon as practicable following receipt thereof, turn over to the Transferor any collections of any in- debtedness of any Person which is not on account of a Receivable. If the Servicer is not the Transferor or an Affiliate of the Transferor, the Servicer, by giving three Business Days' prior written notice to the Agent, may revise the percentage used to calculate the Servicing Fee so long as the revised percentage will not result in a Servicing Fee that exceeds 110% of the reasonable and appropriate out-of-pocket costs and expenses of such Servicer incurred in connection with the performance of its obligations hereunder as documented to the reasonable satisfaction of the Agent, provided, however, that at any time after the Buyers' Percentage Factor equals or exceeds 100%, any compensation to the Servicer in excess of the Servicing Fee initially provided for herein shall be an obligation of the Transferor and shall not be payable, in whole or in part, from Collections allocated to the Company or the Bank Investors, as applicable. The Servicer, if other than the Transferor or an Affiliate of the Transferor, shall as soon as practicable upon de- mand, deliver to the Transferor all Records in its possession which evi- dence or relate to indebtedness of an Obligor which is not a Receivable. (c) On or before 90 days after the end of each fiscal year of the Servicer, beginning with the fiscal year ending February 1, 1997, the Servicer shall cause a firm of independent public accountants (who may also render other services to the Servicer, the Transferor, the Designated Sellers or any Affiliates of any of the foregoing) to furnish a report to the Agent to the effect that they have (i) compared the information contained in a sample of the Investor Reports and Cycle Cer- tificates delivered during such fiscal year then ended with the informa- tion contained in the Accounts and the Servicer's records and computer systems for such period, and that, on the basis of such examination and comparison, such firm is of the opinion that the information contained in the Investor Reports and the Cycle Certificates selected reconciles with the information contained in the Accounts and the Servicer's re- cords and computer system and that the servicing of the Receivables has been conducted in compliance with this Agreement, and (ii) confirmed by testing the mathematical accuracy of the information set forth in the Investor Reports and Cycle Certificates delivered during such fiscal year, except, in each case for (a) such exceptions as such firm shall believe to be immaterial (which exceptions need not be enumerated) and (b) such other exceptions as shall be set forth in such statement. (d) Notwithstanding anything to the contrary contained in this Article VI, the Servicer, if not the Transferor or any Affiliate of the Transferor, shall have no obligation to collect, enforce or take any other action described in this Article VI with respect to any indebtedness that is not included in the Transferred Interest other than to deliver to the Transferor the collections and documents with respect to any such indebtedness as described in Section 6.2(b) hereof. SECTION 6.3. Rights After Designation of New Servicer. At any time following the designation of a Servicer (other than the Transferor or any Affiliate of the Transferor) pursuant to Section 6.1 hereof: (i) The Agent may direct that payment of all amounts payable under any Receivable be made directly to the Agent or its designee. (ii) The Transferor shall, at the Agent's request and at the Transferor's expense, give notice of the Agent's, the Trans- feror's and/or the Bank Investors' ownership of Receivables to each Obligor and direct that payments be made directly to the Agent or its designee. (iii) The Transferor shall, at the Agent's request, (A) assemble all of the Records, and shall make the same available to the Agent or its designee at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly en- dorsed or with duly executed instruments of transfer, to the Agent or its designee. (iv) The Transferor and each Designated Seller hereby authorize the Agent to take any and all steps in the Transferor's or such Designated Seller's name and on behalf of the Transferor and such Designated Seller necessary or desirable, in the determi- nation of the Agent, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Transferor's or such Designated Seller's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. SECTION 6.4. Servicer Default. The occurrence of any one or more of the following events shall constitute a Servicer Default: (a) the Servicer or, to the extent that the Transferor or any Affiliate of the Transferor is then acting as Servicer, the Transferor or such Affiliate, as applicable, shall fail (i) to observe or perform any term, covenant or agreement hereunder (other than as referred to in clauses (ii) or (iii) of this Section 6.4(a)) or under any of the other Transaction Documents to which such Person is a party or by which such Person is bound, and such failure shall remain unremedied for ten (10) days, or (ii) to make any payment or deposit required to be made by it hereunder when due or the Servicer shall fail to observe or perform any term, covenant or agreement on the Servicer's part to be performed under Section 2.8(b) hereof or (iii) to observe or perform any term, covenant or agreement under Sections 5.4(a), 5.4(b), 5.4(c), 5.4(f), 5.4(g), 5.4(i) or 5.4(j); or (b) any representation, warranty, certification or statement made by the Servicer or the Transferor or any Affiliate of the Transferor (in the event that the Transferor or such Affiliate is then acting as the Servicer) in this Agreement, the Receivables Purchase Agreement or in any of the other Transaction Documents or in any certificate or report delivered by it pursuant to any of the foregoing shall prove to have been incorrect in any material respect when made or deemed made; or (c) failure or the default by the Servicer or any of its Subsidiaries in the performance of any material term, provision or condition contained in any agreement under which any Indebtedness greater than $5,000,000 was created or is governed, if such event is an "event of default" or "default" under any such agreement; or any In- debtedness of the Servicer or any of its Subsidiaries greater than $5,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof; or (d) any Event of Bankruptcy shall occur with respect to the Servicer or any of its Subsidiaries; or (e) there shall have occurred any material adverse change in the operations of the Servicer since the end of the last fiscal year ending prior to the date of its appointment as Servicer hereunder or any other event shall have occurred which, in the commercially reasonable judgment of the Agent, materially and adversely affects the Servicer's ability to either collect the Receivables or to perform under this Agreement. SECTION 6.5. Responsibilities of the Transferor and the Designated Sellers. Anything herein to the contrary notwithstanding, the Transferor shall, and/or shall cause each Designated Seller to, (i) perform all of such Designated Seller's obligations under the Accounts related to the Receivables to the same extent as if interests in such Receivables had not been sold hereunder and under the Receivables Pur- chase Agreement and the exercise by the Agent, the Company and the Bank Investors of their rights hereunder and under the Receivables Purchase Agreement shall not relieve the Transferor or such Designated Seller from such obligations and (ii) pay when due any taxes, including without limitation, any sales taxes payable in connection with the Receivables and their creation and satisfaction. Neither the Agent, the Company nor any of the Bank Investors shall have any obligation or liability with respect to any Receivable or related Accounts, nor shall it be obligated to perform any of the obligations of any Designated Seller thereunder. ARTICLE VII TERMINATION EVENTS SECTION 7.1. Termination Events. The occurrence of any one or more of the following events shall constitute a Termination Event: (a) the Transferor or the Servicer shall fail to make any payment or deposit to be made by it hereunder or under the Receivables Purchase Agreement when due hereunder or thereunder; or (b) any representation, warranty, certification or statement made by the Transferor in this Agreement, any other Transaction Document to which it is a party or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; or (c) the Transferor, or the Servicer, shall default in the performance of any payment or undertaking (other than those covered by clause (a) above) (i) to be performed or observed under Sections 5.1(a)(vi), 5.1(a)(vii), 5.1(b), 5.1(c), 5.1(f), 5.1(g), 5.1(h), 5.1(i), 5.1(k), 5.1(l), 5.2(a), 5.2(c), 5.2(d), 5.2(e), 5.2(f), 5.2(g) or 5.2(h) or Section 5.3 or (ii) to be performed or observed under any other provision hereof and such default in the case of this clause (ii) shall continue for ten (10) days; or (d) failure or the default by the Transferor or any Designated Seller in the performance of any material term, provision or condition contained in any agreement to which any such Person is a party and under which any Indebtedness greater than $5,000,000 was created or is governed, if such event is an "event of default" or "default" under any such agreement; or any Indebtedness of the Transferor or any Desig- nated Seller greater than $5,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof; or (e) any Event of Bankruptcy shall occur with respect to the Transferor, any Designated Seller or any Subsidiary of either the Transferor or any Designated Seller; or (f) the Agent, on behalf of the Company and/or the Bank Investors, shall, for any reason, fail or cease to have a valid and per- fected first priority ownership or security interest in the Affected Assets free and clear of any Adverse Claims; or (g) a Servicer Default shall have occurred; or (h) any of the Receivables Purchase Agreements shall have terminated; or (i) the Transferor, the Servicer or any Designated Seller shall enter into any transaction or merger whereby it is not the surviving entity; or (j) (i) the Buyers' Percentage Factor exceeds the Maximum Buyers' Percentage Factor, unless the Transferor reduces the Net Investment or increases the balance of the Affected Assets on the next Business Day so as to reduce the Buyers' Percentage Factor to less than or equal to the Maximum Buyers' Percentage Factor, (ii) the Buyers' Per- centage Factor equals or exceeds 100% at any time; or (iii) the Net Investment plus the aggregate Interest Component of all outstanding Related Commercial Paper shall exceed the Facility Limit at any time; or (k) the Payment Rate averaged for any three consecutive Collection Periods is less than 16.00%; or (l) the average Net Portfolio Yield for any three consecutive Collection Periods is less than 1.00%; or (m) the Delinquency Ratio averaged for any three consecutive Collection Periods is greater than 7.50%; or (n) the Default Ratio averaged for any three consecutive Collection periods is greater than 9.00%; or (o) the Dilution Ratio averaged over any three consecutive Collection Periods is greater than or equal to 5.00%; or (p) the Liquidity Provider or the Credit Support Provider shall have given notice that an event of default has occurred and is continuing under any of its respective agreements with the Company; or (q) the Commercial Paper issued by the Company shall not be rated at least "A2" by Standard & Poor's and at least "P2" by Moody's; or (r) a Guarantor Default shall have occurred and be continuing. SECTION 7.2. Termination. (a) Upon the occurrence of any Termination Event, the Agent may, or at the direction of the Majority Investors shall, by notice to the Transferor and the Servicer declare the Termination Date to have occurred; provided, however, that in the case of any event described in Section 7.1(e), 7.1(f), 7.1(j)(ii) or 7.1(j)(iii) above, Termination Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, the Agent shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws, all of which rights shall be cumulative. (b) At all times after the declaration or automatic occurrence of the Termination Date pursuant to Section 7.2(a), the Carrying Costs shall thereafter be calculated on the basis of the Base Rate plus 2.00% for all existing and future funding periods. ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS SECTION 8.1. Indemnities by the Transferor. Without limiting any other rights which the Agent, the Company or the Bank Investors may have hereunder or under applicable law, the Transferor hereby agrees to indemnify the Company, the Bank Investors, the Agent, the Administrative Agent, the Collateral Agent, the Liquidity Provider and the Credit Sup- port Provider and any successors and permitted assigns and their respec- tive officers, directors and employees (collectively, "Indemnified Parties") from and against any and all damages, losses, claims, liabili- ties, costs and expenses, including, without limitation, reasonable attorneys' fees (which such attorneys may be employees of the Liquidity Provider, the Credit Support Provider, the Agent, the Administrative Agent or the Collateral Agent, as applicable) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them in any action or proceeding between the Transferor, any Designated Seller or the Servicer and any of the Indemnified Parties or between any of the Indemnified Parties and any third party or otherwise arising out of or as a result of this Agreement, the other Transaction Documents, the ownership or mainte- nance, either directly or indirectly, by the Agent, the Company or any Bank Investor of the Transferred Interest or any of the other transactions contemplated hereby or thereby, excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of an Indemnified Party or (ii) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables. Without limiting the generality of the foregoing, the Transferor shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from: (i) any representation or warranty made by the Trans- feror or any Designated Seller or the Servicer or any officers of the Transferor or any Designated Seller or the Servicer under or in connection with this Agreement, the Receivables Purchase Agreement, any of the other Transaction Documents, any Investor Report or any other information or report delivered by the Transferor or the Ser- vicer pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; (ii) the failure by the Transferor or any Designated Seller or the Servicer to comply with any applicable law, rule or regulation with respect to any Receivable or the related Account, or the nonconformity of any Receivable or the related Account with any such applicable law, rule or regulation; (iii) the failure to vest and maintain vested in the Company and/or the Bank Investors, an undivided first priority, perfected percentage ownership interest, to the extent of the Transferred Interest, in the Affected Assets free and clear of any Adverse Claim or (y) to create or maintain a valid and perfected first priority security interest in favor of the Agent, for the benefit of the Company and/or the Bank Investors, in the Transferor's interest in the Affected Assets as contemplated pursuant to Section 11.11, free and clear of any Adverse Claim; (iv) the failure to file, or any delay in filing, financing statements, continuation statements, or other similar in- struments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any of the Affected Assets; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Account not being the legal, valid and binding obligation of such Obligor enforceable against it in accor- dance with its terms), or any other claim resulting from the sale of merchandise or services related to such Receivable or the fur- nishing or failure to furnish such merchandise or services; (vi) any failure of the Servicer to perform its duties or obligations in accordance with the provisions hereof; or (vii) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with merchandise or services which are the subject of any Receivable; (viii) the transfer of an ownership interest in any Receivable other than an Eligible Receivable; (ix) the failure by the Transferor or any Designated Seller or the Servicer to comply with any term, provision or covenant contained in this Agreement or any of the other Transac- tion Documents to which it is a party or to perform any of its respective duties under the Accounts; (x) the Buyers' Percentage Factor exceeds the Maximum Buyers' Percentage Factor at any time; (xi) the failure of any Designated Seller to pay when due any taxes, including without limitation, sales, excise or per- sonal property taxes payable in connection with any of the Receiv- ables; (xii) any repayment by any Indemnified Party of any amount previously distributed in reduction of Net Investment which such Indemnified Party believes in good faith is required to be made; (xiii) the commingling by the Transferor, any Designated Seller or the Servicer of Collections of Receivables at any time with other funds; (xiv) any investigation, litigation or proceeding related to this Agreement, any of the other Transaction Documents, the use of proceeds of Transfers by the Transferor or any Designated Seller, the ownership of Transferred Interests, or any Receivable, Related Security or Account; (xv) the failure of any Lock-Box Bank to remit any amounts held in the Lock-Boxes and/or the Lock-Box Accounts pur- suant to the instructions of the Servicer, the Transferor, any Designated Seller or the Agent (to the extent such Person is enti- tled to give such instructions in accordance with the terms hereof and of any applicable Lock-Box Agreement) whether by reason of the exercise of set-off rights or otherwise; (xvi) any inability to obtain any judgment in or utilize the court or other adjudication system of, any state in which an Obligor may be located as a result of the failure of the Transferor or any Designated Seller to qualify to do business or file any notice of business activity report or any similar report; (xvii) any failure of the Transferor to give reasonably equivalent value to a Designated Seller in consideration of the purchase by the Transferor from such Designated Seller of any Re- ceivable, or any attempt by any Person to void, rescind or set-aside any such transfer under statutory provisions or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code; or (xviii) any action taken by the Transferor, any Designated Seller or the Servicer in the enforcement or collection of any Receivable; provided, however, that if the Company enters into agreements for the purchase of interests in receivables from one or more Other Transferors, the Company shall allocate such Indemnified Amounts which are in connection with the Liquidity Provider Agreement, the Credit Support Agreement or the credit support furnished by the Credit Support Provider to the Transferor and each Other Transferor; and provided, further, that if such Indemnified Amounts are attributable to the Transferor, a Designated Seller or the Servicer and not attributable to any Other Transferor, the Transferor shall be solely liable for such Indemnified Amounts or if such Indemnified Amounts are attributable to Other Transferors and not attributable to the Transferor, any Designated Seller or the Servicer, such Other Transferors shall be solely liable for such Indemnified Amounts. SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. (a) If after the date hereof, the adoption of any Law or bank regulatory guideline or any amendment or change in the interpretation of any existing or future Law or bank regulatory guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any directive of any Official Body (in the case of any bank regulatory guideline, whether or not having the force of Law): (i) shall subject any Indemnified Party to any tax, duty or other charge (other than Excluded Taxes) with respect to this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest, the Receiv- ables or payments of amounts due hereunder, or shall change the basis of taxation of payments to any Indemnified Party of amounts payable in respect of this Agreement, the other Transaction Docu- ments, the ownership, maintenance or financing of the Transferred Interest, the Receivables or payments of amounts due hereunder or its obligation to advance funds hereunder, under the Liquidity Pro- vider Agreement or the credit support furnished by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest or the Receivables (except for changes in the rate of general corporate, franchise, net income or other income tax imposed on such Indemnified Party by the juris- diction in which such Indemnified Party's principal executive office is located); (ii) shall impose, modify or deem applicable any re- serve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System) against assets of, deposits with or for the account of, or credit extended by, any Indemnified Party or shall impose on any Indemnified Party or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Trans- ferred Interest, the Receivables or payments of amounts due hereun- der or its obligation to advance funds hereunder under the Liquid- ity Provider Agreement or the credit support provided by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest or the Receivables; or (iii) imposes upon any Indemnified Party any other expense (including, without limitation, reasonable attorneys' fees and expenses, and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest, the Receivables or payments of amounts due hereunder or its obligation to advance funds hereun- der under the Liquidity Provider Agreement or the credit support furnished by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interests or the Re- ceivables, and the result of any of the foregoing is to increase the cost to such Indemnified Party with respect to this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest, the Receivables, the obligations hereunder, the funding of any purchases hereunder, the Liquidity Provider Agreement or the Credit Support Agreement, by an amount deemed by such Indemnified Party to be material, then, within ten (10) days after demand by such Indemnified Party through the Agent, the Transferor shall pay to the Agent, for the benefit of such Indemnified Party, such additional amount or amounts as will compensate such Indemnified Party for such increased cost or reduction. (b) If any Indemnified Party shall have determined that after the date hereof, the adoption of any applicable Law or bank regulatory guideline regarding capital adequacy, or any change therein, or any change in the interpretation thereof by any Official Body, or any directive regarding capital adequacy (in the case of any bank regulatory guideline, whether or not having the force of law) of any such Official Body, has or would have the effect of reducing the rate of return on capital of such Indemnified Party (or its parent) as a consequence of such Indemnified Party's obligations hereunder or with respect hereto to a level below that which such Indemnified Party (or its parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital ade- quacy) by an amount deemed by such Indemnified Party to be material, then from time to time, within ten (10) days after demand by such Indemnified Party through the Agent, the Transferor shall pay to the Agent, for the benefit of such Indemnified Party, such additional amount or amounts as will compensate such Indemnified Party (or its parent) for such reduction. (c) The Agent will promptly notify the Transferor of any event of which it has knowledge, occurring after the date hereof, which will entitle an Indemnified Party to compensation pursuant to this Sec- tion 8.2. A notice by the Agent or the applicable Indemnified Party claiming compensation under this Section and setting forth the addition- al amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Agent or any applicable Indemnified Party may use any reasonable averaging and attributing methods. (d) Anything in this Section 8.2 to the contrary not- withstanding, if the Company enters into agreements for the acquisition of interests in receivables from one or more Other Transferors, the Company shall allocate the liability for any amounts under this Section 8.2 which are in connection with the Liquidity Provider Agreement, the Credit Support Agreement or the credit support provided by the Credit Support Provider ("Section 8.2 Costs") to the Transferor and each Other Transferor; provided, however, that if such Section 8.2 Costs are attributable to the Transferor, a Designated Seller or the Servicer and not attributable to any Other Transferor, the Transferor shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs are at- tributable to Other Transferors and not attributable to the Transferor, any Designated Seller or the Servicer, such Other Transferors shall be solely liable for such Section 8.2 Costs. SECTION 8.3. Taxes. All payments made hereunder by the Transferor or the Servicer (each, a "payor") to the Company, any Bank Investor or the Agent (each, a "recipient") shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and any other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority on any recipient (or any assignee of such parties) (such non-excluded items being called "Taxes"), but excluding franchise taxes and taxes imposed on or measured by the recipient's net income or gross receipts ("Excluded Taxes"). In the event that any withholding or deduction from any payment made by the payor hereunder is required in respect of any Taxes, then such payor shall: (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the recipient such additional amount or amounts as is necessary to ensure that the net amount actually received by the recipient will equal the full amount such recipient would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against any recipient with respect to any payment received by such recipient hereunder, the recipient may pay such Taxes and the payor will promptly pay such additional amounts (including any penalties, interest or expenses) as shall be necessary in order that the net amount received by the recipient after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such recipient would have received had such Taxes not been asserted. If the payor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the recipient the required receipts or other required documentary evidence, the payor shall indemnify the recipient for any incremental Taxes, interest, or penalties that may become payable by any recipient as a result of any such failure. SECTION 8.4. Other Costs, Expenses and Related Matters. (a) The Transferor agrees, upon receipt of a written invoice, to pay or cause to be paid, and to save the Company, the Bank Investors and the Agent harmless against liability for the payment of, all reasonable out-of-pocket expenses (including, without limitation, attorneys', accountants' and other third parties' fees and expenses, any filing fees and expenses incurred by officers or employees of the Company, the Bank Investors and/or the Agent) or intangible, documentary or recording taxes incurred by or on behalf of the Company, any Bank Investor and the Agent (i) in connection with the negotiation, execution, delivery and preparation of this Agreement, the other Transaction Documents and any documents or instruments delivered pursuant hereto and thereto and the transactions contemplated hereby or thereby (including, without limita- tion, the perfection or protection of the Transferred Interest) and (ii) from time to time (a) relating to any amendments, waivers or consents under this Agreement and the other Transaction Documents, (b) arising in connection with the Company's, any Bank Investor's, the Agent's or the Collateral Agent's enforcement or preservation of rights (including, without limitation, the perfection and protection of the Transferred Interest under this Agreement), or (c) arising in connection with any audit, dispute, disagreement, litigation or preparation for litigation involving this Agreement or any of the other Transaction Documents (all of such amounts, collectively, "Transaction Costs"). (b) The Transferor shall pay the Agent, for the account of the Company and the Bank Investors, as applicable, on demand any Early Collection Fee due on account of the receipt by the Company or any Bank Investor of any amounts applied in reduction of the Net Investment on any day other than a Remittance Date or the last day of any applicable funding period (in the case of any LIBOR-based funding). SECTION 8.5. Reconveyance Under Certain Circumstances. The Transferor agrees to accept the reconveyance from the Agent, on behalf of the Company and/or the Bank Investors, of the Transferred Interest if the Agent notifies Transferor of a material breach of any representation or warranty made or deemed made pursuant to Article III of this Agreement and Transferor shall fail to cure such breach within 15 days (or, in the case of the representations and warranties in Sections 3.1(d) and 3.1(j), 3 days) of such notice. The reconveyance price shall be paid by the Transferor to the Agent, for the account of the Company and the Bank Investors, as applicable, in immediately available funds on such 15th day (or 3rd day, if applicable) in an amount equal to the Aggregate Unpaids. ARTICLE IX SERVICER GUARANTEE SECTION 9.1. Guaranty of Obligations. Proffitt's unconditionally guarantees the full and prompt payment when due of all of the payment obligations and timely performance of all of the perfor- mance obligations of McRae's as Servicer ("Obligations") of every kind and nature now or hereafter existing, or due or to become due, under this Agreement, to the Transferor, the Company, the Agent or any Bank Investor. Proffitt's shall pay all reasonable costs and expenses including, without limitation, all court costs and attorney's fees and expenses paid or incurred by the Transferor, the Company, the Agent or any Bank Investor in connection with (a) the collection of all or any part of the Obligations from Proffitt's and (b) the prosecution or defense of any action by or against the Transferor, the Company, the Agent or any Bank Investor in connection with the Obligations whether involving Proffitt's, McRae's or any other party including a trustee in bankruptcy. SECTION 9.2. Validity of Obligations. Irrevocability. Proffitt's agrees that its obligations under this guaranty shall be unconditional, irrespective of (i) the validity, enforceability, dis- charge, disaffirmance, settlement or compromise (by any Person, including a trustee in bankruptcy) of the Obligations or of this Agree- ment, (ii) the absence of any attempt to collect the Obligations from McRae's or any guarantor, (iii) the waiver or consent by the Transferor, Company, the Agent or any Bank Investor with respect to any provision of any instrument evidencing the Obligations, (iv) any change of the time, manner or place of payment or performance, or any other term of any of the Obligations, (v) any law, regulation or order of any jurisdiction affecting any term of any of the Obligations or rights of the Transfer- or, the Company, the Agent or any Bank Investor with respect thereto, (vi) the failure by the Transferor, the Company, the Agent or any Bank Investor to take any steps to perfect and maintain perfected its respective interest in the Receivables or other property acquired by the Transferor from McRae's or any security or collateral related to the Obligations or (vii) any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Proffitt's agrees that none of the Transferor, the Company, the Agent or any Bank Investor shall be under any obligation to marshall any assets in favor of or against or in payment of any or all of the Obligations. Proffitt's further agrees that, to the extent that McRae's makes a payment or payments to the Transferor, the Company, the Agent or any Bank Investor, which payment or payments or any part thereof are subse- quently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to McRae's, its estate, trustee, receiver or any other party, including without limitation, Proffitt's, under any bankruptcy, insolvency or similar state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Obligation or part thereof which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date such initial payment, reduction or satisfaction occurred. Proffitt's waives all set-offs and counterclaims and all presentments, demands for performance, notices of dishonor and notices of acceptance of this guaranty. Proffitt's agrees that its obligations under this guaranty shall be irrevocable. SECTION 9.3. Rights of Set-Off. Proffitt's hereby authorizes the Transferor, the Company, the Agent or any Bank Investor at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (whether general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Transferor, the Company, the Agent or any Bank Investor to or for the credit or the account of Proffitt's against any and all of the obligations of Proffitt's now or hereafter existing under this Agreement to the Transferor or the Company. Proffitt's acknowledg- es that the Company's rights described in this Section 9.3 are in addition to other rights and remedies (including, without limitation, other rights of set-off) the Transferor or the Company may have. SECTION 9.4. Representations and Warranties. Proffitt's hereby represents and warrants to the Transferor, the Company, the Agent and the Bank Investors as of the date hereof, as follows: (a) Organization, etc. Proffitt's is a corporation duly organized, validly existing and in good standing under the laws of Tennessee and has full corporate power, authority and legal right to own or lease all of its properties and assets, to carry on its business as it is now being conducted and to execute, deliver and perform this Agreement. Proffitt's is duly qualified as a foreign corporation in good standing under the laws of each other jurisdiction in which the nature of its business requires such qualification and in which failure to so qualify would render this guaranty unenforceable or would have a material adverse effect on Proffitt's ability to perform its obligations under this Agreement. (b) Authorization; Valid Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all required corporate or other action on the part of Proffitt's, and this Agreement constitutes the legal, valid and binding obligation of Proffitt's, enforceable in accordance with its terms, subject to appli- cable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally as such laws would apply in the event of the bankruptcy, insolvency, moratorium or other similar event with respect to Proffitt's and to general principles of equity. (c) No Conflicts. The execution, delivery and perfor- mance by Proffitt's of this Agreement does not and will not (a) contravene its charter or By-Laws, (b) in any material respect, violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Proffitt's, (c) result in a breach of or constitute a default or require any consent under any material indenture or loan or credit agreement or any other material agreement, lease or instrument to which Proffitt's is a party or by which it or its properties may be bound or affected or (d) result in, or require, the creation or imposition of any material lien upon or with respect to any of the properties now owned or hereafter acquired by Proffitt's. (d) No Proceedings. There are no proceedings or inves- tigations pending, or to the best knowledge of Proffitt's, threatened against Proffitt's before any Governmental Authority (a) asserting the invalidity of this Agreement, (b) seeking to prevent the consummation of the transactions contemplated by this Agreement, (c) seeking any determination or ruling that would materially adversely affect the performance by Proffitt's of its obligations under this Agreement or (d) seeking any determination or ruling that would materially adversely affect the validity or enforceability of this Agreement. SECTION 9.5. Guarantor Default. The occurrence of any one or more of the following events shall constitute a Guarantor Default: (a) any representation, warranty, certification or statement made by Proffitt's in this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or (b) Proffitt's shall (i) fail to pay when due any amount to be paid by it hereunder, (ii) fail to observe or perform any other term, covenant, condition or agreement provided for herein, which failure, in the case of clause (ii) above, continues for a period of thirty (30) days after the earlier of (A) the date on which written notice of such failure shall have been given to Proffitt's by the Compa- ny or the Administrative Agent or (B) the date on which the Transferor, Proffitt's or McRae's, as applicable, became aware or, in the exercise of reasonable care, should have become aware of such failure; or (c) the failure by Proffitt's to satisfy the financial covenants set forth in Exhibit O hereto; or (d) Proffitt's or any Subsidiary shall fail to perform any material term, provision or condition contained in any agreement under which any Indebtedness greater than $5,000,000 was created or is governed, if such event is an "event of default" or "default" under such agreement; or any Indebtedness of Proffitt's or any Subsidiary greater than $5,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof; or (e) any Event of Bankruptcy shall occur with respect to Proffitt's or an Event of Bankruptcy shall occur with respect to any Subsidiary of Proffitt's which would have a Material Adverse Effect. ARTICLE X THE AGENT; BANK COMMITMENT SECTION 10.1. Authorization and Action.The Company and each Bank Investor 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 Transaction Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. In furtherance, and without limiting the generality, of the foregoing, the Company and each Bank Investor hereby appoints the Agent as its agent to execute and deliver all further instruments and documents, and take all further action that the Agent may deem necessary or appropriate or that the Company or a Bank Investor may reasonably request in order to perfect, protect or more fully evi- dence the interests transferred or to be transferred from time to time by the Transferor hereunder, or to enable any of them to exercise or en- force any of their respective rights hereunder, including, without limitation, the execution by the Agent as secured party/assignee of such financing or continuation statements, or amendments thereto or assign- ments thereof, relative to all or any of the Receivables now existing or hereafter arising, and such other instruments or notices, as may be necessary or appropriate for the purposes stated hereinabove. The Company and the Majority Investors may direct the Agent to take any such incidental action hereunder. With respect to other actions which are incidental to the actions specifically delegated to the Agent hereunder, the Agent shall not be required to take any such incidental action here- under, but shall be required to act or to refrain from acting (and shall be fully protected in acting or refraining from acting) upon the direction of the Majority Investors; provided, however, that Agent shall not be required to take any action hereunder if the taking of such ac- tion, in the reasonable determination of the Agent, shall be in viola- tion of any applicable law, rule or regulation or contrary to any provi- sion of this Agreement or shall expose the Agent to liability hereunder or otherwise. Upon the occurrence and during the continuance of any Termination Event or Potential Termination Event, the Agent shall take no action hereunder (other than ministerial actions or such actions as are specifically provided for herein) without the prior consent of the Majority Investors. The Agent shall not, without the prior written consent of all Bank Investors, which consent shall not be unreasonably withheld or delayed, agree to (i) amend, modify or waive any provision of this Agreement in any way which would (A) reduce or impair Col- lections or the payment of Carrying Costs or fees payable hereunder to the Bank Investors or delay the scheduled dates for payment of such amounts, (B) increase the Servicing Fee (other than as permitted pursuant to Section 6.2(b)), (C) modify any provisions of this Agreement or a Receivables Purchase Agreement relating to the timing of payments required to be made by the Transferor or the Designated Seller or the application of the proceeds of such payments, (D) permit the appointment of any Person (other than the Agent) as successor Servicer, or (E) release any property from the lien provided by this Agreement (other than as expressly contemplated herein). The Agent shall not agree to any amendment of this Agreement which increases the dollar amount of a Bank Investor's Commitment without the prior consent of such Bank Inves- tor. In addition, the Agent shall not agree to any amendment of this Agreement not specifically described in the two preceding sentences without the consent of the related Majority Investors. "Majority Inves- tors" shall mean, at any time, the Agent and those Bank Investors which hold Commitments aggregating in excess of 51% of the Facility Limit as of such date. In the event the Agent requests the Company's or a Bank Investor's consent pursuant to the foregoing provisions and the Agent does not receive a consent (either positive or negative) from the Company or such Bank Investor within 10 Business Days of the Company's or Bank Investor's receipt of such request, then the Company or such Bank Investor (and its percentage interest hereunder) shall be disre- garded in determining whether the Agent shall have obtained sufficient consent hereunder. (a) The Agent shall exercise such rights and powers vested in it by this Agreement and the other Transaction Documents, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. SECTION 10.2. Agent's Reliance, Etc. Neither the 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 them as Agent under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Agent: (i) may consult with legal counsel (including counsel for the Transferor or a Designated Seller), 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, accoun- tants or experts; (ii) makes no warranty or representation to the Company or any Bank Investor and shall not be responsible to the Company or any Bank Investor for any statements, warranties or representations made in or in connection with this Agreement; (iii) 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 Transaction Documents on the part of the Transferor, the Ser- vicer or any Designated Seller or to inspect the property (including the books and records) of the Transferor, the Servicer or any Designated Seller; (iv) shall not be responsible to the Company or any Bank Inves- tor for the due execution, legality, validity, enforceability, genuine- ness, sufficiency or value of this Agreement, any of the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (v) shall incur no liability under or in respect of this Agreement or any of the other Transaction Documents by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 10.3. Credit Decision. The Company and each Bank Investor acknowledges that it has, independently and without reliance upon the Agent, any of the Agent's Affiliates, any other Bank Investor or the Company (in the case of any Bank Investor) and based upon such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and the other Transaction Documents to which it is a party and, if it so determines, to accept the transfer of any undivided ownership interest in the Affected Assets hereunder. The Company and each Bank Investor also acknowledges that it will, independently and without reliance upon the Agent, any of the Agent's Affiliates, any other Bank Investor or the Company (in the case of any Bank Investor) and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agree- ment and the other Transaction Documents to which it is a party. SECTION 10.4. Indemnification of the Agent. The Bank Inves- tors agree to indemnify the Agent (to the extent not reimbursed by the Transferor), ratably in accordance with their Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penal- ties, actions, judgments, suits, costs, expenses or disbursements 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 any action taken or omitted by the Agent, any of the other Transaction Documents hereunder or thereunder, provided that the Bank Investors shall not be liable for any portion of such liabilities, obli- gations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, the Bank Investors agree to reimburse the Agent, ratably in accordance with their Pro Rata Shares, promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are in- curred in the interests of or otherwise in respect of the Bank Investors hereunder and/or thereunder and to the extent that the Agent is not reimbursed for such expenses by the Transferor. SECTION 10.5. Successor Agent. The Agent may resign at any time by giving written notice thereof to each Bank Investor, the Company and the Transferor and may be removed at any time with cause by the Majority Investors. Upon any such resignation or removal, the Company and the Majority Investors shall appoint a successor Agent. The Company and each Bank Investor agrees that it shall not unreasonably withhold or delay its approval of the appointment of a successor Agent. If no such successor Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Investors' removal of the retiring Agent, then the retiring Agent may, on behalf of the Company and the Bank Investors, appoint a successor Agent which successor Agent shall be either (i) a commercial bank organized under the laws of the United States or of any state thereof and have a combined capital and surplus of at least $50,000,000 or (ii) an Affiliate of such a bank. 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. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 10.6. Payments by the Agent. Unless specifically allocated to a Bank Investor pursuant to the terms of this Agreement, all amounts received by the Agent on behalf of the Bank Investors shall be paid by the Agent to the Bank Investors (at their respective accounts specified in their respective Assignment and Assumption Agreements) in accordance with their respective related pro rata interests in the Net Investment on the Business Day received by the Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Agent shall use its reasonable efforts to pay such amounts to the Bank Investors on such Business Day, but, in any event, shall pay such amounts to the Bank Investors in accordance with their respective related pro rata interests in the Net Investment not later than the fol- lowing Business Day. SECTION 10.7. Bank Commitment; Assignment to Bank Investors. (a) Bank Commitment. At any time on or prior to the Commitment Termination Date, in the event that the Company does not effect an Incremental Transfer as requested under Section 2.2(a), then at any time, the Transferor shall have the right to require the Company to assign its interest in the Net Investment in whole to the Bank Investors pursuant to this Section 10.7. In addition, at any time on or prior to the Commitment Termination Date (i) upon the declaration of the Termination Date because of the occurrence of a Termination Event or (ii) the Company elects to give notice to the Transferor of a Reinvest- ment Termination Date, the Transferor hereby requests and directs that the Company assign its interest in the Net Investment in whole to the Bank Investors pursuant to this Section 10.7 and the Transferor hereby agrees to pay the amounts described in Section 10.7(d) below. Provided that the Net Asset Test is satisfied, upon any such election by the Company or any such request by the Transferor, the Company shall make such assignment and the Bank Investors shall accept such assignment and shall assume all of the Company's obligations hereunder. In connection with any assignment from the Company to the Bank Investors pursuant to this Section 10.7, each Bank Investor shall, on the date of such as- signment, pay to the Company an amount equal to its Assignment Amount. In addition, at any time on or prior to the Commitment Termination Date the Transferor shall have the right to request funding under this Agree- ment directly from the Bank Investors provided that at such time all conditions precedent set forth herein for an Incremental Transfer shall be satisfied and provided further that in connection with such funding by the Bank Investors, the Bank Investors accept the assignment of all of the Company's interest in the Net Investment and assume all of the Company's obligations hereunder concurrently with or prior to any such Incremental Transfer. Upon any assignment by the Company to the Bank Investors contemplated hereunder, the Company shall cease to make any additional Incremental Transfers hereunder. (b) Assignment. No Bank Investor may assign all or a portion of its interests in the Net Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and its rights and obligations hereunder to any Person unless approved in writing by the Agent. In the case of an assignment by the Company to the Bank Investors or by a Bank Investor to another Person, the assignor shall deliver to the assignee(s) an Assignment and Assumption Agreement in substantially the form of Exhibit G attached hereto, duly executed, assigning to the assignee a pro rata interest in the Net Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and the assignor's rights and obligations hereunder and the assignor shall promptly execute and deliver all further instruments and documents, and take all further action, that the assignee may reasonably request, in order to protect, or more fully evidence the assignee's right, title and interest in and to such interest and to enable the Agent, on behalf of such assignee, to exercise or enforce any rights hereunder and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party. Upon any such assignment, (i) the assignee shall have all of the rights and obligations of the assignor hereunder and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party with respect to such interest for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party (it being understood that the Bank Investors, as assignees, shall (x) be obligated to effect Incremental Transfers under Section 2.2(a) in accor- dance with the terms thereof, notwithstanding that the Company was not so obligated and (y) not have the right to elect the commencement of the liquidation of the Net Investment pursuant to the definition of "Rein- vestment Termination Date", notwithstanding that the Company had such right) and (ii) the assignor shall relinquish its rights with respect to such interest for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party. No such assignment shall be effective unless a fully executed copy of the related Assignment and Assumption Agreement shall be delivered to the Agent and the Transferor. All costs and expenses of the Agent and the assignor incurred in connection with any assignment hereunder shall be borne by the Transferor and not by the assignor or any such assignee. No Bank Investor shall assign any portion of its Commitment hereunder without also simultaneously assign- ing an equal portion of its interest in the Liquidity Provider Agree- ment. (c) Effects of Assignment. By executing and delivering an Assignment and Assumption Agreement, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Assumption Agreement, the assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, the other Transaction Documents or any other instrument or document fur- nished pursuant hereto or thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value or this Agreement, the other Transaction Documents or any such other instrument or document; (ii) the assignor makes no representation or warranty and assumes no re- sponsibility with respect to the financial condition of the Transferor, any Designated Seller or the Servicer or the performance or observance by the Transferor, any Designated Seller or the Servicer of any of their respective obligations under this Agreement, the Receivables Purchase Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, the Receivables Purchase Agree- ment and such other instruments, documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption Agreement and to purchase such interest; (iv) such assignee will, independently and without reliance upon the Agent, or any of its Affiliates, or the assignor and based on such agreements, documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Transaction Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the other Transaction Documents and any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto and to enforce its respective rights and interests in and under this Agreement, the other Transaction Documents, the Receiv- ables, the Collections and the Related Security; (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Trans- action Documents are required to be performed by it as the assignee of the assignor; and (vii) such assignee agrees that it will not institute against the Company any proceeding of the type referred to in Section 11.9 prior to the date which is one year and one day after the payment in full of all Commercial Paper issued by the Company. (d) Transferor's Obligation to Pay Certain Amounts; Additional Assignment Amount. The Transferor shall pay to the Agent, for the account of the Company, in connection with any assignment by the Company to the Bank Investors pursuant to this Section 10.7, an aggregate amount equal to all Carrying Costs to accrue through the end of each outstanding funding period plus all other Aggregate Unpaids (other than the Net Investment). To the extent that such Carrying Costs relate to interest or discount on Commercial Paper issued to fund the Net Investment, if the Transferor fails to make payment of such amounts at or prior to the time of assignment by the Company to the Bank Inves- tors, such amount shall be paid by the Bank Investors (in accordance with their respective Pro Rata shares) to the Company as additional con- sideration for the interests assigned to the Bank Investors and the amount of the "Net Investment" hereunder held by the Bank Investors shall be increased by an amount equal to the additional amount so paid by the Bank Investors. (e) Administration of Agreement After Assignment. After any assignment by the Company to the Bank Investors pursuant to this Section 10.7 (and the payment of all amounts owing to the Company in connection therewith), all rights of the Administrative Agent and the Collateral Agent set forth herein shall be deemed to be afforded to the Agent on behalf of the Bank Investors instead of either such party. (f) Payments. After any assignment by the Company to the Bank Investors pursuant to this Section 10.7, all payments to be made hereunder by the Transferor or the Servicer to the Bank Investors shall be made to the Agent's account as such account shall have been notified to the Transferor and the Servicer. (g) Downgrade of Bank Investor. If at any time prior to any assignment by the Company to the Bank Investors as contemplated pursuant to this Section 10.7, the short term debt rating of any Bank Investor shall be "A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative credit implications, such Bank Investor, upon request of the Agent, shall, within 30 days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). If the short term debt rating of a Bank Investor shall be "A-3" or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such rating shall have been withdrawn by Standard & Poor's or Moody's), such Bank Investor, upon request of the Agent, shall, within five (5) Business Days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). In either such case, if any such Bank Investor shall not have assigned its rights and obligations under this Agreement within the applicable time period described above, the Company shall have the right to require such Bank Investor to accept the assignment of such Bank Investor's Pro Rata Share of the Net Investment; such assignment shall occur in accordance with the applicable provisions of this Section 10.7. Such Bank Investor shall be obligated to pay to the Company, in connection with such assignment, in addition to the Pro Rata Share of the Net Investment, an amount equal to the interest component of the outstanding Commercial Paper issued to fund the portion of the Net Investment being assigned to such Bank Investor, as reasonably deter- mined by the Agent. Notwithstanding anything contained herein to the contrary, upon any such assignment to a downgraded Bank Investor as contemplated pursuant to the immediately preceding sentence, the aggregate available amount of the Facility Limit, solely as it relates to new Incremental Transfers by the Company, shall be reduced by the amount of unused Commitment of such downgraded Bank Investor; it being understood and agreed, that nothing in this sentence or the two preceding sentences shall affect or diminish in any way any such downgraded Bank Investor's Commitment to the Transferor or such downgraded Bank Investor's other obligations and liabilities hereunder and under the other Transaction Documents. ARTICLE XI MISCELLANEOUS SECTION 11.1. Term of Agreement. This Agreement shall terminate on the date following the Termination Date upon which the Net Investment and all other Aggregate Unpaids have been paid in full, in each case, in cash; provided, however, that (i) the rights and remedies of the Agent, the Company, the Bank Investors and the Administrative Agent with respect to any representation and warranty made or deemed to be made by the Transferor pursuant to this Agreement, (ii) the indemni- fication and payment provisions of Article VIII, and (iii) the agreement set forth in Section 11.9 hereof, shall be continuing and shall survive any termination of this Agreement. SECTION 11.2. Waivers; Amendments. No failure or delay on the part of the Agent, the Company, the Administrative Agent or any Bank Investor in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonex- clusive of any rights or remedies provided by law. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the Transferor, the Company, the Agent and the Majority Investors. SECTION 11.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 11.3 and confirmation is received, (ii) if given by mail 3 Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one (1) Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 11.3. However, anything in this Section to the contrary notwithstanding, the Transferor hereby authorizes the Company to effect Transfers and funding period selections based on telephonic notices made by any Person which the Company in good faith believes to be acting on behalf of the Transferor. The Transferor agrees to deliver promptly to the Company a written confirmation of each telephonic notice signed by an authorized officer of Transferor. However, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs in any material respect from the action taken by the Company, the records of the Company shall govern absent manifest error. If to the Company: Enterprise Funding Corporation c/o Merrill Lynch Money Market, Inc. World Financial Center South Tower, 8th Floor 225 Liberty Street New York, New York 10080 Telephone: (212) 236-7200 Telecopy: (212) 236-7584 (with a copy to the Administrative Agent) If to the Transferor: Proffitt's Credit Corporation 300 South Fourth Street, Suite 1100 Las Vegas, Nevada 89101 Telephone: (702) 598-3738 Telecopy: (702) 598-3651 Attn: Douglas E. Coltharp, President (with a copy to Proffitt's, Inc.) Payment Information: NATIONSBANK OF TEXAS, N.A. Dallas, Texas 75283-2406 Account Number: 3750796988 If to Proffitt's, Inc. Proffitt's Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer If to the Servicer: MCRAE'S, INC. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer If to the Collateral Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath-- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 If to the Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath-- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 Payment Information: NationsBank, N.A. ABA 053-000-196 for the account of NationsBank Charlotte Account No. 10822016511 Attn.: Camille Zerbinos If to the Administrative Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath-- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 If to the Bank Investors, at their respective addresses set forth on the signature pages hereto or of the Assignment and Assumption Agreement pursuant to which it became a party hereto. SECTION 11.4. Governing Law; Submission to Jurisdiction; Integration. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE TRANSFEROR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Transferor hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 11.4 shall affect the right of the Company to bring any action or proceeding against the Transferor or its property in the courts of other jurisdictions. (b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS. (c) This Agreement contains the final and complete inte- gration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (d) The Transferor and each Designated Seller hereby appoint CT Corporation, located at 1633 Broadway, New York, New York 10019, as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement, the other Transaction Documents to which such Person is a party or the transac- tions contemplated hereby or thereby that may be instituted in the United States District Court for the Southern District of New York and of any New York State court sitting in The City of New York by the Company, the Agent, any Bank Investor, the Collateral Agent or any assignee of any of them. SECTION 11.5. Severability; Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 11.6. Successors and Assigns. This Agreement shall be binding on the parties hereto and their respective successors and assigns; provided, however, that neither the Transferor nor any Designated Seller may assign any of its rights or delegate any of its duties hereunder or under the Receivables Purchase Agreement or under any of the other Transaction Documents to which it is a party without the prior written consent of the Agent. No provision of this Agreement shall in any manner restrict the ability of the Company or any Bank Investor to assign, participate, grant security interests in, or other- wise transfer any portion of the Transferred Interest. (a) Each of the Transferor and each Designated Seller hereby agrees and consents to the assignment by the Company from time to time of all or any part of its rights under, interest in and title to this Agreement and the Transferred Interest to any Liquidity Provider. In addition, each of the Transferor and each Designated Seller hereby consents to and acknowledges the assignment by the Company of all of its rights under, interest in and title to this Agreement and the Transferred Interest to the Collateral Agent. SECTION 11.7. Waiver of Confidentiality. Each of the Transferor and each Designated Seller hereby consents to the disclosure of any non-public information with respect to it received by the Company, the Agent, any Bank Investor or the Administrative Agent to any of the Company, the Agent, any nationally recognized rating agency rating the Company's Commercial Paper, the Administrative Agent, the Collateral Agent, any Bank Investor or potential Bank Investor, the Li- quidity Provider or the Credit Support Provider in relation to this Agreement. SECTION 11.8. Confidentiality Agreement. Each of the Transferor and each Designated Seller hereby agrees that it will not disclose the contents of this Agreement or any other proprietary or confidential information of the Company, the Agent, the Administrative Agent, the Collateral Agent, any Liquidity Provider or any Bank Investor to any other Person except (i) its auditors and attorneys, employees or financial advisors (other than any commercial bank) and any nationally recognized rating agency, provided such auditors, attorneys, employees, financial advisors or rating agencies are informed of the highly confidential nature of such information or (ii) as may be required to comply with any rules or reporting obligations described in the Securi- ties Exchange Act of 1934, as amended or (iii) as otherwise required by applicable law, order of a court of competent jurisdiction or as required by an applicable state or federal regulatory authority in the exercise of its duly authorized governmental powers. SECTION 11.9. No Bankruptcy Petition Against the Company. Each of the Transferor and each Designated Seller hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding Commercial Paper or other indebt- edness of the Company, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganiza- tion, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. SECTION 11.10. No Recourse Against Stockholders, Officers or Directors. No recourse under any obligation, covenant or agreement of the Company contained in this Agreement shall be had against Merrill Lynch Money Markets Inc. (or any affiliate thereof), or any stockholder, officer or director of the Company, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely a corporate obligation of the Company, and that no personal liability whatsoever shall attach to or be incurred by Merrill Lynch Money Markets Inc. (or any affiliate thereof), or the stockhold- ers, officers or directors of the buyer, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Company contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by the Company of any of such obligations, covenants or agreements, either at common law or at equity, or by statute or constitution, of Merrill Lynch Money Markets Inc. (or any affiliate thereof) and every such stockholder, officer or director of the Company is hereby expressly waived as a condition of and consid- eration for the execution of this Agreement. SECTION 11.11. Characterization of the Transactions Con- templated by the Agreement. It is the intention of the parties that the transactions contemplated hereby constitute the sale of the Transferred Interest, conveying good title thereto free and clear of any Adverse Claims to the Agent, on behalf of the Company and the Bank Investors, and that the Transferred Interest not be part of the Transferor's estate in the event of an insolvency. If, notwithstanding the foregoing, the transactions contemplated hereby should be deemed a financing, the parties intend that the Transferor shall be deemed to have granted to the Agent, on behalf of the Company and the Bank Investors, and the Transferor hereby grants to the Agent, on behalf of the Company and the Bank Investors, a first priority perfected and continuing security interest in all of the Transferor's right, title and interest in, to and under the Receivables, together with Related Security, Collections and Proceeds with respect thereto, and together with all of the Transferor's rights under the Receivables Purchase Agreements with respect to the Re- ceivables and with respect to any obligations thereunder of any Designated Seller with respect to the Receivables, and that this Agree- ment shall constitute a security agreement under applicable law. The Transferor hereby assigns to the Agent, on behalf of the Company and the Bank Investors, all of its rights and remedies under the Receivables Purchase Agreement with respect to the Receivables and with respect to any obligations thereunder of the Designated Sellers with respect to the Receivables. The Transferor agrees that it shall not give any consent or waiver required or permitted to be given under a Receivables Purchase Agreement without the prior consent of the Agent. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed and delivered this Transfer and Administration Agreement as of the date first written above. ENTERPRISE FUNDING CORPORATION, as Company By: ___________________________ Name: _________________________ Title: ________________________ PROFFITT'S CREDIT CORPORATION, as Transferor By: ____________________________ Name: Douglas E. Coltharp Title: President McRAE'S, INC., as Servicer By: _____________________________ Name: Douglas E. Coltharp Title: Chief Financial Officer PROFFITT'S, INC. as Servicer Guarantor By: _______________________________ Name: Douglas E. Coltharp Title: Chief Financial Officer Commitment NATIONSBANK, N.A., as Agent $175,000,000 and a Bank Investor By: ________________________________ Name: ______________________________ Title: _____________________________ Schedule A ---------- [Account Schedule] Exhibit A --------- [Form of Account] Exhibit B --------- [Credit Guidelines] Exhibit C --------- List of Lock-Box Banks and Accounts 1. For Proffitt's, Inc.: First Tennessee Bank National Association Post Office Box 84 Memphis, Tennessee 38101-0084 Account Number: 9763317 2. For McRae's, Inc.: AmSouth Bank of Alabama Main office, Birmingham Post Office Box 11007 Birmingham, Alabama 35288 Account Number: 00-300-276 Exhibit D --------- FORM OF LOCK-BOX AGREEMENT January __, 1997 [Name and Address of Lock-Box Bank] Re: [Name of Designated Seller] Lock-Box Account No[s]. ___________ Ladies and Gentlemen: [______________] (the "Seller") hereby notifies you that in connection with certain transactions involving its accounts receivable, it has transferred exclusive ownership and dominion of its lock-box account no[s]. __________ maintained with you (collec- tively the "Accounts") to NationsBank, N.A., as agent (the "Agent"), and that the Seller will transfer exclusive control of the Accounts to the Agent effective upon delivery to you of the Notice of Effectiveness (as hereinafter defined). In furtherance of the foregoing, the Seller and the Agent hereby instruct you, beginning on the date of your receipt of the Notice of Effectiveness: (i) to collect the monies, checks, in- struments and other items of payment mailed to the Accounts; (ii) to deposit into the Accounts all such monies, checks, instruments and other items of payment or all funds collected with respect thereto (unless otherwise instructed by the Agent); and (iii) to transfer all funds deposited and collected in the Accounts pursuant to instructions given to you by the Agent from time to time. You are hereby further instructed: (i) unless and until the Agent notifies you to the contrary at any time after your receipt of the Notice of Effectiveness, to make such transfers from the Accounts at such times and in such manner as the Seller or the Servicer, in its capacity as servicer for the Agent, shall from time to time instruct to the extent such instructions are not inconsistent with the instructions set forth herein, and (ii) to permit the Seller, the Servicer (in its capacity as servicer for the Agent) and the Agent to obtain upon request any information relating to the Accounts, including, without limitation, any information regarding the balance or activity of the Accounts. The Seller also hereby notifies you that, beginning on the date of your receipt of the Notice of Effectiveness and notwithstanding anything herein or elsewhere to the contrary, the Agent, and neither the Seller nor Proffitt's Credit Corporation, shall be irrevocably entitled to exercise any and all rights in re- spect of or in connection with the Accounts, including, without limitation, the right to specify when payments are to be made out of or in connection with the Accounts. The Agent has a continuing interest in all of the checks and their proceeds and all monies and earnings, if any, thereon in the Accounts, and you shall be the Agent's agent for the purpose of holding and collecting such property. The monies, checks, instruments and other items of pay- ment mailed to, and funds deposited to, the Accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any person other than the Agent (except that you may set off (i) all amounts due to you in respect of your customary fees and expenses for the routine maintenance and operation of the Accounts, and (ii) the face amount of any checks which have been credited to the Accounts but are subsequently returned unpaid because of uncollected or insufficient funds). This Agreement may not be terminated at any time by the Seller or you without the prior written consent of the Agent. Neither this Agreement nor any provision hereof may be changed, amended, modified or waived orally but only by an instrument in writing signed by the Agent and the Seller. You shall not assign or transfer your rights or obligations hereunder (other than to the Agent) without the prior written consent of the Agent and the Seller. Subject to the preceding sentence, this Agreement shall be binding upon each of the parties hereto and their respective successors and assigns, and shall inure to the benefit of, and be enforceable by, the Agent, each of the parties hereto and their respective successors and as- signs. You hereby represent that the person signing this Agreement on your behalf is duly authorized by you to so sign. You agree to give the Agent and the Seller prompt notice if the Accounts become subject to any writ, garnishment, judgment, warrant of attachment, execution or similar process. Any notice, demand or other communication required or permitted to be given hereunder shall be in writing and may be personally served or sent by facsimile or by courier service or by United States mail and shall be deemed to have been delivered when delivered in person or by courier service or by facsimile or three (3) Business Days after deposit in the United States mail (regis- tered or certified, with postage prepaid and properly addressed). For the purposes hereof, (i) the addresses of the parties hereto shall be as set forth below each party's name below, or, as to each party, at such other address as may be designated by such party in a written notice to the other party and the Agent and (ii) the address of the Agent shall be NationsBank, N.A., NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255, Attention: Michelle M. Heath, Structured Finance, or at such other address as may be designated by the Agent in a written notice to each of the parties hereto. Please agree to the terms of, and acknowledge receipt of, this notice by signing in the space provided below. The transfer of control of the Accounts, referred to in the first paragraph of this letter, shall become effective upon delivery to you of a notice (the "Notice of Effectiveness") in substantially the form attached hereto as Annex "1". Very truly yours, [Name of Designated Seller] By: __________________________________ Title: _______________________________ Attention: ___________________________ Facsimile No.: ACKNOWLEDGED AND AGREED: [NAME OF LOCK-BOX BANK] By:________________________ Title:_____________________ Date:______________________ [Address] Attention:_________________ Facsimile No.:_____________ ANNEX 1 TO LOCK-BOX AGREEMENT [FORM OF NOTICE OF EFFECTIVENESS] DATED: ________, 199_ TO: [Name of Lock-Box Bank] [Address] ATTN: ______________________ Re: Lock-Box Account No[s]._______ Ladies and Gentlemen: We hereby give you notice that the transfer of control of the above-referenced Lock-Box Account[s], as described in our letter agreement with you dated _______, 199_ is effective as of the date hereof. You are hereby instructed to comply immediately with the instructions set forth in that letter. Very truly yours, [Name of Designated Seller] By:_____________________________ Title:__________________________ ACKNOWLEDGED AND AGREED: [NAME OF LOCK-BOX BANK] By:________________________ Title:_____________________ Date:______________________ [Address] Attention:_________________ Facsimile No.:_____________ Exhibit E ---------- Form of Investor Report Exhibit F --------- [Transfer Certificate] TRANSFER CERTIFICATE Reference is made to the Transfer and Administration Agreement dated as of January 15, 1997 (the "Agreement") among Proffitt's Credit Corporation, as transferor (in such capacity, the "Transferor"), McRae's, Inc., as servicer (in such capacity, the "Servicer"), Proffitt's, Inc., Enterprise Funding Corporation (the "Company"), NationsBank, N.A., as Agent, and certain financial institutions from time to time a party thereto as Bank Investors. Terms defined in the Agreement are used herein as therein defined. The Transferor hereby conveys, transfers and assigns to the Agent, on behalf of the Company and/or the Bank Investors, as applicable, an undivided ownership interest in the Affected Assets (each, an "Incremental Transfer"). Each Incremental Transfer by the Transferor to the Agent and each reduction or increase in the Net Investment in respect of each Incremental Transfer evidenced hereby shall be indicated by the Agent on the grid attached hereto which is part of this Transfer Certificate. If, notwithstanding the foregoing, the transactions contemplated hereby should be deemed a financing, the parties intend that the Transferor shall be deemed to have granted to the Agent, on behalf of the Company and the Bank Investors, and the Transferor hereby grants to the Agent, on behalf of the Company and the Bank Investors, a security interest in all of the Transferor's right, title and interest in, to and under the Receivables, together with Related Security, Collections and Proceeds with respect thereto, and together with all of the Transferor's rights under the Receivables Purchase Agreements with respect to the Re- ceivables and with respect to any obligations thereunder of any Designated Seller with respect to the Receivables, and that this Agreement shall constitute a security agreement under applicable law. This Transfer Certificate is made without recourse except as otherwise provided in the Agreement. This Transfer Certificate shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has caused this Transfer Certificate to be duly executed and delivered by its duly authorized officer as of the date first above written. Proffitt's Credit Corporation By Name: Title: GRID Net Investment Date of Amount of (Giving Effect Incremental Incremental to Incremental Transfer Transfer Transfer ----------- ----------- ------------ Exhibit G --------- Form of Assignment and Assumption Agreement Reference is made to the Transfer and Administration Agreement dated as of January 15, 1997, as it may be amended or modified from time to time (as so modified and amended, the "Agree- ment") among Proffitt's Credit Corporation, as transferor (in such capacity, the "Transferor"), McRae's, Inc., as servicer (in such capacity, the "Servicer"), Proffitt's, Inc., Enterprise Funding Corporation (the "Company"), NationsBank, N.A., as agent, and certain financial institutions from time to time a party thereto as Bank Investors. Terms defined in the Agreement are used herein with the same meaning. ___________________ (the "Assignor") and _____________________ (the "Assignee") agree as follows: (a) The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a percentage interest in and to all rights and obligations of the Bank Investors (including, without limitation, such percentage interest in the Commitment) as of the Effective Date (as such term is hereinafter defined) under the Agreement equal to the percentage equivalent of a fraction the numerator of which is $________ and the denominator of which is the Facility Limit. (b) In consideration of the payment of $___________, being ___% of the existing Net Investment, and of $___________, being ___% of the aggregate unpaid accrued Carrying Costs payable to the Assignor, receipt of which payment is hereby acknowledged, the Assignor hereby assigns to the Agent for the account of the Assignee, and the Assignee hereby purchases from the Assignor, a ___% interest in and to all of the Assignor's right, title and interest in and to the Net Investment purchased by the undersigned on _______________, 19__ under the Agreement. (c) The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien created by it; (ii) makes no representation or warranty and assumes no responsibility with respect to any state- ments, warranties or representations made in or in connection with the Agreement or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforce- ability, genuineness, sufficiency or value of the Agreement or the Certificates, or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of either the Transferor or the Designated Seller or the performance or observance by either the Transferor or the Designated Seller of any of its obligations under the Agreement, the Certificate, or any instrument or document furnished pursuant thereto. (d) The Assignee (i) confirms that it has received a copy of the Agreement, each Receivables Purchase Agreement, the Certificate and the Fee Letter, together with copies of the financial statements referred to in Section 5.1 of the Agreement, to the extent delivered through the date of this Agree- ment, 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 purchase such interest in the Assignor's rights and obligations under the Agreement; (ii) agrees that it will, independently and without reliance upon the Agent, any of its Affiliates, the Assignor or any other Investor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement, the Receivables Purchase Agreements, the Certificate and the Fee Letter; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exer- cise such power under the Agreement, the Receivables Purchase Agreements, the Certificate and the Fee Letter as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) appoints the Agent to enforce its respective rights and interests in and under the Affected Assets in accordance with Section 10.7 of the Agreement; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Bank Investor; and (vi) specifies as its address for notices and its account for payments the office and account set forth beneath its name on the signature pages hereof[; and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States of America certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].1 (e) The effective date for this Assignment shall be the later of (i) the date on which the Agent receives this Assignment executed by the parties hereto, and re- ceives and agrees to the consent of the Transferor executed in substantially the form of Annex 1 hereto (the "Consent"), and (ii) the date of this Assignment (the "Effective Date"). Following the execution of this Assignment, this Assignment and such Consent will be delivered to the Agent for acceptance and, with respect to the Assignment, recording by the Agent. (f) Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assign- ment, have the rights and obligations of a Bank Investor thereunder and (ii) the Assignor shall, to the extent provided in this Assign- ment, relinquish its rights and be released from its obligations under the Agreement. (g) Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Agreement in respect of the interest assigned hereby (including, without limitation, all payments in respect of such interest in Net Investment, Carrying Costs and fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement for periods prior to the Effective Date directly between themselves. (h) This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be executed by their respective officers thereunto duly authorized as of the ____ day of _________, ___. [NAME OF ASSIGNOR] By: Name: Title: [NAME OF ASSIGNEE] By: Name: Title: Address for notices and Account for payments: [Address] [Account] Accepted this _____ day of _______, ____ NATIONSBANK, N.A., as Agent By: ________________________ Name: Title: _______________________________ 1If the Assignee is organized under the laws of a jursidication outside the United States. Exhibit H --------- List of Actions and Suits None Exhibit I --------- Location of Records 1. 300 South Fourth Street Suite 1100 Las Vegas, Nevada 89101 2. 3455 Highway 80 West Jackson, Mississippi 39209 Exhibit J --------- List of Subsidiaries, Divisions and Tradenames None Exhibit K --------- [Form of Transferor's Counsel Opinion] [Letterhead of Counsel for the Transferor] January __, 1997 Enterprise Funding Corporation c/o Merrill Lynch Money Markets Inc. Merrill Lynch World Headquarters World Financial Center--South Tower 225 Liberty Street--8th Floor New York, New York 10080 NationsBank, N.A. as Agent 100 North Tryon Street Charlotte, North Carolina 28255 Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 4.1(o) of the Transfer and Administration Agreement dated as of January 15, 1997 (the "Agreement") among Proffitt's Credit Corporation, a Nevada corporation (the "Transferor"), McRae's, Inc., a Mississippi corporation, as a designated seller and as ser- vicer (the "Servicer"), Proffitt's, Inc., a Tennessee corporation, individually, as servicer guarantor and as a designated seller (in such capacity, a "Designated Seller", and together with McRae's, Inc., the "Designated Sellers"), Enterprise Funding Corporation, a Delaware corporation (the "Company"), NationsBank, N.A., a national banking association ("NationsBank") as Agent and as a Bank Investor, and certain financial institutions from time to time a party thereto as Bank Investors. Terms defined in the Agreement and not otherwise defined herein are used in this opinion with the meanings so defined. We have acted as counsel to the Designated Sellers, the Servicer, the Servicer Guarantor and the Transferor in connection with the preparation of the Agreement, the Receivables Purchase Agreements, the other Transaction Documents and the transactions contemplated thereby. We have examined, on the date hereof, the Agreement and all Exhibits thereto, each of the Receivables Purchase Agreements and all Exhibits thereto, the Certificate and the Transfer Certifi- cate delivered under the Agreement, certificates of public offi- cials and of officers of the Transferor and the Designated Sellers and certified copies of the Designated Sellers' and the Transferor's certificates of incorporation, by-laws, resolutions of the respective Boards of Directors authorizing the Designated Sellers' and the Transferor's participation in the transactions contemplated by the Agreement and the Receivables Purchase Agreements (copies of each of the above having been delivered to you), copies of the financing statements on Form UCC-1 filed in the filing offices listed on Schedule I hereto executed by each Designated Seller, as debtor, in favor of the Transferor, as secured party, and showing thereon the Agent, on behalf of the Bank Investors and the Company, as the assignee of the secured party, substantially in the form attached hereto as Exhibit A (the "Designated Sellers' Financing Statements") and copies of the fi- nancing statements on Form UCC-1 filed in the filing offices listed on Schedule II hereto executed by Transferor, as debtor, in favor of the Agent, on behalf of the Bank Investors and the Company, as secured party, substantially in the form attached hereto as Exhibit B (the "Transferor Financing Statements"). We have also examined the closing documents delivered pursuant to the Agreement and the Receivables Purchase Agreements and copies of all such documents and records, and have made such investigations of law, as we have deemed necessary and relevant as a basis for our opinion. With respect to the accuracy of material factual matters which were not independently established, we have relied on certificates and statements of officers of the Designated Sellers and the Trans- feror. On the basis of the foregoing, we are of the opinion that: 1. The Transferor is a corporation duly incorporated, validly existing and in good standing under the laws of Nevada, has the corporate power and authority to own its properties and to carry on its business as now being conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Receivables, and is duly qualified and in good standing as a foreign corporation and is authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and will not have a materially adverse affect upon the business properties of the Transferor or its ability to perform its obligations under the Transaction Documents. 2. Each of the Designated Sellers is a corporation duly incorporated, validly existing and in good standing under the laws of its governing jurisdiction, has the corporate power and authori- ty to own its properties and to carry on its business as now being conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Receivables, and is duly qualified and in good standing as a foreign corporation and is authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and will not have a materially adverse affect upon the business properties of the Transferor or its ability to perform its obligations under the Transaction Documents. 3. The Transferor has the power, corporate and other, and has taken all necessary corporate action to execute, deliver and perform the Agreement and the other Transaction Documents, each in accordance with its respective terms, and to consummate the transactions contemplated thereby. The Transaction Documents to which the Transferor is a party have been duly executed and deliv- ered by the Transferor and when duly executed and delivered will constitute the legal, valid and binding obligations of the Transferor enforceable against the Transferor in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 4. Each of the Designated Sellers has the power, corpo- rate and other, and has taken all necessary corporate action to execute, deliver and perform the Receivables Purchase Agreement to which it is a party and each other Transaction Document to which it is a party, each in accordance with its respective terms, and to consummate the transactions contemplated thereby. Each Transac- tion Document to which a Designated Seller is a party has been duly executed and delivered by such Designated Seller and when duly exe- cuted and delivered will constitute the legal, valid and binding obligation of such Designated Seller enforceable against such Designated Seller in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 5. The execution, delivery and performance in accordance with their terms by the Transferor of the Agreement and the other Transaction Documents and the consummation of the transactions con- templated thereby, do not and will not (i) require (a) any govern- mental approval or (b) any consent or approval of any stockholder of the Transferor that has not been obtained, (ii) violate or con- flict with, result in a breach of, or constitute a default under (a) the certificate of incorporation or the by-laws of the Trans- feror, (b) any other agreement to which the Transferor is a party or by which the Transferor or any of its properties may be bound, or (c) any applicable law, or any order, rule, or regulation appli- cable to the Transferor of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Transferor or any of its properties, or (iii) result in or require the creation or imposition of any Lien upon any of the assets, property or revenue of the Transferor other than as contemplated by the Agreement. 6. The execution, delivery and performance in accordance with their terms by each Designated Seller of the Receivables Purchase Agreements and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (i) require (a) any governmental approval or (b) any consent or approval of any stockholder of such Designated Seller that has not been obtained, (ii) violate or con- flict with, result in a breach of, or constitute a default under (a) the certificate of incorporation or the by-laws of such Designated Seller, (b) any other agreement to which such Designated Seller is a party or by which such Designated Seller or any of its properties may be bound, or (c) any applicable law, or any order, rule, or regulation applicable to such Designated Seller of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over such Designated Seller or any of its properties, or (iii) result in or require the creation or imposition of any Lien upon any of the assets, property or revenue of such Designated Seller other than as contemplated by the Receivables Purchase Agreement. 7. Except as set forth in the schedule attached hereto, there are not, in any court or before any arbitrator of any kind or before or by any governmental or non-governmental body, any ac- tions, suits, proceedings or investigations, pending or to the best of our knowledge after due inquiry, threatened (i) against the Transferor or the business or any property of the Transferor except actions, suits or proceedings that, if adversely determined, would not, singly or in the aggregate, have a Material Adverse Effect or (ii) relating to the Agreement or any other Transaction Document. 8. Except as set forth in the schedule attached hereto, there are not, in any court or before any arbitrator of any kind or before or by any governmental or non-governmental body, any ac- tions, suits, proceedings or investigations, pending, or to the best of our knowledge after due inquiry, threatened (i) against the Designated Sellers or the business or any property of the Designated Sellers except actions, suits or proceedings that, if adversely determined, would not, singly or in the aggregate, have a Material Adverse Effect or (ii) relating to the Receivables Purchase Agreement, or any other Transaction Document. 9. The Receivables constitute ["accounts"] ["general intangibles"]["chattel paper"] as [that][such] term[s] [is][are] defined in the Uniform Commercial Code as in effect in [XYZ]. 10. Each Receivables Purchase Agreement creates a valid "security interest" (as that term is defined in Section 1-201(37) of the Uniform Commercial Code (including the conflict of laws rules thereof) as in effect in each applicable jurisdiction (the "UCC"), including New York (the "New York UCC") and _______ (the "XYZ UCC"), under Article 9 of the New York UCC ("Security Inter- est") in favor of the Transferor in the Receivables conveyed thereby and in the proceeds thereof (except that the Security Interest will attach to any Receivable created after the date hereof only when the applicable Designated Seller possesses rights in such Receivable). The internal laws of XYZ govern the per- fection by the filing of financing statements of the Transferor's Security Interest in the Receivables and the proceeds thereof. The Designated Sellers' Financing Statements have been filed in the filing office(s) located in XYZ listed on Schedule I hereto, which [is] [are] the only office(s) in which filings are required under the XYZ UCC to perfect the Transferor's Security Interest in the Receivables and the proceeds thereof, and accordingly the Transferor's Security Interest will, on the date of the initial transfer under each of the Receivables Purchase Agreements, be perfected under Article 9 of the XYZ UCC in each Receivable conveyed thereby and in the proceeds thereof. All filing fees and all taxes required to be paid as a condition to or upon the filing of the Designated Sellers' Financing Statements in XYZ have been paid in full. As of the date hereof, there were no (i) UCC financing statements naming a Designated Seller as debtor, seller or assignor and covering any Receivables or any interest therein or (ii) notices of the filing of any federal tax lien (filed pursu- ant to Section 6323 of the Internal Revenue Code) or lien of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of the Employment Retirement Insurance Act) covering any Receivable or any interest therein. The filing of the Designated Sellers' Financing Statements in the filing offices listed on Schedule I will create a first priority Security Interest in each Receivable. Such perfection and priority will continue, provided that appropriate continuation statements are timely filed where and when required under the UCC. 11. The Agreement and the Transfer Certificate creates a valid "security interest" (as that term is defined in Section 1-201(37) of the Uniform Commercial Code (including the conflict of laws rules thereof) as in effect in each applicable jurisdiction (the "UCC"), including New York (the "New York UCC") and _______ (the "XYZ UCC"), under Article 9 of the New York UCC ("Security Interest") in favor of the Company in each Receivable (except that the Security Interest will attach only when the Transferor possesses rights in such Receivable). The internal laws of XYZ govern the perfection by the filing of financing statements of the Company's Security Interest in the Receivables and the proceeds thereof. The Transferor Financing Statement(s) have been filed in the filing office(s) located in XYZ listed on Schedule II hereto, which [is] [are] the only office(s) in which filings are required under the XYZ UCC to perfect the Company's Security Interest in the Receivables and the proceeds thereof, and accordingly the Company's Security Interest in each Receivable and the proceeds thereof will, on the date of the initial transfer under the Agreement, be perfected under Article 9 of the XYZ UCC. All filing fees and all taxes required to be paid as a condition to or upon the filing of the Transferor Financing Statement(s) in XYZ have been paid in full. As of the date hereof, there were no (i) UCC financing statements naming the Transferor as debtor, seller or assignor and covering any Receivables or any interest therein or (ii) notices of the filing of any federal tax lien (filed pursuant to Section 6323 of the Internal Revenue Code) or lien of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of the Em- ployment Retirement Insurance Act) covering any Receivable or any interest therein. The filing of the Transferor Financing State- ment(s) in the filing offices listed on Schedule II will create a first priority Security Interest in each Receivable. Such perfection and priority will continue, provided that appropriate continuation statements are timely filed where and when required under the UCC. In giving the opinions in paragraphs 10 and 11, we have assumed that (1) the Designated Sellers' and the Transferor's chief executive offices will continue to be located in XYZ, and (2) the Designated Sellers and the Transferor have kept and will continue to keep all of their respective records concerning Receivables located only in XYZ. The conclusions expressed in paragraphs 10 and 11 are subject to the accuracy of the personnel in the filing offices referred to above with regard to the filing, indexing and recording of financing statements and notices of Liens, and to the correctness of reports to us by ____________, who performed the searches of such records and who made the filings on behalf of the Designated Sellers and the Transferor in XYZ. In giving the opinions set forth in paragraphs 10 and 11, we have assumed that all filings as appropriate in the event of a change in the name, identity or corporate structure of the debtor (or seller or assignor) named in any financing statements and all continuation statements necessary under the UCC to maintain the perfection of the Transferor's Security Interest and the Company's Security Interest in the Receivables and the proceeds thereof will be duly and timely filed. In giving such opinions, we also do not express any opinion as to (a) transactions excluded from Article 9 of the UCC by virtue of Section 9-104 of the UCC, (b) any security interest in proceeds except to the extent that the valid- ity and perfection of any interest in proceeds (as such term is defined under the UCC) thereof that is covered by the Designated Sellers' Financing Statements or the Transferor Financing Statements or any duly filed financing statement referred to above may be permitted by Section 9-306 of the UCC, and (c) any security interest that is terminated or released. The foregoing opinions and conclusions were given only in respect of the laws of XYZ, the Uniform Commercial Code as in effect on the date hereof in the State of New York and, to the extent specifically referred to herein, the Federal laws of the United States of America. This opinion has been delivered at your request for the purposes contemplated by the Agreement. Without our prior written consent, this opinion is not to be utilized or quoted for any other purpose and no one other than you is entitled to rely thereon; provided, that any Bank Investor, Liquidity Provider, any Credit Support Provider and any placement agent or dealer of the Company's commercial paper may rely on this opinion as of it were addressed to them. Very truly yours, Exhibit L-1 ----------- [FORM OF SECRETARY'S CERTIFICATE] I, __________________, the undersigned Proffitt's Credit Corporation of (the "Company"), a ________ corporation, DO HEREBY CERTIFY that: 1. Attached hereto as Annex A is a true and complete copy of the Certificate of Incorporation of the Company as in effect on the date hereof. 2. Attached hereto as Annex B is a true and complete copy of the By-laws of the Company as in effect on the date hereof. 3. Attached hereto as Annex C is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company [adopted by consent] as of _________________, 199_, authorizing the execution, delivery and performance of each of the documents mentioned therein, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 4. The below-named persons have been duly qualified as and at all times since ________________, 199_, to and including the date hereof have been officers or representatives of the Company holding the respective offices or positions below set opposite their names and are authorized to execute on behalf of the Company the below-mentioned Transfer and Administration Agreement and all other Transaction Documents (as defined in such Transfer and Administration Agreement) to which the Company is a party and the signatures below set opposite their names are their genuine signa- tures: Name Office Signatures [OFFICE] [OFFICE] 5. The representations and warranties of the Company contained in Section 3.1 of the Transfer and Administration Agreement dated as of January 15, 1997 among the Company, McRae's, Inc., Proffitt's, Inc., Enterprise Funding Corporation, NationsBank, N.A. and certain financial institutions named therein are true and correct as if made on the date hereof. WITNESS my hand and seal of the Company as of this ____ day of January, 1997. Secretary I, the undersigned, Vice President of the Company, DO HEREBY CERTIFY that _____________________ is the duly elected and qualified Secretary of the Company and the signature above is - his/her genuine signature. WITNESS my hand as of this ____ day of January, 1997. Vice President Exhibit L-2 ----------- [FORM OF SECRETARY'S CERTIFICATE] I, __________________, the undersigned ________________ of [Proffitt's, Inc.] [McRae's, Inc.] (the "Company"), a ________ corporation, DO HEREBY CERTIFY that: 1. Attached hereto as Annex A is a true and complete copy of the Certificate of Incorporation of the Company as in effect on the date hereof. 2. Attached hereto as Annex B is a true and complete copy of the By-laws of the Company as in effect on the date hereof. 3. Attached hereto as Annex C is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company [adopted by consent] as of _________________, 199_, authorizing the execution, delivery and performance of each of the documents mentioned therein, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 4. The below-named persons have been duly qualified as and at all times since ________________, 199_, to and including the date hereof have been officers or representatives of the Company holding the respective offices or positions below set opposite their names and are authorized to execute on behalf of the Company the below-mentioned Transfer and Administration Agreement and all other Transaction Documents (as defined in such Transfer and Administration Agreement) to which the Company is a party and the signatures below set opposite their names are their genuine signa- tures: Name Office Signatures [OFFICE] [OFFICE] 5. The representations and warranties of the Company contained in Section 3.1 of the Transfer and Administration Agreement dated as of January 15, 1997 among the Company, [Proffitt's, Inc.] [McRae's, Inc.], Proffitt's Credit Corporation, Enterprise Funding Corporation, NationsBank, N.A. and certain financial institutions named therein are true and correct as if made on the date hereof. WITNESS my hand and seal of the Company as of this ____ day of January __, 1997. Secretary I, the undersigned, Vice President of the Company, DO HEREBY CERTIFY that _____________________ is the duly elected and qualified Secretary of the Company and the signature above is - his/her genuine signature. WITNESS my hand as of this ____ day of January, 1997. Vice President Exhibit M ---------- [Form of Certificate] THIS CERTIFICATE OR ANY INTEREST HEREIN MAY NOT BE TRANSFERRED, ASSIGNED, EXCHANGED OR CONVEYED EXCEPT IN ACCORDANCE WITH THE TRANSFER AND ADMINISTRATION AGREEMENT REFERRED TO HEREIN. THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND NO TRANSFER HEREOF MAY BE MADE EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED AND ANY OTHER APPLICABLE LAWS. No. 1 One Unit [Date] Evidencing an undivided interest in a pool of accounts receivables acquired from time to time in the ordinary course of business by Proffitt's Credit Corporation (the "Transferor"). This Certificate does not evidence an interest in or obligation of Proffitt's Credit Corporation. This certifies that NATIONSBANK, N.A., on behalf of and as agent for Enterprise Funding Corporation and the Bank Investors (as defined in the Agreement), as their respective interests may appear from time to time, is the registered owner of a fractional undivided interest in a pool of accounts receivables pursuant to a Transfer and Administration Agreement among the Transferor, Proffitt's, Inc., McRae's, Inc., Enterprise Funding Corporation, NationsBank, N.A. and certain financial institutions named therein, dated as of January 15, 1997 (the "Agreement"). The Receivables consist of all accounts receivables generated under the Accounts from time to time hereafter, all monies due or to become due in payment of the Receivables and the other assets and interests as provided in the Agreement. To the extent not defined herein, capitalized terms used herein have the meanings assigned to such terms in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement, as amended from time to time, the holder hereof by virtue of the acceptance hereof assents and by which the holder hereof is bound. In the event of any inconsistency or conflict between the terms of this Certificate and the terms of the Agreement, the terms of the Agreement shall control. This Certificate represents a fractional undivided inter- est in the Receivables, including the right to receive Collections and other amounts at the times and in the amounts specified in the Agreement. The aggregate interest in the Receivables represented by this Certificate at any time shall equal the Buyers' Percentage Factor as determined in accordance with the Agreement. IN WITNESS WHEREOF, the Transferor has caused this Cer- tificate to be duly executed. Proffitt's Credit Corporation By: Name: Title: Exhibit N ---------- Financial Covenant Definitions "Acquisition" shall mean, the acquisition of (i) a con- trolling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or substantially all of the assets of such Person or all or substantially all of a line or line of business conducted by or a division of such Person. "Agent" shall mean, for the purpose of these financial covenant definitions, NationsBank of Texas, National Association, a national banking association, in its capacity as agent for the Lenders. "Applicable Commitment Percentage" shall mean at any time for each Lender with respect to the Revolving Credit Facility (including its Participations and its obligations under the Credit Facilities Agreement to NationsBank of Texas, National Association to acquire Participations), a fraction (expressed as a percentage), (A) the numerator of which shall be the amount of such Lender's Revolving Credit Commitment at such date of determination (which Revolving Credit Commitment for each Lender as of the Closing Date is set forth in Exhibit A attached hereto and incorporated herein by reference), and (B) the denominator of which shall be the Total Revolving Credit Commitment at such date of determination provided that each Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 11.01 of the Credit Facilities Agreement. "Borrower" shall mean, for the purpose of these financial covenant definitions, Proffitt's, Inc., having a principal place of business in Jackson, Mississippi. "Borrowing Base" means, at any time of determination, an amount determined pursuant to the following formula: Borrowing Base = Borrowing Base Factor multiplied by (Eligible Inventory - Commercial L/Cs) "Borrowing Base Factor" means 60% through the end of the Borrower's fiscal year 1996 and 55% thereafter. "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "Closing Date" means the date as of which the Credit Facilities Agreement was executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in Section 5.01 thereof were satisfied. "Commercial L/Cs" means, at any date of determination, the aggregated stated amount of outstanding commercial or documentary letters of credit issued for the benefit of any Person and for the account of the Borrower or any Subsidiary to the extent that such letters of credit were issued in connection with the pur- chase of inventory by the Borrower or such Subsidiary and such inventory is determined to be an asset thereof and included as such on its books and records. "Common Stock" means the common stock, par value $.10 per share, of the Servicer. "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower referred to in Section 6.01(f)(i) of the Credit Facilities Agreement and the audited financial statements of the Servicer, Proffitt's and each other Person referred to in Section 5.1(a) of the Agreement. "Consolidated Capitalization" means, at any time at which the amount thereof is to be determined, the sum of Consolidated Funded Indebtedness plus Consolidated Shareholders' Equity. "Consolidated EBITDA" means, with respect to Proffitt's and its Subsidiaries for any period of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense, plus (iii) taxes on income, plus (iv) amortization, plus (v) depreciation, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; provided however, at all times until a Four-Quarter Period wholly occurs after the Closing Date, Consolidated EBITDA shall be calculated giving pro forma effect to the Parisian Acquisition for the Four-Quarter Period ending on or most recently prior to the date of computation; provided further, that certain one-time extraordinary charges incurred by Proffitt's as a result of the Parisian Acquisition and the Acquisition by Proffitt's of all the capital stock of Younkers, Inc. pursuant to that certain Agreement and Plan of Merger among Proffitt's, Baltic Merger Corporation and Younkers, Inc. dated as of October 22, 1995 shall be excluded from the computation of Consolidated EBITDA. "Consolidated Financing Charges" means those charges owed and allocated to third parties with respect to accounts receivable securitizations transacted in the ordinary course of business and consistent with past practice. "Consolidated Fixed Charge Ratio" means, with respect to Proffitt's and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated EBITDA plus Consolidated Financing Charges plus, to the extent deducted in arriving at Consolidated EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, to (b) Consolidated Fixed Charges during such Four-Quarter Period. "Consolidated Fixed Charges" means, with respect to Proffitt's and its Subsidiaries, for the periods indicated, the sum of, without duplication, (i) Consolidated Interest Expense, plus (ii) to the extent deducted in arriving at Consolidated EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, plus (iii) current maturities of Consolidated Funded Indebtedness, plus (iv) all dividends and other distributions (other than distributions in the form of any stock (including without limitation capital stock of the Proffitt's), security, note or other instrument) paid during such period (regardless of when declared) on any shares of capital stock of Proffitt's then outstanding, including without limitation its Common Stock and its preferred stock, plus (v) Consolidated Financing Charges, all determined on a consolidated basis in accor- dance with GAAP applied on a Consistent Basis. "Consolidated Funded Indebtedness" means, at any time as of which the amount thereof is to be determined, all indebtedness in respect of money borrowed of Proffitt's and its Subsidiaries, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond or similar written obligation for the payment of money (including, but not limited to, conditional sales or similar title retention agreements and all current maturities and borrowings under short term loans) plus the face amount of all issued and outstanding standby letters of credit and all obligations (to the extent not duplicative) arising under such letters of credit, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of Proffitt's and its Subsidiaries, including without limitation (i) the amortization of debt discounts, (ii) the amortization of all fees (including, without limitation, fees payable in respect of a Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of all payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of Proffitt's and its Subsidiaries (including interest income from investments), less all operating and non-operating expenses of Proffitt's and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding as income: (i) net gains on the sale, conversion or other disposition of capital assets, net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of Proffitt's or its Subsid- iaries, and net gains on the collection of proceeds of life insurance policies, which net gains in the aggregate during any Four-Quarter Period exceed $200,000, (ii) any write-up of any asset, and (iii) any other net gain or credit of an extraordinary nature, all determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Shareholders' Equity" means at any time as of which the amount thereof is to be determined, the sum of the following in respect of Proffitt's and its Subsidiaries (determined on a consolidated basis and excluding intercompany items among Proffitt's and its Subsidiaries and any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of addi- tional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), plus (iii) the amount of any foreign currency translation adjustment (if positive, of, if negative, minus the amount of such translation adjustment) minus (iv) the book value of any treasury stock and the book value of any stock subscription receivables, all as determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Senior Indebtedness" means at any time as of which the amount thereof is to be determined, the difference of all Consolidated Funded Indebtedness then outstanding, including without limitation any Loans, minus the aggregate principal amount of any Consolidated Funded Indebtedness then outstanding subordinate in terms acceptable to the Agent and the Required Lenders of payment and available remedy to the Loans and the terms and conditions set forth herein, including without limitation Consolidated Subordinated Debt. "Consolidated Subordinated Debt" means at any time as of which the amount thereof is to be determined, the sum of the following in respect of Proffitt's and its Subsidiaries determined on a consolidated basis: (i) the Convertible Subordinated Debentures, (ii) the Junior Subordinated Debentures, (iii) the Parisian Senior Subordinated Notes and (iv) all other Consolidated Funded Indebtedness which is by its terms subordinate in all respects to the Loans as required by, and in substance acceptable to, the Agent. "Contingent Obligation" of any Person means (i) all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the consolidated financial statements (including footnotes) of such Person in accordance with GAAP applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, (ii) all reimbursement obligations of such Person with respect to any letter of credit and all obligations of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (i) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (ii) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (iii) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (iv) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (v) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof; with respect to Contingent Obligations (such as litigation, guarantees and pension plan liabilities), such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the present value of the amount which can reasonably be expected to become an actual or matured liability. "Convertible Subordinated Debentures" means the 4 3/4% Convertible Subordinated Debentures Due 2003 of Proffitt's in the aggregate principal amount of $86,250,000 issued pursuant to that certain Indenture dated as of October 26, 1993, between Proffitt's and Union Planters National Bank, as trustee (the "Convertible Subordinated Debentures Indenture"). "Credit Facilities Agreement" shall mean that certain Credit Facilities and Reimbursement Agreement, dated as of October 11, 1996, among Proffitt's, Inc., as Borrower, each Lender party thereto and NationsBank of Texas, National Association, in its capacity as Agent for the Lenders, as amended and modified up to January 15, 1996. "Four-Quarter Period" means a period of four full consecutive quarter annual periods, taken together as one accounting period, and in the event any such quarter annual period occurs prior to the effective date of the Parisian Acquisition, or is the period in which such effective date occurs (each a "Pre-Acquisition Period"), all financial statements, data, computations and determinations for such Four-Quarter Period shall be made on a pro forma basis for each Pre-Acquisition Period giving effect to the Parisian Acquisition for all prior periods. "Indebtedness" means with respect to any Person, without duplication, all Indebtedness for Money Borrowed, all indebtedness of such Person for the acquisition of property, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Contingent Obligations, all Rate Hedging Obligations, that portion of obligations with respect to Capital Leases and other items which in accordance with GAAP is classified as a liability on a balance sheet; but excluding all accounts payable and accruals, in each case in the ordinary course of business and only so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include surplus and retained earnings, minority interest in Subsidiaries, lease obligations (other than pursuant to Capital Leases), reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations. "Junior Subordinated Debentures" means the 7.5% Junior Subordinated Debentures Due March 31, 2004 of Proffitt's issued in the original aggregate principal amount of $17,500,000. "Lender" shall mean each lender having executed and delivered a signature page to the Credit Facilities Agreement or an instrument of assignment with respect to the Credit Facilities Agreement pursuant to Section 11.01 thereof on or prior to January 15, 1997. "Letter of Credit" means a standby letter of credit issued by NationsBank of Texas, National Association, for the account of the Borrower in favor of a Person advancing credit or securing an obligation on behalf of the Borrower. "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statue or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of the Credit Facilities Agreement and these financial covenants, the Borrower and its Subsidiaries shall be deemed to be the owners of any property which either of them have acquired or hold subject to a conditional sale agreement, financing lease, or other arrange- ment pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Loan" or "Loans" means any of the Revolving Credit Loans or Swing Line Loans. "Outstanding Letters of Credit" means all undrawn amounts of Letters of Credit plus all Reimbursement Obligations. "Parisian" means Parisian, Inc., an Alabama corporation, acquired as part of the Parisian Acquisition and thereafter a Subsidiary. "Parisian Acquisition" means the Acquisition by Proffitt's of Parisian wherein each issued and outstanding share of Parisian's common shares will be converted into cash and shares of the common stock of Proffitt's, substantially in accordance with the terms and conditions of the Purchase Agreement. "Parisian Senior Subordinated Notes" means the 9.875% Senior Subordinated Notes Due 2003 of Parisian in the aggregate principal amount of $125,000,000 issued pursuant to the Parisian Indenture. "Participation" means, with respect to any Lender other than NationsBank of Texas, N.A., the extension of credit represented by a participation of such Lender under the Credit Facilities Agreement in the liability of NationsBank of Texas, N.A., in respect of a Swing Line Loan made or Letter of Credit issued by NationsBank of Texas, N.A. in accordance with the terms of the Credit Facilities Agreement. "Person" means an individual, partnership, limited partnership, corporation, limited liability corporation, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. "Purchase Agreement" means that certain Agreement and Plan of Merger by and among Parisian, Casablanca Merger Corp., an Alabama corporation and wholly owned subsidiary of the Borrower, and the Borrower dated as of July 8, 1996 setting forth the terms and conditions of the Parisian Acquisition. "Rate Hedging Obligations" means any and all obligations of the Borrower, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, U.S. dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. "Required Lenders" means, as of any date, Lenders on such date having Credit Exposure (as defined below) aggregating at least 51% of the aggregate Credit Exposure of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal at all times (i) other than following the occurrence and during the continuance of an Event of Default (as defined in the Credit Facilities Agreement), to its Revolving Credit Commitment, and (ii) following the occurrence and during the continuance of an Event of Default (as defined in the Credit Facilities Agreement), to the aggregate principal amount of Revolving Credit Loans owing to such Lender plus the amount of such Lender's Applicable Commitment Percentage of Swing Line Outstanding and Outstanding Letters of Credit; provided that, if any Lender shall have failed to pay to NationsBank of Texas, National Association, its Applicable Commit- ment Percentage of any Swing Line Loan or drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to such Swing Line Outstanding or outstanding Letters of Credit or both shall be deemed to be held by NationsBank of Texas, National Association for purposes of this definition. "Revolving Credit Facility" means the facility described in Section 2.01 of the Credit Facilities Agreement providing for Loans to the Borrower by the Lenders in the aggregate principal amount equal to (i) the lesser of the Borrowing Base and the Total Revolving Credit Commitment, less (ii) the aggregate principal amount of Swing Line Outstanding and Outstanding Letters of Credit. "Revolving Credit Loan" means a Loan made pursuant to the Revolving Credit Facility (but specifically excludes all Swing Line Loans). "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries at or after the Closing Date, including without limitation Parisian, Inc. "Swap Agreement" means, for the purpose of these financial covenant definitions, one or more agreements between the Borrower and another Person, on terms mutually acceptable to the Borrower and such Person, which agreements create Rate Hedging Obligations. "Swing Line Loans" means Loans made by NationsBank of Texas, National Association to the Borrower pursuant to Section 2.02 of the Credit Facilities Agreement. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding. "Total Letter of Credit Commitment" shall mean an amount equal to $15,000,000, "Total Revolving Credit Commitment" means an amount equal to $275,000,000, as reduced from time to time in accordance with Section 2.09 of the Credit Facilities Agreement; the Total Letter of Credit Commitment and the Total Swing Line Commitment are included within, and are not in addition to, the Total Revolving Credit Commitment. "Total Swing Line Commitment" means an amount equal to $20,000,000. Exhibit O --------- Financial Covenants and Ratios Capitalized terms used in this Exhibit which are defined in Exhibit N hereto shall have the meanings set forth therein. 1. Proffitt's Inc. shall not permit at any time during the peri- ods set forth below the ratio of Consolidated Senior Indebt- edness to Consolidated Capitalization to be greater than the ratios set forth opposite the following respective periods: Period Ratio Closing Date through Fiscal Year End 1996 .50 to 1.00 At all times thereafter .40 to 1.00 2. Proffitt's Inc. shall not permit, at any time during any four-quarter period of Proffitt's Inc. ending during the periods set forth below, the Consolidated Fixed Charge Ratio for such four-quarter period to be equal to or less than the ratios set forth opposite the respective periods below: Period Ratio Closing Date through Fiscal Year End 1996 1.25 to 1.00 At all times thereafter 1.50 to 1.00 3. Proffitt's Inc. shall not permit at any time the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA to be equal to or greater than the following ratios set forth opposite the following periods below: Period Ratio Closing Date through Fiscal Year End 1996 4.00 to 1.00 At all times thereafter 3.50 to 1.00 Exhibit P ---------- [FORM OF CYCLE CERTIFICATE] X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-8.ASC EX-10 4 EXHIBIT 10.9 AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT AMENDMENT (this "Amendment") dated as of January 30, 1997 to the TRANSFER AND ADMINISTRATION AGREEMENT, dated as of January 15, 1997, (the "Agreement") by and among PROFFITT'S CREDIT CORPORATION, a Nevada corporation, as transferor (in such capacity, the "Transferor"), PROFFITT'S, INC., a Tennessee corporation ("Proffitt's") in its capacity as servicer guarantor ("Servicer Guarantor"), MCRAE'S, INC., a Missis- sippi corporation, as servicer (the "Servicer" or "McRae's"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK, N.A., a national banking association ("NationsBank"), as agent for the Company and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor. W I T N E S S E T H : WHEREAS, the Company, the Transferor, Proffitt's, the Servicer Guarantor, the Servicer and NationsBank have entered into the Agreement and wish to amend the Agreement as hereinafter provided. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Unless otherwise defined herein, the terms used herein shall have the meanings assigned to such terms in the Agreement. Terms defined in the Agreement and defined in this Section 1 are amended hereby and shall have the meanings assigned in this Section 1. For convenience of reference only, text representing modifications to the existing language of any definition found in the Agreement is italicized. "Account" shall mean all credit or charge accounts established pursuant to an Account Agreement between (i) each Designated Seller other than Parisian, Inc. and an Obligor as of the Cut-Off Date and on any day thereafter, or (ii) Parisian, Inc. and an Obligor as of the Parisian Cut-Off Date and on any day thereafter. The Accounts shall be identified by account number and by the Outstanding Principal Balance as of the Cut-Off Date or as of the Parisian Cut-Off Date, as applicable, and referred to in the Account Schedule delivered to the Agent on the Closing Date in the case of (i) above, and on the Effective Date, in the case of (ii) above, pursuant to Section 2.8, and shall include any Related Account. Any Account established after the Cut-Off Date and the Parisian Cut-Off Date also shall be identified on and referred to in the Account Schedule as such schedule may be amended from time to time pursuant to Section 2.8. "Account Agreement" shall mean the credit and charge card agreements governing the rights and obligations of the applicable Designated Seller and each obligor using the private label credit card identified as a "McRae's," "Parisian," "Proffitt's" (or other Designated Seller) credit card, as parties thereto, and each Federal Truth in Lend- ing Statement for the Accounts, in substantially the forms attached as Exhibit A to this Agreement, as such agreements or statement may be amended, modified or otherwise changed from time to time. "Credit Guidelines" shall mean (i) the Designated Sellers' credit and collection policy or policies and practices, relating to Accounts and Receivables existing on the Closing Date and (ii) with respect to, and for only so long as there are any, Parisian Receivables, the Parisian Credit Guidelines, in each case as referred to in Exhibit B attached hereto, as modified and as supplemented from time to time in compliance with Section 5.2(c) and 5.2(d). "Default Ratio" means, with respect to any Collection Period, the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the product of (x) 12 and (y) the aggregate amount of Receivables which became Defaulted Receivables during such Collection Period by (ii) the aggregate amount of all Re- ceivables (other than Parisian Receivables and Defaulted Receivables) as of the last day of the prior Collection Period. "Defaulted Receivable" means any Receivable other than a Parisian Receivable: (i) as to which any payment, or part thereof, remains unpaid for 181 days or more from the original due date for such Receivable; (ii) as to which an Event of Bankruptcy has occurred and is continuing with respect to the Obligor thereof; (iii) which has been identified by the Transferor, the Designated Seller or the Servicer as uncollectible; or (iv) which, consistent with the Credit Guidelines, should be written off as uncollectible. "Delinquency Ratio" means, the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the aggregate amount of all Delinquent Receivables as of such date by (ii) the aggregate amount of all Receivables (other than Parisian Receivables and Defaulted Receivables) as of such date. "Delinquent Receivable" means any Receivable other than a Parisian Receivable: (i) as to which any payment, or part thereof, re- mains unpaid for more than 30 days from the original due date for such Receivable and (ii) which is not a Defaulted Receivable. "Designated Seller" means (i) Proffitt's, Inc., a Tennessee corporation, (ii) McRae's, Inc. a Mississippi corporation, (iii) Parisian, Inc., an Alabama corporation, and until merged with and into Parisian, Inc., Parisian Services, Inc. and (iv) any other Person desig- nated with the written consent of the Agent as the "seller" under any Receivables Purchase Agreement, and in each case such Person's succes- sors and permitted assigns. "Dilution Ratio" shall mean the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the aggregate amount by which Receivables are reduced or cancelled as a result of any defective, rejected or returned merchandise or services and all credits, rebates, discounts, disputes, warranty claims, repossessed or returned goods, chargebacks, allowances, or any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable or a Parisian Charge-Off, (whether effected through the granting of credits against the applicable Receivables or by the issuance of a check or other payment in respect of (and as payment for) such reduction) by a Designated Seller, the Transferor or the Servicer, provided to Obligors in respect of Receivables during such month by (ii) the aggregate Outstanding Principal Balance of all Receivables as of the last day of the preceding Collection Period. "Effective Date" means the date occurring after all conditions precedent described in Section 19 of this Amendment have been fulfilled on which each of the Company, the Transferor, Proffitt's, the Servicer Guarantor, the Servicer and NationsBank shall have executed and deliv- ered one or more counterparts of this Amendment and each shall have re- ceived one or more counterparts of this Amendment executed by the others. "Eligible Account" shall mean, as of the Cut-Off Date or, with respect to Accounts related to Parisian Receivables, as of the Parisian Cut-Off Date (and, with respect to Accounts arising after the Cut-Off Date and the Parisian Cut-Off Date, as applicable, as of the date of creation), each Account in existence and owned by a Designated Seller: (a) which is payable in United States Dollars; (b) the credit card or cards related thereto have not been reported lost or stolen or designated fraudulent; (c) the Obligor on which has provided, as its most recent billing address, an address located in the United States or its territo- ries or possessions, or Canada, or which is a United States military address; (d) which is not an Account as to which any of the Receiv- ables existing thereunder are Defaulted Receivables or Receivables that have been otherwise charged-off or written-off as uncollectible; (e) which has been created by a Designated Seller in the ordinary course of its business in accordance with, or under standards no less stringent than, the Credit Guidelines; (f) with respect to which the applicable Designated Seller has good title thereto, free and clear of all Adverse Claims; and (g) the Obligor on which has not been identified by the Servicer or the Transferor, as applicable, in its computer files as having (i) died, (ii) commenced, or had commenced in respect of such Obligor, a case, action or proceeding under any law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking relief with respect to such Obligor's debts, or seeking to have such Obligor adjudicated bankrupt or insolvent, or to have a receiver, trustee, custodian or other similar official appointed for such Obligor or for all or any substantial part of such Obligor's assets or (iii) made a general assignment of such Obligor's assets for the benefit of such Obligor's creditors, which assignment is then in full force and effect. "Eligible Receivable" means, at any time, any Receivable: (a) with respect to which, the related Account is an Eligible Account; (b) which has been originated by a Designated Seller in the ordinary course of its business, sold to the Transferor pursuant to (and in accordance with) the Receivables Purchase Agreement and to which the Transferor has good title thereto, free and clear of all Adverse Claims; (c) which (together with the Collections and Related Security related thereto) has been the subject of either a valid transfer and assignment from the Transferor to the Agent, on behalf of the Company and the Bank Investors, of all of the Transferor's right, title and interest therein or the grant of a first priority perfected security interest therein (and in the Collections and Related Security related thereto), effective until the termination of this Agreement; (d) which arises pursuant to an Account with respect to which the applicable Designated Seller and the Transferor has performed all obligations required to be performed by it thereunder, including without limitation shipment of the merchandise and/or the performance of the services purchased thereunder; (e) a purchase of which with the proceeds of Commercial Paper would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (f) which is an "account" or a "general intangible" or "chattel paper" within the meaning of Article 9 of the UCC of all appli- cable jurisdictions; (g) which arises under an Account that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms and is not subject to any litigation, right of rescission, dispute, offset, counterclaim or other defense; (h) which was created in compliance, in all material re- spects, with all laws, rules or regulations applicable thereto (in- cluding, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and pursuant to an Account Agreement which complies, in all material re- spects, with all such laws, rules and regulations; (i) which (A) satisfies all applicable requirements of the Credit Guidelines, (B) has not been waived or modified except in accordance with the Credit Guidelines, and (C) is assignable without the consent of, or notice to, the Obligor thereunder; (j) the Obligor of which has been directed to make all payments to a specified account of the Servicer with respect to which there shall be a Lock-Box Agreement in effect; (k) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the Transferor or by the applicable Designated Seller in connection with the creation of such Receivable or the execution, delivery, creation and performance by the Transferor or by the applicable Designated Seller of the Account Agreement pursuant to which such Receivable was created, have been duly obtained, effected or given and are in full force and effect; (l) the assignment of which under the Receivables Purchase Agreement by the applicable Designated Seller and hereunder by the Transferor does not violate, conflict or contravene any applicable laws, rules, regulations, orders or writs or any contractual or other re- striction, limitation or encumbrance; and (m) as to which the Obligor has not exceeded its credit limit by an amount in excess of the greater of (i) $300 or (ii) 10% of such credit limit as determined as of each cycle closing date, except for exceptions which are immaterial in the aggregate. "Facility Limit" means $300,000,000; provided that such amount may not at any time exceed the aggregate Commitments at any time in effect; provided, further, that (i) if after the occurrence of a Parisian Termination Event, the Buyer's Percentage Factor (calculated without giving effect to the inclusion of any Parisian Receivables) is equal to or less than the Maximum Buyer's Percentage Factor, the Facili- ty Limit shall mean $175,000,000, and (ii) from and after the Termina- tion Date the Facility Limit shall at all times equal the Net Investment plus the Aggregate Interest Component. "Finance Charge Collections" shall mean that portion of the Collections with respect to the Receivables which are properly designated in the Accounts as Finance Charges, together with (i) any Recoveries (net of liquidation expenses, if any) in respect of Defaulted Receivables, Parisian Charge-Offs and Related Security with respect thereto and (ii) all Discount Receivable Collections. "Net Portfolio Yield" shall mean, with respect to any Collection Period, the annualized percentage equivalent of a fraction the numerator of which is Finance Charge Collections less the Carrying Costs for such Collection Period less the aggregate outstanding balance of all Receivables which became Defaulted Receivables during such Collection Period less Parisian Charge-Offs for such Collection Period less the Servicing Fee with respect to such Collection Period and the denominator of which is the daily average aggregate Outstanding Princi- pal Balance of all Receivables during such Collection Period. "Outstanding Principal Balance" means, with respect to any Re- ceivable at any time, the then outstanding principal amount thereof excluding any accrued and outstanding Finance Charges related thereto and giving effect to the amount of any credit balances and other adjust- ments existing with respect to such Receivable on such day. The out- standing principal amount of (i) any Defaulted Receivables and (ii) any Parisian Receivable written off as uncollectible shall be considered to be zero for the purposes of any determination hereunder of the aggregate Outstanding Principal Balance of the Receivables or the aggregate Outstanding Principal Balance of Eligible Receivables. "Parisian Amortization Period" means the period of time commencing upon the occurrence of a Parisian Termination Event and ending on the first Business Day following the day upon which the Agent has released its lien on the Parisian Receivables pursuant to Section 2.15. "Parisian Charge-Offs" means, for any period of determination, the aggregate amount of Parisian Receivables written off as uncollectible during such period in accordance with Parisian's Credit Guidelines. "Parisian's Credit Guidelines" shall mean the Parisian, Inc. credit and collection policy or policies and practices, relating to Accounts and Parisian Receivables existing on the Parisian Cut-Off Date and referred to in Exhibit B attached hereto, as modified and supple- mented in compliance with Section 5.2(c) and 5.2(d). "Parisian Cut-Off Date" shall mean January 29, 1997. "Parisian Default Ratio" means, as of the end of any calendar month, the decimal equivalent of the fraction (expressed as a percentage) the numerator of which equals the aggregate amount of Pari- sian Charge-Offs occurring in such period, and the denominator of which is the aggregate outstanding balance of all Parisian Receivables as of the last day of the prior Collection Period, excluding from such balance, without duplication, the amount of Parisian Charge-Offs. "Parisian Delinquency Ratio" means, as of the end of any calendar month, the decimal equivalent of a fraction (expressed as a percentage) the numerator of which is the aggregate outstanding balance of all Parisian Receivables that are 60 or more days (inclusive) past due (as determined in accordance with the Parisian Credit Guidelines and that do not also constitute Parisian Charge-Offs), and the denominator of which equals the aggregate outstanding balance of all Parisian Receivables (other than Parisian Charge-Offs) as of the end of such day. "Parisian Receivables" means the indebtedness owed by any Obligor and sold to the Transferor pursuant to that certain Receivables Purchase Agreement dated as of the date hereof, between the Transferor, as purchaser thereunder, Parisian, Inc. and Parisian Services, Inc., each as seller thereunder and McRae's, Inc., as servicer thereunder, whether constituting an account, chattel paper, instrument, investment property or general intangible, and arising in connection with the sale or lease of merchandise or the rendering of services, and includes the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. A Parisian Receivable shall be deemed to have been created or the amount thereof increased as of the end of the day on the Date of Processing of such Parisian Receivable or such in- crease to the amount thereof. "Parisian Termination Event" shall mean (i) the occurrence, as of the last day of any calendar month, of either of the following: (A) the three month average of the Parisian Delinquency Ratio has exceeded 4.0% for two consecutive months, or (B) the three month average of the Parisian Default Ratio has exceeded 7.0% for two consecutive months, or (ii) the failure of Parisian, Inc. to convert the Parisian Credit Guidelines and related accounts receivable management systems to the systems employed by Proffitt's, Inc. and McRae's, Inc. on or prior to September 30, 1997. "Receivable" means the indebtedness owed to a Designated Seller by any Obligor (without giving effect to any purchase under the Receivables Purchase Agreement by the Transferor at any time) under an Account and sold by such Designated Seller to the Transferor pursuant to a Receivables Purchase Agreement, whether constituting an account, chat- tel paper, instrument, investment property or general intangible, aris- ing in connection with the sale or lease of merchandise or the rendering of services, and includes the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. A Receivable shall (i) be deemed to have been created or the amount thereof increased as of the end of the day on the Date of Processing of such Receivable or such increase to the amount thereof and (ii) from and after the time the Agent shall have released its lien on the Parisian Receivables pursuant to Section 2.15, shall not include in its meaning, any Parisian Receivable. "Recoveries" shall mean all amounts received or collected by the Servicer with respect to Defaulted Receivables plus the aggregate amount of cash received during such period (net of out-of-pocket collec- tion expenses, including reasonable attorneys' fees, of persons other than Parisian or Parisian Services, Inc.) on Parisian Receivables previously written off as uncollectible in accordance with Parisian's Credit Guidelines. "Related Account" shall mean an Account having the following characteristics: (i) such Related Account was originated in accordance with the applicable Credit Guidelines; (ii) the Obligor or Obligors with respect to such Related Account is the same Person or Persons as the Obligor or Obligors of an Account; (iii) such Related Account is originated as a result of the credit card with respect thereto being lost or stolen; and (iv) such Related Account can be traced or identified as a successor account to an Account by reference to or by way of the computer or other records of the Servicer or the Transferor. SECTION 2. Amendment to Section 2.5 ("Allocations of Collections; Non-Liquidation Settlement and Reinvestment Procedures; Servicer Advances"). (a) Clause (v) of Section 2.5(a) of the Agreement is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "(v) fifth, with respect to any Remittance Date occurring on or after the Termination Date, to the payment of the Buyers' Percentage Factor of the sum of (A) the outstand- ing balance of Receivables which have become Defaulted Receiv- ables during such Collection Period plus (B) Parisian Charge-Offs for such Collection Period, which payment shall be treat- ed as a portion of Principal Collections allocable to the Company and applied pursuant to Section 2.5(b) below;" (b) The first paragraph of subsection (b) of Section 2.5 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "On each Remittance Date occurring (x) prior to the Termination Date and (y) at any time other than during the Parisian Amortization Period, (i) the Servicer shall allocate to the Company and/or the Bank Investors the Buyers' Percent- age Factor of Principal Collections received during the related Collection Period and not previously applied or ac- counted for and, at the Transferor's option, (A) pay such amount to the Transferor, for the benefit of the Company and/or the Bank Investors, and the Transferor shall apply such amount toward the purchase of additional undivided percentage interests in each Receivable pursuant to Section 2.2(b), or (B) pay such amount to the Agent in reduction of the Net In- vestment and (ii) the Servicer shall pay to the Transferor the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any reallocations pursuant to Section 2.5(c) below. (c) The second paragraph of subsection (b) of Section 2.5 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "On each Remittance Date during the Parisian Amortization Period, or immediately following the Parisian Amortization Period if the Parisian Amortization Period ends subsequent to the immediately preceding Remittance Date, or on or subsequent to the Termination Date, the Servicer shall allocate to the Company or the Bank Investors, as applicable, the Buyers' Percentage Factor of all Principal Collections received during the related Collection Period and not previously applied or accounted for and pay such amount to the Agent in reduction of the Net Investment. In the event that either the Parisian Amortization Period has commenced or the Termination Date oc- curred as a result of a Termination Event, the portion of such Principal Collections not allocated to the Transferred In- terest and remaining after any reallocations pursuant to Section 2.5(c) below shall be distributed to the Agent in reduction of the Net Investment and, in the case of any other Termination Date, the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any allocations pursuant to Section 2.5(c) below shall be dis- tributed to the Transferor." SECTION 3. Amendment to Section 2.6 ("Liquidation Settlement Procedures"). (a) The first paragraph of Section 2.6 is hereby deleted in its entirety and replaced with the following text (solely for conve- nience of reference, the revised language in this subsection is itali- cized): "If, on the Termination Date or the first day of the Parisian Amortization Period the Buyers' Percentage Factor is greater than the Maximum Buyers' Percentage Factor, then the Transferor shall immediately pay to the Agent, for the benefit of the Company or the Bank Investors, as applicable, from previously received Principal Collections, an amount equal to the amount that, when applied in reduction of the Net Invest- ment, will result in a Buyers' Percentage Factor less than or equal to the Maximum Buyers' Percentage Factor. Such amount shall be applied by the Agent to the reduction of the Net In- vestment. On each Remittance Date occurring during the Parisian Amortization Period or on and following the Termina- tion Date, Principal Collections shall be applied in accor- dance with Section 2.5(b)." SECTION 4. Amendment to Section 2.9 ("Deemed Collections; Application of Payments"). (a) Subsection (a) of Section 2.9 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "If on any day the Outstanding Principal Balance of a Receivable is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collec- tions therefor and prior to such Receivable becoming a Defaulted Receivable or otherwise being charged off as uncollectible, the amount of such cancellation, reduction or adjustment shall thereafter be deducted from the aggregate Outstanding Principal Balance of the Receivables and the Net Receivables Balance. If such reduction would result in a Buyers' Percentage Factor greater than the Maximum Buyers' Percentage Factor, the Transferor shall pay (or direct the Servicer to pay from Collections otherwise distributable to the Transferor) to the Agent, for the benefit of the Company or the Bank Investors, as applicable, an amount equal to the amount that, when applied in reduction of the Net Investment, will result in a Buyers' Percentage Factor less than or equal to the Maximum Buyers' Percentage Factor. Such amount shall be applied by the Agent to the reduction of the Net Invest- ment." SECTION 5. Addition of New Section 2.15. Article II is hereby amended by the addition of the following text as a new Section 2.15: "SECTION 2.15. Removal of Parisian Receivables. Following the occurrence of a Parisian Termination Event and upon the later to occur of (A) the Net Worth of the Transferor is at least equal to the greater of (x) 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered with respect to the immediately preceding twelve calendar month period (exclusive of the principal balance of any Parisian Receivable included therein) and (y) $10,000,000 and (B) the Buyer's Percentage Factor (calculated without giving effect to the inclusion of any Parisian Receivables) is equal to or less than the Maximum Buyer's Percentage Factor, (i) the Servicer shall cause all Accounts related to Parisian Receivables to be removed from the Account Schedule, (ii) the Agent shall execute such instruments, financing statements and termination statements (in each case prepared by and at the expense of the Transferor) as may be necessary under the applicable UCC in order to release its interest in the Parisian Receivables and (iii) the term "Parisian Receivables" as used herein shall have no further meaning or import. The parties hereto agree that they shall execute and deliver all instruments, financing statements and amendments thereto and hereto as may be neces- sary in order to effect the termination of the Agent's interest in the Parisian Receivables and to cure any ambiguity resulting from the references herein to Parisian Receivables, it being expressly understood that, notwithstanding any contrary provision contained in Section 11.2, any such amend- ment hereto shall not require the consent of any Bank In- vestor." SECTION 6. Amendment to Section 3.1 ("Representations and Warranties of the Transferor"). (a) The text of subsection (m) of Section 3.1 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised lan- guage in this subsection is italicized): "Coverage Requirement; Amount of Receivables. The Buyers' Percentage Factor does not exceed the Maximum Buyers' Percentage Factor. As of the Cut-Off Date, the aggregate Out- standing Principal Balance of the Receivables in existence was $168,260,400.40 and the Net Receivable Balance was $167,778,375.87, and as of the Parisian Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in existence was $295,394,168 and the Net Receivable Balance was $294,787,484." (b) The text of subsection (o) of Section 3.1 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "No Termination Event or Parisian Termination Event. No event has occurred and is continuing and no condition exists which constitutes a Termination Event, a Potential Termination Event or, for so long as there has been no commencement and completion of a Parisian Amortization Period, a Parisian Ter- mination Event." SECTION 7. Amendment to Section 5.2 ("Negative Covenants of the Transferor"). (a) The text of subsection (e) of Section 5.2 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "No Mergers, Etc. The Transferor will not, and except as otherwise permitted pursuant to the Receivables Purchase Agreement, will not permit any Designated Seller to, (i) con- solidate or merge with or into any other Person (except for a merger by a Designated Seller with or into any wholly-owned subsidiary of such Designated Seller, where the Designated Seller shall be the surviving entity) or (ii) sell, lease or transfer all or substantially all of its assets to any other Person except that McRae's, Inc. may sell substantially all of its assets (other than Receivables) to a partnership consist- ing only of McRae's, Inc., as a general partner with at least 90% of the partnership interest, and Parisian, Inc., as a general partner with not more than 10% of the partnership interest." (b) The text of subsection (h) of Section 5.2 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "Change of Name, Etc. The Transferor will not, and will not permit any Designated Seller to, change its name, identity or structure or the location of its chief executive office, unless at least 10 days prior to the effective date of any such change the Transferor or such Designated Seller, as applicable, delivers to the Agent and the Collateral Agent (i) such documents, instruments or agreements, executed by the Transferor or such Designated Seller, as applicable, as are necessary to reflect such change and to continue the perfec- tion of the Agent's and the Collateral Agent's ownership interests or security interests in the Affected Assets and (ii) new or revised Lock-Box Agreements executed by the Lock-Box Banks which reflect such change and enable the Agent to continue to exercise its rights contained in Section 2.8 hereof; provided, that Parisian Services, Inc. may merge with and into Parisian, Inc. in compliance with the foregoing upon less than 10 days advance delivery of the aforementioned documents, instruments and agreements." (c) The text of subsection (j) of Section 5.2 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "Other Debt. Except as provided for herein, the Transferor will not create, incur, assume or suffer to exist any indebtedness whether current or funded, or any other liability other than (i) indebtedness of the Transferor representing fees, expenses and indemnities arising hereunder or under a Receivables Purchase Agreement for the purchase price of the Receivables under a Receivables Purchase Agreement, (ii) indebtedness assumed from Parisian Services, Inc. in connection with the acquisition of Parisian Receivables from Parisian Services, Inc. and (iii) other indebtedness incurred in the ordinary course of its business in an amount not to exceed $9,750 at any time outstanding." (d) The text of subsection (l) of Section 5.2 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "Payment to the Designated Sellers. With respect to any Receivable sold by a Designated Seller to the Transferor, the Transferor shall, and shall cause such Designated Seller to, effect such sale under, and pursuant to the terms of, a Receivables Purchase Agreement, including, without limitation, the payment by the Transferor either in cash, a contribution of capital or by increase in the amount of the Subordinated Note to such Designated Seller, as applicable, of an amount equal to the purchase price for such Receivable as required by the terms of the Receivables Purchase Agreement." SECTION 8. Amendment to Section 5.3 ("Minimum Net Worth of the Transferor"). (a) The text of subsection (a) of Section 5.3 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "As of the Effective Date, the Transferor shall have a Net Worth of at least $24,000,000, provided, however, that on the first Business Day immediately following the day the Agent has released its lien on Parisian Receivables pursuant to Section 2.15, the Transferor shall have a Net Worth not less than the greater of (x) 10% of the highest aggregate Outstanding Prin- cipal Balance of all Eligible Receivables shown on any Cycle Certificate delivered with respect to the immediately preceding twelve calendar month period (exclusive of the principal balance of any Parisian Receivables included there- in) and (y) $10,000,000." SECTION 9. Amendment to Section 5.4 ("Negative Covenants of the Servicer"). (a) The text of subsection (h) of Section 5.4 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "No Mergers, Etc. The Servicer will not (i) consolidate or merge with or into any other Person (except for a merger with or into any wholly-owned subsidiary, where the Servicer shall be the surviving entity), or (ii) sell, lease or transfer all or substantially all of its assets to any other Person except that McRae's, Inc. may sell substantially all of its assets (other than Receivables) to a partnership consisting only of McRae's, Inc., as a general partner with at least 90% of the partnership interest, and Parisian, Inc., as a general partner with not more than 10% of the partnership interest. SECTION 10. Amendment to Section 6.1 ("Appointment of Servicer"). The text of Section 6.1 is hereby deleted in its entirety and replaced with the following text (solely for convenience of refer- ence, the revised language in this subsection is italicized): "The servicing, administering and collection of the Receiv- ables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 6.1. Until the Company gives notice to McRae's of the desig- nation of a new Servicer, McRae's is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Provided that the Servicer may delegate its servicing obligations and duties with respect to the Parisian Receivables to Parisian, Inc. (and the Agent, by its execution of this Agreement, shall be deemed to have consented to such delegation), the Servicer may not delegate any of its rights, duties or obligations hereun- der, or designate a substitute Servicer, without the prior written consent of the Agent, and provided that the Servicer shall continue to remain solely liable for the performance of the duties as Servicer hereunder notwithstanding any such delegation hereunder. The Agent may, and upon the direction of the Majority Investors the Agent shall, after the occur- rence of a Servicer Default or any other Termination Event designate as Servicer any Person (including itself) to succeed McRae's or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Agent may notify any Obligor of the Trans- ferred Interest." SECTION 11. Amendment to Section 6.4 ("Servicer Default"). (a) The text of subsection (a) to Section 6.4 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "the Servicer (including any delegate of the Servicer) or, to the extent that the Transferor or any Affiliate of the Trans- feror is then acting as Servicer, the Transferor or such Affiliate, as applicable, shall fail (i) to observe or perform any term, covenant or agreement hereunder (other than as referred to in clauses (ii) or (iii) of this Section 6.4(a)) or under any of the other Transaction Documents to which such Person is a party or by which such Person is bound, and such failure shall remain unremedied for ten (10) days, or (ii) to make any payment or deposit required to be made by it hereun- der when due or the Servicer shall fail to observe or perform any term, covenant or agreement on the Servicer's part to be performed under Section 2.8(b) hereof or (iii) to observe or perform any term, covenant or agreement under Sections 5.4(a), 5.4(b), 5.4(c), 5.4(e), 5.4(f), 5.4(g), 5.4(i) or 5.4(j); or" (b) The text of subsection (b) to Section 6.4 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "any representation, warranty, certification or statement made by the Servicer (or any delegate of the Servicer) or the Transferor or any Affiliate of the Transferor (in the event that the Transferor or such Affiliate is then acting as the Servicer) in this Agreement, the Receivables Purchase Agree- ment or in any of the other Transaction Documents or in any certificate or report delivered by it pursuant to any of the foregoing shall prove to have been incorrect in any material respect when made or deemed made; or" (c) The text of subsection (c) to Section 6.4 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "failure or the default by the Servicer, any delegate of the Servicer or any of the Servicer's Subsidiaries in the perfor- mance of any material term, provision or condition contained in any agreement under which any Indebtedness greater than $5,000,000 was created or is governed, if such event is an "event of default" or "default" under any such agreement; or any Indebtedness of the Servicer, any delegate of the Servicer or any of the Servicer's Subsidiaries greater than $5,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof; or" (d) The text of subsection (d) to Section 6.4 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "any Event of Bankruptcy shall occur with respect to the Servicer, any delegate of the Servicer or any of its Subsid- iaries; or" SECTION 12. Amendment to Section 7.1 ("Termination Events") (a) The text of subsection (h) to Section 7.1 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "any of the Receivables Purchase Agreements shall have terminated, provided, however, that the parties to that certain Receivables Purchase Agreement, dated as of January 27, 1993, between McRae's, Inc. and McRae's of Alabama, an Alabama corporation, may agree to terminate such agreement without causing a Termination Event hereunder;" (b) The text of subsection (i) to Section 7.1 is hereby deleted in its entirety and replaced with the following text (solely for convenience of reference, the revised language in this subsection is italicized): "the Transferor, the Servicer or any Designated Seller shall enter into any transaction or merger whereby it is not the surviving entity, provided, however, that Parisian Services, Inc. may merge with and into Parisian, Inc.; or" (c) The text of subsection (r) to Section 7.1 is hereby delet- ed in its entirety and replaced with the text below (solely for conve- nience of reference, the revised language in this subsection is itali- cized), and immediately after the revised subsection (r), there shall be added to Section 7.1 a new subsection (s) as indicated below: "(r) a Guarantor Default shall have occurred and be continuing; or (s) the Transferor shall not, on any day after the Effective Date, be the direct and wholly-owned subsidiary of Proffitt's, Inc. and Parisian, Inc. as the exclusive owners of 100% of the Transferor's common stock." SECTION 13. Amendment to the Account Schedule. Schedule A to the Agreement is hereby amended by adding thereto those accounts identified by account number and Parisian Receivable balance included in the computer tape delivered to the Agent pursuant to Section 19 hereof. SECTION 14. Amendment to Exhibit A ("Form of Account"). Exhibit A to the Agreement is hereby amended by adding thereto a copy of the form of Parisian, Inc. and Parisian Services, Inc. revolving charge card agreement. SECTION 15. Amendment to Exhibit B ("Form of Credit Guidelines"). Exhibit B to the Agreement is hereby amended by adding thereto a copy of the Parisian Credit Guidelines. SECTION 16. Amendment to Exhibit C ("List of Lock-Box Banks and Accounts"). Exhibit C to the Agreement is hereby amended by adding the following text immediately after the words "Account Number: 00-300-276": "3. For Parisian Receivables: AmSouth Bank of Alabama P.O. Box 11007 Birmingham, Alabama 35288 Account Number: 45467803" SECTION 17. Amendment to Exhibit E ("Form of Investor Report"). Exhibit E to the Agreement is hereby amended by replacing the existing Form of Investor Report with the form attached hereto as Exhibit E. SECTION 18. Amendment to Exhibit P ("Form of Cycle Certificate"). Exhibit P to the Agreement is hereby amended by replacing the existing Form of Cycle Certificate with the form attached hereto as Exhibit P. SECTION 19. Conditions Precedent. This Amendment shall not become effective until the following shall have occurred: (a) Parisian, Inc. shall have delivered to the Agent evidence satisfactory to the Agent and its counsel demonstrating that it has complied, as a Designated Seller, with all of the provisions described in Section 2.8 of the Agreement. Such evidence shall include, but not be limited to, (i) certified copies of all necessary search reports, financing statements, assignments of financing statements and terminations of financing statements, (ii) evidence or appropriate certification confirming that it has clearly and unambiguously marked its master data processing records and any storage containers containing Records to indicate that the Parisian Receivables and a corresponding interest in the related Accounts have been conveyed to the Transferor, and subsequently transferred to the Agent, for the benefit of the Company and the Bank Investors, and that the legend described in Section 2.8 of the Agreement has been affixed as described and (iii) confirma- tion that a computer tape containing a true and complete list of all Ac- counts related to the Parisian Receivables in existence as of the Parisian Cut-Off Date has been delivered to the Agent and that such list of Accounts, identifying therein all account numbers and Parisian Receivable balance, should be added to and become part of Schedule A to the Agreement. (b) Parisian, Inc. shall have delivered to the Agent each of the following, in form and substance satisfactory to the Agent and its counsel: (1) A copy of the resolutions of the Board of Directors of Parisian, Inc. and Parisian Services, Inc., each certified by its respective Secretary approving the execution, delivery and perfor- mance by such Person of the Receivables Purchase Agreement and each other document required to be delivered by such Person hereunder or thereunder. (2) The Articles of Incorporation for each of Parisian, Inc. and Parisian Services, Inc., certified by the Secretary of State or other similar official of such Person's jurisdiction of incorpora- tion dated a date reasonably prior to the Effective Date. (3) Good Standing Certificates for Parisian, Inc. and Parisian Services, Inc. issued by the Secretary of State or a simi- lar official of such Persons's jurisdiction of incorporation and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each juris- diction when such qualification is material to the transactions contemplated by the Agreement, the Receivables Purchase Agreement, this Amendment and each other document executed in connection with any of the foregoing, in each case, dated a date reasonably prior to the Effective Date. (4) Certificates of the respective Secretary of Parisian, Inc. and of Parisian Services, Inc., substantially in the form of Exhibit L attached to the Agreement. (5) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the Effective Date naming each of Parisian Services, Inc. and Parisian, Inc. as debtor in favor of the Transferor as secured party and the Agent, for the benefit of the Company and the Bank Investors, as assignee of the secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Transferor's ownership interest in all Parisian Receivables. (6) Copies of proper financing statements (Form UCC-3), if any, necessary to terminate all security interests and other rights of any person in Parisian Receivables previously granted by any person, including, without limitation, Sheffield Receivables Corpo- ration, Parisian of Tennessee, Inc., Hess Specialty Department Stores, LLC, Parisian Services, Inc. and Parisian, Inc. (7) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Agent) dated a date reasonably near the date of the Effective Date listing all effective financing statements which name Sheffield Receivables Corporation, Parisian of Tennessee, Inc., Hess Specialty Department Stores, LLC, Parisian Services, Inc. and Parisian, Inc. (under their respective present names and any previous names) as debtor and which are filed in jurisdictions in which the filings were made pursuant to item 5 above together with copies of such financing statements (none of which shall cover any Receivables or Contracts). (8) Executed copies of the Lock-Box Agreement between AmSouth Bank of Alabama and Parisian, Inc. relating to the Lock-Box Bank and the Lock-Box Account for Collections related to the Parisian Receivables. (9) Notices of termination of, or other acceptable evidence of the termination of, any existing lock-box agreements related to or formerly employed in connection with the Parisian Receivables and the Sheffield Facility (as defined below). (10) A Cycle Certificate for the Parisian Cut-Off Date. (11) An Investor Report dated as of December 31, 1996 and which includes the Parisian Receivables. (12) Such other agreements, instruments or documentation as the Agent and its counsel shall require. (c) The Agent shall have received an opinion or opinions of Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special counsel to Parisian, Inc. and Parisian, Services, Inc., covering certain corporate and bankruptcy matters in form and substance satisfactory to the Agent and its counsel. (d) The Agent shall have received an opinion of Schreck Mor- ris, special Nevada counsel to the Transferor, covering certain corpo- rate matters related to this Amendment in form and substance satisfac- tory to the Agent and the Agent's counsel. (e) A computer tape setting forth as of the Parisian Cut-Off Date all Parisian Receivables and the Outstanding Principal Balances thereon and such other information as the Agent may reasonably request. (f) The Agent shall have received in connection with the termination of that certain Receivables Purchase Agreement, dated as of March 31, 1993 between Parisian Services, Inc., as seller, Sheffield Receivables Corporation, as purchaser, The Bank of Nova Scotia, as the agent and Barclays Bank PLC, New York Branch, as the administrative agent and managing agent thereunder, as such agreement has been amended, supplemented and modified to the Effective Date (together with all related documents and agreements, the "Sheffield Facility") such agreements, documents and instruments as are necessary and appropriate to reflect the termination of the Sheffield Facility, including without limitation, the termination of the Second Amended and Restated Financing and Collection Agency Agreement, and the release of all liens and secu- rity interests of all secured parties holding an interest in the Pari- sian Receivables arising under or related thereto. The foregoing agree- ments, documents, and instruments shall include, but not be limited to, a payoff letter setting forth the pay-off amount, a release agreement and UCC-3 termination statements, each in form and substance reasonably satisfactory to the Agent. (g) [Reserved]. (h) The Administrative Agent shall have received payment in immediately available funds of an amendment fee in the amount of $25,000. (i) The Agent shall have received evidence satisfactory to the Agent and its counsel that (i) no further action is required or shall be necessary to satisfy any conditions precedent to the Receivables Purchase Agreement dated as of the date hereof between the Transferor, as purchaser, Parisian Services, Inc. and Parisian, Inc., as sellers thereunder, and McRae's, Inc., as servicer; and (ii) but for the filing with the Secretary of State of Alabama of the Articles of Merger and the Plan of Merger of Parisian Services, Inc. with and into Pari- sian, Inc., whereby Parisian, Inc. will succeed to all of the rights and obligations of Parisian Services, Inc., no further action is required or shall be necessary in order for the merger of Parisian Services, Inc. with and into Parisian, Inc. to be effective and (iii) no further action is required or shall be necessary to the execution and delivery of that certain Amended and Restated Management Agreement between McRae's of Alabama, Inc. and McRae's, Inc. dated as of the date hereof and effective as of January 15, 1997. SECTION 20. Separate Agreement. The parties hereto agree that it shall be a Termination Event under the Agreement if Proffitt's, Inc. fails to provide satisfactory evidence to the Agent on or before February 14, 1997 that (i) the definition of "Recoveries" as defined and used in that certain Pooling and Servicing Agreement dated as of June 13, 1995, among Younkers Credit Corporation, as seller, Younkers, Inc., as servicer and Chemical Bank, as trustee and in that certain Receiv- ables Purchase Agreement, dated as of June 13, 1995, between Younkers, Inc., as seller thereunder and Younkers Credit Corporation as purchaser thereunder, has been satisfactorily revised and the foregoing agreements amended to mean only those recoveries of amounts due and owing under charge card accounts originated by Younkers, Inc. pursuant to charge card account agreements between Younkers, Inc. and the obligors on such charge card accounts and (ii) all appropriate UCC financing statements filed in connection with such Pooling and Servicing Agreement and such Receivables Purchase Agreement have been satisfactorily amended as described in clause (i). In addition, Proffitt's, Inc. agrees to use its good faith efforts to cause Younkers Credit Corporation, a Delaware Corporation, a special purpose subsidiary of Younkers, Inc., to enter into an intercreditor agreement between the Transferor and Younkers Credit Corporation in form and substance satisfactory to the Agent and its counsel, on or before February 14, 1997. SECTION 21. Limited Scope. This amendment is specific to the circumstances described above and does not imply any future amendment or waiver of rights allocated to the Company, the Transferor, Proffitt's, the Servicer Guarantor, the Servicer and NationsBank under the Transfer and Administration Agreement. SECTION 22. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 23. Severability; Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 24. Ratification; Agreement to Remain in Full Force and Effect. Except as expressly affected by the provisions hereof, the Transfer and Administration Agreement as amended shall remain in full force and effect in accordance with its terms and ratified and confirmed by the parties hereto. On and after the date hereof, each reference in the Transfer and Administration Agreement to "this Agreement", "hereun- der", "herein" or words of like import shall mean and be a reference to the Transfer and Administration Agreement as amended by this Amendment. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written. ENTERPRISE FUNDING CORPORATION, as Company By: Name: Title: PROFFITT'S CREDIT CORPORATION, as Transferor By: Name: Douglas E. Coltharp Title: President McRAE'S, INC., as Servicer By: Name: Douglas E. Coltharp Title: Chief Financial Officer PROFFITT'S, INC. as Servicer Guarantor By: Name: Douglas E. Coltharp Title: Chief Financial Officer NATIONSBANK, N.A., as Agent and a Bank Investor By: Name: Title: Exhibit E Form of Investor Report Exhibit P Form of Cycle Certificate X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-9.ASC EX-10 5 EXHIBIT 10.10 ==================================================================== RECEIVABLES PURCHASE AGREEMENT between PROFFITT'S, INC. as Seller and PROFFITT'S CREDIT CORPORATION, as Purchaser and MCRAE'S, INC. as Servicer Dated as of January 15, 1997 ==================================================================== RECEIVABLES PURCHASE AGREEMENT This RECEIVABLES PURCHASE AGREEMENT, dated as of January 15, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), between PROFFITT'S, INC., a Tennessee corporation, as seller (the "Seller"), PROFFITT'S CREDIT CORPORATION, a Nevada corporation, as purchaser (the "Purchaser"), and MCRAE'S, INC., a Mississippi corporation, as servicer ("McRae's"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase from time to time certain accounts receivable existing on the Closing Date and acquired or generated thereafter in the normal course of the Seller's business pursuant to certain revolving consumer credit card accounts; WHEREAS, the Seller desires to sell and assign from time to time such certain accounts receivable to the Purchaser upon the terms and conditions hereinafter set forth; WHEREAS, the Servicer has agreed to service the accounts receivable sold to the Purchaser by the Seller hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Purchaser and the Seller as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Transfer Agreement, and shall include in the singular number the plural and in the plural number the singular: "Advance" shall have the meaning specified in Section 3.2(a). "Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise and the Bank Investors pursuant to the Transfer Agreement. "Bank Investors" shall have the meaning specified in the Transfer Agreement. "Closing Date" shall mean January 16, 1997. "Eligible Receivable" shall have the meaning specified in the Transfer Agreement. "Enterprise" shall mean Enterprise Funding Corporation, a Delaware corporation, and its successors and assigns. "Event of Bankruptcy" shall have the meaning specified in the Transfer Agreement. "McRae's" shall mean McRae's, Inc., a Mississippi corporation, and its successors and assigns. "Outstanding Principal Balance" shall have the meaning specified in the Transfer Agreement. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean the percentage equivalent of the decimal representation of the following expression: (1.00 + APY) minus (BDA + SF + PCF + OE + RF) where: APY = average portfolio yield of the Seller (expressed as the decimal equivalent of a percentage) as reasonably determined over the preceding twelve months (or such other period reasonably determined by the Purchaser); BDA = an allowance for bad debts, based on, among other relevant factors, historical rates for the previous twelve months (or such other period reasonably determined by the Purchaser); SF = a Servicer fee equal to 2.00% per annum; PCF = the Purchaser's cost of funds, as calculated from time to time, equal to the sum of (i) the product of the Maximum Buyers' Percentage multiplied by the prime rate (as published in the Money Rates Section of The Wall Street Journal) plus (ii) the product of (x) 20% (to be adjusted from time to time based on changes to the Purchaser's reasonably estimated marginal cost of funds) multiplied by (y) the sum of one minus the Maxi- mum Buyers' Percentage; OE = the percentage equivalent of the fraction the numerator of which is the Purchaser's annualized estimate of projected operating expenses for the next twelve months and the denominator of which is the estimated Outstanding Principal Balance of Receivables expected to be sold in the next twelve months; and RF = a contingency risk factor based on industry and economic considerations, as determined by the Purchaser in its reasonable discretion and as agreed upon between the Purchaser and the Seller. "Purchase Period" shall mean, with respect to Receivables sold by the Seller to the Purchaser after the Closing Date, the Collection Period reported upon in the most recent Investor Report delivered after the Closing Date. "Purchase Price" shall have the meaning set forth in Section 3.1 hereof. "Purchaser" shall mean Proffitt's Credit Corporation, a Nevada corporation, and its successors and assigns. "Receivable" shall mean, for purposes of this Agreement, the indebtedness owed to the Seller by any Obligor under an Account (whether such Account is in existence as of the Closing Date or there- after created), whether constituting an account, chattel paper, in- strument or general intangible, arising in connection with the sale of merchandise or services, and which, in all cases shall include, the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. "Related Security" shall have the meaning specified in the Transfer Agreement. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the States of New York and Mississippi, as applicable. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Servicer" shall mean McRae's. "Subordinated Note" shall have the meaning specified in Section 3.2(b). "Termination Date" shall have the meaning specified in Section 8.1. "Transfer Agreement" shall mean the Transfer and Administration Agreement, dated as of January 15, 1997, by and among the Purchaser, McRae's, Inc., as Servicer, Proffitt's, Inc., as Servicer Guarantor, Enterprise Funding Corporation and NationsBank N.A., as Agent and Bank Investor, as such agreement may be amended, modified or supplemented from time to time. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set forth herein, the Seller hereby sells, assigns, transfers and conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and subject to the conditions specifically set forth herein, all of the Seller's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables outstanding on the Closing Date and thereafter owned by the Seller, through any Termination Date (but not thereafter), to- gether with all Related Security and Collections with respect thereto and all proceeds of the foregoing. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Seller or any other Person to Obligors or to any other Person in connection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to Receivables sold by the Seller on the Closing Date, such Receivables shall be deemed to be all the Receivables of the Seller that exist as of the close of business on the Cut-Off Date. With respect to Receivables sold by the Seller after the Closing Date, such Receivables shall be deemed to be all the Receivables created after the close of business on the Cut-Off Date. (b) In connection with the foregoing sale, the Seller agrees to record and file on or prior to the Closing Date, at its own expense, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by the Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC (subject, in the case of Related Security constituting returned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) against all creditors of and purchasers from the Seller, and to deliver either the originals of such financing state- ments or a file-stamped copy of such financing statements or other evidence of such filings to the Purchaser on the Closing Date. (c) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Seller will, in order to accurately re- flect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assign- ments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and upon the request of the Purchaser, mark its master data processing records and other documents with a legend describing the purchase by the Purchaser of the Receivables and the subsequent transfer thereof to the Agent pursuant to the Transfer Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND CONVEYED TO PROFFITT'S CREDIT CORPORATION AND AN INTEREST THEREIN HAS BEEN ASSIGNED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE TRANSFER AND ADMINISTRATION AGREEMENT DATED AS OF JANUARY 15, 1997, AS AMENDED FROM TIME TO TIME, AMONG PROFFITT'S CREDIT CORPORATION, NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Seller shall, upon re- quest of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by appli- cable law, the Purchaser shall be permitted to sign and file continua- tion statements and amendments thereto and assignments thereof without the Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Seller and the Purchaser that the conveyance of the Receivables by the Seller to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables by the Seller to the Purchaser. Further, it is not the intention of the Seller and the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the express intent of the parties, the Receivables are construed to constitute property of the Seller, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Seller provided for in this Agreement shall be deemed to be, and the Seller hereby grants to the Purchaser, a security interest in, to and under all of the Seller's right, title and interest in, to and under the Receivables outstanding on the Clos- ing Date and thereafter owned by the Seller, together with all Related Security and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obligations"). The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receiv- ables, such security interest would be deemed to be a perfected security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2. Servicing of Receivables. The servicing, administering and collection of the Receivables shall be conducted by McRae's, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which McRae's employs in servicing similar receivables for its own account, in accordance with the Credit Guidelines. With the consent of the Agent and the Purchaser, McRae's may delegate certain functions to Proffitt's, however, no such delegation shall relieve McRae's of its obligations hereunder. The Purchaser hereby appoints the Servicer as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security and the Collections with respect thereto. The Servicer shall hold in trust for the Purchaser, in accordance with its interests, all Records which evidence or relate to the Receivables or Related Security, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary contained herein, from and after the occurrence of a Termination Event or a Servicer Default (each as defined in the Transfer Agreement), the Agent or Enterprise, shall have the absolute and unlimited right to terminate the McRae's servicing activities described in this Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay the Servicer a servicing fee of 2.00% per annum on the aggregate Out- standing Principal Balance of Receivables sold, payable monthly, for its performance of the duties and obligations described in this Section 2.2; provided that any such monthly payment shall be reduced by any amounts payable in such month by Enterprise or the Bank Investors to the Servicer, in its capacity as Servicer pursuant to the Transfer Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables and related property conveyed on the Closing Date to the Purchaser by the Seller under this Agreement shall be a dollar amount equal to the product of (i) the aggregate Outstanding Principal Balance of the Receivables as of the Cut-Off Date, as reflected on the Cycle Certificate delivered on the Closing Date and (ii) the Purchase Rate. The Purchase Price for the Receivables and related property conveyed on any date after the Closing Date shall be the dollar amount equal to the product of (i) the aggregate Outstanding Principal Balance of the Receivables sold during the applicable Purchase Period as reflected in the applicable Investor Report and (ii) the Purchase Rate on such date. SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for the Receivables sold on the Closing Date shall be paid (i) by payment of $40,064,000 in immediately available funds, (ii) through an advance under the Subordinated Note (such advance and any advance thereunder as contemplated by Section 3.2(b), each an "Advance") in the amount of $1,542,684.75 and (iii) the balance of the Purchase Price shall be deemed paid as a contribution to the capital of the Purchaser by the Seller of Receivables. (b) The Purchase Price for the Receivables sold by the Seller on any date after the date hereof (each, a "Purchase Date") shall be paid either (i) in cash or (ii) if Purchaser does not have sufficient cash to pay the Purchase Price, by means of (A) an Advance under the Subordinated Note or (B) with the consent of the Seller, capital contributed by the Seller to the Purchaser in the form of a contribution of the additional Receivables or (iii) with the consent of the Seller, any combination of the foregoing. In the event the Purchaser does not have sufficient cash to pay the Purchase Price due on any Purchase Date and the Seller is not willing to consent to the payment of such insufficiency by means of a capital contribution, such insufficiency shall be evidenced by the making of an Advance on such Purchase Date in an original principal amount equal to such cash shortfall owed to the Seller, provided, however that (i) at all times prior to December 31, 1997, the Seller and the Purchaser agree to act in good faith to minimize the amount of Advances made under the Subordinated Note so as to cause the Purchaser's Net Worth to be not less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months and (ii) from and after December 31, 1997, no Advance shall be made if immediately thereafter the Net Worth of the Purchaser would be less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months. All Advances made by the Seller to the Pur- chaser shall be evidenced by a single subordinated note, duly executed on behalf of the Purchaser, in substantially the form of Exhibit B annexed hereto, delivered and payable to the Seller in a principal amount equal to $75,000,000 (the "Subordinated Note"). The Seller is hereby authorized by the Purchaser to endorse on the schedule attached to the Subordinated Note (or a continuation of such schedule attached thereto and made a part thereof) an appropriate notation evidencing the date and amount of each Advance, as well as the date and amount of each payment with respect thereto; provided, however, that the failure of any Person to make such a notation shall not affect any obligations of the Purchaser thereunder. Any such notation shall be conclusive and binding as to the date and amount of such Advance, or payment of principal or interest thereon, absent manifest error. (c) The terms and conditions of the Subordinated Note and all Advances thereunder shall be as follows: (i) Repayment of Advances. All amounts paid by the Purchaser with respect to the Advances shall be allocated first to the repayment of accrued interest until all such interest is paid, and then to the outstanding principal amount of the Advances. Subject to the provisions of this Agreement, the Purchaser may borrow, repay and reborrow Advances on and after the date hereof and prior to the termination of this Agreement, subject to the terms, provisions and limitations set forth herein. (ii) Interest. The Subordinated Note shall bear interest from its date on the outstanding principal balance thereof at a rate per annum equal to one month LIBOR as published in the Money Rates Section of The Wall Street Journal. Interest on each Advance shall be computed based on the number of days elapsed in a year of 360 days. (iii) Sole and Exclusive Remedy/Subordination. The Purchaser shall be obligated to repay Advances to the Seller only to the extent of funds available to the Purchaser from Collections on the Receivables and, to the extent that such payments are insufficient to pay all amounts owing to the Seller under the Subordinated Note, the Seller shall not have any claim against the Purchaser for such amounts and no further or additional recourse shall be available against Purchaser. The Subordinated Note shall be fully subordinated to any rights of Enterprise, the Bank Investors and their permitted assigns pursuant to the Transfer Agreement, and shall not evidence any rights in the Receivables. (iv) Offsets, etc. The Purchaser may offset any amount due and owing by the Seller against any amount due and owing by Purchaser to the Seller under the terms of the Subordinated Note. SECTION 3.3. Monthly Report. On each Determination Date, the Seller shall deliver to the Purchaser a report covering the preceding Collection Period, substantially in the form of the Investor Report attached as Exhibit E to the Transfer Agreement, showing (i) the aggregate Purchase Price of Receivables acquired or generated by the Seller in the preceding Collection Period and (ii) the aggregate Outstanding Principal Balance of such Receivables that are Eligible Receivables as of the last day of such preceding Collection Period. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Seller's Representations and Warranties. The Seller represents and warrants to the Purchaser as of the Closing Date and shall be deemed to represent and warrant as of the date of the creation of any sale of any interest in Receivables to the Purchaser pursuant to this Agreement that: (a) Corporate Existence and Power. The Seller is a corpo- ration duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Seller is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contraven- tion. The execution, delivery and performance by the Seller of this Agreement are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except for the filing of UCC financing statements as required by this Agreement), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of the Seller or of any agreement, judg- ment, injunction, order, writ, decree or other instrument binding upon the Seller or result in the creation or imposition of any Adverse Claim on the assets of the Seller or any of its Subsidiaries (except those created by this Agreement). (c) Binding Effect. This Agreement will constitute the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to applicable bank- ruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Perfection. Immediately preceding the sale of the Re- ceivables and related property pursuant to this Agreement, the Seller was the owner of all of the Receivables, free and clear of all Adverse Claims. On or prior to the date of each sale of Receivables pursuant to this Agreement, all financing statements and other documents re- quired to be recorded or filed in order to perfect and protect the ownership interest of the Purchaser in and to the Receivables against all creditors of and purchasers from the Seller will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Accuracy of Information. All information heretofore furnished by the Seller to the Purchaser, the Agent, Enterprise and any Bank Investor for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Seller to the Purchaser, the Agent, Enterprise and any Bank Investor will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Status. The Seller has filed all material tax re- turns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (g) Action, Suits. Except as set forth in this Agreement, there are no actions, suits or proceedings pending, or to the knowl- edge of the Seller threatened, against or affecting the Seller or any Affiliate of the Seller or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (h) Place of Business. The principal place of business and chief executive office of the Seller is located at Jackson, Mississippi, and the offices where the Seller keeps all its Records, are located at the address(es) described on Exhibit C hereto or such other locations notified to the Purchaser in accordance with this Agreement in jurisdictions where all action required by the terms of this Agreement has been taken and completed. (i) Good Title. Upon the sale of the Receivables and related property to the Purchaser pursuant to this Agreement, the Purchaser shall acquire a valid and perfected first priority ownership interest in each Receivable (and in the Related Security, Collections and Proceeds with respect thereto) that exists on the date of this Agreement and in each Receivable thereafter owned by the Seller and in the Related Security, Collections and Proceeds with respect thereto until the Termination Date in each case free and clear of any Adverse Claim. (j) Tradenames, Etc. As of the date hereof: (i) the Seller's chief executive office is located at the address for notices set forth in Section 9.3; (ii) the Seller has only the subsidiaries and divisions listed on Exhibit D hereto; and (iii) the Seller has, within the last five (5) years, operated only under the tradenames identified in Exhibit D hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit D hereto. (k) Nature of Receivables. Each Receivable (x) represented by the Seller to be an Eligible Receivable, or (y) included in the calculation of the Net Receivables Balance in fact satisfies at such time the definition of "Eligible Receivable" set forth in the Transfer Agreement and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act of 1940, as amended. (l) Amount of Receivables. As of the Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in exis- tence was at least $52,659,882.40. (m) Credit Guidelines. Since January 9, 1997, there have been no material changes in the Credit Guidelines other than as permitted hereunder and under the Transfer Agreement. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (n) Collections and Servicing. Since November 2, 1996, there has been no material adverse change in the ability of the Seller to service and collect the Receivables. (o) Not an Investment Company. The Seller is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (p) ERISA. Each of the Seller and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Re- ceivables. (q) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit C to the Transfer Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Purchaser and the Agent and for which Lock-Box Agreements have been executed in accor- dance with Section 2.8(b) of the Transfer Agreement and delivered to the Servicer). All Obligors have been instructed to make payment to a Lock-Box Account and only Collections are deposited into the Lock-Box Accounts. (r) Bulk Sales. No transaction contemplated by this Agreement requires compliance with any bulk sales act or similar law. (s) Preference; Voidability. The Seller warrants that the conveyance of the applicable Receivables and Collections and Related Security to the Purchaser, and each such conveyance, shall not have been made for or on account of an antecedent debt owed by the Seller to the Purchaser and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. SECTION 4.2. Reaffirmation of Representations and Warran- ties by the Seller; Notice of Breach. On each sale date, the Seller, by accepting the proceeds of such sale, shall be deemed to have certi- fied that all representations and warranties described in Section 4.1 are true and correct on and as of such day as though made on and as of such day. The representations and warranties set forth in Section 4.1 shall survive the conveyance of the Receivables to the Purchaser, and termination of the rights and obligations of the Purchaser and the Seller under this Agreement. Upon discovery by the Purchaser or the Seller of a breach of any of the foregoing representations and war- ranties, the party discovering such breach shall give prompt written notice to the other within three Business Days of such discovery. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE V COVENANTS OF THE SELLER SECTION 5.1. Covenants of the Seller. The Seller hereby covenants and agrees with the Purchaser that, for so long as this Agreement is in effect, and until all Receivables, an interest in which has been sold to the Purchaser pursuant hereto, shall have been paid in full or written-off as uncollectible, and all amounts owed by the Seller pursuant to this Agreement have been paid in full, unless the Purchaser otherwise consents in writing, the Seller covenants and agrees as follows: (a) Conduct of Business. The Seller will, and will cause each of its Subsidiaries to, carry on and conduct its business in sub- stantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (b) Compliance with Laws. The Seller will, and will cause each of its Subsidiaries to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its properties may be subject. (c) Furnishing of Information and Inspection of Records. The Seller will furnish to the Purchaser from time to time such infor- mation with respect to the Receivables as the Purchaser may reasonably request, including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Seller will at any time and from time to time during regular busi- ness hours permit the Purchaser, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Seller for the purpose of examining such Records, and to discuss matters relating to Receivables or the Seller's performance hereunder with any of the officers, direc- tors, employees or independent public accountants of the Seller having knowledge of such matters. (d) Keeping of Records and Books of Account. The Seller will maintain a system of accounting established and administered in accordance with generally accepted accounting principles, consistently applied, and will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Seller will give the Purchaser and the Agent notice of any material change in the administrative and operating procedures of the Seller referred to in the previous sentence. (e) Performance and Compliance with Receivables and Accounts. The Seller at its expense will timely and fully perform and comply with all material provisions, covenants and other promises re- quired to be observed by it under the Accounts related to the Receiv- ables. (f) Credit and Collection Policies. The Seller will comply in all material respects with the Credit Guidelines in regard to each Receivable and the related Account. (g) Collections. The Seller shall instruct all Obligors to cause all Collections to be deposited directly to a Lock-Box Account. (h) Collections Received. The Seller shall hold in trust, and deposit, immediately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to a Lock-Box Account all Collections received from time to time by the Seller. (i) Sale Treatment. The Seller agrees to treat this conveyance for all purposes (including, without limitation, tax and financial accounting purposes) as a sale and, to the extent any such reporting is required, shall report the transactions contemplated by this Agreement on all relevant books, records, tax returns, financial statements and other applicable documents as a sale of the Receivables to the Purchaser. (j) ERISA. The Seller shall promptly give the Purchaser written notice upon becoming aware that the Seller or any of its Subsidiaries is not in compliance in all material respects with ERISA or that any ERISA lien on any of the Receivables exists. SECTION 5.2. Negative Covenants of the Seller. During the term of this Agreement, unless the Agent and the Purchaser shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except as otherwise provided herein, the Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (x) any of the Receivables, the Related Security or Collections, (y) any goods (other than inventory), the sale of which may give rise to any Receivable, Related Security or Collections (sub- ject, in each case with respect to Related Security constituting re- turned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) or (z) upon or with respect to any account which concen- trates in a Lock-Box Bank (including any Lock-Box Account) to which any Collections of any Receivable are sent, or, in each case, assign any right to receive income in respect thereof. The Seller shall, and will cause each of its Subsidiaries to, specifically exclude from the property subject to any Adverse Claim granted on inventory any and all accounts receivable generated by sales of such inventory and the proceeds thereof and shall provide, upon the Purchaser's request, evi- dence satisfactory to the Purchaser that any such Adverse Claim (and each related UCC financing statement or other related filing) express- ly excludes any such accounts receivable. The Seller will provide the Purchaser and the Agent with a copy of any inventory financing agree- ment at least three Business Days prior to the effectiveness thereof. (b) No Extension or Amendment of Receivables. The Seller will not extend, amend or otherwise modify the terms of any Receiv- able, or amend, modify or waive any term or condition of any Account related thereto, except as provided in Sections 5.2 and 6.2 of the Transfer Agreement. (c) No Change in Business or Credit Guidelines. Except as provided in the Transfer Agreement, the Seller will not make any change in the character of its business or in the Credit Guidelines, which change might, in either case, impair the collectability of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect. (d) Change in Payment Instructions to Obligors. The Seller will not add or terminate, or make any change to, any Lock-Box Account, except in accordance with the Transfer Agreement. (e) Deposits to Lock-Box Accounts. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account, cash or cash proceeds other than Collections of Receivables. (f) Change of Name, Etc. The Seller shall not change its name, identity or structure or location of its chief executive office, unless at least ten (10) days prior to the effective date of any such change the Seller delivers to the Purchaser and the Agent (i) such documents, instruments or agreements, including, without limitation, appropriate financing statements under the Relevant UCC, executed by the Seller necessary to reflect such change and to continue the perfection of the Purchaser's and any assignee's interest in the Receivables and (ii) new or revised Lock-Box Agreements which reflect such change and enable the Agent to exercise its rights under Section 2.8 of the Transfer Agreement. (g) Separate Business. The Seller shall not: (i) fail to maintain separate books, financial statements, accounting records and other corporate documents from those of the Purchaser, (ii) commingle any of its assets or the assets of any of its Affiliates with those of the Purchaser, (iii) pay from its own assets any obligation or indebtedness of any kind incurred by the Purchaser, (iv) directly, or through any of its Affiliates, borrow funds or accept credit or guaranties from the Purchaser except pursuant to this Agreement in connection with the purchase of the Receivables. SECTION 5.3. Indemnification. The Seller agrees to indem- nify, defend and hold the Purchaser harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which the Purchaser or any assignee thereof may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon a breach by the Seller of its representations, warranties and covenants con- tained herein, or any information certified in any schedule or certificate delivered by the Seller hereunder, being untrue in any material respect at any time. The obligations of the Seller under this Section 5.3 shall be considered to have been relied upon by the Purchaser, Enterprise and the Agent and shall survive the execution, delivery, performance and termination of this Agreement, regardless of any investigation made by the Purchaser, Enterprise or the Agent or on behalf of any of them. ARTICLE VI REPURCHASE OBLIGATION SECTION 6.1. Mandatory Repurchase. (a) Breach of Warranty. If on any day any Receivable, which has been sold by the Seller hereunder and which has been reported by the Seller as an Eligible Receivable, shall fail to meet the conditions set forth in the definition of "Eligible Receivable" (except to the extent such conditions expressly relate to an earlier date) or for which any representation or warranty made herein in respect of such Receivable shall no longer be true, the Seller shall be deemed to have received on such day a Collection of such Receivable in full and shall on such day pay to the Purchaser an amount equal to the aggregate Outstanding Principal Balance of such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. (b) Reconveyance Under Certain Circumstances. The Seller agrees that, with respect to any Receivable sold hereunder, in the event of a breach of any of the representations and warranties set forth in Sections 4.1(e), 4.1(g), 4.1(h), 4.1(j), 4.1(l), 4.1(o), 4.1(p) or 4.1(q), the Seller shall accept the reconveyance of such Receivable upon receipt by the Seller of notice given in writing by the Purchaser and the Seller's failure to cure such breach within thirty (30) days (or, in the case of representations and warranties found in Sections 4.1(d) or 4.1(i), within three (3) days) of such no- tice. In the event of a reconveyance under this Section 6.1(b), the Seller shall pay to the Purchaser in immediately available funds on such 30th day (or third day, if applicable) an amount equal to the Outstanding Principal Balance of any such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 6.2. Dilutions, Etc. The Seller agrees that if on any day the Outstanding Principal Balance of a Receivable sold by the Seller hereunder is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, then the Seller shall be deemed to have received on such day a collection of such Receivable in the amount of such reduction, cancellation or payment made by the Obligor and shall on such day pay to the Purchaser an amount equal to such reduction or cancellation; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 6.3 No Recourse. Except as otherwise provided in this Article VI, the purchase and sale of the Receivables under this Agreement shall be without recourse to the Seller. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1. Conditions to the Purchaser's Obligations Regarding Receivables. The obligations of the Purchaser to purchase the Receivables on the Closing date and any Purchase Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the Seller con- tained in this Agreement shall be true and correct on the Closing Date and on each Purchase Date thereafter with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Receivables provided to the Purchaser shall be true and correct in all material respects as of the Closing Date, in the case of any Receivables existing on the Clos- ing Date, or the Purchase Date, in the case of any Receivables created after the Closing Date; (c) The Seller shall have substantially performed all other obligations required to be performed by the provisions of this Agree- ment; (d) The Seller shall have filed or caused to be filed the financing statement(s) required to be filed pursuant to Section 2.1(b); (e) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Purchaser, and the Purchaser shall have received from the Seller copies of all documents (including, without limitation, records of corporate proceedings) relevant to the transactions herein contemplated as the Purchaser may reasonably have requested; and (f) On the Closing Date, the Seller shall deliver to the Purchaser and the Agent a Cycle Certificate as of the Cut-Off Date. ARTICLE VIII TERM AND TERMINATION SECTION 8.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date desig- nated by the Purchaser or the Seller as the termination date at any time following sixty (60) day's written notice to the other (with a copy thereof to the Agent), (ii) the date on which the Agent declares a Termination Date pursuant to Section 7.2 of the Transfer Agreement, (iii) the day on which a Reinvestment Termination Date shall occur under the Transfer Agreement unless the Transferred Interest shall have been assigned (or concurrently is so assigned) to the Bank In- vestors under Section 10.7 of the Transfer Agreement, (iv) upon the occurrence of an Event of Bankruptcy with respect to either the Pur- chaser or the Seller, (v) the close of business on the third Business Day following a conveyance of Receivables to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, or (vi) the date on which either the Purchaser or the Seller becomes unable for any reason to purchase or re-purchase any Receivable in accordance with the provisions of this Agreement or defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice (any such date being a "Termination Date"); provided, however, that the termination of this Agreement pursuant to this Section 8.1 hereof shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any payments with respect to the interest of the Purchaser in any Receivable sold prior to such termination. SECTION 8.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 8.1, the Seller shall not sell, and the Purchaser shall not purchase, any Receivables. No termination or rejection or failure to assume the executory obliga- tions of this Agreement in any Event of Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including, without limitation, pre-termination breaches of represen- tations and warranties by the Seller or the Purchaser. Without limiting the foregoing, prior to termination, the failure of the Seller to deliver computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Article V or Section 9.1 of this Agreement render an executed sale executory. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and the Seller and consented to in writing by the Agent. Any reconveyance executed in accordance with the provisions hereof shall not be con- sidered amendments to this Agreement. SECTION 9.2. GOVERNING LAW; Submission to Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI. (b) The parties hereto hereby submit to the nonexclu- sive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in The City of New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect the right of the Purchaser to bring any other action or proceeding against the Seller or its property in the courts of other jurisdictions. SECTION 9.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 9.3 and confirmation is received, (ii) if given by mail three Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 9.3. (a) in the case of the Purchaser: Proffitt's Credit Corporation 300 South Fourth Street, Suite 1100 Las Vegas, Nevada 89101 Attn: Douglas E. Coltharp, President Telephone: (702) 598-3738 Telecopy: (702) 598-3651 (with a copy to Proffitt's, Inc.) with a copy to: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-10-07 Charlotte, NC 28255 Attention: Michelle M. Heath NC1-007-10-07 Structured Finances Telephone: (704) 386-7922 Telecopy: (704) 388-9169 (b) in the case of the Seller: Proffitt's Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer (c) in the case of the Servicer: MCRAE'S, INC. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer (with a copy to Proffitt's, Inc.) or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. SECTION 9.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agree- ment or any other Conveyance Paper shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 9.5. Assignment. This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Transfer Agreement to the Agent, for the benefit of Enterprise and the Bank Investors, and that Enter- prise may assign any or all of its rights to any Liquidity Provider. The Purchaser hereby notifies (and the Seller hereby acknowledges that) the Purchaser, pursuant to the Transfer Agreement, has assigned its rights hereunder to the Agent. All rights of the Purchaser here- under may be exercised by the Agent or its assignees, to the extent of their respective rights pursuant to such assignments. SECTION 9.6. Further Assurances. The Purchaser and the Seller agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Seller or the Agent, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privilege provided by law. SECTION 9.8. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9.9. Binding Effect; Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, and any Li- quidity Provider is intended by the parties hereto to be a third-party beneficiary of this Agreement. SECTION 9.10. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. SECTION 9.11. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. SECTION 9.12. Exhibits. The schedules and exhibits referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. PROFFITT'S, INC., as Seller By: Name: Title: PROFFITT'S CREDIT CORPORATION, as Purchaser By: Name: Title: MCRAE'S, INC., as Servicer By: Name: Title: Acknowledged and agreed as of the date first above written: ENTERPRISE FUNDING CORPORATION By:_____________________________ Name: Title: NATIONSBANK, N.A., as Agent By:_____________________________ Name: Title: EXHIBIT A [FORM OF MONTHLY REPORT] EXHIBIT B FORM OF SUBORDINATED NOTE __________________ _________ __, 199_ FOR VALUE RECEIVED, the undersigned, PROFFITT'S CREDIT CORPORATION, a Nevada corporation (the "Maker"), hereby promises to pay to the order of PROFFITT'S, INC. (the "Payee"), on _________, ____ or earlier as provided for in the Receivables Purchase Agreement dated as of the date hereof between the Maker and the Payee (as such agreement may from time to time be amended, supplemented or otherwise modified and in effect, the "Receivables Purchase Agreement"), the lesser of the principal sum of Seventy-Five Million Dollars ($75,000,000.00) or the aggregate unpaid principal amount of all Advances to the Maker from the Payee pursuant to the terms of the Receivables Purchase Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date thereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate per annum set forth in the Receivables Purchase Agreement and shall be payable in arrears on the first day of each calendar month (or if any such day is not a Business Day, on the succeeding Business Day). The Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Subordinated Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not in any manner affect the obligation of the Maker to make payments of principal and interest in accordance with the terms of this Subordinated Note and the Receivables Purchase Agreement. The Maker shall have the right to prepay and, subject to the limitations set forth in the Receivables Purchase Agreement, reborrow Advances made to it without penalty or premium. This Subordinated Note is the Subordinated Note referred to in the Receivables Purchase Agreement, which, among other things, contains provisions for the subordination of this Subordinated Note to the rights of certain parties under the Transfer Agreement, all upon the terms and conditions therein specified. This Note shall be governed by, and construed in accordance with, the laws of the State of Mississippi. PROFFITT'S CREDIT CORPORATION By: Name: Title:
Advances and Payments Amount of Payments Unpaid Principal Name of Person Date Advance Principal/Interest Balance of Note Making Notation 1/15/97 $1,542,684.75
EXHIBIT C LOCATION OF RECORDS, PRINCIPAL PLACE OF BUSINESS, ETC. 1. 300 South Fourth Street Suite 1100 Las Vegas, Nevada 89101 2. 3455 Highway 80 West Jackson, Mississippi 39209 EXHIBIT D TRADENAMES, ETC. None EX-10 6 EXHIBIT 10.11 ===================================================================== RECEIVABLES PURCHASE AGREEMENT between MCRAE'S, INC. as Seller and Servicer and PROFFITT'S CREDIT CORPORATION, as Purchaser Dated as of January 15, 1997 ====================================================================== RECEIVABLES PURCHASE AGREEMENT This RECEIVABLES PURCHASE AGREEMENT, dated as of January 15, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), between MCRAE'S, INC., a Mississippi corporation, as seller (the "Seller") and as servicer (in such capacity, the "Servicer"), and PROFFITT'S CREDIT CORPORATION, a Nevada corporation, as purchaser (the "Purchaser"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase from time to time certain accounts receivable existing on the Closing Date and acquired or generated thereafter in the normal course of the Seller's business pursuant to certain revolving consumer credit card accounts; WHEREAS, the Seller desires to sell and assign from time to time such certain accounts receivable to the Purchaser upon the terms and conditions hereinafter set forth; WHEREAS, the Servicer has agreed to service the accounts receivable sold to the Purchaser by the Seller hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Purchaser and the Seller as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Transfer Agreement, and shall include in the singular number the plural and in the plural number the singular: "Advance" shall have the meaning specified in Section 3.2(a). "Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise and the Bank Investors pursuant to the Transfer Agreement. "Bank Investors" shall have the meaning specified in the Transfer Agreement. "Closing Date" shall mean January 16, 1997. "Eligible Receivable" shall have the meaning specified in the Transfer Agreement. "Enterprise" shall mean Enterprise Funding Corporation, a Delaware corporation, and its successors and assigns. "Event of Bankruptcy" shall have the meaning specified in the Transfer Agreement. "McRae's" shall mean McRae's, Inc., a Mississippi corporation, and its successors and assigns. "McRae's of Alabama Purchase Agreement" shall mean that certain Receivables Purchase Agreement dated as of January 27, 1993, by and between McRae's, Inc. and McRae's of Alabama, Inc., an Alabama corporation, as the same has been amended, modified and supplemented to the date hereof. "Outstanding Principal Balance" shall have the meaning specified in the Transfer Agreement. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean the percentage equivalent of the decimal representation of the following expression: (1.00 + APY) minus (BDA + SF + PCF + OE + RF) where: APY = average portfolio yield of the Seller (expressed as the decimal equivalent of a percentage) as reasonably determined over the preceding twelve months (or such other period reasonably determined by the Purchaser); BDA = an allowance for bad debts, based on, among other relevant factors, historical rates for the previous twelve months (or such other period reasonably determined by the Purchaser); SF = a Servicer fee equal to 2.00% per annum; PCF = the Purchaser's cost of funds, as calculated from time to time, equal to the sum of (i) the product of the Maximum Buyers' Percentage multiplied by the prime rate (as published in the Money Rates Section of The Wall Street Journal) plus (ii) the product of (x) 20% (to be adjusted from time to time based on changes to the Purchaser's reasonably estimated marginal cost of funds) multiplied by (y) the sum of one minus the Maxi- mum Buyers' Percentage; OE = the percentage equivalent of the fraction the numerator of which is the Purchaser's annualized estimate of projected operating expenses for the next twelve months and the denominator of which is the estimated Outstanding Principal Balance of Receivables expected to be sold in the next twelve months; and RF = a contingency risk factor based on industry and economic considerations, as determined by the Purchaser in its reasonable discretion and as agreed upon between the Purchaser and the Seller. "Purchase Period" shall mean, with respect to Receivables sold by the Seller to the Purchaser after the Closing Date, the Collection Period reported upon in the most recent Investor Report delivered after the Closing Date. "Purchase Price" shall have the meaning set forth in Section 3.1 hereof. "Purchaser" shall mean Proffitt's Credit Corporation, a Nevada corporation, and its successors and assigns. "Receivable" shall mean, for purposes of this Agreement, the indebtedness owed to the Seller by any Obligor under an Account (whether such Account is in existence as of the Closing Date or there- after created), whether constituting an account, chattel paper, in- strument or general intangible, arising in connection with the sale of merchandise or services, and which, in all cases shall include, the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. "Related Security" shall have the meaning specified in the Transfer Agreement. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the States of New York and Mississippi, as applicable. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Servicer" shall mean McRae's. "Subordinated Note" shall have the meaning specified in Section 3.2(b). "Termination Date" shall have the meaning specified in Section 8.1. "Transfer Agreement" shall mean the Transfer and Administration Agreement, dated as of January 15, 1997, by and among the Purchaser, McRae's, Inc., as Servicer, Proffitt's, Inc., as Servicer Guarantor, Enterprise Funding Corporation and NationsBank N.A., as Agent and Bank Investor, as such agreement may be amended, modified or supplemented from time to time. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set forth herein, the Seller hereby sells, assigns, transfers and conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and subject to the conditions specifically set forth herein, all of the Seller's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables outstanding on the Closing Date and thereafter owned by the Seller, through any Termination Date (but not thereafter), to- gether with all Related Security and Collections with respect thereto and all proceeds of the foregoing. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Seller or any other Person to Obligors or to any other Person in connection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to Receivables sold by the Seller on the Closing Date, such Receivables shall be deemed to be all the Receivables of the Seller that exist as of the close of business on the Cut-Off Date. With respect to Receivables sold by the Seller after the Closing Date, such Receivables shall be deemed to be all the Receivables created after the close of business on the Cut-Off Date. (b) In connection with the foregoing sale, the Seller agrees to record and file on or prior to the Closing Date, at its own expense, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by the Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC (subject, in the case of Related Security constituting returned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) against all creditors of and purchasers from the Seller, and to deliver either the originals of such financing state- ments or a file-stamped copy of such financing statements or other evidence of such filings to the Purchaser on the Closing Date. (c) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Seller will, in order to accurately re- flect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assign- ments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and upon the request of the Purchaser, mark its master data processing records and other documents with a legend describing the purchase by the Purchaser of the Receivables and the subsequent transfer thereof to the Agent pursuant to the Transfer Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND CONVEYED TO PROFFITT'S CREDIT CORPORATION AND AN INTEREST THEREIN HAS BEEN ASSIGNED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE TRANSFER AND ADMINISTRATION AGREEMENT DATED AS OF JANUARY 15, 1997, AS AMENDED FROM TIME TO TIME, AMONG PROFFITT'S CREDIT CORPORATION, NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Seller shall, upon re- quest of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by appli- cable law, the Purchaser shall be permitted to sign and file continua- tion statements and amendments thereto and assignments thereof without the Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Seller and the Purchaser that the conveyance of the Receivables by the Seller to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables by the Seller to the Purchaser. Further, it is not the intention of the Seller and the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the express intent of the parties, the Receivables are construed to constitute property of the Seller, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Seller provided for in this Agreement shall be deemed to be, and the Seller hereby grants to the Purchaser, a security interest in, to and under all of the Seller's right, title and interest in, to and under the Receivables outstanding on the Clos- ing Date and thereafter owned by the Seller, together with all Related Security and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obligations"). The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receiv- ables, such security interest would be deemed to be a perfected security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2. Servicing of Receivables. The servicing, administering and collection of the Receivables shall be conducted by McRae's, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which McRae's employs in servicing similar receivables for its own account, in accordance with the Credit Guidelines. With the consent of the Agent and the Purchaser, McRae's may delegate certain functions to Proffitt's, however, no such delegation shall relieve McRae's of its obligations hereunder. The Purchaser hereby appoints the Servicer as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security and the Collections with respect thereto. The Servicer shall hold in trust for the Purchaser, in accordance with its interests, all Records which evidence or relate to the Receivables or Related Security, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary contained herein, from and after the occurrence of a Termination Event or a Servicer Default (each as defined in the Transfer Agreement), the Agent or Enterprise, shall have the absolute and unlimited right to terminate the McRae's servicing activities described in this Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay the Servicer a servicing fee of 2.00% per annum on the aggregate Out- standing Principal Balance of Receivables sold, payable monthly, for its performance of the duties and obligations described in this Section 2.2; provided that any such monthly payment shall be reduced by any amounts payable in such month by Enterprise or the Bank Investors to the Servicer, in its capacity as Servicer pursuant to the Transfer Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables and related property conveyed on the Closing Date to the Purchaser by the Seller under this Agreement shall be a dollar amount equal to the product of (i) the aggregate Outstanding Principal Balance of the Receivables as of the Cut-Off Date, as reflected on the Cycle Certificate delivered on the Closing Date and (ii) the Purchase Rate. The Purchase Price for the Receivables and related property conveyed on any date after the Closing Date shall be the dollar amount equal to the product of (i) the aggregate Outstanding Principal Balance of the Receivables sold during the applicable Purchase Period as reflected in the applicable Investor Report and (ii) the Purchase Rate on such date. SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for the Receivables sold on the Closing Date shall be paid (i) by payment of $87,936,000 in immediately available funds and (ii) through an advance under the Subordinated Note (such advance and any advance thereunder as contemplated by Section 3.2(b), each an "Ad- vance") in the amount of $25,352,507.64. (b) The Purchase Price for the Receivables sold by the Seller on any date after the date hereof (each, a "Purchase Date") shall be paid either (i) in cash or (ii) if Purchaser does not have sufficient cash to pay the Purchase Price, subject to the next suc- ceeding sentence, by means of an Advance under the Subordinated Note or (iii) with the consent of the Seller, any combination of the foregoing. In the event the Purchaser does not have sufficient cash to pay the Purchase Price due on any Purchase Date, such insufficiency shall be evidenced by the making of an Advance on such Purchase Date in an original principal amount equal to such cash shortfall owed to the Seller; provided, however, that (i) at all times prior to December 31, 1997, the Seller and the Purchaser agree to act in good faith to minimize the amount of Advances made under the Subordinated Note so as to cause the Purchaser's Net Worth to be not less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months and (ii) from and after December 31, 1997, no Advance shall be made if immediately thereafter the Net Worth of the Purchaser would be less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months. All Advances made by the Seller to the Purchaser shall be evidenced by a single subordinated note, duly executed on behalf of the Purchaser, in substantially the form of Exhibit B annexed hereto, delivered and payable to the Seller in a principal amount equal to $150,000,000 (the "Subordinated Note"). The Seller is hereby autho- rized by the Purchaser to endorse on the schedule attached to the Subordinated Note (or a continuation of such schedule attached thereto and made a part thereof) an appropriate notation evidencing the date and amount of each Advance, as well as the date and amount of each payment with respect thereto; provided, however, that the failure of any Person to make such a notation shall not affect any obligations of the Purchaser thereunder. Any such notation shall be conclusive and binding as to the date and amount of such Advance, or payment of prin- cipal or interest thereon, absent manifest error. (c) The terms and conditions of the Subordinated Note and all Advances thereunder shall be as follows: (i) Repayment of Advances. All amounts paid by the Purchaser with respect to the Advances shall be allocated first to the repayment of accrued interest until all such interest is paid, and then to the outstanding principal amount of the Advances. Subject to the provisions of this Agreement, the Purchaser may borrow, repay and reborrow Advances on and after the date hereof and prior to the termination of this Agreement, subject to the terms, provisions and limitations set forth herein. (ii) Interest. The Subordinated Note shall bear interest from its date on the outstanding principal balance thereof at a rate per annum equal to one month LIBOR as published in the Money Rates Section of The Wall Street Journal. Interest on each Advance shall be computed based on the number of days elapsed in a year of 360 days. (iii) Sole and Exclusive Remedy/Subordination. The Purchaser shall be obligated to repay Advances to the Seller only to the extent of funds available to the Purchaser from Collections on the Receivables and, to the extent that such payments are insufficient to pay all amounts owing to the Seller under the Subordinated Note, the Seller shall not have any claim against the Purchaser for such amounts and no further or additional recourse shall be available against Purchaser. The Subordinated Note shall be fully subordinated to any rights of Enterprise, the Bank Investors and their permitted assigns pursuant to the Transfer Agreement, and shall not evidence any rights in the Receivables. (iv) Offsets, etc. The Purchaser may offset any amount due and owing by the Seller against any amount due and owing by Purchaser to the Seller under the terms of the Subordinated Note. SECTION 3.3. Monthly Report. On each Determination Date, the Seller shall deliver to the Purchaser a report covering the preceding Collection Period, substantially in the form of the Investor Report attached as Exhibit E to the Transfer Agreement, showing (i) the aggregate Purchase Price of Receivables acquired or generated by the Seller in the preceding Collection Period and (ii) the aggregate Outstanding Principal Balance of such Receivables that are Eligible Receivables as of the last day of such preceding Collection Period. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Seller's Representations and Warranties. The Seller represents and warrants to the Purchaser as of the Closing Date and shall be deemed to represent and warrant as of the date of the creation of any sale of any interest in Receivables to the Purchaser pursuant to this Agreement that: (a) Corporate Existence and Power. The Seller is a corpo- ration duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Seller is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contraven- tion. The execution, delivery and performance by the Seller of this Agreement are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except for the filing of UCC financing statements as required by this Agreement), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of the Seller or of any agreement, judg- ment, injunction, order, writ, decree or other instrument binding upon the Seller or result in the creation or imposition of any Adverse Claim on the assets of the Seller or any of its Subsidiaries (except those created by this Agreement). (c) Binding Effect. This Agreement will constitute the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to applicable bank- ruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Perfection. Immediately preceding the sale of the Re- ceivables and related property pursuant to this Agreement, the Seller was the owner of all of the Receivables, free and clear of all Adverse Claims. On or prior to the date of each sale of Receivables pursuant to this Agreement, all financing statements and other documents re- quired to be recorded or filed in order to perfect and protect the ownership interest of the Purchaser in and to the Receivables against all creditors of and purchasers from the Seller will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Accuracy of Information. All information heretofore furnished by the Seller to the Purchaser, the Agent, Enterprise and any Bank Investor for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Seller to the Purchaser, the Agent, Enterprise and any Bank Investor will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Status. The Seller has filed all material tax re- turns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (g) Action, Suits. Except as set forth in this Agreement, there are no actions, suits or proceedings pending, or to the knowl- edge of the Seller threatened, against or affecting the Seller or any Affiliate of the Seller or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (h) Place of Business. The principal place of business and chief executive office of the Seller is located at Jackson, Mississippi, and the offices where the Seller keeps all its Records, are located at the address(es) described on Exhibit C hereto or such other locations notified to the Purchaser in accordance with this Agreement in jurisdictions where all action required by the terms of this Agreement has been taken and completed. (i) Good Title. Upon the sale of the Receivables and related property to the Purchaser pursuant to this Agreement, the Purchaser shall acquire a valid and perfected first priority ownership interest in each Receivable (and in the Related Security, Collections and Proceeds with respect thereto) that exists on the date of this Agreement and in each Receivable thereafter owned by the Seller and in the Related Security, Collections and Proceeds with respect thereto until the Termination Date in each case free and clear of any Adverse Claim. (j) Tradenames, Etc. As of the date hereof: (i) the Seller's chief executive office is located at the address for notices set forth in Section 9.3; (ii) the Seller has only the subsidiaries and divisions listed on Exhibit D hereto; and (iii) the Seller has, within the last five (5) years, operated only under the tradenames identified in Exhibit D hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit D hereto. (k) Nature of Receivables. Each Receivable (x) represented by the Seller to be an Eligible Receivable, or (y) included in the calculation of the Net Receivables Balance in fact satisfies at such time the definition of "Eligible Receivable" set forth in the Transfer Agreement and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act of 1940, as amended. (l) Amount of Receivables. As of the Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in exis- tence was at least $115,600,518.00. (m) Credit Guidelines. Since January 9, 1997 there have been no material changes in the Credit Guidelines other than as permitted hereunder and under the Transfer Agreement. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (n) Collections and Servicing. Since November 2, 1996, there has been no material adverse change in the ability of the Seller to service and collect the Receivables. (o) Not an Investment Company. The Seller is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (p) ERISA. Each of the Seller and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Re- ceivables. (q) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit C to the Transfer Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Purchaser and the Agent and for which Lock-Box Agreements have been executed in accor- dance with Section 2.8(b) of the Transfer Agreement and delivered to the Servicer). All Obligors have been instructed to make payment to a Lock-Box Account and only Collections are deposited into the Lock-Box Accounts. (r) Bulk Sales. No transaction contemplated by this Agreement requires compliance with any bulk sales act or similar law. (s) Preference; Voidability. The Seller warrants that the conveyance of the applicable Receivables and Collections and Related Security to the Purchaser, and each such conveyance, shall not have been made for or on account of an antecedent debt owed by the Seller to the Purchaser and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. SECTION 4.2. Reaffirmation of Representations and Warran- ties by the Seller; Notice of Breach. On each sale date, the Seller, by accepting the proceeds of such sale, shall be deemed to have certi- fied that all representations and warranties described in Section 4.1 are true and correct on and as of such day as though made on and as of such day. The representations and warranties set forth in Section 4.1 shall survive the conveyance of the Receivables to the Purchaser, and termination of the rights and obligations of the Purchaser and the Seller under this Agreement. Upon discovery by the Purchaser or the Seller of a breach of any of the foregoing representations and war- ranties, the party discovering such breach shall give prompt written notice to the other within three Business Days of such discovery. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE V COVENANTS OF THE SELLER SECTION 5.1. Covenants of the Seller. The Seller hereby covenants and agrees with the Purchaser that, for so long as this Agreement is in effect, and until all Receivables, an interest in which has been sold to the Purchaser pursuant hereto, shall have been paid in full or written-off as uncollectible, and all amounts owed by the Seller pursuant to this Agreement have been paid in full, unless the Purchaser otherwise consents in writing, the Seller covenants and agrees as follows: (a) Conduct of Business. The Seller will, and will cause each of its Subsidiaries to, carry on and conduct its business in sub- stantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (b) Compliance with Laws. The Seller will, and will cause each of its Subsidiaries to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its properties may be subject. (c) Furnishing of Information and Inspection of Records. The Seller will furnish to the Purchaser from time to time such infor- mation with respect to the Receivables as the Purchaser may reasonably request, including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Seller will at any time and from time to time during regular busi- ness hours permit the Purchaser, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Seller for the purpose of examining such Records, and to discuss matters relating to Receivables or the Seller's performance hereunder with any of the officers, direc- tors, employees or independent public accountants of the Seller having knowledge of such matters. (d) Keeping of Records and Books of Account. The Seller will maintain a system of accounting established and administered in accordance with generally accepted accounting principles, consistently applied, and will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Seller will give the Purchaser and the Agent notice of any material change in the administrative and operating procedures of the Seller referred to in the previous sentence. (e) Performance and Compliance with Receivables and Accounts. The Seller at its expense will timely and fully perform and comply with all material provisions, covenants and other promises re- quired to be observed by it under the Accounts related to the Receiv- ables. (f) Credit and Collection Policies. The Seller will comply in all material respects with the Credit Guidelines in regard to each Receivable and the related Account. (g) Collections. The Seller shall instruct all Obligors to cause all Collections to be deposited directly to a Lock-Box Account. (h) Collections Received. The Seller shall hold in trust, and deposit, immediately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to a Lock-Box Account all Collections received from time to time by the Seller. (i) Sale Treatment. The Seller agrees to treat this conveyance for all purposes (including, without limitation, tax and financial accounting purposes) as a sale and, to the extent any such reporting is required, shall report the transactions contemplated by this Agreement on all relevant books, records, tax returns, financial statements and other applicable documents as a sale of the Receivables to the Purchaser. (j) ERISA. The Seller shall promptly give the Purchaser written notice upon becoming aware that the Seller or any of its Subsidiaries is not in compliance in all material respects with ERISA or that any ERISA lien on any of the Receivables exists. SECTION 5.2. Negative Covenants of the Seller. During the term of this Agreement, unless the Agent and the Purchaser shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except as otherwise provided herein, the Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (x) any of the Receivables, the Related Security or Collections, (y) any goods (other than inventory), the sale of which may give rise to any Receivable, Related Security or Collections (sub- ject, in each case with respect to Related Security constituting re- turned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) or (z) upon or with respect to any account which concen- trates in a Lock-Box Bank (including any Lock-Box Account) to which any Collections of any Receivable are sent, or, in each case, assign any right to receive income in respect thereof. The Seller shall, and will cause each of its Subsidiaries to, specifically exclude from the property subject to any Adverse Claim granted on inventory any and all accounts receivable generated by sales of such inventory and the proceeds thereof and shall provide, upon the Purchaser's request, evi- dence satisfactory to the Purchaser that any such Adverse Claim (and each related UCC financing statement or other related filing) express- ly excludes any such accounts receivable. The Seller will provide the Purchaser and the Agent with a copy of any inventory financing agree- ment at least three Business Days prior to the effectiveness thereof. (b) No Extension or Amendment of Receivables. The Seller will not extend, amend or otherwise modify the terms of any Receiv- able, or amend, modify or waive any term or condition of any Account related thereto, except as provided in Sections 5.2 and 6.2 of the Transfer Agreement. (c) No Change in Business or Credit Guidelines. Except as provided in the Transfer Agreement, the Seller will not make any change in the character of its business or in the Credit Guidelines, which change might, in either case, impair the collectability of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect. (d) Change in Payment Instructions to Obligors. The Seller will not add or terminate, or make any change to, any Lock-Box Account, except in accordance with the Transfer Agreement. (e) Deposits to Lock-Box Accounts. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account, cash or cash proceeds other than Collections of Receivables. (f) Change of Name, Etc. The Seller shall not change its name, identity or structure or location of its chief executive office, unless at least ten (10) days prior to the effective date of any such change the Seller delivers to the Purchaser and the Agent (i) such documents, instruments or agreements, including, without limitation, appropriate financing statements under the Relevant UCC, executed by the Seller necessary to reflect such change and to continue the perfection of the Purchaser's and any assignee's interest in the Receivables and (ii) new or revised Lock-Box Agreements which reflect such change and enable the Agent to exercise its rights under Section 2.8 of the Transfer Agreement. (g) Separate Business. The Seller shall not: (i) fail to maintain separate books, financial statements, accounting records and other corporate documents from those of the Purchaser, (ii) commingle any of its assets or the assets of any of its Affiliates with those of the Purchaser, (iii) pay from its own assets any obligation or indebtedness of any kind incurred by the Purchaser, (iv) directly, or through any of its Affiliates, borrow funds or accept credit or guaranties from the Purchaser except pursuant to this Agreement in connection with the purchase of the Receivables. SECTION 5.3. Indemnification. The Seller agrees to indem- nify, defend and hold the Purchaser harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which the Purchaser or any assignee thereof may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon a breach by the Seller of its representations, warranties and covenants con- tained herein, or any information certified in any schedule or certificate delivered by the Seller hereunder, being untrue in any material respect at any time. The obligations of the Seller under this Section 5.3 shall be considered to have been relied upon by the Purchaser, Enterprise and the Agent and shall survive the execution, delivery, performance and termination of this Agreement, regardless of any investigation made by the Purchaser, Enterprise or the Agent or on behalf of any of them. ARTICLE VI REPURCHASE OBLIGATION SECTION 6.1. Mandatory Repurchase. (a) Breach of Warranty. If on any day any Receivable, which has been sold by the Seller hereunder and which has been reported by the Seller as an Eligible Receivable, shall fail to meet the conditions set forth in the definition of "Eligible Receivable" (except to the extent such conditions expressly relate to an earlier date) or for which any representation or warranty made herein in respect of such Receivable shall no longer be true, the Seller shall be deemed to have received on such day a Collection of such Receivable in full and shall on such day pay to the Purchaser an amount equal to the aggregate Outstanding Principal Balance of such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. (b) Reconveyance Under Certain Circumstances. The Seller agrees that, with respect to any Receivable sold hereunder, in the event of a breach of any of the representations and warranties set forth in Sections 4.1(e), 4.1(g), 4.1(h), 4.1(j), 4.1(l), 4.1(o), 4.1(p) or 4.1(q), the Seller shall accept the reconveyance of such Receivable upon receipt by the Seller of notice given in writing by the Purchaser and the Seller's failure to cure such breach within thirty (30) days (or, in the case of representations and warranties found in Sections 4.1(d), 4.1(i) or 4.1(t), within three (3) days) of such notice. In the event of a reconveyance under this Section 6.1(b), the Seller shall pay to the Purchaser in immediately available funds on such 30th day (or third day, if applicable) an amount equal to the Outstanding Principal Balance of any such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 6.2. Dilutions, Etc. The Seller agrees that if on any day the Outstanding Principal Balance of a Receivable sold by the Seller hereunder is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, then the Seller shall be deemed to have received on such day a collection of such Receivable in the amount of such reduction, cancellation or payment made by the Obligor and shall on such day pay to the Purchaser an amount equal to such reduction or cancellation; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 6.3 No Recourse. Except as otherwise provided in this Article VI, the purchase and sale of the Receivables under this Agreement shall be without recourse to the Seller. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1. Conditions to the Purchaser's Obligations Regarding Receivables. The obligations of the Purchaser to purchase the Receivables on the Closing date and any Purchase Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the Seller con- tained in this Agreement shall be true and correct on the Closing Date and on each Purchase Date thereafter with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Receivables provided to the Purchaser shall be true and correct in all material respects as of the Closing Date, in the case of any Receivables existing on the Clos- ing Date, or the Purchase Date, in the case of any Receivables created after the Closing Date; (c) The Seller shall have substantially performed all other obligations required to be performed by the provisions of this Agree- ment; (d) The Seller shall have filed or caused to be filed the financing statement(s) required to be filed pursuant to Section 2.1(b); (e) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Purchaser, and the Purchaser shall have received from the Seller copies of all documents (including, without limitation, records of corporate proceedings) relevant to the transactions herein contemplated as the Purchaser may reasonably have requested; and (f) On the Closing Date, the Seller shall deliver to the Purchaser and the Agent a Cycle Certificate as of the Cut-Off Date. ARTICLE VIII TERM AND TERMINATION SECTION 8.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date desig- nated by the Purchaser or the Seller as the termination date at any time following sixty (60) day's written notice to the other (with a copy thereof to the Agent), (ii) the date on which the Agent declares a Termination Date pursuant to Section 7.2 of the Transfer Agreement, (iii) the day on which a Reinvestment Termination Date shall occur under the Transfer Agreement unless the Transferred Interest shall have been assigned (or concurrently is so assigned) to the Bank In- vestors under Section 10.7 of the Transfer Agreement, (iv) upon the occurrence of an Event of Bankruptcy with respect to either the Pur- chaser or the Seller, (v) the close of business on the third Business Day following a conveyance of Receivables to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, or (vi) the date on which either the Purchaser or the Seller becomes unable for any reason to purchase or re-purchase any Receivable in accordance with the provisions of this Agreement or defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice (any such date being a "Termination Date"); provided, however, that the termination of this Agreement pursuant to this Section 8.1 hereof shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any payments with respect to the interest of the Purchaser in any Receivable sold prior to such termination. SECTION 8.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 8.1, the Seller shall not sell, and the Purchaser shall not purchase, any Receivables. No termination or rejection or failure to assume the executory obliga- tions of this Agreement in any Event of Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including, without limitation, pre-termination breaches of represen- tations and warranties by the Seller or the Purchaser. Without limiting the foregoing, prior to termination, the failure of the Seller to deliver computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Article V or Section 9.1 of this Agreement render an executed sale executory. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and the Seller and consented to in writing by the Agent. Any reconveyance executed in accordance with the provisions hereof shall not be con- sidered amendments to this Agreement. SECTION 9.2. GOVERNING LAW; Submission to Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI. (b) The parties hereto hereby submit to the nonexclu- sive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in The City of New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect the right of the Purchaser to bring any other action or proceeding against the Seller or its property in the courts of other jurisdictions. SECTION 9.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 9.3 and confirmation is received, (ii) if given by mail three Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 9.3. (a) in the case of the Purchaser: Proffitt's Credit Corporation 300 South Fourth Street, Suite 1100 Las Vegas, Nevada 89101 Attn: Douglas E. Coltharp, President Telephone: (702) 598-3738 Telecopy: (702) 598-3651 with a copy to Proffitt's, Inc.: Proffitt's Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer with a copy to: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-10-07 Charlotte, NC 28255 Attention: Michelle M. Heath NC1-007-10-07 Structured Finances Telephone: (704) 386-7922 Telecopy: (704) 388-9169 (b) in the case of the Seller: MCRAE'S, INC. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer (c) in the case of the Servicer: MCRAE'S, INC. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer (with a copy to Proffitt's, Inc.) or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. SECTION 9.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agree- ment or any other Conveyance Paper shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 9.5. Assignment. This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Transfer Agreement to the Agent, for the benefit of Enterprise and the Bank Investors, and that Enter- prise may assign any or all of its rights to any Liquidity Provider. The Purchaser hereby notifies (and the Seller hereby acknowledges that) the Purchaser, pursuant to the Transfer Agreement, has assigned its rights hereunder to the Agent. All rights of the Purchaser here- under may be exercised by the Agent or its assignees, to the extent of their respective rights pursuant to such assignments. SECTION 9.6. Further Assurances. The Purchaser and the Seller agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Seller or the Agent, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privilege provided by law. SECTION 9.8. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9.9. Binding Effect; Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, and any Li- quidity Provider is intended by the parties hereto to be a third-party beneficiary of this Agreement. SECTION 9.10. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. SECTION 9.11. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. SECTION 9.12. Exhibits. The schedules and exhibits referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. MCRAE'S, INC., as Seller and Servicer By: Name: Title: PROFFITT'S CREDIT CORPORATION, as Purchaser By: Name: Title: Acknowledged and agreed as of the date first above written: ENTERPRISE FUNDING CORPORATION By:_____________________________ Name: Title: NATIONSBANK, N.A., as Agent By:_____________________________ Name: Title: EXHIBIT A [FORM OF MONTHLY REPORT] EXHIBIT B FORM OF SUBORDINATED NOTE __________________ _________ __, 199_ FOR VALUE RECEIVED, the undersigned, PROFFITT'S CREDIT CORPORATION, a Nevada corporation (the "Maker"), hereby promises to pay to the order of MCRAE'S, INC. (the "Payee"), on _________, ____ or earlier as provided for in the Receivables Purchase Agreement dated as of the date hereof between the Maker and the Payee (as such agreement may from time to time be amended, supplemented or otherwise modified and in effect, the "Receivables Purchase Agree- ment"), the lesser of the principal sum of One Hundred and Fifty Million Dollars ($150,000,000.00) or the aggregate unpaid principal amount of all Advances to the Maker from the Payee pursuant to the terms of the Receivables Purchase Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date thereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate per annum set forth in the Receivables Purchase Agreement and shall be payable in arrears on the first day of each calendar month (or if any such day is not a Business Day, on the succeeding Busi- ness Day). The Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Subordinated Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not in any manner affect the obligation of the Maker to make payments of principal and interest in accordance with the terms of this Subordinated Note and the Receivables Purchase Agreement. The Maker shall have the right to prepay and, subject to the limitations set forth in the Receivables Purchase Agreement, reborrow Advances made to it without penalty or premium. This Subordinated Note is the Subordinated Note referred to in the Receivables Purchase Agreement, which, among other things, contains provisions for the subordination of this Subordinated Note to the rights of certain parties under the Transfer Agreement, all upon the terms and conditions therein specified. This Note shall be governed by, and construed in accordance with, the laws of the State of Mississippi. PROFFITT'S CREDIT CORPORATION By: Name: Title: Advances and Payments
Amount of Payments Unpaid Principal Name of Person Date Advance Principal/Interest Balance of Note Making Notation 1/15/97 $25,352,507.64
EXHIBIT C LOCATION OF RECORDS, PRINCIPAL PLACE OF BUSINESS, ETC. 3455 Highway 80 West Jackson, Mississippi 39209 EXHIBIT D TRADENAMES, ETC. None EX-10 7 EXHIBIT 10.12 ===================================================================== RECEIVABLES PURCHASE AGREEMENT between PARISIAN SERVICES, INC. and PARISIAN, INC., each, a Seller and PROFFITT'S CREDIT CORPORATION, as Purchaser and MCRAE'S, INC. as Servicer Dated as of January 30, 1997 ===================================================================== RECEIVABLES PURCHASE AGREEMENT This RECEIVABLES PURCHASE AGREEMENT, dated as of January 30, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), between PARISIAN SERVICES, INC., an Alabama corporation, PARISIAN, INC., an Alabama corporation, each a seller (in such capacity, a "Seller" and together the "Sellers"), PROFFITT'S CREDIT CORPORATION, a Nevada corporation, as purchaser (the "Purchaser"), and MCRAE'S, INC., a Mississippi corporation, as servicer ("McRae's"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase on the Closing Date from Parisian Services, Inc. and from Parisian, Inc. any and all exist- ing accounts receivable and to purchase from time to time thereafter certain accounts receivable generated in the normal course of Parisian, Inc.'s business pursuant to certain revolving consumer credit card ac- counts; WHEREAS, Parisian Services, Inc. desires to sell and assign to the Purchaser as of the Closing Date all of its existing accounts receivable and certain related obligations and liabilities and the Pur- chaser has agreed to acquire from Parisian Services, Inc. all of such accounts receivable and those certain related obligations and liabilities as described herein; WHEREAS, Parisian, Inc. desires to sell and assign to the Purchaser all of its existing accounts receivable as of the Closing Date and to sell and assign to the Purchaser from time to time thereafter certain accounts receivable upon the terms and conditions hereinafter set forth; WHEREAS, Parisian Services, Inc. has agreed to merge with and into Parisian, Inc. and Parisian, Inc. has agreed to assume thereby and hereby all of the remaining obligations and liabilities of Parisian Services, Inc., including, without limitation, certain liabilities and obligations in respect of the accounts receivable transferred hereunder by Parisian Services, Inc. to the Purchaser; WHEREAS, the Servicer has agreed to service, upon the terms and conditions described herein, the accounts receivable sold to the Purchaser by the Sellers hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Purchaser and the Sellers as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Transfer Agreement, and shall include in the singular number the plural and in the plural number the singular: "Advance" shall have the meaning specified in Section 3.2(a). "Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise and the Bank Investors pursuant to the Transfer Agreement. "Bank Investors" shall have the meaning specified in the Transfer Agreement. "Closing Date" shall mean January 30, 1997. "Eligible Receivable" shall have the meaning specified in the Transfer Agreement. "Enterprise" shall mean Enterprise Funding Corporation, a Delaware corporation, and its successors and assigns. "Event of Bankruptcy" shall have the meaning specified in the Transfer Agreement. "Hess Specialty Department Store" shall mean Hess Specialty Department Store, LLC, an Ohio limited liability company (formerly, Hess Specialty Department Store, Inc., an Ohio corporation), together with its successors and assigns. "McRae's" shall mean McRae's, Inc., a Mississippi corporation, and its successors and assigns. "Outstanding Principal Balance" shall have the meaning specified in the Transfer Agreement. "Promissory Note" shall have the meaning assigned in Section 3.2(a) hereof. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean the percentage equivalent of the decimal representation of the following expression: (1.00 + APY) minus (BDA + SF + PCF + OE + RF) where: APY = average portfolio yield of the applicable Seller (expressed as the decimal equivalent of a percentage) as reasonably determined over the preceding twelve months (or such other period reasonably determined by the Pur- chaser); BDA = an allowance for bad debts, based on, among other relevant factors, historical rates for the previous twelve months (or such other period reasonably determined by the Purchaser); SF = a Servicer fee equal to 2.00% per annum; PCF = the Purchaser's cost of funds, as calculated from time to time, equal to the sum of (i) the product of the Maximum Buyers' Percentage multiplied by the prime rate (as published in the Money Rates Section of The Wall Street Journal) plus (ii) the product of (x) 20% (to be adjusted from time to time based on changes to the Purchaser's reasonably estimated marginal cost of funds) multiplied by (y) the sum of one minus the Maximum Buyers' Percent- age; OE = the percentage equivalent of the fraction the numerator of which is the Purchaser's annualized estimate of projected operating expenses for the next twelve months and the denominator of which is the estimated Outstanding Principal Balance of Receivables expected to be sold in the next twelve months; and RF = a contingency risk factor based on industry and economic considerations, as determined by the Purchaser in its reasonable discretion and as agreed upon between the Purchaser and the applicable Seller. "Purchase Period" shall mean, with respect to Receivables sold by the Sellers to the Purchaser after the Closing Date, the Collection Period reported upon in the most recent Investor Report delivered after the Closing Date. "Purchase Price" shall have the meaning set forth in Section 3.1 hereof. "Purchaser" shall mean Proffitt's Credit Corporation, a Nevada corporation, and its successors and assigns. "Receivable" shall mean, for purposes of this Agreement, the indebtedness owed to a Seller by an Obligor under an Account (whether such Account is in existence as of the Closing Date or thereafter creat- ed), whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of merchandise or services, and which, in all cases shall include, the right to payment of any Finance Charges and other obligations of such Obligor with re- spect thereto. "Related Security" shall have the meaning specified in the Transfer Agreement. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the States of New York and Mississippi, as applicable. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Servicer" shall mean McRae's, and, without limiting the obligation of McRae's as Servicer hereunder, shall include each Person to whom McRae's delegates servicing functions pursuant to Section 2.2 hereof. "Subordinated Note" shall have the meaning specified in Section 3.2(b). "Termination Date" shall have the meaning specified in Section 8.1. "Transfer Agreement" shall mean the Transfer and Administration Agreement, dated as of January 15, 1997, by and among the Purchaser, McRae's, Inc., as Servicer, Proffitt's, Inc., as Servicer Guarantor, Enterprise Funding Corporation and NationsBank N.A., as Agent and Bank Investor, as such agreement may be amended, modified or supple- mented from time to time. SECTION 1.2 Other Terms. All accounting terms not specifi- cally defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3 Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1 Sale. (a) Upon the terms and subject to the conditions set forth herein, the Sellers hereby sell, assign, transfer and convey to the Purchaser, and the Purchaser hereby purchases from the Sellers, on the terms and subject to the conditions specifically set forth herein, all of the Sellers' right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables outstand- ing on the Closing Date and thereafter owned by the Sellers, through any Termination Date (but not thereafter), together with all Related Secu- rity and Collections with respect thereto and all proceeds of the fore- going. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Sellers or any other Person to Obligors or to any other Person in con- nection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to the Closing Date, the Sellers hereby sell all Receiv- ables that exist as of the close of business on the Parisian Cut-Off Date. Commencing on the date of effectiveness of the merger of Parisian Services, Inc. with and into Parisian, Inc., Parisian, Inc. hereby sells all Receivables created after the close of business on the Parisian Cut-Off Date. (b) In connection with the foregoing sale, each Seller agrees to record and file on or prior to the Closing Date, each at its own ex- pense, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by such Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC (subject, in the case of Related Security constituting returned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) against all creditors of and purchasers from the Sellers, and to deliver either the originals of such financing statements or a file-stamped copy of such financing statements or other evidence of such filings to the Purchaser on the Closing Date. (c) The Sellers agree that from time to time, at no expense to the Purchaser, they will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Sellers will, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assign- ments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and upon the request of the Purchaser, mark all master data processing records and other documents with a legend describing the purchase by the Purchaser of the Receivables and the subsequent transfer thereof to the Agent pursuant to the Transfer Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND CONVEYED TO PROFFITT'S CREDIT CORPORATION AND AN INTEREST THEREIN HAS BEEN ASSIGNED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE TRANSFER AND ADMINISTRATION AGREEMENT DATED AS OF JANUARY 15, 1997, AS AMENDED FROM TIME TO TIME, AMONG PROFFITT'S CREDIT CORPORATION, NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Sellers shall, upon request of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by applicable law, the Purchaser shall be per- mitted to sign and file continuation statements and amendments thereto and assignments thereof without the Sellers' signature. Carbon, photo- graphic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Sellers and the Purchaser that the conveyance of the Receivables by the Sellers to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables by the Sellers to the Purchaser. Further, it is not the intention of the Sellers and the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables by the Sellers to the Purchaser to secure a debt or other obligation of the Sellers. However, in the event that, notwithstanding the express intent of the parties, the Receivables are construed to constitute property of the Sellers, then (i) this Agreement also shall be deemed to be, and hereby is, a security agree- ment within the meaning of the Relevant UCC; and (ii) the conveyance by the Sellers provided for in this Agreement shall be deemed to be, and the Sellers hereby grant to the Purchaser, a security interest in, to and under all of the Sellers' right, title and interest in, to and under the Receivables outstanding on the Closing Date and thereafter owned by a Seller, together with all Related Security and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obli- gations"). The Sellers and the Purchaser shall, to the extent consis- tent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receivables, such security interest would be deemed to be a perfected security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2 Servicing of Receivables. The servicing, admin- istering and collection of the Receivables shall be conducted by McRae's, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which McRae's employs in servicing similar receivables for its own account, in accordance with the Credit Guidelines. With the consent of the Agent and the Purchaser, McRae's may delegate certain servicing functions to Parisian, Inc., however, no such delegation shall relieve McRae's of its obligations hereunder. The Purchaser hereby appoints the Servicer as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security and the Collections with respect thereto. The Servicer shall hold in trust for the Purchaser, in accor- dance with its interests, all Records which evidence or relate to the Receivables or Related Security, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary contained herein, from and after the occurrence of a Termination Event, a Parisian Termination Event or a Servicer Default (each as defined in the Transfer Agreement), the Agent or Enterprise, shall have the absolute and unlim- ited right to terminate McRae's servicing activities described in this Section 2.2 (including therein the activities of any Person to whom McRae's has delegated servicing functions pursuant to this Section 2.2). In consideration of the foregoing, the Purchaser agrees to pay the Servicer a servicing fee of 2.00% per annum on the aggregate Outstanding Principal Balance of Receivables sold, payable monthly, for its perfor- mance of the duties and obligations described in this Section 2.2; provided that any such monthly payment shall be reduced by any amounts payable in such month by Enterprise or the Bank Investors to the Servicer, in its capacity as Servicer pursuant to the Transfer Agree- ment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. The Purchase Price for the Receivables and related property conveyed on the Closing Date to the Purchaser (i) by Parisian Services, Inc., as Seller, shall be a dollar amount equal to $135,583,785 representing the product of (x) the aggre- gate Outstanding Principal Balance of the Receivables conveyed to the Purchaser by Parisian Services, Inc. as of the Parisian Cut-Off Date, as reflected on the Cycle Certificate delivered on the Closing Date and (y) 98%, and (ii) by Parisian, Inc., as Seller, shall be a dollar amount equal to the product of (x) the aggregate Outstanding Principal Balance of the Receivables conveyed to the Purchaser by Parisian, Inc. as of the Parisian Cut-Off Date, as reflected on the Cycle Certificate delivered on the Closing Date and (y) the Purchase Rate. The Purchase Price for the Receivables and related property conveyed on any date after the Closing Date shall be the dollar amount equal to the product of (i) the aggregate Outstanding Principal Balance of the Receivables sold during the applicable Purchase Period as reflected in the applicable Investor Report and (ii) the Purchase Rate on such date. SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for the Receivables sold by Parisian Services, Inc. on the Closing Date shall be paid (i) by a payment of $110,000,000 in immediately available funds, (ii) by the delivery of 242 shares of the common stock of the Purchaser representing 49.19% of the issued and outstanding common stock of Proffitt's Credit Corporation having a fair market value reasonably estimated to be equal to not less than $9,697,211, it being expressly understood that such shares are to be held, following the merger of Parisian Services, Inc. with and into Parisian, Inc., by Parisian, Inc. and (iii) by the assumption by the Purchaser of all of Parisian Services, Inc.'s current and outstanding obligations under those certain promissory notes of Parisian Services, Inc., each dated July 31, 1995 and payable to the order of (x) Parisian, Inc., (y) Parisian of Tennessee, Inc. and (z) Hess Specialty Department Store, Limited Liability Company (the successor in interest to Hess Specialty Department Store, Inc.), (collectively, the "Promissory Note") which such Promissory Note has an aggregate outstanding principal amount due equal to not more than $15,886,574 as of the Closing Date. (b) The Purchase Price for the Receivables sold by Parisian, Inc. as the Seller on any date after the date hereof (each, a "Purchase Date") shall be paid either (i) in cash or (ii) if Purchaser does not have sufficient cash to pay the Purchase Price, by means of (A) an Ad- vance under the Subordinated Note or (B) with the consent of the Seller, capital contributed by the Seller to the Purchaser in the form of a con- tribution of the additional Receivables or (iii) with the consent of the Seller, any combination of the foregoing. In the event the Purchaser does not have sufficient cash to pay the Purchase Price due on any Purchase Date and the Seller is not willing to consent to the payment of such insufficiency by means of a capital contribution, such insufficien- cy shall be evidenced by the making of an Advance on such Purchase Date in an original principal amount equal to such cash shortfall owed to the Seller, provided, however that (i) at all times prior to December 31, 1997, (x) the amount of Advances made under the Subordinated Note shall not cause the Purchaser's Net Worth to be less than 8.0% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months and (y) the Sellers and the Purchaser agree to act in good faith to minimize the amount of Advances made under the Subordinated Note so as to cause the Purchaser's Net Worth to be not less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months, and (ii) from and after December 31, 1997, no Advance shall be made if immediately thereafter the Net Worth of the Purchaser would be less than 10% of the highest aggregate Outstanding Principal Balance of all Eligible Receivables shown on any Cycle Certificate delivered by the Servicer under the Transfer Agreement during the preceding twelve months. The parties hereto agree that (a) in connection with the assumption by the Purchaser of the obligations of Parisian Services, Inc. under the Promissory Note, (b) in connection with the merger of Parisian Services, Inc. with and into Parisian, Inc., and (c) in recognition of the succession to and assumption by Parisian, Inc. of all rights and obligations of each of Parisian of Tennessee, Inc. and Hess Specialty Department Store pursuant to the merger of each such entity with and into Parisian, Inc., the Promissory Note and the obligations thereunder is hereby amended and restated and, together with all future Advances made by Parisian, Inc. as Seller to the Purchaser, shall be evidenced by a single subordinated note duly executed on behalf of the Purchaser in substantially the form of Exhibit B annexed hereto, delivered and payable to Parisian, Inc., as Seller, in a principal amount equal to $100,000,000 (the "Subordinated Note"). Parisian, Inc. is hereby authorized by the Purchaser to endorse on the schedule at- tached to the Subordinated Note (or a continuation of such schedule attached thereto and made a part thereof) an appropriate notation evidencing the date and amount of each Advance, as well as the date and amount of each payment with respect thereto; provided, however, the initial aggregate outstanding amount endorsed as having been advanced under the Subordinated Note shall equal the aggregate outstanding amount of the obligations owing under the Promissory Note as of the Closing Date; and provided, further, that the failure of any Person to make such notation shall not affect any obligations of the Purchaser thereunder. Any such notation shall be conclusive and binding as to the date and amount of Advance, or payment of principal or interest thereon, absent manifest error. (c) The terms and conditions of the Subordinated Note and all Advances thereunder shall be as follows: (i) Repayment of Advances. All amounts paid by the Purchaser with respect to the Advances shall be allocated first to the repayment of accrued interest until all such interest is paid, and then to the outstanding principal amount of the Advances. Subject to the provisions of this Agreement, the Purchaser may borrow, repay and reborrow Advances on and after the date hereof and prior to the termination of this Agreement, subject to the terms, provisions and limitations set forth herein. (ii) Interest. The Subordinated Note shall bear interest from its date on the outstanding principal balance thereof at a rate per annum equal to one month LIBOR as published in the Money Rates Section of The Wall Street Journal. Interest on each Advance shall be computed based on the number of days elapsed in a year of 360 days. (iii) Sole and Exclusive Remedy/Subordination. The Purchaser shall be obligated to repay Advances to Parisian, Inc. only to the extent of funds available to the Purchaser from Collections on the Receivables and, to the extent that such payments are insufficient to pay all amounts owing to Parisian, Inc. under the Subordinated Note, Parisian, Inc. shall not have any claim against the Purchaser for such amounts and no further or additional recourse shall be available against Purchaser. The Subordinated Note shall be fully subordinated to any rights of Enterprise, the Bank Investors and their permitted assigns pursuant to the Transfer Agreement, and shall not evidence any rights in the Receivables. (iv) Offsets, etc. The Purchaser may offset any amount due and owing by Parisian, Inc. against any amount due and owing by Pur- chaser to Parisian, Inc. under the terms of the Subordinated Note. SECTION 3.3. Monthly Report. On each Determination Date, Parisian, Inc. shall deliver to the Purchaser a report covering the preceding Collection Period, substantially in the form of the Investor Report attached as Exhibit E to the Transfer Agreement, showing (i) the aggregate Purchase Price of Receivables acquired or generated by Parisian, Inc. in the preceding Collection Period and (ii) the aggregate Outstanding Principal Balance of such Receivables that are Eligible Receivables as of the last day of such preceding Collection Period. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Sellers Representations and Warranties. (a) Representations and Warranties of Parisian Services, Inc. Parisian Services, Inc., as Seller hereunder, represents and warrants to the Pur- chaser as of the Closing Date that: (i) Corporate Existence and Power. Parisian Services, Inc. is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now con- ducted. Parisian Services, Inc. is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (ii) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by Parisian Services, Inc. of this Agreement are within Parisian Services, Inc.'s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except for the filing of UCC financing statements as required by this Agreement), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of Parisian Services, Inc. or of any agree- ment, judgment, injunction, order, writ, decree or other instrument binding upon the Seller or result in the creation or imposition of any Adverse Claim on the assets of Parisian Services, Inc. (except those created by this Agreement). (iii) Binding Effect. This Agreement will constitute the legal, valid and binding obligation of Parisian Services, Inc. en- forceable against Parisian Services, Inc. in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (iv) Perfection. Immediately preceding the sale of the Re- ceivables and related property pursuant to this Agreement, Parisian Services, Inc. was the owner of all of the Receivables purported to be transferred by Parisian Services, Inc. to the Purchaser hereunder, free and clear of all Adverse Claims. On or prior to the date of this Agreement, all financing statements and other documents required to be recorded or filed in order to perfect and protect the ownership interest of the Purchaser in and to the Receivables purported to be transferred by Parisian Services, Inc. to the Purchaser hereunder against all creditors of and purchasers from Parisian Services, Inc. will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (v) Accuracy of Information. All information heretofore furnished by Parisian Services, Inc. to the Purchaser, the Agent, Enterprise and any Bank Investor for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by Parisian Services, Inc. to the Purchaser, the Agent, Enterprise and any Bank Investor will be, true and accurate in every material respect, on the date such information is stated or certified. (vi) Tax Status. Parisian Services, Inc. has filed all material tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (vii) Action, Suits. Except as set forth in this Agreement, there are no actions, suits or proceedings pending, or to the knowledge of Parisian Services, Inc., threatened, against or af- fecting Parisian Services, Inc. or any Affiliate of Parisian Services, Inc. or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (viii) Place of Business. The principal place of business and chief executive office of Parisian Services, Inc. is located at 750 Lakeshore Drive, Birmingham, Alabama 35211, and the offices where Parisian Services, Inc. keeps all its Records, are located at the address(es) described on Exhibit C hereto or such other loca- tions notified to the Purchaser in accordance with this Agreement in jurisdictions where all action required by the terms of this Agreement has been taken and completed. (ix) Good Title. Upon the sale of the Receivables and relat- ed property to the Purchaser pursuant to this Agreement, the Purchaser shall acquire a valid and perfected first priority owner- ship interest in each Receivable (and in the Related Security, Collections and Proceeds with respect thereto) purported to be transferred by Parisian Services, Inc. that exists on the date of this Agreement and is owned by Parisian Services, Inc., as Seller, and in the Related Security, Collections and Proceeds, in each case free and clear of any Adverse Claim. (x) Tradenames, Etc. As of the date hereof: (i) the Seller has, within the last five (5) years, operated only under the tradenames identified in Exhibit D attached hereto and (ii) within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit D attached hereto. (xi) Nature of Receivables. Each Receivable (x) represented by the Seller to be an Eligible Receivable, or (y) included in the calculation of the Net Receivables Balance in fact satisfies at such time the definition of "Eligible Receivable" set forth in the Transfer Agreement and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act of 1940, as amended. (xii) Amount of Receivables. As of the Parisian Cut-Off Date, the aggregate Outstanding Principal Balance of the Receiv- ables in existence and purported to be transferred by Parisian Ser- vices, Inc. to the Purchaser hereunder was at least $138,350,800. (xiii) Not an Investment Company. Parisian Services, Inc. is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (xiv) ERISA. Each of Parisian Services, Inc. and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (xv) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit C to the Transfer Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Purchaser and the Agent and for which Lock-Box Agreements have been executed in accordance with Section 2.8(b) of the Transfer Agreement and delivered to the Servicer). All Obligors have been instructed to make payment to a Lock-Box Account and only Collections are deposited into the Lock-Box Accounts. (xvi) Bulk Sales. No transaction contemplated by this Agree- ment requires compliance with any bulk sales act or similar law. (xvii) Preference; Voidability. Parisian Services, Inc. warrants that the conveyance of the applicable Receivables and Collections and Related Security from Parisian Services, Inc. to the Purchaser shall not have been made for or on account of an antecedent debt owed by Parisian Services, Inc. to the Purchaser and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. (b) Parisian, Inc. Representations and Warranties. Parisian, Inc., as Seller hereunder, represents and warrants to the Purchaser as of the Closing Date and shall be deemed to represent and warrant as of the date of the creation or any sale of any interest in Receivables to the Purchaser pursuant to this Agreement that: (i) Corporate Existence and Power. Such Seller is a corpo- ration duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. Such Seller is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Ef- fect. (ii) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by such Seller of this Agreement are within such Seller's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except for the filing of UCC financing statements as re- quired by this Agreement), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of such Seller or of any agreement, judgment, injunction, order, writ, decree or other instrument binding upon such Seller or result in the creation or imposition of any Adverse Claim on the assets of such Seller or any of its Subsidiaries (except those created by this Agreement). (iii) Binding Effect. This Agreement will constitute the legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, subject to appli- cable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (iv) Perfection. On or prior to the date of each sale of Receivables pursuant to this Agreement, all financing statements and other documents required to be recorded or filed in order to perfect and protect the ownership interest of the Purchaser in and to the Receivables against all creditors of and purchasers from such Seller will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (v) Accuracy of Information. All information heretofore furnished by such Seller to the Purchaser, the Agent, Enterprise and any Bank Investor for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by such Seller to the Purchaser, the Agent, Enterprise and any Bank Investor will be, true and accu- rate in every material respect, on the date such information is stated or certified. (vi) Tax Status. Such Seller has filed all material tax re- turns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (vii) Action, Suits. Except as set forth in this Agreement, there are no actions, suits or proceedings pending, or to the knowledge of such Seller threatened, against or affecting such Seller or any Affiliate of such Seller or their respective proper- ties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (viii) Place of Business. The principal place of business and chief executive office of such Seller is located at 3455 Highway 80 West, Jackson, Mississippi 39209, and the offices where such Seller keeps all its Records, are located at the address(es) described on Exhibit C hereto or such other locations notified to the Purchaser in accordance with this Agreement in jurisdictions where all action required by the terms of this Agreement has been taken and completed. (ix) Good Title. Upon the sale of the Receivables and relat- ed property to the Purchaser pursuant to this Agreement, the Purchaser shall acquire a valid and perfected first priority owner- ship interest in each Receivable (and in the Related Security, Col- lections and Proceeds with respect thereto) that exists on the date of this Agreement and in each Receivable thereafter owned by such Seller and in the Related Security, Collections and Proceeds with respect thereto until the Termination Date in each case free and clear of any Adverse Claim. (x) Tradenames, Etc. As of the date hereof: (i) Parisian, Inc.'s chief executive office is located at the address for notices set forth in Section 9.3; (ii) Parisian, Inc. has only the subsid- iaries and divisions listed on Exhibit D attached hereto; and (iii) Parisian, Inc. has, within the last five (5) years, operated only under the tradenames identified in Exhibit D attached hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bank- ruptcy), except as disclosed in Exhibit D attached hereto. (xi) Nature of Receivables. Each Receivable (x) represented by such Seller to be an Eligible Receivable, or (y) included in the calculation of the Net Receivables Balance in fact satisfies at such time the definition of "Eligible Receivable" set forth in the Transfer Agreement and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act of 1940, as amended. (xii) [Reserved] (xiii) Credit Guidelines. Since January 16, 1997, there have been no material changes in the Parisian Credit Guidelines other than as permitted hereunder and under the Transfer Agreement. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (xiv) Collections and Servicing. Since January 16, 1997, there has been no material adverse change in the ability of Parisian, Inc. to service and collect the Receivables. (xv) Not an Investment Company. Such Seller is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (xvi) ERISA. Each of Parisian, Inc. and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (xvii) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit C to the Transfer Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Purchaser and the Agent and for which Lock-Box Agreements have been executed in accordance with Section 2.8(b) of the Transfer Agreement and delivered to such Servicer). All Obligors have been instructed to make payment to a Lock-Box Account and only Collections are deposited into the Lock-Box Accounts. (xviii) Bulk Sales. No transaction contemplated by this Agreement requires compliance with any bulk sales act or similar law. (xix) Preference; Voidability. Parisian, Inc. warrants that the conveyance of the applicable Receivables and Collections and Related Security from Parisian Services, Inc. to the Purchaser shall not have been made for or on account of an antecedent debt owed by Parisian, Inc. to the Purchaser and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. SECTION 4.2. Reaffirmation of Representations and Warranties by Parisian, Inc.; Notice of Breach. On each sale date, Parisian, Inc., by accepting the proceeds of such sale, shall be deemed to have certi- fied that (i) all representations and warranties described in Section 4.1(a) regarding any Receivables are true and correct on and as of such day as though made on and as of such day and (ii) all representations and warranties described in Section 4.1(b) are true and correct on and as of such day as though made on and as of such day. The representa- tions and warranties set forth in Section 4.1 shall survive the convey- ance of the Receivables to the Purchaser, and termination of the rights and obligations of the Purchaser and the Sellers under this Agreement. Upon discovery by the Purchaser or either of the Sellers of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others within three Business Days of such discovery. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE V COVENANTS OF THE SELLER SECTION 5.1. Covenants of Each Seller. Each Seller hereby jointly and severally covenants and agrees with the Purchaser that, for so long as this Agreement is in effect, and until all Receivables, an interest in which has been sold to the Purchaser pursuant hereto, shall have been paid in full or written-off as uncollectible, and all amounts owed by such Seller pursuant to this Agreement have been paid in full, unless the Purchaser otherwise consents in writing: (a) Conduct of Business. The Seller will, and will cause each of its Subsidiaries to, carry on and conduct its business in sub- stantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (b) Compliance with Laws. The Seller will, and will cause each of its Subsidiaries to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its properties may be subject. (c) Furnishing of Information and Inspection of Records. The Seller will furnish to the Purchaser from time to time such information with respect to the Receivables as the Purchaser may reasonably request, including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Seller will at any time and from time to time during regular business hours permit the Purchaser, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Seller for the purpose of examining such Records, and to discuss matters relating to Receivables or the Seller's perfor- mance hereunder with any of the officers, directors, employees or inde- pendent public accountants of the Seller having knowledge of such mat- ters. (d) Keeping of Records and Books of Account. The Seller will maintain a system of accounting established and administered in accordance with generally accepted accounting principles, consistently applied, and will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collec- tion of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Seller will give the Purchaser and the Agent notice of any material change in the administrative and operating procedures of the Seller referred to in the previous sentence. (e) Performance and Compliance with Receivables and Accounts. The Seller at its expense will timely and fully perform and comply with all material provisions, covenants and other promises required to be ob- served by it under the Accounts related to the Receivables. (f) Credit and Collection Policies. The Seller will comply in all material respects with the Parisian Credit Guidelines in regard to each Receivable and the related Account. (g) Collections. The Seller shall instruct all Obligors to cause all Collections to be deposited directly to a Lock-Box Account. (h) Collections Received. The Seller shall hold in trust, and deposit, immediately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to a Lock-Box Account all Collections received from time to time by the Seller. (i) Sale Treatment. The Seller agrees to treat this conveyance for all purposes (including, without limitation, tax and financial accounting purposes) as a sale and, to the extent any such reporting is required, shall report the transactions contemplated by this Agreement on all relevant books, records, tax returns, financial statements and other applicable documents as a sale of the Receivables to the Purchaser. (j) ERISA. The Seller shall promptly give the Purchaser written notice upon becoming aware that the Seller or any of its Subsidiaries is not in compliance in all material respects with ERISA or that any ERISA lien on any of the Receivables exists. SECTION 5.2. Negative Covenants of the Seller. During the term of this Agreement, unless the Agent and the Purchaser shall otherwise consent in writing, each Seller jointly and severally agrees with and covenants to the Purchaser as follows: (a) No Sales, Liens, Etc. Except as otherwise provided herein, the Seller will not sell, assign (by operation of law or other- wise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (x) any of the Receivables, the Related Security or Collections, (y) any goods (other than inventory), the sale of which may give rise to any Re- ceivable, Related Security or Collections (subject, in each case with respect to Related Security constituting returned inventory, to the applicable provisions of Section 9-306 of the Relevant UCC) or (z) upon or with respect to any account which concentrates in a Lock-Box Bank (including any Lock-Box Account) to which any Collections of any Receiv- able are sent, or, in each case, assign any right to receive income in respect thereof. The Seller shall, and will cause each of its Subsid- iaries to, specifically exclude from the property subject to any Adverse Claim granted on inventory any and all accounts receivable generated by sales of such inventory and the proceeds thereof and shall provide, upon the Purchaser's request, evidence satisfactory to the Purchaser that any such Adverse Claim (and each related UCC financing statement or other related filing) expressly excludes any such accounts receivable. The Seller will provide the Purchaser and the Agent with a copy of any inventory financing agreement at least three Business Days prior to the effectiveness thereof. (b) No Extension or Amendment of Receivables. The Seller will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto, except as provided in Sections 5.2 and 6.2 of the Transfer Agreement. (c) No Change in Business or Parisian Credit Guidelines. Except as provided in the Transfer Agreement, the Seller will not make any change in the character of its business or in the Parisian Credit Guidelines, which change might, in either case, impair the collectability of any substantial portion of the Receivables or other- wise result in a Material Adverse Effect. (d) Change in Payment Instructions to Obligors. The Seller will not add or terminate, or make any change to, any Lock-Box Account, except in accordance with the Transfer Agreement. (e) Deposits to Lock-Box Accounts. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account, cash or cash proceeds other than Collections of Receivables. (f) Change of Name, Etc. The Seller shall not change its name, identity or structure or location of its chief executive office, unless at least ten (10) days prior to the effective date of any such change the Seller delivers to the Purchaser and the Agent (i) such docu- ments, instruments or agreements, including, without limitation, appropriate financing statements under the Relevant UCC, executed by the Seller necessary to reflect such change and to continue the perfection of the Purchaser's and any assignee's interest in the Receivables and (ii) new or revised Lock-Box Agreements which reflect such change and enable the Agent to exercise its rights under Section 2.8 of the Trans- fer Agreement; provided, however, that Parisian Services, Inc. may merge with and into Parisian, Inc. without further action on the Sellers' part except for the execution and delivery to the Agent of all necessary termination agreements, quit claims and releases or the filing of any necessary financing statements reflecting the assignments of Parisian Services, Inc's interest in Receivables to Parisian, Inc., the Purchaser or to the Agent, as appropriate. (g) Separate Business. Each of the Sellers shall not: (i) fail to maintain separate books, financial statements, accounting records and other corporate documents from those of the Purchaser, (ii) commingle any of its assets or the assets of any of its Affiliates with those of the Purchaser, (iii) pay from its own assets any obligation or indebtedness of any kind incurred by the Purchaser, (iv) directly, or through any of its Affiliates, borrow funds or accept credit or guaranties from the Purchaser except pursuant to this Agreement in con- nection with the purchase of the Receivables. SECTION 5.3. Indemnification. Parisian, Inc. agrees to indemnify, defend and hold the Purchaser harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which the Purchaser or any assignee thereof may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon a breach by a Seller of its representations, warranties and covenants contained herein, or any information certified in any schedule or certificate delivered by a Seller hereunder, being untrue in any material respect at any time. The obligations of Parisian, Inc. under this Section 5.3 shall be considered to have been relied upon by the Purchaser, Enterprise and the Agent and shall survive the execution, delivery, per- formance and termination of this Agreement, regardless of any investi- gation made by the Purchaser, Enterprise or the Agent or on behalf of any of them. ARTICLE VI REPURCHASE OBLIGATION SECTION 6.1. Mandatory Repurchase. (a) Breach of Warranty. If on any day any Receivable, which has been sold by the Sellers hereunder and which has been reported by the Sellers as an Eligible Receivable, shall fail to meet the conditions set forth in the definition of "Eligible Receivable" (except to the extent such conditions expressly relate to an earlier date) or for which any representation or warranty made herein in respect of such Receivable shall no longer be true, Parisian, Inc. shall be deemed to have received on such day a Collection of such Receivable in full and shall on such day pay to the Purchaser an amount equal to the aggregate Outstanding Principal Balance of such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to Parisian, Inc. as Seller on the next occurring Purchase Date, unless Parisian, Inc. is required to make a payment in respect of such breach pursuant to the Transfer Agreement. (b) Reconveyance Under Certain Circumstances. Parisian, Inc. agrees that, with respect to any Receivable sold hereunder, in the event of a breach of any of the representations and warranties set forth in Sections 4.1(a)(v) or 4.1(b)(v), 4.1(a)(vii) or 4.1(b)(vii), 4.1(a)(viii) or 4.1(b)(viii), 4.1(b)(x), 4.1(a)(xii), 4.1(a)(xiii) or 4.1(b)(xv), 4.1(a)(xiv) or 4.1(b)(xvi) or 4.1(a)(xv) or 4.1(b)(xvii), the Seller shall accept the reconveyance of such Receivable upon receipt by the Seller of notice given in writing by the Purchaser and the Seller's failure to cure such breach within thirty (30) days (or, in the case of representations and warranties found in Sections 4.1(a)(iv) or 4.1(b)(iv) or 4.1(a)(ix) or 4.1(b)(ix), within three (3) days) of such notice. In the event of a reconveyance under this Section 6.1(b), Parisian, Inc. shall pay to the Purchaser in immediately available funds on such 30th day (or third day, if applicable) an amount equal to the Outstanding Principal Balance of any such Receivable; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to Parisian, Inc. as Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 2. Dilutions, Etc. Parisian, Inc. agrees that if on any day the Outstanding Principal Balance of a Receivable sold by a Seller hereunder is either (x) reduced as a result of any defective, re- jected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or can- celed as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transac- tion or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, then Pari- sian, Inc. as Seller shall be deemed to have received on such day a col- lection of such Receivable in the amount of such reduction, cancellation or payment made by the Obligor and shall on such day pay to the Purchaser an amount equal to such reduction or cancellation; provided that, prior to the Termination Date, such amount may be paid by a reduc- tion in the Purchase Price paid to Parisian, Inc. on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Transfer Agreement. SECTION 3 No Recourse. Except as otherwise provided in this Article VI, the purchase and sale of the Receivables under this Agreement shall be without recourse to the Sellers. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE VII CONDITIONS PRECEDENT SECTION 1 Conditions to the Purchaser's Obligations Regarding Receivables. The obligations of the Purchaser to purchase the Receivables on the Closing Date and any Purchase Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the Sellers con- tained in this Agreement shall be true and correct on the Closing Date and all representations and warranties of Parisian, Inc. contained herein shall be true and correct on each Purchase Date thereafter with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Receivables provided to the Purchaser shall be true and correct in all material respects as of the Closing Date, in the case of any Receivables existing on the Closing Date, or the Purchase Date, in the case of any Receivables created after the Closing Date; (c) The Sellers shall have substantially performed all other obligations required to be performed by the provisions of this Agree- ment; (d) The Sellers shall have filed or caused to be filed the financing statement(s) required to be filed pursuant to Section 2.1(b); (e) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Purchaser, and the Purchaser shall have received from the Seller copies of all documents (including, without limitation, records of corporate proceedings) relevant to the transactions herein contemplated as the Purchaser may reasonably have requested; (f) On the Closing Date, the Sellers shall deliver to the Purchaser and the Agent a Cycle Certificate as of the Parisian Cut-Off Date; (g) On or before the Closing Date, the Sellers shall have delivered to the Purchaser and the Agent evidence of termination of that certain Receivables Purchase Agreement, dated as of March 31, 1993 between Parisian Services, Inc., as seller, Sheffield Receivables Corporation, as purchaser, The Bank of Nova Scotia, as the agent and Barclays Bank PLC, New York Branch, as the administrative agent and managing agent thereunder, as such agreement has been amended, supplemented and modified to the Effective Date (together with all related documents and agreements, the "Sheffield Facility"), such agreements, documents and instruments as are necessary and appropriate to reflect the termination of the Sheffield Facility, including without limitation, the termination of the Second Amended and Restated Financing and Collection Agency Agreement, and the release of all liens and security interests of all secured parties holding an interest in Receivables arising under or related thereto. The foregoing agreements, documents, and instruments shall include, but not be limited to, each originally executed note or instrument executed on behalf of a Seller and payable to a transferor of accounts receivables purporting to represent an outstanding obligation of such Seller arising in connection with the acquisition of any Receivable, a payoff letter setting forth the pay-off amount, a release agreement and UCC-3 termination state- ments, each in form and substance reasonably satisfactory to the Agent; and (h) On or before the Closing Date, Parisian, Inc. shall have delivered to the Purchaser and the Agent satisfactory evidence of having executed and delivered for filing with the offices of the applicable Secretaries of State of, that certain merger agreement pursuant to which Parisian of Tennessee, Inc. and Hess Specialty Department Store, merged with and into Parisian, Inc., with Parisian, Inc. surviving the merger and assuming thereby all of the rights, obligations and liabilities of each constituent entity to such merger. (i) On or before the Closing Date, Parisian, Inc. shall have delivered to the Purchaser and the Agent evidence satisfactory to the Agent and its counsel that (i) no further action is required or shall be necessary to satisfy this or any other conditions precedent to this Re- ceivables Purchase Agreement and (ii) but for the filing with the applicable offices of the Secretaries of State of the Articles of Merger and the Plan of Merger of Parisian Services, Inc. with and into Pari- sian, Inc., whereby Parisian, Inc. will succeed to all of the rights and obligations of Parisian Services, Inc., no further action is required or shall be necessary in order for the merger of Parisian Services, Inc. with and into Parisian, Inc. to be effective. ARTICLE VIII TERM AND TERMINATION SECTION 8.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date desig- nated by the Purchaser or Parisian, Inc. as Seller as the termination date at any time following sixty (60) day's written notice to the other (with a copy thereof to the Agent), (ii) the date on which the Agent declares a Termination Date pursuant to Section 7.2 of the Transfer Agreement, (iii) the day on which a Reinvestment Termination Date shall occur under the Transfer Agreement unless the Transferred Interest shall have been assigned (or concurrently is so assigned) to the Bank In- vestors under Section 10.7 of the Transfer Agreement, (iv) upon the occurrence of an Event of Bankruptcy with respect to either the Pur- chaser or either of the Sellers, (v) the close of business on the third Business Day following a conveyance of Receivables to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, (vi) the occurrence of a Parisian Termination Event, (vii) the failure to complete and consummate the merger of Parisian Services, Inc. with and into Parisian, Inc. on or before the third Business Day following the Closing Date, or (viii) the date on which either the Purchaser or Parisian, Inc., as a Seller, becomes unable for any reason to purchase or re-purchase any Receivable in accordance with the provisions of this Agreement or defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice (any such date being a "Termina- tion Date"); provided, however, that the termination of this Agreement pursuant to this Section 8.1 hereof shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any payments with respect to the interest of the Purchaser in any Receivable sold prior to such termina- tion. SECTION 8.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 8.1, the Sellers shall not sell, and the Purchaser shall not purchase, any Receivables. No termination or rejection or failure to assume the executory obligations of this Agreement in any Event of Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including, without limitation, pre-termination breaches of representations and warranties by the Sellers or the Purchaser. Without limiting the fore- going, prior to termination, the failure of the Sellers to deliver computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Article V or Section 9.1 of this Agreement render an executed sale executory. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and each Seller then in existence and consented to in writing by the Agent. Any reconveyance executed in accordance with the provisions hereof shall not be con- sidered amendments to this Agreement. SECTION 9.2. GOVERNING LAW; Submission to Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI. (b) The parties hereto hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in The City of New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect the right of the Purchaser to bring any other action or proceeding against the Seller or its property in the courts of other jurisdictions. SECTION 9.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 9.3 and confirmation is received, (ii) if given by mail three Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 9.3. (a) in the case of the Purchaser: Proffitt's Credit Corporation 300 South Fourth Street, Suite 1100 Las Vegas, Nevada 89101 Attn: Douglas E. Coltharp, President Telephone: (702) 598-3738 Telecopy: (702) 598-3651 with a copy to: Proffitt's Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer with an additional copy to: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-10-07 Charlotte, NC 28255 Attention: Michelle M. Heath NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 (b) in the case of the Sellers: Parisian, Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354] Attn: Douglas E. Coltharp Executive Vice President, Chief Financial Officer and Treasurer Parisian Services, Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: James Glasscock Executive Vice President and Assistant Secretary (c) in the case of the Servicer: MCRAE'S, INC. 3455 Highway 80 West Jackson, Mississippi 39209 Telephone: (601) 968-4394 Telecopy: (601) 968-4354 Attn: Douglas E. Coltharp Executive Vice President and Chief Financial Officer (with a copy to each of Parisian, Inc. and Proffitt's, Inc.) or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. SECTION 9.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement or any other Conveyance Paper shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 9.5. Assignment. This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Transfer Agreement to the Agent, for the benefit of Enterprise and the Bank Investors, and that Enterprise may assign any or all of its rights to any Liquidity Provider. The Purchas- er hereby notifies (and the Sellers hereby acknowledge that) the Pur- chaser, pursuant to the Transfer Agreement, has assigned its rights hereunder to the Agent. All rights of the Purchaser hereunder may be exercised by the Agent or its assignees, to the extent of their respective rights pursuant to such assignments. SECTION 9.6. Further Assurances. The Purchaser and the Sellers agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Sellers or the Agent, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, reme- dies, powers and privilege provided by law. SECTION 9.8. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9.9. Binding Effect; Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, and any Liquidity Provider is intended by the parties hereto to be a third-party benefi- ciary of this Agreement. SECTION 9.10. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire under- standing of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. SECTION 9.11. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. SECTION 9.12. Exhibits. The schedules and exhibits referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Purchaser, the Sellers and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. PARISIAN, INC., as Seller By: Name: Title: PARISIAN SERVICES, INC., as Seller By: Name: Title: PROFFITT'S CREDIT CORPORATION, as Purchaser By: Name: Title: MCRAE'S, INC., as Servicer By: Name: Title: Acknowledged and agreed as of the date first above written: ENTERPRISE FUNDING CORPORATION By:_____________________________ Name: Title: NATIONSBANK, N.A., as Agent By:_____________________________ Name: Title: EXHIBIT A [FORM OF MONTHLY REPORT] EXHIBIT B FORM OF SUBORDINATED NOTE Number 1 $__________________ January __, 1997 FOR VALUE RECEIVED, the undersigned, PROFFITT'S CREDIT CORPORATION, a Nevada corporation (the "Maker"), hereby promises to pay to the order of PARISIAN, INC. (the "Payee"), on _________, ____ or earlier as provided for in the Receivables Purchase Agreement dated as of the date hereof between the Maker and the Payee (as such agreement may from time to time be amended, supplemented or otherwise modified and in effect, the "Receivables Purchase Agreement"), the lesser of the principal sum of ________ Million Dollars ($__,000,000.00) or the aggre- gate unpaid principal amount of all Advances to the Maker from the Payee pursuant to the terms of the Receivables Purchase Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date thereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate per annum set forth in the Receivables Purchase Agreement and shall be payable in arrears on the first day of each calendar month (or if any such day is not a Business Day, on the succeeding Business Day). The Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Subordinated Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continua- tion thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not in any manner affect the obligation of the Maker to make payments of principal and interest in accordance with the terms of this Subordinated Note and the Receivables Purchase Agreement. This Subordinated Note represents the indebtedness of the Maker described in Section 3.2 of the Receivables Purchase Agreement, including the assumption by the Maker and the amendment and restatement of the aggregate outstanding indebtedness under those certain promissory notes of Parisian Services, Inc. (to be canceled in exchange herefor) each dated July 31, 1995 made payable to the order of (x) Parisian, Inc., (y) Parisian of Tennessee, Inc. and (z) Hess Specialty Department Store, Limited Liability Company (the successor in interest to Hess Spe- cialty Department Store, Inc.). The Maker shall have the right to prepay and, subject to the limitations set forth in the Receivables Purchase Agreement, reborrow Advances made to it without penalty or premium. This Subordinated Note is the Subordinated Note referred to in the Receivables Purchase Agreement, which, among other things, contains provisions for the subordination of this Subordinated Note to the rights of certain parties under the Transfer Agreement, all upon the terms and conditions therein specified. This Note shall be governed by, and construed in accordance with, the laws of the State of Mississippi. PROFFITT'S CREDIT CORPORATION By: Name: Title: Advances and Payments
Amount of Payments Unpaid Principal Name of Person Date Advance Principal/Interest Balance of Note Making Notation 1/30/97 N/A N/A Amount of N/A Promissory Note [AS BALANCE FORWARD] EXHIBIT C LOCATION OF RECORDS, PRINCIPAL PLACE OF BUSINESS, ETC. Parisian Services, Inc. Principal Place 750 Lakeshore Drive of Business: Birmingham, Alabama 35211 Location of Records: 750 Lakeshore Drive Birmingham, Alabama 35211 Parisian, Inc. Principal Place 3455 Highway 80 West of Business: Jackson, Mississippi 39209 Location of Records: 3455 Highway 80 West Jackson, Mississippi 39209 750 Lakeshore Drive Birmingham, Alabama 35211 EXHIBIT D TRADENAMES, ETC. Parisian Services, Inc. is the wholly-owned subsidiary of Parisian, Inc.
EX-10 8 EXHIBIT 10.35 ==================================================================== AMENDMENT NO. 2 Dated as of February 1, 1997 to POOLING AND SERVICING AGREEMENT Dated as of June 13, 1995 By and Between YOUNKERS CREDIT CORPORATION, Seller, PROFFITT'S, INC., successor-by-merger to Younkers, Inc., Servicer, and THE CHASE MANHATTAN BANK, formerly known as Chemical Bank, Trustee ===================================================================== AMENDMENT NO. 2 This AMENDMENT NO. 2 dated as of February 1, 1997 (this "Amendment") is among YOUNKERS CREDIT CORPORATION, a Delaware corporation (the "Seller"), PROFFITT'S, INC, a Tennessee corporation and successor-by-merger to Younkers, Inc., a Delaware corporation (the "Servicer"), and THE CHASE MANHATTAN BANK, formerly known as Chemical Bank, as Trustee (the "Trustee") under the Pooling and Servicing Agreement dated as of June 13, 1995 among the Seller, the Servicer and the Trustee (the "Agreement"). W I T N E S S E T H: WHEREAS, the parties hereto are parties to the Agreement (capitalized terms used and not otherwise defined herein shall be defined as they are defined in the Agreement); WHEREAS, the Seller, the Servicer and the Trustee are authorized by Section 13.1(b) of the Agreement to enter into this Amendment; and NOW, THEREFORE, in consideration of the mutual promises contained herein, in the Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments to the Agreement 1.1 The definition of "Recoveries" in Section 1.1 of the Agreement is amended in its entirety to read as follows: "'Recoveries' shall mean all amounts recorded as recoveries with respect to receivables (whether or not in respect of Accounts) arising under Charge Account Agreements that relate to "Younkers" credit cards and which have previously been charged off as uncollectible." 1.2 Section 2.5(o) of the Agreement is amended to add the following sentence at the end thereof: "Notwithstanding the foregoing, Seller may amend the provisions of its Certificate of Incorporation to reflect the merger of Younkers, Inc. with and into Proffitt's, Inc., a Tennessee corporation." 1.3 Section 8.7 is amended in its entirety to read as follows: "In the ordinary course of business, the Servicer may at any time delegate any duties hereunder to any other Person who agrees to conduct such duties in accordance with the Charge Account Guidelines. In addition, the Servicer may at any time delegate any or all of its duties hereunder to McRae's, Inc., a Mississippi corporation ("McRae's"), provided that McRae's agrees to conduct such duties in accordance with the Charge Account 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 8.5 hereof." Section 2. Amendment of UCC Financing Statements. The parties hereto agree that the UCC financing statements originally filed against Younkers, Inc., naming Seller as Purchaser/Secured Party and the Trustee as Assignee, may be amended to reflect the revised definition of "Recoveries" set forth above. Section 3. Representations and Warranties. Each of the Seller and the Servicer represents and warrants that: (a) Its execution, delivery and performance of this Amendment are within its corporate powers, have been duly authorized by all necessary corporate action and do not require any consent or approval which has not been obtained. (b) This Amendment and the Agreement as amended hereby are legal, valid and binding obligations of it enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. Section 3. Conditions Precedent. This Amendment shall become effective as of its date, provided that all of the following conditions are met: (a) This Amendment shall have been executed and delivered by the parties hereto; (b) the Servicer shall have provided an Officer's Certificate to the Trustee to the effect that (i) this Amendment will not materially and adversely affect the interests of any Certificateholder, (ii) the Servicer provided at least ten Business Days' prior written notice to each Rating Agency of this Amendment and received written confirmation from each Rating Agency to the effect that the rating of any Series rated by such Rating Agency will not be reduced or withdrawn as a result of this Amendment and (iii) all of the conditions precedent to the effectiveness of this Amendment have been satisfied; (c) the Seller and the Servicer shall have provided Opinions of Counsel to the Trustee to the effect that (i) this Amendment shall not cause the Trust to be characterized for Federal income tax purposes as an association taxable as a corporation or otherwise have any material adverse impact on the Federal income taxation of any outstanding Series of Investor Certificates or any Certificate Owner, and (ii) this Amendment complies with all the requirements of the Agreement. Section 4. Miscellaneous. (a) Applicability of the Agreement. In all respects not inconsistent with the terms and provisions of this Amendment, the provisions of the Agreement are hereby ratified, approved and confirmed. (b) Headings. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. (c) Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one and the same instrument. (d) Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. (e) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the sufficiency of this Amendment or for or in respect of the recitals contained herein, all of which recitals are made solely by the Seller and the Servicer. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. YOUNKERS CREDIT CORPORATION By:_______________________________ Name:____________________________ Title:___________________________ PROFFITT'S, INC. By: _____________________________ Name:____________________________ Title:___________________________ THE CHASE MANHATTAN BANK, as Trustee By: _____________________________ Name:____________________________ Title:___________________________ EX-10 9 EXHIBIT 10.43 G.R. HERBERGER'S, INC. 401(K) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN This instrument drafted by: Briggs and Morgan 2400 IDS Center Minneapolis, Minnesota 55402 TABLE OF CONTENTS ARTICLE I - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . .1 Section 1.1 Name of Plan and Trust . . . . . . . . . . . . . .1 Section 1.2 Purpose. . . . . . . . . . . . . . . . . . . . . .1 Section 1.3 Application to Employees Terminating After Effective Date . . . . . . . . . . . . . . . . . . . . .1 Section 1.4 Plan Maintained by More Than One Employer. . . . .1 Section 1.5 Background . . . . . . . . . . . . . . . . . . . .1 ARTICLE 11 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . .3 Section 2.1 Account. . . . . . . . . . . . . . . . . . . . . .3 Section 2.2 Acquisition Loan . . . . . . . . . . . . . . . . .3 Section 2.2A Actual Deferral Percentage ("ADP"). . . . . . . .3 Section 2.3 Beneficiary. . . . . . . . . . . . . . . . . . . .3 Section 2.4 Board of Directors . . . . . . . . . . . . . . . .3 Section 2.5 Break in Service . . . . . . . . . . . . . . . . .3 Section 2.6 Code . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.7 Compensation . . . . . . . . . . . . . . . . . . 4 Section 2.8 Controlled Group . . . . . . . . . . . . . . . . .5 Section 2.9 Effective Date . . . . . . . . . . . . . . . . . .5 Section 2.9A Elective Deferrals or Elective Deferral Contributions. . . . . . . . . . . . . . . . . . . . . .5 Section 2.10 Employee. . . . . . . . . . . . . . . . . . . . .6 Section 2.11 Employer . . . . . . . . . . . . . . . . . . . .6 Section 2.12 Employer Stock. . . . . . . . . . . . . . . . . .6 Section 2.13 Employment Year . . . . . . . . . . . . . . . . .6 Section 2.14 ERISA . . . . . . . . . . . . . . . . . . . . . .6 Section 2.14A Excess Contributions. . . . . . . . . . . . . . .6 Section 2.14B Excess Elective Deferrals . . . . . . . . . . . .6 Section 2.15 Fair Market Value Per Share . . . . . . . . . . .7 Section 2.16 Fiduciary . . . . . . . . . . . . . . . . . . . .7 Section 2.17 Financed Shares . . . . . . . . . . . . . . . . .7 Section 2.18 Forfeitures . . . . . . . . . . . . . . . . . . .7 Section 2.19 Highly Compensated Employee . . . . . . . . . . .7 Section 2.20 Hour of Service . . . . . . . . . . . . . . . . 10 Section 2.21 Limitation Year . . . . . . . . . . . . . . . . 10 Section 2.22 Non-Highly Compensated Employee . . . . . . . . 11 Section 2.23 Normal Retirement Age . . . . . . . . . . . . . 11 Section 2.24 Parental Absence. . . . . . . . . . . . . . . . 11 Section 2.25 Participant . . . . . . . . . . . . . . . . . . 11 Section 2.26 Plan. . . . . . . . . . . . . . . . . . . . . . 12 Section 2.27 Plan Administrator. . . . . . . . . . . . . . . 12 Section 2.28 Plan Year . . . . . . . . . . . . . . . . . . . 12 Section 2.29 Sponsor . . . . . . . . . . . . . . . . . . . . 12 Section 2.30 Trust . . . . . . . . . . . . . . . . . . . . . 12 Section 2.31 Trust Fund. . . . . . . . . . . . . . . . . . . 12 Section 2.32 Trustee . . . . . . . . . . . . . . . . . . . . 12 Section 2.33 Valuation Date. . . . . . . . . . . . . . . . . 12 Section 2.34 Year of Service . . . . . . . . . . . . . . . . 12 Section 2.35 Year of Service for Participation . . . . . . . 12 Section 2.36 Year of Service for Vesting . . . . . . . . . . 13 ARTICLE III - ELIGIBILITY AND PARTICIPATION. . . . . . . 14 Section 3.1 Eligibility for Participation. . . . . . . . . . 14 Section 3.2 Eligibility Computation Periods. . . . . . . . . 14 Section 3.3 Participation Upon Reemployment. . . . . . . . . 14 Section 3.4 Participation After Normal Retirement Age. . . . 15 Section 3.5 Collective Bargaining Agreement. . . . . . . . . 15 ARTICLE IV - CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 16 Section 4.1 Employer ESOP Contribution . . . . . . . . . . . 16 Section 4.1A Employer Contributions Pursuant to Participant Elective Deferral Agreement . . . . . . . . 16 Section 4.2 Time of Payment and Form of Contribution . . . . 18 Section 4.3 Allocation of Employer ESOP Contribution . . . . 18 Section 4.4 Allocation of Forfeitures. . . . . . . . . . . . 20 Section 4.5 Advance Employer Contributions . . . . . . . . . 20 Section 4.6 Limitations on Allocations . . . . . . . . . . . 20 Section 4.7 Defined Benefit and Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.8 No Contributions by Participants . . . . . . . . 23 Section 4.9 Make-Up Contributions for Omitted Participants. . . . . . . . . . . . . . . . . . . . . . 23 Section 4.10 Exclusive Benefit; Refund of Employer Contribution. . . . . . . . . . . . . . . . . . . . . . 24 Section 4.11 Dividends . . . . . . . . . . . . . . . . . . . 25 Section 4.12 Rollover Contributions. . . . . . . . . . . . . 26 Section 4.13 Non-Discrimination Requirements . . . . . . . . 26 Section 4.14 Elective Deferral Accounts. . . . . . . . . . . 29 ARTICLE V - DETERMINATION OF VALUE OF PARTICIPANT'S ACCOUNTS . 30 Section 5.1 Trust Fund and Allocation of Earnings. . . . . . 30 Section 5.2 Determination of Market Value. . . . . . . . . . 30 Section 5.3 Diversification of Investments . . . . . . . . . 30 ARTICLE VI - RETIREMENT AND OTHER TERMINATION OF PARTICIPATION; VESTING. . . . . . . . . . . . . . . . . . . . 32 Section 6.1 Full Vesting: Retirement, Death or Disability. . 32 Section 6.2 Other Termination of Employment: Participant's Vested Percentage . . . . . . . . . . . . 32 Section 6.3 Vesting Upon Termination of the Plan . . . . . . 33 Section 6.4 Forfeiture of Nonvested Benefit. . . . . . . . . 33 Section 6.5 Computation of Years of Service and Breaks in Service. . . . . . . . . . . . . . . . . . . . . . . 34 Section 6.6 Years of Service . . . . . . . . . . . . . . . . 35 Section 6.7 Forfeiture Due to Discharge of Employment for Cause . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VII - PARENTAL ABSENCE PROVISIONS. . . . . . . . . . . . . . 37 Section 7.1 Effective Date of Article VII. . . . . . . . . . 37 Section 7.2 Hours of Service Credited for Parental Absence . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.3 Plan Years to Which Hours of Service are Credited. . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.4 Information to Plan Administrator. . . . . . . . 37 ARTICLE VIII - DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 38 Section 8.1 Time of Distribution . . . . . . . . . . . . . . 38 Section 8.2 Manner of Distribution . . . . . . . . . . . . . 40 Section 8.3 Form of Distribution . . . . . . . . . . . . . . 41 Section 8.4 Required Distribution After Death. . . . . . . . 41 Section 8.5 Put Option . . . . . . . . . . . . . . . . . . . 42 Section 8.6 Right of First Refusal . . . . . . . . . . . . . 43 Section 8.7 Distribution Prior to a Five Consecutive Breaks in Service; Restoration of Forfeited Account . . 45 Section 8.8 Reemployment After Distribution Has Been Made or Commenced . . . . . . . . . . . . . . . . . . . 46 Section 8.9 Designation of Beneficiaries . . . . . . . . . . 46 Section 8.10 Minors and Persons Under Legal Disability . . . 47 Section 8.11 Interest of Persons Who Cannot Be Located . . . 47 Section 8.12 Non-alienation of Benefits. . . . . . . . . . . 48 Section 8.13 Distribution Upon Attaining Age 59. . . . . . . 48 Section 8.14 Distribution Due to Hardship. . . . . . . . . . 48 Section 8.15 Direct Rollovers. . . . . . . . . . . . . . . . 51 ARTICLE IX - TOP-HEAVY PLAN PROVISIONS . . . . . . . . . . . . . . . 53 Section 9.1 Definitions. . . . . . . . . . . . . . . . . . . 53 Section 9.2 Determination of Top-Heavy . . . . . . . . . . . 55 Section 9.3 Minimum Contribution . . . . . . . . . . . . . . 56 Section 9.4 Limitation on Compensation Taken Into Account . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.5 Vesting for Top-Heavy Plan . . . . . . . . . . . 57 Section 9.6 Combined Plan Limitations. . . . . . . . . . . . 57 ARTICLE X - PLAN ADMINISTRATION. . . . . . . . . . . . . . . . . . . 58 Section 10.1 Employer Responsibility . . . . . . . . . . . . 58 Section 10.2 Powers and Duties of the Plan Administrator . . 58 Section 10.3 Records and Reports of the Plan Administrator . 59 Section 10.4 Plan Administrative Committee . . . . . . . . . 59 Section 10.5 Organization and Operation of the Plan Administrative Committee. . . . . . . . . . . . . . . . 59 Section 10.6 Compensation and Responsibility for Payment of Expenses of the Plan Administrator . . . . . 60 Section 10.7 Indemnity of Plan Administrator or Plan Administrative Committee Members. . . . . . . . . . . . 60 Section 10.8 Claims Procedure. . . . . . . . . . . . . . . . 60 Section 10.9 Voting Rights . . . . . . . . . . . . . . . . . 61 Section 10.10 Bonding. . . . . . . . . . . . . . . . . . . . 62 ARTICLE XI - PLAN LOANS. . . . . . . . . . . . . . . . . . . . . . . 63 Section 11.1 Plan Loans. . . . . . . . . . . . . . . . . . . 63 ARTICLE XII - QUALIFIED DOMESTIC RELATIONS ORDERS. . . . . . . . . . 64 Section 12.1 Permissible Assignment. . . . . . . . . . . . . 64 Section 12.2 Definitions . . . . . . . . . . . . . . . . . . 64 Section 12.3 Notification. . . . . . . . . . . . . . . . . . 65 Section 12.4 Disposition of Disputed Funds . . . . . . . . . 66 Section 12.5 Payment of Benefits . . . . . . . . . . . . . . 66 Section 12.6 Form of Payment . . . . . . . . . . . . . . . . 66 ARTICLE XIII - AMENDMENTS AND ACTION BY SPONSOR/EMPLOYER . . . . . . 67 Section 13.1 Amendments. . . . . . . . . . . . . . . . . . . 67 Section 13.2 Action by Sponsor/Employer. . . . . . . . . . . 67 Section 13.3 Plan Ceases to Constitute an ESOP . . . . . . . 67 ARTICLE XIV - SUCCESSOR SPONSOR AND MERGER OR CONSOLIDATION OF PLANS . . . . . . . . . . . . . . . . . . . . . . 68 Section 14.1 Successor Sponsor . . . . . . . . . . . . . . . 68 Section 14.2 Plan Assets . . . . . . . . . . . . . . . . . . 68 ARTICLE XV - PLAN TERMINATION. . . . . . . . . . . . . . . . . . . . 69 Section 15.1 Termination of Plan and Trust . . . . . . . . . 69 Section 15.2 Full Vesting. . . . . . . . . . . . . . . . . . 69 Section 15.3 Distribution of Trust Fund. . . . . . . . . . . 69 ARTICLE XVI - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 70 Section 16.1 Nonguaranty of Employment . . . . . . . . . . . 70 Section 16.2 Rights to Trust Assets. . . . . . . . . . . . . 70 Section 16.3 Word Usage. . . . . . . . . . . . . . . . . . . 70 ARTICLE I - INTRODUCTION Section 1.1 Name of Plan and Trust (a) The name of this Plan is the G. R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan. (b) The name of the Trust for the Plan is the G. R. Herberger's, Inc. Employee Stock Ownership Trust. Section 1.2 Purpose This Plan is intended to be a qualified stock bonus plan including a qualified 401(k) plan within the meaning of Code Section 401(k) and a qualified employee stock ownership plan within the meaning of Code Section 4975(e)(7). This Plan was established and is maintained for the exclusive purpose of providing benefits for the Employees of the Employer and their Beneficiaries, and to enable eligible Employees to acquire a proprietary interest in common stock of the Employer. This Plan is designed to invest primarily in Employer securities. The terms and provisions of this Plan and Trust are intended to conform to the requirements of Sections 401(a), 401(k) and 501(a) of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974 (ERISA). Section 1.3 Application to Employees Terminating After Effective Date The provisions of this Plan as amended and restated shall apply only to an Employee who terminates employment on or after the Effective Date unless otherwise provided herein. The rights and benefits, if any, of an Employee who terminated prior to the Effective Date shall be determined in accordance with the prior provisions of the Plan in effect on the date such Employee terminated employment. Section 1.4 Plan Maintained by More Than One Employer Upon written consent by the Board of Directors more than one Employer may adopt this Plan. Section 1.5 Background This Plan was first adopted effective January 1, 1967 as a profit sharing plan. The Plan was amended and restated, effective January 1, 1976, to conform to the requirements of ERISA. Such Plan and Trust were amended and restated, effective January 1, 1984, to conform to the requirements of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the Retirement Equity Act of 1984 (REA), and the Tax Reform Act of 1984 (TRA). Under the terms of the Profit Sharing Plan, the Employer has the ability to amend the Plan. Effective January 1, 1989, the Profit Sharing Plan was modified, amended and restated in its entirety to conform to the Tax Reform Act of 1986 (TRA '86), the Revenue Act of 1987, and the Tax and Miscellaneous Revenue Act of 1988. It is intended that the Plan be converted to an Employee Stock Ownership Plan effective December 31, 1989. ARTICLE II - DEFINITIONS Section 2.1 Account shall mean the entire interest of each Participant in the Trust.' The Trustee shall create and maintain a separate account for each Participant and shall credit thereto the amount of contributions to the Plan and all gains and losses allocable thereto. Within each Participant's Account, separate accountings shall be maintained for: (i) Elective Deferral Contributions, and (ii) Employer ESOP Contributions, if any, and all gains and losses thereon. That portion of a Participant's Account attributable to Elective Deferral Contributions shall be referred to as the Participant's Elective Deferral Account. Section 2.2 Acquisition Loan shall mean a loan (or other extension of credit) used by the Trust to finance the acquisition of Employer Stock, which loan may constitute an extension of credit to the Trust from a "party in interest" (as defined in ERISA Section 3(14)). Section 2.2A Actual Deferral Percentage ("ADP") shall mean, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group to the nearest one-hundredth of one percent) of the amount of Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to the Participant's Compensation, as defined under Section 2.7, for such Plan Year. Employer contributions on behalf of any Participant shall include: (i) any Elective Deferrals made pursuant to the Participant's Elective Deferral Agreement, including Excess Elective Deferrals of Highly-Compensated Employees, but excluding Excess Elective Deferrals of Non-Highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of this Employer. The actual deferral ratio for a Participant who fails to make Elective Deferrals is zero. For purposes of determining the deferral ratio of a Participant who is a five percent (5%) owner or one of the ten (10) most highly-paid Highly Compensated Employees, the deferral ratio and the Compensation of such Participant shall include the deferral ratio and the Compensation for the Plan Year of Family Members (as defined in Code Section 414(q)(6)). Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the deferral ratio both for Participants who are Non-Highly Compensated -and for Participants who are Highly Compensated Employees. Section 2.3 Beneficiary shall mean the person, persons or entity designated in accordance with the Plan to receive payments in the event of a Participant's death. Section 2.4 Board of Directors shall mean the Board of Directors of the Sponsor. Section 2.5 Break in Service shall mean a Plan Year in which an Employee or a Participant is credited with fewer than 501 Hours of Service with the Employer or a member of the Employer's Controlled Group. Section 2.6 Code shall mean the Internal Revenue Code of 1986, as amended. Section 2.7 Compensation shall mean a Participant's total earnings, wages, salaries, and fees for services and other amounts (without regard to whether or not the amount is paid in cash) received for services actually rendered in the course of employment with the Employer maintaining this Plan to the extent such amounts are includable in gross income. Compensation shall not include the following: (a) Reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation and welfare benefits. (b) Employer contributions to a deferred compensation plan to the extent that, before the application of the limitation under Code Section 415 to that plan, the contributions are not includable in the Employee's gross income for the taxable year in which contributed; Employer contributions under a SEP to the extent such contributions are deductible by the Employee are not includable in the Employee's gross income for the taxable year in which contributed; or any distribution from a deferred compensation plan, regardless of whether such amounts are includable in the gross income of the Employee when distributed. Notwithstanding the foregoing, Compensation shall include any amount that is deferred by a Participant pursuant to a salary deferral agreement with respect to which the Employer makes a contribution on behalf of a Participant and which is not includable in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h) or 403(b). (c) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. (d) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option. Compensation shall include only that compensation which is actually paid or made available to the Participant during the Plan Year. Compensation shall not be limited to the period of time during the Plan Year that an Employee is treated as a Participant. For Plan Years beginning after December 31, 1988, the Plan shall not take into account Compensation for any Participant in excess of $200,000. This limitation shall be adjusted by the Secretary of the Treasury at the same time and in the same manner as prescribed under Code Section 415(d) for cost of living increases, except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning in such calendar year and the first adjustment to the $200,000 limitation shall become effective on January 1, 1990. If Compensation for any prior Plan Year is taken into account in determining a Participant's allocations or benefits for the current Plan Year, the Compensation for such prior Plan Year is subject to the applicable Compensation in effect for that prior Plan Year. For this purpose, for Plan Years beginning before January 1, 1990, the applicable Compensation Limitation is $200,00. If the period for determining Compensation used in calculating a Participant's allocation for a Plan Year which is a short Plan Year (i.e., fewer than 12 months), the Compensation limitation shall be an amount equal to the $200,000 limitation (as adjusted for cost of living increases) multiplied by the fraction, the numerator of which is the number of months in the short Plan Year, and the denominator of which is 12 months. In determining the Compensation of a Participant, the family aggregation rules of Code Section 414(q)(6) shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If the aggregate Compensation for the family group exceeds $200,000 (as indexed), then the Compensation of each family member shall be proportionately reduced so the total equals $200,000 (as indexed)." Section 2.8 Controlled Group shall mean those entities which constitute a controlled group of corporations as defined in Code Section 414(b), trades or business under common control as defined in Code Section (c), or an affiliated service group as defined in Code Section 414(m), and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). Section 2.9 Effective Date shall mean January 1, 1989, the date on which the provisions of this amended and restated Plan became effective, unless noted elsewhere; provided however, it is intended that the provision relating strictly to the operation of this plan as an ESOP are effective December 31, 1989 and the provisions relating to its operation as a 401(k) plan are effective April 15, 1993. Section 2.9A Elective Deferrals or Elective Deferral Contributions shall mean any Employer contributions made to the Plan at the election of the Participant, in lieu of cash compensation, and shall include contributions made pursuant to a salary deferral agreement or other written deferral election. With respect to any taxable year of a Participant, a Participant's Elective Deferral is the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described under Code Section 501(c)(18), and any employer contributions made on the behalf of a Participant for the purchase of any annuity contract under Code Section 403(b) pursuant to a salary deferral agreement. Elective Deferrals shall not include any deferrals properly distributed as excess annual additions. Elective Deferrals made under this Plan, or any other qualified plan, shall be limited to the dollar amount in Code Section 402(g) as in effect at the beginning of such taxable year. Section 2.10 Employees shall mean any person employed by the Employer other than independent contractors. Employee shall include leased employees within the meaning of Code Section 414(n)(2) unless such leased employees constitute less than 20 percent of the Employer's nonhighly compensated Employees within the meaning of Code Section 414(n)(1)(C)(ii) and such leased employees are covered by a plan described in section 414(n)(5) of the Code. Section 2.11 Employer shall mean G.R. Herberger's, Inc., Fandel Company (a wholly-owned subsidiary of G. R. Herberger's, Inc.) and any successor entity thereto which adopts this Plan. Employer shall also include any other employer who, with the written consent of the Board of Directors, adopts this Plan. Section 2.12 Employer Stock shall mean shares of common stock of G.R. Herberger's, Inc. (or of a Controlled Group member) having, a combination of voting power and dividend rights equal to or in excess of any other class of common stock of G.R. Herberger's, Inc. (or of a Controlled Group member). Employer stock shall also include noncallable preferred stock if such stock is convertible at any time into common stock meeting the foregoing requirements. Section 2.13 Employment Year shall mean a consecutive twelve month period measured from an Employee's initial date of hire (or latest date of rehire if the Employee has terminated employment) or from any anniversary thereof An Employee's initial date of hire shall be the date on which the Employee first is credited with an Hour of Service. Section 2.14 ERISA shall mean the Employee Retirement Income Security Act of -1974 as enacted in P.L 93-406, including any amendments thereto. Section 2.14A Excess Contributions shall mean with respect to any Plan Year, the excess of: (a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (b) The maximum amount of such contributions for the Highly Compensated Employees permitted by the ADP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the ADP, beginning with the highest of such percentages). Section 2.14B Excess Elective Deferrals shall mean those Elective Deferrals that are includable in a Participant's gross income under Code Section 402(g) to the extent such Participant's Elective Deferrals for a taxable year exceed the dollar limitation under such Code Section. Determination of such Excess Elective Deferrals shall be made pursuant to Section 4.lA(f) of the Plan. Excess Elective Deferrals shall be treated as annual additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year. Section 2.15 Fair Market Value Per Share shall mean that value per share as determined by the Board of Directors, provided that in determining Fair Market Value Per Share the Board of Directors shall obtain and rely upon a valuation made by an independent appraiser, provided such appraiser satisfies requirements similar to those contained in the Regulations prescribed under Section 170(a)(1) of the Code. Section 2.16 Fiduciary shall mean the Employer, the Plan Administrator and the Trustee, or any other person who exercises any discretionary authority or discretionary control respecting the Plan or Trust, but only with respect to the specific responsibilities of each for the administration of the Plan and Trust. For the purposes of ERISA, the Sponsor shall be a Named Fiduciary and the Sponsor may from time to time appoint one or more additional named Fiduciaries. Section 2.17 Financed Shares shall mean shares of Employer Stock acquired by the Trust with the proceeds of an Acquisition Loan. (a) Allocated Financed Shares shall mean Financed Shares that have been released from the Shares Suspense Account and allocated to Participant Accounts. (b) Unallocated Financed Shares shall mean Financed Shares that are being held in the Shares Suspense Account. (c) Shares Suspense Account shall mean an account maintained by the Trustee wherein the Financed Shares are held until they are allocated to Participant Accounts. Section 2.18 Forfeitures shall mean the nonvested portion of a Participant's Account which may be reallocated to other Participants in accordance with Sections 4.4 and 6.4 hereof Section 2.19 Highly Compensated Employee shall mean: (a) Any Employee who at any time during such Plan Year or the preceding Plan Year, (1) Was a five percent (5%) owner of the Employer (as defined in Code Section 416(i)(1)); (2) Received more than $75,000 (or such greater amount as announced by the Secretary of Treasury to reflect cost of living increases), in annual compensation (as defined in Code Section 414(q)(7)) from the Employer; (3) Earned more than $50,000 (or such greater amount as announced by the Secretary of Treasury to reflect cost of living increases), in annual compensation from the Employer and was a member of the "top paid group" (as defined in Code Section 414(q)(4)) for such Plan Year; or (4) Was an officer of the Employer (within the meaning of Code Section 416(i)) and received compensation in excess of 50 percent of the amount in effect under Code Section 415(b)(1)(A) for the Plan Year. (i) If an Employer has no officers who meet the requirements of (4) above; the top paid officer will be treated as Highly Compensated, regardless of the level of compensation. (ii) In addition, in no event will an Employer have more than 50 officers (or, if less, the greater of three Employees or ten percent of the Employees) who are considered to be Highly Compensated Employees merely by reason of their status as officers. Only those 50 officers with the highest compensation will be affected. (iii) An Employee who was not Highly Compensated for the prior Plan Year will not be treated as Highly Compensated for the current Plan Year as a result of officer status, or of earning more than $50,000 or $75,000 (as adjusted for cost of living increases) unless the Employee is one of the top 100 Employees by compensation. (b) The definition of Highly Compensated Employee is made by taking into account total compensation as defined in Section 415 of the Code, and including elective deferrals and salary reduction contributions to a cafeteria arrangement. (c) The "top paid group" includes all active Employees who are in the top 20 percent of the Employer's workforce on the basis of compensation. (1) In determining the size of the top paid group (but not for identifying those Employees who may be part of the group), the following Employees shall be excluded: (i) Employees who have not completed six months of service; (ii) Employees who normally work less than 17 1/2 hours per week; (iii) Employees who normally work not more than six months a year; (iv) Employees who have not attained age 21; (v) Except to the extent provided in regulations, Employees who are covered in a unit of Employees covered by a collective bargaining agreement; and (vi) Employees who, are nonresident aliens with no U.S. source of income. (d) If an individual is a member of the family of a five percent (5%) owner or of a Highly Compensated Employee in the group consisting of the ten (10) Highly Compensated Employees paid the greatest compensation from the Employer during the Plan Year, then: (1) Such individual shall not be considered a separate Employee, and (2) Any compensation paid to such individual (and any applicable contribution on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the five (5%) percent owner or the Highly Compensated Employee. Family means, with respect to an Employee, such Employee's spouse and lineal ascendants or descendants. (e) A former Employee shall be treated as a Highly Compensated Employee if such Employee was a Highly Compensated Employee when he separated from service, or such Employee was a Highly Compensated Employee at any time after attaining age 55. (f) For purposes of determining the Employees who are Highly Compensated Employees, the Employer shall include the Employer's Controlled Group. Section 2.20 Hour of Service shall mean: (a) Each hour for which an Employee is paid, or entitled to payment, by the Employer for the performance of duties; (b) Each hour for which an Employee is paid, or entitled to payment by the Employer for a period of time during which no duties are performed (whether or not the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (but not in excess of 501 hours in any continuous period during which no duties are performed). A payment shall be deemed to be made by or due from the 'Employer regardless of whether such payment is made by or due from the""Employer directly, or indirectly, through a trust fund, insurer or other entity to which the Employer contributes or pays premiums; provided, however, that no such Hours of Service shall be credited to the Employee if such direct or indirect & payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or only reimburses the Employee for medical or medically related expenses incurred by the Employee; (c) Each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer; (d) Hours of Service, for purposes of determining whether a Break in Service has occurred, shall include each hour credited for a Parental Absence pursuant to Article VII hereof; (e) Each hour for which an Employee could have worked during a period of time in which he performs no duties and for which he is neither paid nor entitled to payment while absent on an approved leave of absence. (1) No more than 501 Hours of Service shall be credited with respect to a single computation period during which the Employee performs no duties, and crediting for Hours of Service during an approved Leave of Absence shall not be permitted to cause an Employee's total Hours of Service for any Plan Year to equal or exceed 1,000 or more Hours, unless such Employee was entitled to 1,000 or more Hours for actual service or performance of duties as an Employee. (2) Approved leave of absence shall mean any absence authorized by the Employer under the Employer's standard personnel practices, provided that all persons in similar circumstances must be treated alike in the granting of such approved leaves of absence, and provided further that the Participant returns at the end of the authorized absence. An absence due to service in the Armed Forces of the United States shall be considered an approved leave of absence, provided that the absence is caused by war or other emergency, or provided that the Employee is required to serve under the laws of conscription in time of peace, and further provided that the Employee returns to employment with the Employer within the period provided by law. Hours of Service shall be determined and applied to the appropriate computation periods in accordance with Department of Labor Regulations, Section 2530.200b-2(b) and (c) from the Employer's records of hours worked and hours for which payment is made or due. Hours of Service equivalencies shall be in accordance with Department of Labor Regulations Section 2530-200b-3 and for each pay period in which a salaried Employee is paid, such Employee shall be credited with the number of Hours which correspond to his pay period under the following equivalencies: Pay Period Hours of Service ------------ ---------------- Weekly 45 Biweekly 90 Semimonthly 95 Monthly 190 Section 2.21 Limitation Year shall mean the Plan Year or such other twelve consecutive month period designated by the Board of Directors. Section 2.22 Non-Highly Compensated Employee shall mean any Employee who is neither a Highly Compensated Employee nor a family member of a Highly Compensated Employee. Section 2.23 Normal Retirement Age shall mean age 65. Section 2.24 Parental Absence shall mean, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Participant's pregnancy, birth of the Participant's child, placement of a child with the Participant in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. Section 2.25 Participant shall mean an Employee or former Employee of the Employer participating in this Plan pursuant to the provisions of Article III hereof. Section 2.26 Plan shall mean the G. R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan as amended and continued by this instrument. Section 2.27 Plan Administrator shall mean the Sponsor or such other person or committee as the Employer may designate pursuant to the provisions of this Plan to act on behalf of the Employer. Section 2.28 Plan Year shall mean a consecutive twelve month period beginning each January 1 and ending on the subsequent December 31. Section 2.29 Sponsor shall mean G.R. Herberger's, Inc. Section 2.30 Trust shall mean the Trust created under the Agreement and Declaration of Trust entered into by the Employer and Trustee pursuant to this Plan. Section 2.31 Trust Fund shall mean all of the assets of the Plan held by the Trustee at any time under the Trust Agreement. Section 2.32 Trustee shall mean the person, persons or entity appointed by the Board of Directors to administer the Trust or any duly appointed and qualified successor Trustee. Section 2.33 Valuation Date shall mean the last day of each Plan Year, and each interim date, if any, as selected by the Plan Administrator, upon which the Trust Fund is valued. Section 2.34 Year of Service shall mean (for purposes other than vesting) a consecutive twelve month computation period during which an Employee has completed at least one thousand (1,000) Hours of Service with the Employer or predecessor employer if the Employer maintains the plan of such employer. An Employee shall be credited with all Hours of Service completed with any Employer, as defined in Section 2.11, or any other member of the Employer's Controlled Group. Section 2.35 Year of Service for Participation shall mean the completion of 1,000 Hours of Service during an eligibility computation period as defined in Section 3.2 and shall include all Years of Service prior to the Effective Date of this Plan. Section 2.36 Year of Service for Vesting shall mean the completion of any vesting computation period as defined in Section 6.5, and shall include the completion of all computation periods prior to the Effective Date of this amended and restated Plan. ARTICLE III - ELIGIBILITY AND PARTICIPATION Section 3.1 Eligibility for Participation (a) Each Employee who was a Participant in the G.R. Herberger's, Inc. Profit Sharing Plan the day before the Effective Date shall become a Participant in the Plan as of the Effective Date. (b) Thereafter, except for any leased Employee or any Employee who is covered by a collective bargaining agreement which does not provide for inclusion in this Plan, an Employee shall become a Participant in this Plan as of the first day of January or July next following the date on which the Employee has completed a Year of Service and attained age 21. (c) An Employee shall become a Participant only if he is an Employee on the date on which he would otherwise, be, entitled to commence participation. (d) Effective as of the Plan Year, commencing January 1, 1990, an Employee may, subject to the approval of the Employer, elect not to participate in the Plan for any Plan Year by executing an "Election Not to Participate" form effective upon execution by the employee and acceptance by the Employer. Such election shall be a one time election and shall be irrevocable. Section 3.2 Eligibility Computation Periods The initial eligibility computation period shall coincide with an Employee's first Employment Year. If an Employee does not complete a Year of Service during such period, then subsequent eligibility computation periods shall be Plan Years beginning with the Plan Year which includes the last day of the Employee's first Employment Year. Section 3.3 Participation Upon Reemployment (a) A Participant or former Participant who returns to the employment of the Employer after a termination of employment may resume participation on the Participant's reemployment commencement date (the date on which the Employee is first credited with an Hour of Service upon reemployment). (b) Any other Employee whose employment terminates prior to becoming a Participant, shall enter the Plan in accordance with the provisions of Section 3.1 hereof. (c) For purposes of this Section 3.3, the Plan shall take into account all of an Employee's Years of Service. Section 3.4 Participation After Normal Retirement Age Any Participant who remains in the employ of the Employer after Normal Retirement Age shall continue as a Participant and shall be entitled to share in the Employer contributions, if any, pursuant to Article IV until such time as such Participant terminates employment with the Employer. Section 3.5 Collective Bargaining Agreement An Employee who is excluded from participation in the Plan under Section 3.1 solely by reason of being covered by a collective bargaining agreement which does not provide for inclusion in this Plan shall be eligible to commence participation in the Plan as of the date such Employee is no longer covered by such a collective bargaining agreement. A Participant who becomes covered by a collective bargaining agreement which does not provide for inclusion in this Plan will not be eligible to share in and will not receive Employer contributions or allocations of Forfeitures for the Plan Years during which he is covered for the entire Plan Year by such a collective bargaining agreement. A Participant who is covered by such a collective bargaining agreement for part of a Plan Year and is otherwise eligible to share in Employer contributions under Section 4.3 will be eligible to share in Employer contributions or allocations of Forfeitures for such Plan Year, but only with respect to Compensation received while the Participant was not covered by such a collective bargaining agreement. ARTICLE IV - CONTRIBUTIONS Section 4.1 Employer ESOP Contribution With respect to each Plan Year, the Employer shall contribute an amount or amounts, if any, as the Board of Directors of the Employer shall determine in its absolute discretion. The Employer will make sufficient contributions to provide for the payment of the principal of and interest on an Acquisition Loan used to purchase Financed Shares. The amount contributed by the Employer shall not exceed the maximum amount deductible by it for federal income tax purposes under section 404(a)(3) of the Code. Section 4.lA Employer Contributions Pursuant to Participation Elective Deferral Agreement During each Plan Year, a Participant may elect to enter into a written agreement with the Employer (the "Agreement"), the terms of which shall provide that the Participant agrees to defer a portion of such Participant's Compensation from the Employer equal to any dollar amount of Compensation per payroll period, but not. less than twenty-five dollars ($25.00) per biweekly payroll period and not to exceed eleven percent (11%) of such Compensation or such other maximum percentage announced from time to time by the Employer. In consideration of the Agreement the Employer will make an Elective Deferral Contribution to the Participant's Elective Deferral Account for such Plan Year in an amount equal to the total amount by which the Participant's Compensation was deferred during the Plan Year pursuant to the Agreement. The Agreements shall be governed by the following rules: (a) Agreements and amendments thereto shall be effective as of the Payroll period next following the date the Agreement or amendment is executed by the Participant and the Employer, and shall apply to each Payroll Period thereafter until amended or revoked in accordance with the Plan. An Agreement will continue in effect from Plan Year to Plan Year unless and until amended or revoked in accordance with the Plan. For purposes of this Section, the Participant's Payroll Period is the period for which a Participant is paid regular periodic Compensation by the Employer. (b) For the 1993 Plan Year, all Employees who have met the eligibility and participation requirements for the Plan as of April 1, 1993, shall be eligible to enter into an Agreement effective as of the Payroll Period commencing after April 15, 1993. Otherwise, a Participant's initial Agreement shall be effective as of the first day of the Plan Year or the first day of the seventh month of the Plan Year most immediately following the date the Employee becomes a Participant and the Agreement is submitted to the Plan Administrator. (c) The Agreement may be amended by a Participant during the Plan Year, but only to reduce prospectively the amount of such Participant's Elective Deferral. The Agreement may be revoked by a Participant at any time. If a Participant revokes an Agreement or fails to enter into an Agreement upon becoming eligible to participate, such Participant shall be precluded from entering into a new Agreement until the Payroll Period commencing after the next April 15. (d) Any Participant whose Elective Deferral Agreement has been suspended pursuant to Section 8.14(c)(3) relating to hardship distributions, may enter into a new Agreement first as of the Payroll Period following the date on which the Participant's Elective Deferral Agreement has been suspended for twelve (12) months. Such new Agreement shall be effective as of the Payroll Period next following the execution of the new Agreement. (e) The Employer may prospectively revoke or amend any Agreement if the Employer determines such revocation or amendment is necessary to insure that a Participant's Annual Addition does not exceed the maximum permissible amount under Section 4.6 hereof, or to satisfy the nondiscrimination tests of Code Section 401(k), as set forth in Section 4.13 of the Plan for such Plan Year, but in the latter case, amendments of the amounts deferred shall be made by a pro rata decrease in the percentage of Elective Deferral among highly Compensated Employees. (f) Elective Deferral Contributions made by a Participant under this Plan or any other qualified plan maintained by the Employer for any taxable year shall not exceed the limitation set out in Code Section 402(g) in effect at the beginning of such taxable year, or such higher amount as adjusted pursuant to Code Section 402(g)(5) for cost-of-living increases, which for the calendar year 1993 is $8,994. If a Participant participates in more than one salary deferral arrangement and the total of such Elective Deferrals for the taxable year exceed the amount excludable from gross income, the Excess Elective Deferrals and earnings thereon shall be returned to the Participant if, by the following March 1, the Participant notifies the Plan Administrator in writing of the Excess Elective Deferrals he allocates to this Plan. A Participant is deemed to notify the Plan Administrator of Excess Elective Deferrals if such arise solely by taking into account only those Elective Deferrals made to this Plan, and any other plans of the Employer. (g) Notwithstanding any other provision of the Plan, any Excess Elective Deferrals, plus income and minus any loss allocable thereto, shall be returned to the Participant by April 15 following the taxable year such Excess Elective Deferrals were made. The amount of income or loss allocable to such Excess Elective Deferrals shall be equal to the sum of income or loss allocable to the Participant's Elective Deferral Account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Excess Elective Deferrals for the taxable year and the denominator which is the Participant's account balance attributable to Elective Deferrals without regard to any income or loss occurring during such taxable year. (h) Notwithstanding anything contained in this Section to the contrary, a Participant's Elective Deferral Contributions will be suspended for a Payroll Period in which a Participant's Compensation is insufficient, after any statutory deductions and deductions authorized by the Participant or any other deductions made and required by operation of law, to permit deducting a Participant's Elective Deferral Contribution for that Payroll Period. Section 4.2 Time of Payment and Form of Contribution The Employer contributions, if any, shall be paid to the Trustee either in cash or Employer Stock as the Board of Directors may from time to time determine. In determining the amount of the Employer contributions, shares of Employer Stock will be valued at their then Fair Market Value Per Share. The Employer contributions shall be paid to the Trustee on or before the due date for filing its federal income tax return including extensions, for the fiscal year of the Employer with respect to which the contributions were made. Elective Deferral Contributions shall be paid to the Trustee as soon as the amount can be reasonably identified and separated from the Employer's other assets. Payment shall in any event be made within 30 days after the Participant would otherwise have received the amount withheld from Compensation on account of the Elective Deferral. Section 4.3 Allocation of Employer ESOP Contribution (a) If at the time of such Employer ESOP contribution, principal and interest is unpaid on any Acquisition Loan and is then due, then so much of the Employer ESOP contribution as is required shall be applied to the payment of interest or principal on the Acquisition Loan which is then due and Financed Shares shall be released in accordance with Section 4.3(b). The Employer ESOP contribution with respect to a Plan Year along with any Forfeitures for such Plan Year shall be allocated by the Plan Administrator to the Accounts of eligible Participants as of the last day of the Plan Year in the same proportion that the Compensation of each Participant for the Plan Year bears to the Compensation of all Participants for such Plan Year, provided, however, that Compensation of any Employee who becomes a Participant during a Plan Year shall be limited to Compensation paid after commencement of participation. (1) No allocation of the Employer's ESOP contribution for a Plan Year shall be made to a Participant unless such Participant is credited with 1,000 Hours of Service during the Plan Year and is in the employ of the Employer on the last day of the Plan Year. (2) Any Participant who is not in the employ of the Employer on the last day of the Plan Year due to retirement on or after such Employee's Normal Retirement Age, death or Disability, shall nonetheless receive an allocation of the Employer's ESOP contribution for such Plan Year, regardless of whether such Participant was credited with 1,000 Hours of Service prior to such retirement, Disability or death. Allocations shall be made on the basis of actual Compensation received during such Plan Year. (b) Financed Shares acquired with the proceeds of an Acquisition' Loan under Section 4.3 of the Trust shall be added to and maintained in a Shares Suspense Account. As the Employer makes ESOP contributions to the Plan for a Plan Year and the Trustee makes payments of principal and interest on the Acquisition Loan, such Financed Shares shall be released from the Shares Suspense Account and allocated as of the last day of the Plan Year for which the contribution was made to the Accounts of the Participants in the manner provided in paragraph (a) above. The number of Financed Shares to be released from the Shares Suspense Account for each Plan Year shall be based upon the ratio that the payment of principal and interest on the Acquisition Loan for that Plan Year bears to the total projected payments of principal and interest over the duration of the Acquisition Loan repayment period. (c) If Financed Shares acquired with the proceeds of an Acquisition Loan are sold before being released from the Shares Suspense Account, the proceeds from such sale shall be applied to the payment of principal and interest on the Acquisition Loan. Any sale proceeds remaining after payment of all principal and interest on the Acquisition Loan shall be treated as a general investment gain and allocated to the Accounts of Participants under Section 5.1. (d) If the Plan has acquired Employer Stock and the seller has elected to qualify for nonrecognition of gain on the sale of such securities under Section 1042 or Section 2057 of the Code, then no portion of the assets of the Trust Fund attributable to (or allocable in lieu of) such Employer Stock shall be allocated for the benefit of such seller, any person related to such seller under section 267(b) of the Code (except as excluded by Section 409(n)(3)(A) of the Code) or any other person who owns (after application of Section 318(a) of the Code, -but without regard to the employee trust exception in paragraph (2)(B)(i)), more than 25% (by value) of the Employer or members of the Controlled Group (all within the meaning of Code Section 409(n)). (e) With respect to certain dividends used to make payments on an Acquisition Loan, the special allocation rules of Section 4.11 of this Plan shall apply. (f) If the Financed Shares acquired with the proceeds of an Acquisition Loan are sold or redeemed prior to being released from the Shares Suspense Account and the Acquisition Loan is not prepaid, then the sale or redemption proceeds, or investments acquired with such proceeds, shall continue to be held in the Shares Suspense Account as collateral for the Acquisition Loan and shall continue to be subject to the release requirements of Section 4.3(b). Any proceeds remaining after repayment of the Acquisition Loan shall be treated as a general investment gain and allocated to the Accounts of Participants under Section 5.1. Section 4.4 Allocation of Forfeitures Forfeitures shall, as of the last day of each Plan Year, be allocated among the Accounts of all Participants as a part of and on the same basis as the Employer contribution is allocated among such Participants pursuant to Section 4.3. No portion of Employer Stock -shall be forfeited until any other assets allocated to his Account are first forfeited. Section 4.5 Advance Employer Contributions In the event that a part or all of an Employer's contribution for a Plan Year is paid before the last day of a Plan Year, such advance contribution shall be held by the Trustee as a separate fund, and along with the net income and any change in value of such separate fund, allocated among the Accounts of the Participants as of the last day of the Plan Year pursuant to Section 4.3. In the event that the Plan is terminated before the last day of the Plan Year, all such advance contributions, including any amount treated as an advance contribution under Section 4.6, shall be returned to the Employer. Section 4.6 Limitations on Allocations (a) No Annual Addition shall be allocated to the Account of any Participant with respect to any Limitation Year which exceeds the lesser of: (1) Thirty Thousand Dollars ($30,000.00), (or if greater, one-fourth of the defined benefit dollar limitation set forth in Code Section 415(b)(1) as in effect for the Limitation Year), or, (2) Twenty-five percent (25%) of the compensation received by such Participant from the Employer for such Limitation Year. (b) For purposes of this Section 4.6, Compensation shall have the same meaning as defined under Section 2.7, except as follows: (1) Compensation shall include reimbursements or other expense allowances, taxable filing benefits, moving expenses, deferred compensation, or taxable welfare benefits. (2) Compensation shall not include any amount that is deferred by a Participant pursuant to a salary deferral agreement with respect to which the Employer makes a contribution on behalf -of the Participant and which is not includable in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h) or 403(b). (c) For purposes of this Section, Annual Addition means the sum of: (1) All Employer contributions allocable to the Participant for a Limitation Year under this Plan and under all other defined contribution plans maintained by the Employer or any member of the Controlled Group; (2) All Employee contributions to such plans allocable to the Participant for a Limitation Year; (3) Forfeitures (based upon the Fair Market Value Per Share of Employer Stock as of the end of the Plan Year) allocable to the Participant under such plans; (4) Amounts allocated to an individual medical account, as defined in Code Section 415(l)(1), which is part of a defined benefit or annuity plan maintained by the Employer or a Controlled Group member; and (5) Amounts allocated, after December 31, 1985, to a separate account of a Key Employee under an Employer or Controlled Group Member sponsored welfare benefit fund, as defined in Code Section 419(e), which will provide post-retirement health or life insurance benefits. (d) For any Plan Year in which any Employer contributions are applied by the Trustee (not later than the due date, including extensions, for filing the Employer's federal income tax return for that Plan Year) to pay principal or interest on an Acquisition Loan and not more than one-third (1/3) of the Employer Contributions are allocated to Highly Compensated Employees, Annual Additions shall not include any Financed Shares which are allocated as Forfeitures or Employer contributions used to pa y interest on an Acquisition Loan. The Trustee may reallocate such Employer contributions in order to satisfy this special limitation. (e) The limitation contained in Section 4.6(a) shall be determined by aggregating the contributions made by the Employer to all defined contribution plans maintained by it or any members of the Controlled Group during the Plan Year. (f) If as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of Elective Deferrals that may be made with respect to the Participant under the limits of Code Section 415, or other facts and circumstances to which Treas. Reg. Section 1.415-6(b)(6) shall be applicable, the Annual Addition with respect to any Participant exceeds the limitation contained in this Section, the Trustee shall, at the direction of the Plan Administrator, in the following order and in an amount sufficient to meet the limitations of Code Section 415: (1) Return or refuse to accept all or a portion of any Elective Deferral Contribution made by any such Participant. Such returned amounts shall be disregarded for purposes of the ADP test and the Code Section 402(g) limit. (2) Reallocate pursuant to Section 4.4 (disregarding such Participant's Compensation), all or a portion of any Forfeitures in an amount up to any remaining excess. (3) Reallocate pursuant to Section 4.3 (disregarding such Participant's Compensation), a portion of the Employer ESOP Contribution in an amount up to any remaining excess. (4) As an alternative to (3) and at the direction of the Plan Administrator, treat any remaining excess amount as an Advance Employer Contribution for the succeeding Plan Year to be held in a suspense account in accordance with Section 4.5 hereof. Such excess amount shall be allocated to reduce the Employer ESOP contribution, including any allocation of Forfeitures, for such Participant in the next Limitation Year and subsequent Limitation Years, if necessary, unless such excess amount was attributable to a Participant who is no longer covered by the Plan. In such event, the excess amount shall be held unallocated in a suspense account and be used to reduce the Employer ESOP contribution for all remaining Participants in the next Limitation Year and subsequent Limitation Years, if necessary. Section 4.7 Defined Benefit and Defined Contribution Plans In the event that a Participant also participates in a defined benefit plan maintained by the Employer, there shall not be allocated to the Account of such Participant an Annual Addition that will cause the sum of such Participants defined benefit plan fraction and his defined contribution plan fraction, as such terms are defined herein and in section 415(e) of the Internal Revenue Code, to exceed 1. Section 4.8 No Contributions by Participants Employee contributions are neither required nor permitted under this Plan. Section 4.9 Make-Up Contributions for Omitted Participants If, after the Employer's annual contribution for a Plan Year has been made and allocated it should appear that, through oversight or a mistake of fact or law, a Participant (or an Employee who should have been considered a Participant) who should have been entitled to share in such contribution received no allocation or received an allocation-which was less than he should have received, the Employer may, at its election, and in lieu of reallocating such contribution, make a special make-up contribution for the Account of such Participant in an amount adequate to provide for him the same percentage of his Compensation for such Plan Year as was allocated to the Accounts of other Participants for such omitted Plan Year and earnings attributable thereto. Section 4.10 Exclusive Benefit; Refund of Employer Contribution (a) All contributions made by the Employer are made for the exclusive benefit of the Participants and their Beneficiaries, and such contributions shall not be used or diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries. (b) Notwithstanding the foregoing, amounts contributed to the Trust by the Employer may be refunded to the Employer only under the following circumstances: (i) Disallowance of Deduction. To the extent that an income tax deduction is disallowed for the contribution made by the Employer, the Trustee shall immediately refund to the Employer the amount so disallowed upon presentation, within one (1) year of the date of such disallowance, of evidence thereof and a demand by the Employer for such refund. (ii) Denial of Qualified Status. If it is determined that the Plan does not initially constitute a qualified plan, there shall be returned to the Employer, upon demand, any contribution made by the Employer with respect to any Plan year in which qualified status is denied, provided that demand is made by the Employer and refund is made by the Trustee within one (1) year of the date of denial of qualification of the Plan. (iii) Mistake of Fact. In the case of a contribution which is made in whole or in part by reason of a mistake of fact, so much of such contribution as is attributable to the mistake of fact shall be returned to the Employer on demand. The Employer shall present evidence of the mistake of fact to the Trustee as well as calculations as to the impact of such mistake. Demand and repayment must be effectuated within one (1) year after the payment of the contribution to which the mistake applies. (c) In the event that any refund is paid to the Employer hereunder, such refund shall be made without interest and shall be apportioned among the Accounts of the Participants as an investment loss except to the extent that the amount of the refund can be attributed to one or more specific Participants (such as in the case of mistakes of fact, disallowances of compensation resulting in reduction of deductible contribution) in which case the amount of the refund attributable to each Participant's Account shall be debited directly against such Account. (d) Notwithstanding any other provision of this Section, no refund shall be made to the Employer which is specifically chargeable to the Account of any Participant in excess of 100% of the amount of such Account which is derived from the Employer's contributions, nor shall a refund be made by the Trustee of any funds, otherwise subject to refund hereunder, which have been distributed to Participants and/or Beneficiaries. In the case that such distributions become refundable, the Employer shall have a claim directly against the distributees to the extent of the refund to which it is entitled. All refunds pursuant to this Section shall be limited in amount, circumstances and timing to the provisions of Section 403(c) of the ERISA. Section 4.11 Dividends (a) Any cash dividends received by the Trustee on Employer Stock allocated to the Accounts of Participants (or former Participants -or Beneficiaries) may be: (i) retained in the Participants' applicable Accounts; (ii) used to make payments on an Acquisition Loan the proceeds of which were used to acquire the Employer Stock with respect to which the dividend is paid; or (iii) paid to such Participants, former Participants or Beneficiaries; (in a nondiscriminatory manner) at the sole discretion of the Employer. Any current payment in cash to the Participants, former Participants or Beneficiaries must be made within 90 days of the end of the Plan Year in which the dividends are received by the Trustee. The Employer may elect to pay any cash dividend directly to the Participants or Beneficiaries. Any such payment of cash dividend on shares of Employer Stock shall not be treated as a distribution under the Plan. (b) In the event a dividend on Employer Stock used to make payments on an Acquisition Loan, then released Employer Stock shall be allocated in accordance with the following: (1) A portion (or all) of the Employer Stock released from the Shares Suspense Account pursuant to Section 4.3(b) as a result of the use of the cash dividend on Employer Stock acquired with the proceeds of the Acquisition Loan (whether such Employer Stock is allocated or unallocated) to pay principal on the Acquisition Loan shall first be allocated to Participants' Accounts in accordance with this Section 4.1 1 (b)(1). That portion of the released Employer Stock having a Fair Market Value per Share equal to the dividends paid on shares of Employer Stock which have been allocated to Participants' Accounts on or before the date such dividends are paid shall be allocated to each Account pro rata based on the amount of the dividends attributable to Employer Stock held in such Account. If the dividends paid on allocated Employer Stock exceeds the fair market value of the Employer Stock released in accordance with Section 4.3(b), then the Sponsor shall contribute to the Plan such additional amounts of Employer Stock to the Trust necessary to cause the fair market value of the total amount of Employer Stock allocated under this Section 4.4(b)(1) to equal the value of the cash dividends attributable to the Employer Stock held in Participants' Accounts. (2) If there remains any released and unallocated shares of Employer Stock after the allocation under Section 4.11(b)(1), above, then such Employer Stock shall be allocated in the same manner as an Employer Contribution under Section 4.3(a). (c) Any cash dividend received by the Trustee on Employer Stock allocated to a Participant's Elective Deferral Account shall be paid to Participants, former Participants or Beneficiaries in cash if and only if the Plan Administrator has determined that such dividends will be deductible by the Employer under Code Section 404(k). Section 4.12 Rollover Contributions Rollover contributions are not permitted under this Plan. Section 4.13 Non-Discrimination Requirements (a) In General. For each Plan Year, the Plan shall satisfy the non-discrimination test in Code Section 401(k) in accordance with Final Treasury Regulation Section 1.401(k)-l. The Code and Regulation Sections are incorporated herein by this reference. (b) The ADP Test. In accordance with Code Section 401(k)(3), the ADP for the group of eligible Participants for any Plan Year who are Highly Compensated Employees must satisfy one of the following tests: (1) The ADP for the Highly Compensated Employees may not be more than the ADP for all Non-Highly Compensated Employees multiplied by 1.25; or (2) The ADP for the group of Highly Compensated Employees is not more than the ADP for all Non-Highly Compensated Employees multiplied by two (2) and the difference between the ADP is not more than two (2) percentage points. (c) Special Rules. For purposes of 4.13(b): (1) If two or more plans which include cash or deferred arrangements (as defined under Treas. Reg. Section 1.401(k)-l(a)(2) and referred to for purposes of this Section as "Arrangements") are considered one plan for the purposes of Code Section 401(a)(4) or 410(b), and to satisfy Code Section 401(k), the Arrangements included in such plans shall be treated as one Arrangement provided the Arrangements have the same Plan Year. (2) If a Highly Compensated Employee is a Participant under two (2) or more Arrangements of the Employer or a member of the Employer's Controlled Group, all such Arrangements shall be treated as one Arrangement for the purpose of determining the ADP with, respect to such Highly Compensated Employee. Any Arrangement ending with or within the same calendar year shall be aggregated for purposes of determining the ADP with respect to such Highly Compensated Employee. However, plans required to be disaggregated under 401(k) regulations shall be treated as separate plans. (3) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test. (4) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (d) Correcting Excess Contributions. If the ADP of the Highly Compensated Employees would exceed the limits in 4.13(b), the Plan Administrator shall correct the ADP and determine the amount of Excess Contributions by reducing Elective Deferral Contributions of the Highly Compensated Employees and distributing such Excess Contributions as follows: (1) The ADP of the Highly Compensated Employee with the highest ADP shall be reduced first to the level of the ADP of the Highly Compensated Employee with the next highest ADP, or if a lesser reduction will permit, to the level of the ADP at which the ADP test is satisfied. (2) If the ADP test of the Highly Compensated Employees continues to exceed the limits in Section 4.13(b) after reducing the ADP of the Highly Compensated Employee with the highest ADP, then the Plan Administrator will continue to reduce the ADP similarly by this method of leveling to the ADP of the Highly Compensated Employee with the next highest ADP until such ADP test is satisfied. (3) The amount of Excess Contributions determined above shall be distributed to the Highly 'Compensated Employees on the basis of their relative portions of the Excess Contributions attributable to each of them. The amount to be distributed as Excess Contributions pursuant to this Section 4.13(d) shall be reduced by any Excess Elective Deferrals which may be distributed for such taxable year -ending in the same Plan Year in which the Excess Contributions apply. In addition, Excess Elective Deferrals which may be distributed for such taxable year shall be reduced by any Excess Contributions previously distributed with respect to the Employee for the Plan Year beginning in such taxable year. Excess Contributions shall be distributed from the Participant's Elective Deferral Account. (4) Under no circumstances shall the amount of a Highly Compensated Employee's Elective Deferral Contributions distributed to correct Excess Contributions exceed the amount of the Highly Compensated Employee's Elective Deferral Contributions. (e) When to Distribute Excess Amounts. Distribution of such Excess Contributions shall be made no later than the last day of the Plan Year after the Plan Year in which such excess amounts apply. If such excess amounts are distributed more than 2-1/2 months after the last day of the Plan Year in which the excess occurred, a ten percent (10%) excise tax is imposed on the Employer with respect to such amounts. (f) Correction of Excess Contributions for "Family Members". Excess Contributions of Participants who are subject to the "family member" aggregation rules shall be allocated among the "family members" in proportion to the Elective Deferrals (and amounts treated as Elective Deferrals) of each family member that is combined to determine the combined ADP. (g) Income Allocable to Excess Contributions. Any income allocable to Excess Contributions for the Plan Year in which such excess amounts apply shall be distributed along with distributions designated as Excess Contributions for the Plan Year. Income allocable to such Excess Contributions shall be equal to allocable gains and income, less allocable losses and expenses for such Plan Year. The Plan shall allocate income for this Section in the same manner as set forth in Section 5.1 of the Plan. No income shall be allocated to Excess Contributions for the period between the end of the Plan Year and the date of distribution (the "gap period"). (h) When to Distribute Excess Amounts. Distribution of such Excess Contributions shall be made no later than the last day of the Plan Year immediately following the last day of the Plan Year in which such excess amounts apply. If such excess amounts are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, the Code imposes a ten percent (10%) excise tax on the Employer with respect to such amounts. Section 4.14 Elective Deferral Accounts (a) All Elective Deferrals made pursuant to a Participant's Elective Deferral Agreement shall be deposited in the Participant's Elective Deferral Account. A separate subaccount will be maintained for each type of contribution included in the Participant's Elective Deferral Account. Each such account shall be credited with income applicable to such contribution. Elective Deferral Accounts shall be subject to the following special rules: (1) A Participant's Elective Deferral Account shall at all times be 100% nonforfeitable. (2) Except in the case of hardship, as defined in Section 8.14, a Participant's Elective Deferral Account may not be distributed to a Participant (or Beneficiary) before the earliest of the Participant's death, disability, separation from service or attainment of age 59-1/2. ARTICLE V - DETERMINATION OF VALUE OF PARTICIPANT'S ACCOUNTS Section 5.1 Trust Fund and Allocation of Earnings The Trustee shall maintain or cause to be maintained Accounts which shall reflect, from time to time, the value of the interest of each Participant in the resulting from the contributions of the Employer allocated to each Participant. In this condition the Accounts shall reflect each Participant's share of interest, dividends, realized and unrealized gains and income from all sources, less realized and unrealized losses and expenses (other than those to be borne by the Employer in accordance with this Plan). Such sum shall be determined as of the Valuation Date of each Plan Year and, after allocating the (i) Employer ESOP Contributions, and (ii) Elective Deferral Contributions for such Plan Year, allocated as a credit or charge to the Account of each Participant in the same proportion that the balance of the Account of each Participant as of the date following the last Valuation Date bears to the total of the balances of the Accounts of all Participants as of such date; provided, however, that distribution payments made during, but prior to the Valuation Date shall first be deducted from such balances. Section 5.2 Determination of Market Value The Trustee shall, as provided in the Agreement and Declaration of Trust, ascertain and certify the fair market value of the Trust Fund as of the Valuation Date. Such valuation shall include the Employer's contribution with respect to such Plan Year. Similar valuations shall be made at such other times as necessary for the purpose of determining the value of a Participant's Account. In determining the fair market value of the Fund, the Trustee shall use the Fair Market Value Per Share of the Employer Stock. Section 5.3 Diversification of Investments (a) Each Participant who has attained age 55 and completed 10 Years of Service for participation under the Plan (including Years of Service under the Plan prior to its conversion to an ESOP) shall be permitted to direct the Plan Administrator as to the investment of 25 percent of the value of the Participant's Account balance but only to the extent such portion exceeds the amount to which a prior election under this Section 5.3 applied. Such direction shall be permitted within 90 days after the last day of each Plan Year during the Participant's Qualified Election Period. Within 90 days after the close of the last Plan Year in the Participant's Qualified Election Period, a Participant may direct the Plan Administrator as to the investment of 50 percent of the value of his Account balance. Such direction as to the investment of the Participant's Account balance shall constitute a request to distribute that portion of the Participant's Account covered by the election. (b) A participant's Qualified Election Period shall be the six Plan Year period beginning on the later of (i) the Plan Year in which the Participant attains age 55; or (ii) the Plan Year in which the Participant first becomes qualified under subparagraph (a) above. (c) The Participant's direction shall be provided to the Plan Administrator in writing and shall be effective no later than 180 days after the close of the Plan Year to which the direction applies to the Participant. (d) This Section 5.3 shall apply to all Employer Stock, whenever acquired under the Trust. Section 5.4. Investment Selection by Participants (a) Elective Deferral Contributions to the Plan together with any earnings thereon shall be deposited in the Trust Fund and held temporarily in a stable income or similar fund designed to protect principal at a rate of return competitive with money market funds (the 'Fund") until such monies are used to acquire Employer Stock. (b) Once each Plan Year on or about April 15, each Participant shall be given the right to direct the Trustee in writing on forms provided by the Plan Administrator not to acquire Employer Stock with the monies held in the Fund. Such written direction shall be submitted to the Plan Administrator not less than fifteen (15) days before the date of purchase of Employer Stock, unless the Plan Administrator provides otherwise. (c) The Plan Administrator, in its discretion, may offer to all Participants additional or different investment categories than the Fund and may at any time cease to offer such investment categories as it sees fit. (d) The Participant's Elective Deferral Account which is invested in the Fund at the annual purchase date shall be used to purchase Employer Stock unless otherwise directed by the Participant, in which case such monies shall continue to be invested in accordance with paragraph (a), above, until the next annual purchase of Employer stock. (e) In the absence of a written direction by a Participant not to invest such Participant's interest in the Fund in Employer Stock, the Trustee shall invest such funds in Employer Stock. ARTICLE VI - RETIREMENT AND OTHER TERMINATION OF PARTICIPATION; VESTING Section 6.1 Full Vesting; Retirement, Death or Disability (a) A Participant shall be one hundred percent (100%) vested in the portion of his Account attributable to Employer Contributions upon: (1) Attaining Normal Retirement Age; (2) Death; or (3) Total and Permanent Disability. For this purpose, Total and Permanent Disability shall mean a physical or mental condition which totally and permanently prevents a Participant from rendering further service in a job classification that is satisfactory to the Employer. Total and Permanent Disability shall be established by a medical opinion rendered by a doctor approved by the Plan Administrator." (b) A Participant shall at all times be one hundred percent (100%) vested in the portion of such Participant's Account attributable to Elective Deferral Contributions. Section 6.2 Other Termination of Employment; Participant's Vested Percentage (a) A Participant who terminates employment on or after January 1, 1989, with the Employer and with all members of the Employer's Controlled Group, prior to attaining Normal Retirement Age (other than by reason of Total and Permanent Disability or death), shall have his interest in Account in accordance with the following schedule: Years of Service Vested Percentage ------------------ --------------------- Fewer than three years None 3 years but fewer than 4 20% 4 years but fewer than 5 40% 5 years but fewer than 6 60% 6 years but fewer than 7 80% 7 years or more 100% (b) A Participant who terminated employment prior to January 1, 1989, with the Employer and with all members of the Employer's Controlled Group, prior to attaining Normal Retirement Age (other than by reason of total and permanent Disability or death), shall have his interest in Account determined in accordance with the following schedule: Years of Service Vested Percentage ------------------ --------------------- Fewer than 4 years None 4 years but fewer than 5 40% 5 years but fewer than 6 45% 6 years but fewer than 7 50% 7 years but fewer than 8 60% 8 years but fewer than 9 70% 9 years but fewer than 10 80% 10 years but fewer than 11 90% 11 years or more 100% (c) Notwithstanding the foregoing, the vested percentage of a Participant's Account who had been covered under the provisions of the Plan before the Effective Date, shall not be less than the vested percentage the Participant would have had if the provisions of the Plan as in effect immediately prior to the Effective Date had continued without change. Section 6.3 Vesting Upon Termination of the Plan A Participant shall become 100 percent vested in that portion of his Account attributable to Employer contributions upon termination of the Plan pursuant to Article XV. Section 6.4 Forfeiture of Nonvested Benefit A Forfeiture of a Participant's nonvested benefit shall occur under the Plan: (a) As of the last day of the Plan Year in which occurs the fifth consecutive break in Service for the Participant due to the termination of employment; or (b) If earlier than (a), and if applicable; "on the date the Participant receives a lump sum distribution of the nonforfeitable percentage of his Account as a result of the Participant's termination of participation in the Plan, subject to restoration under Section 8.6. A distribution is deemed to be made due to the termination of participation in the Plan if it is made no later than the close of the second Plan Year following the Plan Year in which such termination of participation occurs. A Participant who has incurred a Break in Service and who resumes participation as described in Section 3.3 hereof shall forfeit the amount of any contribution made on his behalf for the Plan Year which includes his date of reemployment if he terminates employment prior to the first anniversary of such date of reemployment. Section 6.5 Computation of Years of Service and Breaks in Service For purposes of determining Years of Service and Breaks in Service under this Article VI, the definitions and rules of this Section 6.5 and of Sections 6.6 through 6.7 shall be applied. (a) "Employment Commencement Date" means the date on which an Employee first performs an Hour of Service as defined in Section 2.20(a). (b) "Severance from Service Date" means the date on which- the earlier of the following occurs: (1) The date the Employee quits, retires, is discharged or dies; or (2) The date 12 months after an Employee remains absent from service with an Employer (with or without receiving his regular Compensation) for any reason other than a quit, retirement, discharge or death. (c) "Period of Service" means a period of time commencing on an Employee's Employment Commencement Date or Reemployment Commencement Date, as the case may be, and ending on the Employee's Severance from Service Date, and shall include past service with an Employer's predecessor employer if the Employer maintains the plan of such employer. Period of Service shall include a Period of Severance of less than one year's duration. (d) "Period of Severance" means a period of time commencing on an Employee's Severance from Service Date and ending on the date on which such Employee again performs an Hour of Service within the meaning of Section 2.20(a). (e) "Reemployment Commencement Date" means the date on which the Employee performs his first Hour of Service (within the meaning of Section 2.20(a)) after a Period of Severance of at least one year's duration. (f) "Year of Service" means the aggregate number of 365-day periods within an Employee's applicable Period(s) of Service. For this purpose, and except as provided in Section 6.6 all of an Employee's nonsuccessive Periods of Service shall be aggregated. (g) "Break in Service" means a twelve (12) consecutive month period during which an Employee does not perform an Hour of Service (as defined in Section 2.20(a) hereof) with an Employer. Breaks in Service are measured from the Employee's Severance from Service Date and subsequent anniversaries thereof until the Employee again performs an Hour of Service (as defined in Section 2.20(a) hereof). However, see the provisions of Article VII relating to Parental Absences and their effect on Breaks in Service. Section 6.6 Years of Service A Participant shall be credited with all Years of Service except the following: (a) Years of Service prior to the Participant incurring five consecutive Breaks in Service unless: (1) at the time of the Breaks in Service the Participant was vested under Section 6.2; or (2) for nonvested Participants, the aggregate number of Years of Service prior to the consecutive Breaks in Service exceeds the Period of Severance; and (b) Years of Service after five consecutive Breaks in Service shall not be taken into account for purposes of determining a Participant's vested percentage in his Account prior to the consecutive Breaks in Service. Any years prior to the five consecutive Breaks in Service shall not be counted until the Participant completes a Year of Service after his date of reemployment. Section 6.7 Forfeiture Due to Discharge of Employment for Cause (a) Notwithstanding anything herein to the contrary, in the event a Participant terminates employment with the Employer prior to his completion of seven (7) Years of Service for Employee misconduct, such Participant shall have his interest in Account determined in accordance with the following schedule: Years of Service Vested Percentage ------------------ --------------------- Fewer than 6 years 0% 6 years but fewer than 7 80% 7 years or more 100% Such vesting shall be applicable for Plan Years beginning on or after January 1, 1989 but only with respect to Participants terminating employment on or after January 1, 1989. (b) A Participant who, prior to January 1, 1989, terminated his employment with the Employer due to Employee misconduct, shall have his vested interest in Account, determined in accordance with the following schedule: Years of Service Vested Percentage ------------------ --------------------- 10 years but fewer than 11 0% 11 years or more 100% (c) For purposes of this Section, Employee misconduct is any misdemeanor, felony or any other act evidencing fraud or dishonesty on the part of the Employee. Any portion of a Participant's Account forfeited for cause shall be available for reallocation to the Accounts of the remaining Participants pursuant to Section 4.4 as of the close of the Plan Year in which such Forfeiture occurs. (d) This Section 6.7 shall not apply to a Participant if (i) such Participant has attained Normal Retirement Age; (H) the Top-Heavy Plan vesting provisions of Section 9.5 of this Plan apply to such Participant; (iii) the Plan has been totally or partially terminated; or (iv) there has been a complete discontinuance of contributions under the Plan. ARTICLE VII - PARENTAL ABSENCE PROVISIONS Section 7.1 Effective Date of Article VII The provisions of this Article VII shall be effective with respect to any Parental Absence which commences on or after January 1, 1985. Section 7.2 Hours of Service Credited for Parental Absence Solely for the purposes of determining whether a Break in Service has occurred, the Plan Administrator shall credit to an Employee on Parental Absence: (a) the Hours of Service which otherwise would normally have been credited to such individual but for such absence; or (b) if the Plan Administrator is unable to determine the Hours of Service pursuant to paragraph (a), eight Hours of Service per normal work day. The total number of Hours of Service credited under this Section 7.2 by reason of any Parental Absence shall not exceed 501. Section 7.3 Plan Years to Which Hours of Service are Credited The Hours of Service credited under Section 7.2 shall be treated as Hours of Service in the Plan Year: (a) in which the Parental Absence begins, if a Participant would be prevented from incurring a Break in Service in such year solely because of the Hours of Service credited under Section 7.2; or (b) in any other case, in the Plan Year immediately following the Plan Year in which the Parental Absence began. A Participant shall be credited with Hours of Service in only one of the Plan Years noted above. Section 7.4 - Information to Plan Administrator No Hours of Service credit shall be given under Section 7.2 unless the Employee furnishes to the Plan Administrator such timely information as the Plan Administrator may reasonably require in order to establish that the absence from work was a Parental Absence as defined in Section 2.24, and the number of days for which there was such an absence. ARTICLE VIII - DISTRIBUTIONS Section 8.1 Time of Distribution (a) Normal Time for Distribution. Upon a Participant's retirement or other termination of employment and upon the direction of the Plan Administrator, the Trustee shall, after the value of the Participant's Account has been determined in accordance with Article V, make or commence distribution of such Account. Upon the request of a Participant (which shall be treated as consent under Section 8.1(b)) distribution of a Participant's Account attributable to Employer Stock acquired on or after January 1, 1987, shall be commenced as follows: (i) If the Participant separates from service by reason of the attainment of Normal Retirement Age, death, or disability, the distribution of the Participant's Account balance will begin not later than one year after the end of the Plan Year in which such event occurs. (ii) If the Participant separates from service for any reason other than those enumerated in paragraph (i) above, and is not reemployed by the Employer at the end of the fifth Plan Year following the Plan Year of such separation from service, distribution of the Participant's Account balance will begin not later than one year after the end of the fifth Plan Year following the Plan Year in which the Participant separated from service. Notwithstanding anything contained in this Article VIII to the contrary, any Participant who is eligible to receive a distribution and who requests an immediate distribution of such Participant's Elective Deferral Account in the form of cash, shall receive a distribution of such Elective Deferral Account in cash as soon as practicable following such request. Amounts to be distributed under this Section 8.1(a)(ii) prior to the end of the fifth Plan Year following the Plan Year in which the Participant separated from service may only be distributed in the form of cash. Any request by a Participant that such distribution be made in the form of Employer Stock will be treated as an election to have such distribution made at the latest date permitted under this Section 8.1(a)(ii). The Plan Administrator shall make distributions prior to such fifth Plan Year if a written request for an earlier distribution is made by a Participant. Such distribution of the Participant's vested Account balance shall be made following the end of each or any of the five Plan Years next following the Plan Year during which the Participant's employment with the Employer terminates. The amount of any such earlier distribution shall be made in an amount up to the full amount of the Participant's vested Account balance but not in excess of a maximum distribution amount as determined by the Plan Administrator for the Plan Year in which the request is made. The amount determined by the Plan Administrator shall be determined for each Plan Year as of the last day of the Plan Year, and may be changed from year to year. (iii) If any portion of a Participant's Account balance includes Employer Stock which was acquired with the proceeds of an Acquisition Loan that has not been repaid in full, then distribution of such Employer Stock need not commence until the close of the Plan Year following the Plan, Year in which the Acquisition Loan is fully repaid. (b) Consent to Distribution Prior to Normal Retirement Age (1) If a Participant terminates his employment with the Employer and the value of his vested Account balance is not greater than $3,500, the Plan Administrator shall direct the distribution of such vested Account balance in a lump sum without the Participant's consent. (2) If the value of the Participant's vested Account balance is greater than $3,500, the Plan Administrator may direct the distribution of such vested Account balance only with the written consent of the Participant. In the event of the Participant's death, the Participant's surviving spouse, if a Beneficiary, must consent in writing to such distribution. (c) Required Distributions Before Death (1) General Rule. Effective January 1, 1989, distribution of Account balances must be made or commenced to the Participant not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2, regardless of whether the Participant has actually retired. (2) 1988 Terminations. Distributions to Participants who were not five percent (5%) owners, had not retired by January 1, 1989, and who attained age 70 1/2 during 1988 must be made or commenced by April 1, 1990. (3) Transition Rule. Distributions to Participants who were not five percent (5%) owners as defined in Code Section 416(i)(1)(B) and have attained age 70 1/2 before January 1, 1988, must be made or commenced by April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2, or the calendar year in which the Participant retires, if later. (d) Except as limited by Section 8.1(a) and in the absence of a request for distribution, the Plan Administrator shall direct the Trustee to make or commence distribution on or before the 60th day following the end of the Plan Year in which occurs the latest of the following events: (1) the date on which the Participant attains Normal Retirement Age; or (2) the date on which the Participant terminates his employment with the Employer. Section 8.2 Manner of Distribution (a) The Plan Administrator, pursuant to any election made by a Participant (or Beneficiary) shall direct the Trustee to make distribution of the Participant's Account to him or to his Beneficiary or Beneficiaries, as the case may be, in one or more of the following methods: (i) In one (1) lump sum; or (ii) In periodic payments of substantially equal amounts, payable not less frequently than annually for a period not extending beyond the life expectancy of the Participant or the joint life expectancies of the Participant and a Designated Beneficiary. (Designated Beneficiary shall mean any individual designated as a Beneficiary by a Participant.) (b) Notwithstanding the above, the Plan Administrator may direct the Trustee to distribute to a Participant or his Beneficiary, Employer Stock in substantially equal monthly, quarterly, semiannual, or annual installments over a period of not longer than five (5) years. In the case of a Participant with an account balance in the Plan in excess of $500,000, the five (5) year period shall be extended one (1) additional year (but not more than five (5) additional years) for each $100,000 or fraction thereof by which such balance exceeds $500,000. The foregoing dollar limits shall be adjusted to reflect cost of living increases as announced by the Secretary of Treasury. (c) In no event shall the amount paid to the Participant and his Designated Beneficiary exceed the amount of his Account. (d) Periodic distributions to a Participant who has attained age 70-1/2, must equal or exceed an amount determined in accordance with the rules provided in Prop. Treas. Reg. Section 1.401(a)(9)-l, whether in proposed or final form. Section 8.3 Form of Distribution (a) Distribution of a Participant's Account shall be made in whole shares of Employer Stock valued at their Fair Market Value Per Share as of the date set forth in Section 5.2, cash, or a combination of both Balances representing fractional shares will be distributed in cash. In the event Employer Stock is not available for distribution on the date a distribution is due hereunder, the Trustee shall hold such amount until Employer Stock is acquired. Notwithstanding the preceding, the Plan Administrator may distribute the amount of the Participant's Account in cash, provided that, in such case, the Participant shall have the right to demand in writing that such distribution be in the form of Employer Stock. (b) If the Employer's articles or bylaws restrict ownership of substantially all shares of Employer Stock to Employees and the Trust, the distribution of a Participant's Account may be made entirely in cash without granting the Participant the right to demand distribution in shares of Employer Stock. Section 8.4 Required Distribution After Death If a Participant dies prior to distribution of his entire vested Account balance, then distribution thereof after the death of the Participant must be made no later than and in accordance with the following: (a) If, prior to the death of the Participant, the distribution has commenced, the remaining portion of the Account balance shall be distributed at least as rapidly as under the method of distribution being used as of the date of death. (b) If, prior to the death of the Participant, the distribution has not commenced, the entire Account balance of the Participant must be distributed by December 31 of the fifth calendar year after the death of the Participant, except as provided in subparagraph (c) hereinbelow. (c) Restrictions of subparagraph (b) shall not apply to any portion of a Participant's Account balance which is payable to or for the benefit of a designated Beneficiary if: (1) Such a portion will be distributed over the life of such designated Beneficiary or over a period certain not extending beyond the Beneficiary's life expectancy, and the distribution commences on or before December 31 of the calendar year immediately following the calendar year of the date of the Participant's death; or (2) If the Beneficiary is the spouse of the Participant, distributions are not required to begin earlier than the later of (i) December 31 of the calendar year immediately following the calendar year in which the Participant died, or (ii) December 31 of the calendar year in which the Participant would have attained age 70-1/2. If the surviving spouse dies before the distributions to such spouse begin, then the 5-year distribution requirement of subparagraph (b) shall apply as if the spouse were the Participant. Section 8.5 Put Option (a) Employer Stock distributed pursuant to Section 8.3 hereof, shall be subject to a Put Option for two separate periods of time permitting the Participant, his donees or beneficiaries to sell such stock to the Employer. The first option period shall be a period of sixty days commencing on the date the stock subject to the option is distributed. The second option period shall be a period of sky days beginning on the date a Participant is notified of the Fair Market Value Per Share in the next Plan Year. The Participant shall be given written notice of the new Fair Market Value Per Share and of his option to have the Employer repurchase his stock at the new Fair Market Value Per Share. (b) The selling price of Employer Stock sold pursuant to such Put Option shall be the Fair Market Value as of the last valuation under Section 5.2. (c) If the Employer Stock was distributed to the Participant as part of a lump sum distribution, then payment of the purchase price under the Put Option may be deferred if the following conditions are satisfied: (1) The amount deferred is adequately secured; (2) A reasonable rate of interest is charged on the unpaid principal balance; and (3) Periodic payments are made at least annually in substantially equal installments over a period not to exceed 5 years from the date the Put Option is exercised, provided, the first such installment is paid within 30 days of said exercise date. In all other events the Employer Stock shall be repurchased no later than 30 days after the Participant exercises the Put Option. (d) In the event that the Employer Stock subject to the Put Option was purchased by the Trustee with the proceeds of a loan, the period specified in subparagraph (c)(3) above may be extended to a date no later than the earlier of 10 years from the date the Put Option is exercised or the date the proceeds of the loan used by the Trust to acquire the stock subject to the Put Option are entirely repaid (e) Notwithstanding the preceding, the Trustee may, but shall not be required to, assume the rights and obligations of the Employer under the Put Option. Section 8.6 Right of First Refusal (a) If any Participant, his Beneficiary or any other person to whom shares of employer Stock are distributed from the Plan (the "Selling Participant") shall, at any time, desire to sell some or all of such shares (the "Offered Shares") to a third party (the "Third Party"), the Selling Participant shall give written notice of such desire to the Employer and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party. (b) If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above. (c) The closing pursuant to the exercise of the right of first refusal under Section 8.6(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof to the Selling Participant. (d) Except as provided in this paragraph (d), no Employer Stock acquired with the proceeds of an Acquisition Loan shall be subject to a right of first refusal. Employer Stock, which is acquired with the proceeds of any Acquisition Loan which is distributed to a Participant or Beneficiary shall be subject to the right of first refusal, provided for in paragraph (a) of this Section only so long as the Employer Stock is not publicly traded. In addition, in the case of Employer Stock which was acquired with the proceeds of an Acquisition Loan, the selling price and other terms under the right must not be less favorable to the seller than the greater of the value of the security determined under Regulation 54.4975-11(d)(5), or the purchase price and other terms offered by a buyer (other than the Employer or the Trust Fund), making a good faith offer to purchase the security. The right of first refusal must lapse no later than fourteen (14) days after the security holder gives notice to the holder of the right that an offer by a third party to purchase the security has been made. The right of first refusal shall comply with the provisions of paragraphs (a), (b) and (c) of this Section, except to the extent those provisions may conflict with the provisions of this paragraph. (e) Certificates for shares distributed pursuant to the Plan shall contain the following legend: "The shares represented by this certificate are transferable only upon compliance with the terms of The G. R. HERBERGER'S, INC. EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") effective as of December 31, 1989, which grants to G. R. Herberger's, Inc. and the Plan a right of first refusal, a copy of said Plan being on file in the office of G. R. Herberger's, Inc." Section 8.7 Distribution Prior to a Five Consecutive Breaks in Service, Restoration of Forfeited Account (a) Conditions for Restoration. If a terminated Participant who incurred a Forfeiture under Section 6.4(b) is reemployed by the Employer prior to incurring five (5) consecutive one-year Breaks in Service and the reemployed Participant repays within five (5) years of his date of reemployment the amount of the distribution, if any, he received at his previous termination of employment, then the Plan Administrator shall restore the Participant's Account with the amount of the Forfeiture and the repaid amount. (b) Time and Method of Restoration. If the Participant has the right to make a repayment of his lump sum distribution under Section 8.7(a), then the Plan Administrator shall restore the Participant's Account as of the last day of the Plan Year in which the repayment is made. To restore the Participant's Account, the Plan Administrator, to the extent necessary, shalt allocate to the Participant's Account first, the amount, if any of Participant Forfeitures for the Plan Year; second, the amount of any special Employer contribution made for the purpose of restoring a Participant's Account; and third, the amount, if any of the Trust Fund net income or gain for the Plan Year. To the extent the amounts available for restoration under the immediately preceding sentence are insufficient to make the required restoration, the Employer shall contribute, without regard to any requirement or condition of Sections 4.1 or 4.8, such additional amount as is necessary to enable the Plan Administrator to make the required restoration. (c) Segregated Account for Repaid Amount. Until the Plan Administrator restores the Participant's Account balance under Section 8.7(b), the Trustee shall invest the amount the Participant has repaid in a segregated account maintained solely for that Participant. Until commingled with the balance of the Trust Fund on the date the Plan Administrator restores the Participant's Account, the Participant's segregated account shall remain a part of the Trust, but it alone shall share in any income it earns and it alone shall bear any expense or loss it incurs. Unless the repayment qualifies as a Rollover contribution, the Plan Administrator shall direct the Trustee to repay to the Participant as soon as is administratively practicable, the fun amount of the Participant's segregated account if the Plan Administrator determines that one or more of the conditions preventing repayment and restoration under Section 8.7(a) is applicable. Section 8.8 Reemployment After Distribution Has Been Made or Commenced In the event that a former Participant is reemployed by the Employer after distribution to him has been made or commenced, the following rules shall apply: (a) Further distribution of his Account shall be suspended and the undistributed remainder shall continue to be held in, the Trust Fund, it being the intent hereof that no distribution shall be made while a Participant is employed with the Employer. (b) Such former Participant shall again become a Participant in the Plan upon satisfaction of the requirements set forth in Section 3.3. Section 8.9 Designation of Beneficiaries (a) Each Participant may designate on forms to be furnished by the Plan Administrator, a Beneficiary or Beneficiaries to receive his Account in the event of his death and may change or revoke any such designation from time to time. No such designation, change or revocation shall be effective unless executed by the Participant and delivered to the Plan Administrator during the Participant's lifetime. In the event that a Participant shall have failed to designate a Beneficiary, or Beneficiaries, or the Beneficiary or Beneficiaries, as the case may be, shall have failed to survive the Participant, the Participant's Account shall be payable to the first class of the following classes of Beneficiaries then surviving and, except in the case of his surviving issue, in equal shares if there are then more than one in each class: (1) Participant's surviving spouse, (2) Participant's surviving issue per stirpes and not per capita, (3) Participant's surviving parents, (4) Participant's surviving brothers and sisters, (5) Representatives of the Participant's estate. For this purpose, "per stirpes" means in equal shares among living children and the issue of deceased children, the latter taking by right of representation, and "issue" means all persons who are descended from the person referred to, either by legitimate birth or legal adoption. (b) If a Participant designates a Beneficiary other than such Participant's spouse to receive his Account in the event of his death, such designation shall not take effect unless: (1) The Participant's spouse consents in writing to the election, and such consent acknowledges the effect of such election and is witnessed by a Plan representative or a Notary Public; or (2) It is established by the Participant in writing to the satisfaction of the Plan Administrator that the consent required under subparagraph (1) may not be obtained because there is no spouse; because the spouse cannot be located; or because of such other circumstances provided by regulations issued under the Code. Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) under subparagraph (2) above shall be effective only with respect to such spouse. Section 8.10 Minors and Persons Under Intel Disability If any person to whom a benefit is, payable hereunder is a minor, or if the Plan Administrator determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability, the Trustee shall have power to cause the payment becoming due to such person to be made to another for his benefit. Any payment made pursuant to such power shall, as to such payment operate as a complete discharge of the Trustee, provided that due care is exercised in selecting the recipient. Section 8.11 Interest of Persons Who Cannot Be Located In the event that a Participant or Beneficiary who has been determined to be entitled to a distribution hereunder cannot be located by the Trustee after reasonable, good faith effort, said funds shall be reallocated among the Participants as a Forfeiture. Thereafter if the Participant or Beneficiary entitled to the vested Account balance is located or claims the vested Account balance, such vested Account balance shall be reinstated from Forfeitures for such Plan Year or from any special Employer contributions made for the purpose of restoring a Participant's Account. Such Account balance shall then be distributed to the Participant or Beneficiary in accordance with this Article VIII. Section 8.12 Non-alienation of Benefits Except in the case of Qualified Domestic Relations Orders, pursuant to Article XII hereof, benefits payable under the provisions of this Plan shall not be subject, in any manner, to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind either voluntary or involuntary, prior to actually being received by the person entitled to the benefit under the terms of the Plan and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. The Trust shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. Section 8.13 Distribution Upon Attaining Age 59-1/2 (a) A Participant who has not terminated employment but who has attained age 59-1/2 may elect to withdraw all or any portion of his vested account balance as of the end of a Plan Year. (b) If a Participant elects to withdraw all or part of his vested Account balance by making a written request for a distribution, then a distribution of the Participants' vested Account balance shall be made within one year after the end of the Plan Year to which the election applies. The amount of such distribution shall be equal to the requested amount, but not more than the greater of (i) an amount determined by the Plan Administrator or (ii) the maximum annual distribution allowed under Section 498OA(c)(1) for non-lump sum distributions without incurring an excise tax, for the Plan Year in which the request is made. The amount to be determined by the Plan Administrator shall be determined for each Plan Year as of the last day of the Plan Year, and may be changed from year to year. Section 8.14 Distribution Due to Hardship (a) At any time, the Plan Administrator, in accordance with regulations and/or rules adopted and implemented by it in a uniform, nondiscriminatory manner, may allow a Participant to withdraw all or a portion of the Participant's Elective Deferral Account attributable solely to the Participant's Elective Deferral Contributions (without any income attributable thereto) after receiving a written request from a Participant, but only if such withdrawal is made necessary by reason of a Participant's financial hardship. (b) For this purpose, "financial hardship" shall mean such circumstances of a Participant which create an immediate and heavy financial need for which funds are not reasonably available from other resources of the Participant. The Plan Administrator shall, in its sole discretion, determine all requests for a hardship distribution hereunder in a uniform and nondiscriminatory manner. A distribution under this Section 8.14 shall be permitted only if the distributions is on account of any of the following circumstances: (1) Accident or illness of the Participant, the Participant's spouse or any dependents of the Participant (as defined in Code Section 152), but only to the extent necessary to defray expenses of medical and/or hospital care, described in Code Section 213(d), reasonably attributable to such accident or illness or M health or to preserve the health of such Participant or such dependent; (2) The payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, the Participant's spouse or children, or any dependent of the Participant (as defined in Code Section 152); (3) The cost of purchase or construction of the principal residence of the Participant, not including making mortgage payments; (4) The cost of preventing eviction or mortgage foreclosure on the principal residence of the Participant; (5) Such distributions as specifically permitted under regulations issued by the IRS; or (6) Funeral expenses for a member of the Participant's family. (c) No more shall be distributed than is actually required to meet the hardship, plus the amount necessary to pay any federal, state or local income taxes or penalties resulting from the distribution. For purposes of this requirement, no distribution shall be made under this Section 8.14, unless the Plan Administrator determines, upon the Participant's representation and such other facts as are known to the Administrator, that all of the following conditions are satisfied: (1) The distribution does not exceed the amount of the need, plus the "gross up" for federal, state or local taxes and penalties anticipated on the distribution; (2) Hardship distribution aside, the Employee has obtained all distributions and all nontaxable loans currently available under all plans maintained by the Employer; (3) Any elective deferral agreement(s), whether under this Plan or any other plan maintained by the Employer, of any Participant who obtains a hardship distribution, shall be suspended for at least twelve (12) months after receipt of the hardship distribution; and (4) Elective Deferral Contributions of such Participant for the taxable year immediately following the taxable year of the hardship distribution may not exceed the applicable limit on elective deferrals under Code Section 402(g), minus the Participant's Elective Deferral Contributions for the taxable year of the hardship distribution. (For purposes of this rule, Elective Deferral Contributions shall include such elective deferrals under all plans maintained by the Employer.) Notwithstanding the suspension from participation as set out above, an Employee will still be considered an eligible Employee for purposes of Section 4.13. (d) The Plan Administrator may rely upon a notarized affidavit of a Participant which states that he has a financial need (specific as to the nature and amount) and that he has no other funds which are reasonably suitable from other sources, except to the extent that the persons to whom the Plan Administrator has designated the responsibility administering the provision have knowledge that such representations are not true. (e) Hardship distributions shall be treated and reported as taxable distributions for the Participant's taxable year during which the withdrawal occurs. (f) Except as otherwise provided in this Section 8.14, Elective Deferrals shall be distributed in accordance with the other provisions of Article VIII hereof. Section 8.15 Direct Rollovers (a) Election. This Section 8.15 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of this Plan to the contrary that would otherwise limit a "distributee's" election under this Section, a "distributes" may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an "eligible rollover distribution" paid directly to an "eligible retirement plan" specified by the "distributes" in a "direct rollover." (b) Administration. The election in Section 8.15(a) shall be subject to such reasonable procedures and requirements as may be prescribed by the Plan Administrator. (c) Definitions. For purposes of this Section 8.15, the following terms are defined as follows: (1) "Eligible rollover distribution:" An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributes or the joint lives (or joint life expectancies) of the distributes and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includable in gross income (determined without regard to the "exclusion for net unrealized appreciation with respect to employer securities). (2) "Eligible retirement plan:" An eligible retirement plan is an individual retirement account described in Code Section 408(a); an individual retirement annuity described in Code Section 408(b); an annuity plan described in Section 403(a) of the Code; or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) "Distributee:" A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) "Direct rollover:" A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. ARTICLE IX - TOP-HEAVY PLAN PROVISIONS Section 9.1 Definitions As used in this Article IX the following terms shall mean: (a) "Top-heavy" Plan. The Plan will be Top-Heavy if, as of the Determination Date for such Plan Year: (1) The aggregate of the Account(s) of Key Employees under the Plan exceeds sixty percent (60%) of the aggregate of the Accounts of all Participants under the Plan, unless the Plan is part of an Aggregation Group which is not Top-Heavy; or (2) the Plan is part of an Aggregation Group which is Top-Heavy. For purposes of determining whether on each Determination Date the Plan is a Top-Heavy Plan, the Accounts of Non-Key Employees who during any prior Plan Year were Key Employees shall be disregarded. If an Employee has not performed any services for the Employer at any time during the five year period ending on the Determination Date, the Account balance of such Employee shall be disregarded. (b) "Aggregation Group" (1) A required Aggregation Group consists of the following plans: (i) Each plan of an Employer in which a Key Employee is a participant in the plan year containing the Determination Date, or any of the four preceding plan years; and (ii) Each plan of an Employer which enables a plan described in clause (i) to meet the requirements of Code Sections 401(a)(4) or 410. (2) A permissive Aggregation Group consists of the following plans: (i) Any plan included in (b)(1), and (ii) Any other plan designated by an Employer provided that by including such plan, the Aggregation Group would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code. (c) Top-heavy Aggregation Group. An Aggregation Group is Top-Heavy if the sum of: (1) the present value of the cumulative accrued benefits for Key Employees under all defined, benefit plans included in such group, and (2) the aggregate of the accounts of Key Employees under all defined contribution plans included, in such group, exceeds sixty percent (60%) of a similar sum determined for all Employees. (d) A "Key Employee" is any Employee or former Employee (including a Beneficiary of such Employee) who at any time during the Plan Year or any of the four preceding Plan Years is: (1) an officer of the Employer with annual compensation greater than fifty percent (50%) of the dollar limit in effect under Section 415(b)(1)(A) of the Code for such Plan year (as adjusted for cost of living increases), provided that no more than fifty employees, (or if less, the greater of three Employees) or ten percent of all Employees shall be treated as officers; (2) one of the ten Employees who have annual compensation from the Employer greater than the limitation in effect under Section 415(c)(1)(A) of the Code for such Plan Year (as adjusted for cost of living increases) and who owns one of the largest interests (which interest is more than a one-half percent (.05%) interest) in the Employer; (3) a five percent (5%) owner of the Employer; or (4) a one percent (1%) owner of the Employer who has an annual compensation of more than $150,000.00; The constructive ownership rules of Section 318 of the Code (substituting "5 percent" for "50 percent" in subparagraph (C) of Section 318(a)(2)), shall be applicable to (2), (3) and (4) above. For purposes of subparagraph (2), if two Employees have the same interest in the Employer, the Employee having greater annual compensation from the Employer shall be treated as having a larger interest. The Plan Administrator will make the determination of who is a Key Employee in accordance with Section 416(i)(1) of the Code and the regulations issued thereunder, which this Plan hereby incorporates by reference. (e) A "Non-Key Employee" is an Employee who is not a Key Employee, and includes the Beneficiary of such Employee. (f) The "Determination Date," with respect to any Plan Year commencing on or after January 1, 1984, means the last day of the preceding Plan Year. In the case of a new Plan, the Determination Date shall be the last day of the first Plan Year. (g) The "Valuation Date" is the Determination Date as of which account balances are valued for purposes of calculating the top-heavy ratio. (h) "Account" of a Participant, with respect to the Plan, or (if applicable) the Aggregation Group of which the Plan is a part, means as of any Determination Date: (1) the Account balance(s) of such Participant; plus (2) the contributions due as of the Determination Date; plus (3) the aggregate distributions made from the plan(s) to such Participant within five (5) years thereof; less (4) any rollover amount contributed to this Plan by a Participant after December 31, 1983, but only to the extent permitted by regulations issued under Section 416(i)(4)(A) of the Code. Section 9.2 Determination of Top-Heavy The Plan Administrator shall determine on each Determination Date whether the Plan is Top-Heavy. In making its determination, the Plan Administrator shall include all plans of a required Aggregation Group and any plans of the permissive Aggregation Group it determines to be appropriate for inclusion. The Determination of Account balances and the present value of accrued benefits is made separately for each plan and then the results of these determinations are aggregated by adding together the results for each plan as of the Determination Date for such plans that fall within the same calendar years. For purposes of determining whether the Plan is Top Heavy, if the Employer is a member of a Controlled Group, then all employees of the Controlled Group shall be treated as Employees of the Employer and all qualified plans maintained by the Controlled Group shall be treated as maintained by the Employer. Section 9.3 Minimum Contribution For Plan Years during which the Plan is determined to be Top-Heavy, allocation of the Employer contributions, if any, shall be subject to the following rules: (a) Each Participant employed on the last day of the Plan Year shall receive a minimum allocation of the Employer contributions to his Account of not less than three percent (3%) of the Participant's compensation (within the meaning of Section 415 of the Code and regulations issued thereunder), whether or not such Participant had sufficient Hours of Service to entitle such Participant to any allocation provided, however, that such minimum allocation shall not exceed the highest percentage of Employer contributions allocated to any Key Employee for such Plan Year. (b) Any allocation made hereunder shall be offset by any Employer contribution allocation made to the Participant's account in another qualified plan maintained by the Employer which is in an Aggregation Group with this Plan. (c) After the satisfaction of the minimum allocation rule of subsection (a), any remaining Employer contributions shall be allocated to Participants' Accounts in accordance with Section 4.3. Section 9.4 Limitation on Compensation Taken Into Account Prior to January 1, 1989, for any Plan Year during which the Plan is Top-Heavy, the Plan shall not for any purposes take into account Compensation for any Participant in excess of $200,000 or such greater amount announced by the Secretary of the Treasury to reflect cost-of-living increases. Section 9.5 Vesting for Top-Heavy Plan (a) Commencing on the first day of any Plan Year for which the Plan is determined to be Top-Heavy, the following vesting schedule shall be substituted for the vesting schedule of Section 6.2 and Section 6.7 of this Plan: Years of Service with Employer Vested Percentage ------------------ --------------------- Fewer than 2 years None 2 years but fewer than 3 20% 3 years but fewer than 4 40% 4 years but fewer than 5 60% 5 years but fewer than 6 80% 6 years or more 100% (b) All Years of Service shall be calculated without regard to whether the Plan was Top-Heavy during the applicable Plan Year. (c) If the Plan becomes Top-Heavy and thereafter ceases to be Top-Heavy, the foregoing vesting schedule shall continue to apply in determining the nonforfeitable interest of any Participant who had at least three (3) Years of Service of the last day of the Plan Year in which the Plan was Top-Heavy. For other Participants, the above schedule shall apply only to their Account as of the last day of the last Plan Year in which the Plan was Top-Heavy. Section 9.6 Combined Plan Limitations For any Plan Year during which the Plan is Top-Heavy, the dollar limitation percentages in the Defined Benefit Plan fraction and Defined Contribution Plan fraction of Section 4.7 shall be one hundred percent (100%) rather than one hundred twenty-five percent (125%). This Section 9.6 shall not be effective and the limitation percentages shall remain at 125% if the Plan would satisfy Section 9.3 if "four percent (4%)" were substituted for "three percent (3%)" therein, and the Plan, or Aggregation Group of which the Plan is a part, would not be Top-Heavy under Section 9.1(a) or 9.1(c), as applicable, if "ninety percent (90%)" were substituted for "sixty percent (60%)" therein. ARTICLE X - PLAN ADMINISTRATION Section 10.1 Employer Responsibility The Employer, or if there is more than one Employer, the Sponsor shall be the Plan Administrator. Section 10.2 Powers and Duties of the Plan Administrator (a) The Plan Administrator shall be responsible for and shall control and manage the operation and administration of the Plan. (b) The Plan Administrator shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan. (c) The Plan Administrator shall direct-the Trustee concerning all payments which shall be made out of the Trust pursuant to the Plan. (d) At the end of each Plan Year the Employer shall submit to the Plan Administrator the names of all Participants and the amount of contribution to be made by the Employer. The Plan Administrator shall then allocate the Employer contribution to all eligible Participants and shall transmit this information to the Trustee. (e) The Plan Administrator shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan, including but not limited to questions of eligibility and the status and rights of Participants, Beneficiaries and other persons. Any such determination by the Plan Administrator shall be made in its sole discretion and shall be presumptively conclusive and binding on any persons. The regularly kept records of the Employer shall be conclusive and binding upon all persons with respect to an Employee's Hours of Service, date and length of employment, time and amount of Compensation and the manner of payment thereof, type and length of any absence from work and all other matters contained therein relating to Employees. (f) The Plan Administrator may require each Participant and each Beneficiary of a deceased Participant to furnish evidence, data or information as the Plan Administrator considers necessary or desirable for purposes of administering the Plan, including his post office address and any change in post office address. (g) AU rules and determinations of the Plan Administrator shall be uniformly and consistently applied to all persons in similar circumstances. (h) The Plan Administrator may appoint accountants, counsel, specialists, and other persons as it deems necessary or desirable in connection with the administration of this Plan. The Plan Administrator shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by it in good faith in relying upon, any opinions or reports which shall be furnished to it by any such accountant, counsel, specialist or other person. Section 10.3 Records and Reports of the Plan Administrator The Plan Administrator shall keep a record of all its proceedings and acts and shall keep all such books of account, records, and other data as may be necessary for proper administration of the Plan. The Plan Administrator shall notify the Trustee and the Employer of any action taken by it and, when required, shall notify any other interested person or persons. The Plan Administrator shall have a copy, of this Plan and a copy of the Trust Agreement available at the principal office of the Employer during business hours. Such of its records as may pertain solely to a particular Participant shall be made available to such Participant, either by periodic reports of presentation for examination by such Participant during business hours. Section 10.4 Plan Administrative Committee The Board of Directors of the Sponsor may, in its discretion, appoint a committee of one or more persons, to be known as the Plan Administrative Committee (Committee) to act as the agent of the Sponsor in performing the duties of the Sponsor. The members of the Committee shall serve at the pleasure of the Board of Directors; they may be officers, directors, or Employees of the Employer or any other individuals. Any member may resign by delivering his written resignation to the Board of Directors and to the Committee. Vacancies in the Committee arising by resignation, death, removal or otherwise, shall be filled by the Board of Directors. The Sponsor shall advise the Trustee in writing of the names of the members of the Committee and of changes in membership from time to time. Section 10.5 Organization and Operation of the Plan Administrative Committee (a) If the Board of Directors of the Sponsor appoints a Committee, the Committee shall act by majority vote of its members at the time in office, and such action may be taken either by a vote at a meeting or in writing without a meeting. The signatures of a majority of the members will be sufficient to authorize Committee action. A Committee member shall not participate in discussions of or vote upon matters pertaining to his own participation in the Plan. (b) The Committee may authorize any of its members or any other person to execute any document or documents on behalf of it, in which event the Committee shall notify the Trustee in writing of such action and the name or names of such member or person. The Trustee thereafter shall accept and rely upon any document executed by such members or persons as representing action by the Plan Administrator, until the Committee shall file with the Trustee a written revocation of such designation. (c) The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. These rules may be made available to the Employer and the Participants as determined by the Committee. Section 10.6 Compensation and Responsibility for Payment of Expenses of the Plan Administrator The Plan Administrator or members of the Committee who are Employees of the Employer shall serve without compensation for services, as such, but all proper expenses incurred by the Plan Administrator incident to the ' functioning of the Plan may be paid in whole or in part by the Employer and any expenses not paid by the Employer shall be paid by the Trustee out of - the principal or income of the Trust Fund; provided, however, that unusual costs and expenses of litigation involving the Plan and losses, if any, of the Plan of any kind or character, shall be deemed expenses of the Plan and shall be borne by, and paid out of the Plan assets, except to the extent the Board of Directors elects to have such expenses paid directly by the Employer. Section 10.7 Indemnity of Plan Administrator or Plan Administrative Committee Members The Sponsor shall indemnify and defend the Plan Administrator or, if the Board of Directors of the Sponsor has appointed a Committee each member of the Committee and each of its other Employees against any and all claims, loss, damages, expenses (including reasonable attorneys fees), and liability arising in connection with the administration of the Plan, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such member or other Employee. The Employer may purchase liability insurance to cover the Plan Administrator or members of the Committee against loss, claims, damages or expense. Section 10.8 Claims Procedure Claims for benefits under the Plan shall be made in writing to the Plan Administrator. Within 30 days after the filing of such a claim, the Plan Administrator shall, notify the claimant in writing whether his claim is upheld or denied. A notice of denial shall be written in a manner calculated to be understood by the claimant, and shall contain (i) the specific reason or reasons for denial of the claim, (ii) a specific reference to the pertinent Plan provisions upon which the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary, and (iv) an explanation of the Plan's review procedure. Within sixty (60) days of the receipt by the claimant of the written notice of denial of the claim, the claimant or his duly authorized agent may file a written request with the Plan Administrator that it conduct a full and fair review hearing of the denial of the claimant's claim for benefits. In connection with the claimant's appeal of the denial of his benefit, the claimant or his duly authorized representative may review pertinent documents and may submit issues and comments in writing within 30 days of filing such request for review. The Plan Administrator shall render a decision on the claim appeal promptly, but not later than sixty (60) days after the receipt of the claimant's request for review, unless special circumstances (such as the need to hold a hearing, if necessary) require an extension of time for processing, in which case the sixty (60) day period may be extended to one hundred and twenty (120) days. The Plan Administrator shall notify the claimant in writing of any such extension. The decision upon review shall be communicated to the claimant within thirty days of the hearing and shall (i) include specific reasons for the decision, (ii) be written in a manner calculated to be understood by the ' claimant and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based. Section 10.9 Voting Right (a) In accordance with the requirements of Code Section 409(e), a Participant shall be entitled to direct the Trustee as to the manner in which voting rights of Employer Stock which is acquired by the Trust and allocated to his Account are to be exercised only with respect to any corporate matters which involve the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as may be prescribed by regulations. (b) A Participant shall be entitled to direct the Trustee as to the manner in which voting rights of the Employer Stock which was acquired with the proceeds of an Acquisition Loan entitled to the interest exclusion under Section 133 of the Code and allocated to his Account are to be exercised with respect, to all corporate matters subject to shareholder vote. (c) On matters subject to vote by shareholders, the Trustee shall vote the shares of (i) Employer Stock in the Account of a Participant to which no voting instructions have been received (whether or not the Participant has voting rights with respect to such matter), and (ii) unallocated Employer Stock held in the Shares Suspense Account, held as an advance Employer Contribution or held pending reallocation as a Forfeiture. The Trustee shall vote the shares of such Employer Stock in the manner directed by the Board of Directors of the Sponsor. (d) Before each meeting of shareholders which involves matters that Participants have the right to direct the Trustee as to the manner of voting allocated shares, the Committee shall, within a reasonable time before such meeting, provide each Participant or Beneficiary entitled under this section to direct the voting of Employer Stock with notice of such meeting, together with an appropriate form requesting directions on how such shares of Employer Stock allocated to such Participant's Account shall be voted on each such matter subject to direction. Section 10.10 Bonding Every Fiduciary, except a bank or an insurance company, unless exempted by ERISA, shall be bonded in an amount not less than 10% of the amount of the Trust funds such Fiduciary handles with a minimum bond of $1,000 and a maximum bond of $500,000. The cost of such bond(s), shall be an expense of and may, at, the election of the Employer, be paid from the Trust Fund or by the Employer. ARTICLE XI - PLAN LOANS Section 11.1 Plan Loans Loans to Participants are not permitted under this Plan. ARTICLE XII - QUALIFIED DOMESTIC RELATIONS ORDERS Section 12.1 Permissible Assignment Notwithstanding any provision to the contrary herein, the Plan Administrator may assign the interest of a Participant in the Plan (or in a succeeding plan of the Employer or in the plan of a successor Employer) to an Alternate Payee pursuant to a Qualified Domestic Relations Order. The provisions of this Article shall control in the event the Plan receives a Qualified Domestic Relations Order with respect to a Participant's interest in the Trust Fund. Section 12.2 Definitions (a) Alternate Payee shall mean a (1) spouse, (2) former spouse, (3) child, or (4) other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all, or a portion of, a Participant's benefits under the Plan. An Alternate Payee is treated as a Beneficiary for all purposes under the Plan. (b) Earliest Retirement Date under this Plan for purposes of this Article XII shall mean the earliest of (1) the date on which the Participant is entitled to a distribution under the Plan; or (2) the earliest date on which the Participant could begin receiving benefits under the Plan if the Participant had separated from service, as provided under Article VIII of the Plan. (c) Qualification Procedures shall mean written procedures adopted by the Plan Administrator to determine whether domestic relations orders meet the requirements set out in paragraph (d), below, and to administer distributions under such orders. The procedures shall be implemented within a reasonable time after receipt of a domestic relations order by the Plan Administrator. Qualification Procedures must permit an Alternate Payee to designate a representative for receipt of copies of notices sent to the Alternate Payee with respect to a Qualified Domestic Relations Order. (d) Qualified Domestic Relations Order shall mean a judgment, decree or order, including approval of a property settlement agreement, that relates to provision of child support, alimony payments, or marital property rights to an Alternate Payee, is made pursuant to state domestic relations law, including a state community property law, and creates an Alternate Payee's right to all or a portion of the benefits payable to a Participant under the Plan. A Qualified Domestic Relations Order must specify: (1) the name and last known mailing address of each Alternate Payee, (2) the amount or percentage of the Participant's benefits to be paid to the Alternate Payee or the manner in which the amount is to be determined, (3) the number of payments or period for which payments are required, and (4) each plan to which the order relates. An order does not qualify under this definition if it: (i) requires the Plan Administrator to provide a benefit or option not available under the Plan, (ii) requires the Plan to provide increased benefits or (iii) requires payment of benefits to an Alternate Payee that are required to be paid to another Alternate Payee under a previously existing Qualified Domestic Relations Order. Section 12.3 Notification The Plan Administrator shall promptly give written notification to the Participant and to the Alternate Payee of receipt of a domestic relations order and of Plan Qualification Procedures. The Plan Administrator shall then proceed with Qualification Procedures to determine whether the order is a Qualified Domestic Relations Order and shall notify the Participant and Alternate (or the Alternate Payee's designated representative) of its determination. Section 12.4 Disposition of Disputed Funds (a) During the period in which the Plan Administrator is making its determination of the qualified status of the Domestic Relations Order, a separate accounting shall be maintained for any amounts which would be payable to the Participant. (b) if the order is determined to be a Qualified Domestic Relations Order within the 18-month period beginning on the date on which the first payment would be required to be made under the order, the Plan Administrator shall direct the Trustee to distribute the amounts in accordance with the order. (c) if the Plan Administrator determines that the order is not a Qualified Domestic Relations Order, or has not made a determination within the 18-month period described in (b) the Plan Administrator shall direct the Trustee to pay such amounts to the persons who would have received the amounts if the order had not been issued. (d) If an order is qualified after expiration of the 18-month period described in (b), payment-of benefits to an Alternate Payee shall proceed prospectively and the Plan shall not be liable to an Alternate Payee for benefits attributable to the period prior to qualification. Section 12.5 Payment of Benefits The Plan Administrator shall comply with any Qualified Domestic Relations Order requiring that benefits be paid to an Alternative Payee beginning not earlier than the Participant's Earliest Retirement Date, provided, however, that in determining the time, manner and form of distribution under Article VIII, the Alternate Payee shall be treated in the same manner as a Participant who has separated from service. Section 12.6 Form of Payment Payment of benefits pursuant to a Qualified Domestic Relations Order shall be made only as permitted under the Plan. ARTICLE XIII - AMENDMENTS AND ACTION BY SPONSOR/EMPLOYER Section 13.1 Amendments The Sponsor reserves the right to make from time to time any amendment or amendments to this Plan in any manner it deems necessary or advisable. However, no amendment shall be made which authorizes or permits any of the Trust Fund, other than the part which is required to pay taxes and administration expenses, to be used for or diverted to purposes other than for the exclusive benefit of the Participants or Beneficiaries. No amendment shall cause or permit any portion of the Trust Fund to revert to or become a property of the Employer, and no amendment which affects the rights, duties or responsibilities of the Trustee, Plan Administrator, or an Employer may be made without the written consent of the affected party. Section 13.2 Action by Sponsor/Employer Any action by the Sponsor or an Employer under this Plan may be by resolution of its Board of Directors or by any person or persons, duly authorized by resolution of the Board of Directors to take action. However, neither the Trustee nor the Plan Administrator (if other than the Sponsor) shall have any obligation or responsibility with respect to any action required by the Plan to be taken by the Sponsor or the Employer, any Participant or eligible Employee, nor for the failure of any of those period to act or make any payment or contribution, or to otherwise provide any benefit contemplated under this Plan. The Trustee or the Plan Administrator (if other than the Sponsor or the Employer) shall not be required to collect any contribution required under the Plan, or determine the correctness of the amount of the Employer contribution. Section 13.3 Plan Ceases to Constitute an ESOP In the event that the Plan is terminated pursuant to Section 15.1 hereof, or is amended in a manner which causes the Plan to cease being an ESOP, any Employer Stock distributed to the Participants in liquidation of the Trust Fund, or held by the Trustee if the Trust Fund is not liquidated, which was acquired with Acquisition Loan proceeds shall continue to be subject to the provisions of Section 8.5, relating to the Put Option requirement, and the Trust Agreement. ARTICLE- XIV - SUCCESSOR SPONSOR AND MERGER OR CONSOLIDATION OF PLANS Section 14.1 Successor Sponsor In the event of the dissolution, merger, consolidation or reorganization of the Sponsor, provisions may be made by which the Plan and Trust will be continued by the successor. In that event, such successor shall be substituted for the Sponsor under the Plan. The substitution of the successor shall constitute an assumption of the Plan liabilities by the successor and the successor shall have all the powers, duties and responsibilities of the Employer under the Plan. Section 14.2 Plan Assets In the event of the merger or consolidation of this Plan with, or transfer of assets and liabilities of this Plan to, any other Plan, each Participant shall be entitled (if such other Plan had then terminated) to receive a benefit immediately after the merger, consolidation or transfer which is not less than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated). ARTICLE XV - PLAN TERMINATION Section 15.1 Termination of Plan and Trust The Employer shall have the right, at any time, to suspend or discontinue its contributions under the Plan, and to terminate, at any time, this Plan and the Trust created thereunder. The Plan shall terminate (as to any Employer) upon the first to occur of the following: (a) The date terminated by action of the Board of Directors, provided the Board gives the Trustee thirty (30) days' prior written notice of the termination; (b) The date the Employer shall be judicially declared bankrupt or insolvent; (c) The dissolution, merger, consolidation or reorganization of the Employer, or the sale by such Employer of all or substantially all of its assets, unless the successor or purchaser makes provision to continue the Plan, in which event the successor or purchaser shall substitute itself as such Employer. Section 15.2 Full Vesting Notwithstanding any other provision in this Plan to the contrary, upon a full or partial termination of the Plan, or upon complete discontinuance of contributions, an affected Participant's right to his Account shall be one hundred percent (100%) nonforfeitable. Section 15.3 Distribution of Trust Fund Upon a termination of the Plan, the Employer at its option may direct and require the Trustee to liquidate the Trust Fund or the applicable portion thereof, and distribute the same to interested Participants. If the Employer does not direct the Trustee to liquidate the Trust Fund upon a termination of the Plan, then the provisions of Article VIII shall remain operative, and the Trust shall continue until the Trustee has distributed all of the benefits under the Plan. On each Valuation Date, the Plan Administrator shall credit any part of a Participant's Account retained in the Trust Fund with its proportionate share of the Trust Fund's income, expenses, gains and losses, both realized and unrealized, until such Account has been fully distributed. ARTICLE XVI - MISCELLANEOUS Section 16.1 Non-Guaranty of Employment Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee or as a right of any Employee to be continued in the employment of the Employer or as a limitation of the right of the Employer to discharge any of its Employees with or without cause. Section 16.2 Rights to Trust Assets No Employee shall have any right to or interest in any assets of the Trust Fund upon termination of his employment or otherwise, except as provided from time to time under this Plan and then only to the extent of the benefits payable under the Plan to such Employee out of the assets of the Trust Fund. Except as otherwise may be provided under Title IV of ERISA, all payments of benefits as provided for in this. Plan shall be made solely out of the assets of the Trust Fund and none of the Fiduciaries shall be liable therefor in any manner. Section 16.3 Word Usage Words used in the masculine shall apply to the feminine where applicable; and wherever the context of the Plan dictates, the plural shall be read as the singular and the singular as the plural. G.R. HERBERGER'S, INC EMPLOYEE STOCK OWNERSHIP TRUST AGREEMENT AND DECLARATION OF TRUST TABLE OF CONTENTS PAGE ARTICLE I - ESTABLISHMENT OF TRUST FUND. . . . . . . . . . . . . . . .1 Section 1.1 Establishment of Trust Fund. . . . . . . . . . .1 Section 1.2 Other Trusts . . . . . . . . . . . . . . . . . .1 ARTICLE II - COMPOSITION OF TRUST FUND . . . . . . . . . . . . . . . .1 ARTICLE III - TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . .2 Section 3.1 Appointment and Resignation of Trustees. . . . .2 Section 3.2 Change of Trustees . . . . . . . . . . . . . . .2 Section 3.3 Final Accounting . . . . . . . . . . . . . . . .2 ARTICLE IV - MANAGEMENT AND INVESTMENT OF THE FUND . . . . . . . . . .3 Section 4.1 Duties of Trustee. . . . . . . . . . . . . . . .3 Section 4.2 Trustee Investment Responsibility. . . . . . . .3 Section 4.3 Loans by Trustee . . . . . . . . . . . . . . . .3 Section 4.4. Collective Investment Trust. . . . . . . . . . .4 Section 4.5 Insurance. . . . . . . . . . . . . . . . . . . .4 Section 4.6 Other Powers . . . . . . . . . . . . . . . . . .4 Section 4.7 Loans to Participants. . . . . . . . . . . . . .5 Section 4.8 Voting of Employer Stock . . . . . . . . . . . .6 ARTICLE V - VALUATION OF PLAN ASSETS . . . . . . . . . . . . . . . . .6 ARTICLE VI - RECORDKEEPING AND ACCOUNTINGS BY TRUSTEE. . . . . . . . .6 ARTICLE VII - REQUIREMENT OF WRITTEN REQUESTS AND INSTRUCTIONS TO TRUSTEE. . . . . . . . . . . . . . . . . . . . .6 ARTICLE VIII - STANDARD OF CONDUCT . . . . . . . . . . . . . . . . . .7 ARTICLE IX - TERMINATION OF THE PLAN . . . . . . . . . . . . . . . . .7 ARTICLE X - AMENDMENT OF TRUST AGREEMENT . . . . . . . . . . . . . . .7 ARTICLE XI - ADMINISTRATIVE EXPENSES AND COMPENSATION OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 ARTICLE XII - SITUS. . . . . . . . . . . . . . . . . . . . . . . . . .8 AGREEMENT AND DECLARATION OF TRUST This Agreement and Declaration of Trust, is made by and between the undersigned, hereinafter referred to respectively as the "Employer" and the "Trustee". WHEREAS, the Employer has adopted an employee stock ownership plan and amended it to include a Section 401(k) plan to be known as the G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan ("Plan"), the provisions of which are incorporated herein by reference and a copy of which is annexed hereto, for the benefit of the Participants as therein defined and their Beneficiaries; and WHEREAS, the Employer deems it to be appropriate to amend the Agreement and Declaration of Trust; NOW, THEREFORE, the Employer and Trustee do hereby agree and declare each with the other as follows: ARTICLE I - ESTABLISHMENT OF TRUST FUND Section 1.1 Establishment of Trust Fund The Employer hereby establishes with the Trustee, pursuant to the Plan, a trust comprised of contributions by the Employer and Participants and earnings and profits thereon, together with such other payments acceptable to the Trustee as shall from time to time be paid or delivered to the Trustee by or on behalf of the Employer or any other employer authorized to maintain the Plan and the earnings and profits thereon. AR such money and property, all investments made therewith and proceeds thereof and all earnings and profits thereon, less payments which at the time of reference shall have been made by he Trustee, as authorized herein, are referred to herein as the 'Trust Fund!'. ne Trust Fund shall be held by the Trustee in trust and dealt with in accordance with the provisions of this Agreement and Declaration of Trust. Section 1.2 Other Trusts Nothing contained in this Agreement and Declaration of Trust shall be construed to prevent the same Trustee named herein from acting as Trustee for plans of other employers. ARTICLE II - COMPOSITION OF TRUST FUND The Trust Fund shall be composed of all sums of money and of all property acceptable to the Trustee, and received by the Trustee to be held in trust hereunder as evidenced by its receipts, from whatever source received together with all investments made therewith, the proceeds thereof, and all earnings and accumulations thereon, or the part thereof from time to time remaining. ARTICLE- III - TRUSTEES Section 3.1 Appointment and Resignation of Trustees Appointment of Trustees shall be the responsibility of the Board of Directors of the Sponsor. Any Trustee may resign at any time on giving sixty days notice in writing to the Sponsor or the Sponsor may discharge any Trustee on similar notice, unless the Sponsor and Trustee agree in writing to forego such notification period. In the event of the resignation, discharge, death, refusal to act, or inability to act of any Trustee, the Board of Directors of the Sponsor shall select a successor Trustee who shall have the same powers and duties as those conferred upon the Trustee in this Agreement. Any Trustee appointed hereunder shall signify his acceptance in writing to the Board of Directors. Section 3.2 Change of Trustees All power and authority of a Trustee who resigns or is removed shall be terminated at the end of the sixty-day period, at which time all"such power and authority shall be vested in the successor Trustee without any further act or deed; provided, however, that if a successor Trustee will not have been appointed and qualified at the end of such period the power and authority of the former Trustee shall continue until the later appointment and qualification of a successor Trustee at which time said power and authority shall be so vested in such successor Trustee. The former Trustee shall, as of the time the successor Trustee assumes office, assign, transfer, and set over to the successor Trustee the funds and property then constituting the Trust Fund; provided, however, that the former Trustee may retain in reserve such sums of money, or may liquidate assets and from the proceeds thereof reserve such funds, as they may deem to be sufficient for the payment of their expenses in connection with the settlement of their accounts or otherwise, and, after the payment of such expenses, they shall pay the balance of such reserved funds then remaining to the successor Trustee then qualified and acting. Section 3.3 Final Accounting Within sixty days after a change of Trustee has become effective, the former Trustee shall file with the Employer an accounting of the administration of the Trust for the period subsequent to their latest accounting, containing the same information required to be contained in their annual accounts. No successor Trustee shall be liable or responsible in any way for anything done or omitted prior to the date as of which he becomes a Trustee. ARTICLE IV - MANAGEMENT AND INVESTMENT OF THE FUND Section 4.1 Duties of Trustee It shall be the duty of the Trustee (a) to hold the Trust Fund, (b) to invest and reinvest the Trust Fund, (c) to keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions hereunder, and (d) to pay monies to or on the order of the Plan Administrator provided for under the Plan, including, when the Plan Administrator shall so order, payments to the Participants or their Beneficiaries under the Plan. Such order need not specify the purpose of such payments so ordered and the Trustee shall not be responsible in any way respecting the purposes of such payments or for the general administration of the Plan by the Plan Administrator. The Trustee shall be under no duty to enforce payment of any contribution. Section 4.2 Trustee Investment Responsibility Employer contributions made in cash, and other cash received by the Trustee, shall first be applied to pay for Employer Stock acquired pursuant to Section 8.5 or 8.6 of the Plan and after such application may be applied to acquire additional shares of Employer stock from the shareholders of the Employer or from the Employer as directed by the Plan Administrator. The investment policy of the Plan shall be to invest primarily in Employer Stock, including up to 100% of the Trust. To the extent funds are available thereafter the Trustees may invest funds temporarily in savings accounts, certificates of deposit, stocks, bonds, or other investments deemed desirable for the Trust, or such funds may be held in cash or cash equivalents. In addition, at the direction of the Plan Administrator, the Trustee may borrow funds pursuant to Section 4.3 of the Trust to purchase Employer Stock from the Employer or its shareholders. The Board of Directors of the Sponsor shall have the fiduciary responsibility for decisions regarding the acquisition, holding, disposition and voting (subject to Section 4.8 of the Agreement) of Employer Stock and shall have the exclusive power, authority and responsibility to determine whether to sell, purchase or hold Employer stock. Section 4.3 Loans by Trustee In the event the Trustee borrows funds as provided under Section 4.2 of the Trust, the proceeds of such loan shall be used within a reasonable time only for the following purposes: (a) To acquire Employer Stock; (b) To repay such loan; and (c) To repay a prior loan made under this Section 4.3. Except as provided in Section 8.5 and 8.6 of the Plan, no Employer Stock acquired with the proceeds of a loan may be subject to a put, call, other option, or a buy-sell or similar arrangement while held by the Trustee, or when distributed from the Plan, whether or not that Plan is then an ESOP. The Trustee and the Plan Administrator shall take all action necessary to insure that any loan made under this Section 4.3 constitutes an "exempt loan" as defined in Section 4975(d)(3) of the Code. Section 4.4. Collective Investment Trust The Declaration of Trust executed by Norwest Bank Minnesota, National Association, on April 3. 1989, establishing Norwest Bank Collective Funds for Employee Benefit Plans is hereby incorporated by reference into this agreement, and, notwithstanding any other provision of this trust agreement to the contrary, the Trustee may cause part or all of the money of this Trust, without limitation as to amount, to be invested in and commingled with the money of trusts created by others and invested and reinvested as a part of any one or more of the Funds heretofore or hereafter created by said Declaration of Trust, and money of this Trust so added to any of the said Funds heretofore or hereafter created by said Declaration of Trust shall be subject to all of the provisions of said Declaration of Trust as it is amended from time to time. Section 4.5 Insurance The Trustee shall not invest any of the assets of the Trust Fund in annuity or insurance contracts. Section 4.6 Other Powers In addition to the powers conferred upon them elsewhere in this instrument, the Trustees shall be authorized and empowered: (a) To purchase and subscribe for any securities or other property and to retain such securities or other property in the Trust Fund. (b) To sell, exchange, convey, transfer or otherwise dispose of any property held by it, by private contract or at public auction, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition. (c) To adjust, settle, contest, compromise and arbitrate any claims, debts, or damages due or owing to or from the Trust Fund, and to sue, commence or defend any legal proceedings in reference thereto. (d) To vote upon any stocks, bonds, or other securities, to give general or special proxies or powers of attorney with or without power of substitution, to exercise any conversion privileges, subscription rights, or other options and to make any payments, incidental thereto, to consent to or otherwise participate in corporate securities and to delegate discretionary powers and to pay assessments or charges in connection therewith, and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property held in the Trust Fund. (e) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted. (f) To register any investments held in the Trust Fund in its own name or in the name of a nominee and to hold any investment in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Fund. (g) To manage, administer, operate, lease for any number of years, regardless of any restrictions on leases made by fiduciaries, develop, improve, repair, alter, demolish, mortgage, pledge, grant options with respect to, or otherwise deal with any real property or interest therein at any time held by it. (h) To employ suitable agents and counsel and to pay their reasonable expenses and compensation. (i) To borrow or raise monies for the purpose of the Trust from any source and for any sum so borrowed to issue its promissory notes as Trustee and to secure the repayment thereof by pledging all or any part of the Trust Fund. No person loaning money to the Trustee shall be bound to see to the application of the money loaned or to inquire into the validity, expediency, or propriety of any such borrowing. (j) To deposit any portion of the Trust fund in bank accounts, certificates of deposit, time deposit open accounts and other similar investments which bear a reasonable rate of interest, in the banking department of any bank or trust company, including the banking department of the Trustee or any affiliate or affiliates of the Trustee. Section 4.7 Loans to Participants Loans to Participants shall not be permitted. Section 4.8 Voting of Employer Stock The Trustee shall vote the Employer Stock held in the Trust Fund as provided in Section 10.9 of the Plan and subject to Fiduciary duties set forth in Section 404 of ERISA. ARTICLE V - VALUATION OF PLAN ASSETS Within sixty days after the receipt of the Employers' contribution for a Plan Year, the Trustee shall ascertain and certify to the Employer the market values of the assets of the Trust Fund, as of the last day of the Plan Year. Such market values may be determined either by the Trustee itself or by such person or persons believed by the Trustee to be competent to make such determination as the Trustee may select. Any determination of values so made shall, for all purposes of the Plan, conclusively establish such values. ARTICLE VI - RECORDKEEPING AND ACCOUNTINGS BY TRUSTEE The Trustee shall keep accurate and detailed accounts of all investments, receipts, disbursements, and other transactions hereunder, and, all accounts, books and records relating thereto shall be open to inspection and audit at all reasonable times by any person designated by the Board of Directors. Within sixty days following receipt of Employer's contributions for each Plan Year, and within sixty days after the removal or resignation of a Trustee as provided in Article III hereof, the Trustee shall file with the Board of Directors a written account setting forth all investments, receipts, disbursements, and other transactions effected by it during such Plan Year or during the period from the close of the last Plan Year to the date of such removal or resignation, which account so filed shall be open to inspection during business hours by the Employer, the Plan Administrator and by Participants and their Beneficiaries. ARTICLE VII - REQUIREMENT OF WRITTEN REQUESTS AND INSTRUCTIONS TO TRUSTEE Any action by the Board of Directors of the Sponsor pursuant to any of the provisions of this Plan and Trust shall be evidenced by a resolution of the Board of Directors certified to the Trustee over the signature of the Secretary or Assistant Secretary with the corporate seal, if any, affixed, and the Trustee shall be fully protected in acting in accordance with such resolution so certified to it. All orders, requests, and instructions of the Plan Administrator to the Trustee shall be in writing and the Trustee shall act and shall be fully protected in acting in accordance with such orders, requests, and instructions. The Sponsor shall furnish the Trustee from time to time with certified copies of resolutions of its Board of Directors evidencing the appointment and termination of office of the Plan Administrator or any members of the Plan Administrative Committee and the appointment of successors thereto. ARTICLE VIII - STANDARD OF CONDUCT The Trustee shall be bound to perform his duties for the purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Trust. He shall act in accordance with the care, skill, prudence and diligence that would characterize the actions of a prudent man, knowledgeable in the performance of such duties in similar circumstances with similar objectives. Unless under the circumstances it is clearly imprudent, he shall diversify the investments of the Plan so as to minimize the risk of large losses. If according to the provisions of the Plan and Trust, the Trustee shall be subject in the management and control of the Fund to the directions of the Plan Administrator or Sponsor, the Trustees in acting pursuant to and in reliance on, such directions shall be fully and completely indemnified and held harmless by the Employer from any liability, loss or expense (including legal fees) arising out of its actions so directed. The Trustee shall be indemnified under these circumstances notwithstanding that such directions, and the Trustee's conduct pursuant thereto, may constitute a breach of fiduciary obligations to the Plan, the Participants and Beneficiaries. ARTICLE IX - TERMINATION OF THE PLAN The Plan may be terminated at any time by the Board of Directors of the Sponsor, in which event the Trust Fund shall be liquidated by the Trustee in accordance with the written directions of the Sponsor pursuant to the Plan. However, in no event, may the Trust Fund revert to the Employer except as specifically provided by the Plan. ARTICLE X - AMENDMENT OF TRUST AGREEMENT The Sponsor reserves the right at any time and from time to time, by action of its Board of Directors, to modify or amend, in whole or in part, any or all of the provisions of this Agreement and Declaration of Trust, and provided that no modification or amendment which affects the rights, duties or responsibilities of the Trustee may be made without its consent in writing and further provided that no such modification or amendment shall authorize or permit, at any time, any part of the corpus or income of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries under the Plan. ARTICLE XI - ADMINISTRATIVE EXPENSES AND COMPENSATION OF TRUSTEE The Trust Fund shall bear all brokerage costs and transfer taxes incurred in connection with the investment and reinvestment of the Trust Fund and all income taxes or other taxes of any kind whatsoever which may be levied or assessed under existing or future laws upon or in respect of the Trust Fund, all expenses incurred in connection with the acquisition or holdings of real property, any interest therein or mortgage thereon, and all interest which may be payable or money borrowed by the Trustee for the purposes of the Trust. All other administrative expenses incurred by the Trustee in the performance of its duties, including fees for legal services rendered to the Trustee, such compensation to the Trustee as may be agreed upon in writing from time to time between the Employer and the Trustee, and all other proper charges and disbursements of the Trustee, shall be paid by the Employer and, in the event not paid by the Employer, shall be paid by the Trust Fund; provided, however, no person serving as Trustee who is also an Employee of the Employer shall receive any compensation from the Trust Fund, except for reimbursement of expenses properly and actually incurred. ARTICLE XII - SITUS This Agreement and Declaration of Trust shall be administered, construed and enforced according to the laws of the State of Minnesota when not superseded by federal law. WITNESS WHEREOF, the parties have executed this Agreement this 26th day of May 1993. EMPLOYER: G. R. HERBERGER'S, INC. By: ____________________________ Its: President By: _____________________________ Its: Vice President FANDEL COMPANY By: _____________________________ Its: President By: _____________________________ Its: Vice President TRUSTEE: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: ___________________________ Its: Asst. Vice President By: ___________________________ Its: Asst. Vice President AMENDMENT NO. 1 TO G. R. HERBERGER'S, INC. 401(K) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, G. R. Herberger's, Inc. (the "Employer") has adopted and currently maintains the G. R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (the "ESOP") and has established the related Employee Stock Ownership Trust (the "Trust"); WHEREAS, the Employer wishes to amend the ESOP as requested by the IRS in determining the Plan's status as a qualified plan; NOW, THEREFORE, the Employer hereby amends the ESOP as follows: 1. Section 6.5 Computation of Years of Service and Breaks in Service shall be amended by adding the following to the end of the first paragraph of Section 6.5: "Hours of Service for purposes of determining Years of Service and Breaks in Service under this Section 6.5 shall include Hours of Service with any member of the Employer's Controlled Group." 2. Section 6.5(g) shall be amended by deleting the last sentence of Section 6.5(g) and replacing it with the following sentence: "In the case of a Participant's absence from service for a Parental Absence as provided under Article VII, the twelve (12) consecutive month period beginning on the Employee's Severance from Service Date shall not constitute a Break in Service." 3. Section 8.1(b) Consent to Distribution Prior to Normal Retirement Age shall be amended by restating Section 6.l(b)(1) in its entirety to read as follows: "(1) If a Participant terminates his employment with the Employer and the value of his vested Account balance is not and never was greater than $3,500, the Plan Administrator shall direct the distribution of such vested Account balance in a lump sum without the Participant's consent." 4. Section 9.3 Minimum Contribution, shall be amended by adding a new Section 9.3(d) to read as follows: "(d) For purposes of determining whether or to what extent a minimum contribution is required, there shall be treated as an Employer Contribution any Elective Deferral Contribution made on behalf of a Participant who is a Key Employee for the Plan Year. Any Elective Deferral Contribution made on behalf of any Participant who is a Non-- key Employee for the Plan Year shall not, however, be treated as an Employer's contribution for purposes of satisfying the minimum contribution requirement of Section 9.3(a)." 5. Section 9.5(c) shall be amended replacing the phrase "five (5) Years of Service" with the phrase "three (3) Years of Service" where it appears in such Section 9.5(c). 6. The foregoing provisions shall be effective as of the Effective Date of the restatement of the Plan, namely January 1, 1989. IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the dates indicated below. G. R. HERBERGER'S, INC., Employer, Dated: ________________ By ___________________________ Its: President Dated: ________________ By _____________________________ Its Vice President of Operations NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee Dated: ________________ By _____________________________ Its Asst. Vice President IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of the date indicated below. Dated: ____________________ G. R. HERBERGER'S, INC., Sponsor By _____________________________ Its Vice President - Finance and Operations By _____________________________ Its President Dated: ____________________ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By _____________________________ Its Asst. Vice President By _____________________________ Its Vice President AMENDMENT NO. 2 TO G.R. HERBERGER'S, INC. 401(k) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, G.R. Herberger's, Inc. (the "Sponsor") has adopted and currently maintains the G.R. Herberger's Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (the "Plan") and has established the related Employee Stock Ownership Trust (the "rust"); and WHEREAS, the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") requires that beginning in 1994 a qualified plan such as the Plan may not take into account compensation in excess of $150,000, indexed for cost-of-living adjustments in increments of $10,000; WHEREAS, the Sponsor wishes to amend the Plan to comply with the requirements of OBRA '93; WHEREAS, the Sponsor wishes to amend the Plan to clarify the treatment of forfeitures of terminated participants who are 0% vested in their Account balance; and WHEREAS, the Plan needs to be amended, to correctly reflect the diversification requirements applicable to the Plan. NOW, THEREFORE, the Sponsor hereby amends the Plan as follows: 1. Section 2.7 Compensation shall be amended by deleting the last paragraph of such Section 2.7 and adding the following language to the end of Section 2.7: "In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000 In determining the Compensation of a Participant, the family aggregation rules of Code Section 414(q)(6) shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If the aggregate Compensation for the family group exceeds the limitation under Code Section 401(a)(17), then the Compensation of the family member shall be proportionately reduced so the total equals the compensation limit set forth in Code Section 401(a)(17)." 2. Section 6.4 of the Plan shall be amended by adding the following unnumbered paragraph to the end of Section 6.4: "For purposes of this Section 6.4 and subject to Section 8.1(b), if upon termination of employment, a Participant is 0% vested in his Account balance, such Participant shall be deemed to have received a lump sum distribution of such vested Account balance and shall immediately forfeit the nonvested portion of his Account balance, subject to restoration under Section 8.4." 3. Section 5.3(b) of the Plan shall be amended effective as of January 1, 1989 to read as follows: (b) A participant's Qualified Election Period shall be the six Plan Year period beginning on the latter of (i) the Plan Year in which the Participant attains age 55; or (ii) the Plan Year in which the Participant first becomes qualified under subparagraph (a) above. 4. Unless specifically provided otherwise, this Amendment No. 2 shall be effective January 1, 1994. AMENDMENT NO. 3 TO G.R. HERBERGER'S, INC. 401(k) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, G.R. Herberger's, Inc. (the "Sponsor") has adopted and currently maintains the G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (the "Plan") and has established the related Employee Stock Ownership Trust (the "Trust"); and WHEREAS, the Sponsor wishes to amend the Plan to allow for employer matching contributions to be made with respect to certain Elective Deferrals made by Participants to the Plan; and WHEREAS, the Sponsor wishes to make several additional modifications to the Plan. NOW, THEREFORE, the Sponsor hereby amends the Plan as follows: 1. Section 2.1 shall be amended and restated as follows: Section 2. 1 Account shall mean the entire interest of each Participant in the Trust. The Trustee shall create and maintain a separate account for each Participant and shall credit thereto the amount of contributions to the Plan and all gains and losses allowable thereto. Within each Participant's Account, separate accountings shall be maintained for: (i) Elective Deferral Contributions, (ii) Matching Contributions, and (iii) Employer Discretionary Contributions, if any, and all gains and losses thereon. That portion of a Participant's Account attributable to Elective Deferral Contributions, if any, shall be referred to as the Participant's Elective Deferral Account, and that portion of a Participant's Account attributable to Matching Contributions, if any, shall be referred to as the Participant's Matching Account. 2. There shall be added to the Plan a new Section 2.2A to read as follows: Section 2.2A Actual Contribution Percentage ("ACP") shall mean for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group to the nearest one-hundredth of one percent) of the amount of Matching Contributions made under the Plan on behalf of the Participant for the Plan Year to the Participant's Compensation, as defined under Section 2.7, for the Plan Year. Such ACP shall not include Matching Contributions that a-re for-felted either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. Compensation shall include Compensation for the entire Plan Year, even if the Employee is not a Participant for the entire Plan Year, unless a different result is required by regulation or statute. For purposes of determining the ratio, of a Participant who is a five percent (5%) owner or one of the ten (10) most highly paid Highly Compensated Employees, the ratio and the Compensation of such Participant shall include the ratio and the Compensation for the Plan Year of Family Members (as defined in Code Section 414(q)(6). Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the ratio both for Participants who are Non-Highly Compensated and for Participants who are Highly Compensated Employees. 3. Section 2.2A shall be renumbered 2.2B and amended and restated as follows: Section 2.2B. Actual Deferral Percentage ("ADP") shall mean, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group to the nearest one-hundredth of one percent) of the amount of Employer Contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to the Participant's Compensation, as defined under Section 2.7, for such Plan Year. Compensation shall include Compensation for the entire Plan Year even if the Employee is not a Participant for the entire Plan Year unless a different result is required by regulation or statute. Employer contribution on behalf of any Participant shall include: (i) any Elective Deferrals made pursuant to the Participant's Elective Deferral Agreement, including Excess Elective Deferrals of Highly-Compensated Employees, but excluding Excess Elective Deferrals of Non-Highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of this Employer; and (ii) at the election of the Employer, Matching Contributions. The actual deferral ratio for a Participant who fails to make Elective Deferrals is zero. For purposes of determining the deferral ratio of a Participant who is a five percent (5 %) owner or one of the ten (10) most highly-paid Highly Compensated Employees, the deferral ratio and the Compensation of such Participant shall include the deferral ratio and the Compensation for the Plan Year of Family Members (as defined in Code Section 414(q)(6)). Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the deferral ratio both for Participants who are Non-Highly Compensated and for Participants who are Highly Compensated Employees. 4. There shall be added to the Plan a new Section 2.14A to read as follows: Section 2.14A Excess Aggregate Contribution shall mean with respect to any Plan Year, the excess of: (a) The aggregate amount of Matching Contributions actually taken into account in computing, the ACP of Highly Compensated Employees for such Plan Year over, (b) The maximum amount of such Matching Contributions for the Highly Compensated Employees permitted by the ACP test (determined by reducing Matching Contributions made on behalf of Highly Compensated Employees in order of the ACP beginning with the highest of such percentages). Such determination shall be made after first determining Excess Elective Deferrals pursuant to Section 2.14C and then determining Excess Contributions pursuant to Section 2.14B. 5. Section 2.14A shall be renumbered 2.14B. 6. Section 2.14B shall be renumbered 2.14C. 7. There shall be added to the Plan a new Section 2.21A to read as follows: Section 2.21A Matching Contribution shall mean an Employer contribution made to this Plan or any other defined contribution plan on behalf of a Participant on account of a Participant's Elective Deferral, under a plan maintained by the Employer. 8. There shall be added to the Plan a new Section 4. 1 B to read as follows: Section 4.1B Employer Matching Contributions For each Plan Year, the Employer may contribute. on behalf of each Participant who has made Elective Deferral Contributions for the Plan Year, pursuant to an Agreement under Section 4.1A of the Plan, and has elected to invest such Elective Deferral Contributions in Employer Stock, pursuant to Section 5.4 of the Plan, a discretionary Matching Contribution of an amount equal to a percentage of' the Participant's Compensation contributed as an Elective Deferral Contribution and invested in Employer Stock (which is not subsequently returned to the Participant as a corrective distribution, pursuant to Section 4.13), the exact percentage of which is to be determined each year by the Employer. 9. Section 4.2 shall be amended and restated as follows: Section 4.2 Time of Payment and Form of Contribution The Employer contributions, if any, shall be paid to the Trustee either in cash or Employer Stock as the Board of Directors may from time to time determine. In determining the amount of the Employer contributions, shares of Employer Stock will be valued at their then Fair Market Value Per Share. The Employer contributions shall be paid to the Trustee on or before the due date for filing its federal income tax return including extensions, for the fiscal year of the Employer with respect to which the contributions were made. Elective Deferral Contributions shall be paid to the Trustee as soon as the amount can be reasonably identified and separated from the Employer's other assets. Payment shall in any event be made within 30 days after the Participant would otherwise have received the amount withheld from Compensation on account of the Elective Deferral. The Employer Matching Contributions, if any, shall be paid to the Trustee as soon as the amount can be reasonably computed and identified and separated from the Employer's other assets. The Employer Matching Contributions shall be paid to the Trustee on or before the due date for filing its federal income tax return, including extensions, for the fiscal year of the Employer with respect to which the contributions were made. 10. Paragraph (b) of Section 4.3 of the Plan shall be amended and restated to read as follows: (b) Financed Shares acquired with the proceeds of an Acquisition Loan under Section 4.3 of the Trust shall be added to and maintained in a Shares Suspense Account. As the Employer makes ESOP contributions to the Plan for a Plan Year and the Trustee makes payments on the Acquisition Loan, such Financed Shares shall be released from the Shares Suspense Account and allocated as of the last day of the Plan Year for which the contribution was made to the Accounts of the Participants in the manner provided in paragraph (a) above. The Number of Financed Shares to be released from the Shares Suspense Account for each Plan Year shall be in an amount equal to the number of currently encumbered Financed Shares multiplied by one of the two fractions provided in subparagraphs (1) and (2) below. The Plan Administrator shall deter-mine which fraction to use at the time of each such loan, provided, however, that the Plan Administrator may use the fraction in subparagraph (2) only if the following rules apply: (i) the loan must provide for annual payments of ' principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for 10 years; and (ii) interest included in any payment is disregarded only to the extent that it would be deter-mined to be interest under standard loan amortization tables. In addition, subparagraph (2) is not applicable from such time . that, by reason of a renewal, extension, or refinancing, the sum of the expired duration of the loan, the renewal period, the extension period, and the duration of a new loan exceeds 10 years. If such loan fails to comply with these rules, the Plan Administrator shall use the method set forth in subparagraph (1). (1) The numerator of the fraction is the total payments of principal and interest made during the Plan Year, and the denominator of the fraction is the total payments of principal and interest made during the Plan Year plus the total payments of principal and interest due under the loan for all future Plan Years. (2) Thee numerator of the fraction is the total payments of principal made during the Plan Year, and the denominator of the fraction is the total payments of principal made during the Plan Year plus the total payments of principal due under the loan for all future Plan Years. If the interest rate under the loan is variable the above calculation must be made using the interest rate which is applicable as of the end of the Plan Year in which such calculation is made. Financed Shares of different classes must be released from encumbrance in equal percentages. 11. There shall be added to the Plan a new Section 4.3A to read as follows: Section 4.3A Allocation of Matching Contributions Any Matching Contributions made to the Plan with respect to the Plan year shall be allocated to the Account of each eligible Participant who made an Elective Deferral and invested such Elective Deferral in Employer Stock, as of the last day of the Plan Year on the same basis as the Employer makes the Matching Contributions under Section 4.1B of the Plan. 12. Section 4.5 of the Plan shall be amended and restated to read as follows: Section 4.5 Advance Employer Contributions In the event that a part or all of an Employer's contribution (other than pursuant to Participant's Elective Deferral Contributions or Matching Contributions) for a Plan Year is paid before the last day of a Plan Year, such advance contribution shall be held by the Trustee as a separate fund, and, along with the net income and any change in value of such separate fund, allocated among the Accounts of the Participants as of the last day of the Plan Year pursuant to Section 4.3. In the event that the Plan is terminated before the last day of the Plan Year, all such advance contributions, including any amount treated as an advance contribution under Section 4.6, shall be returned to the Employer to the extent provided in Section 4.10. 13. Paragraph (a) of Section 4. 1 1 shall be amended and restated to read as follows: (a) Any cash dividends received by the Trustee on Employer Stock allocated to the Accounts of Participants (or former Participants or Beneficiaries) may be: (i) retained in the Participants' applicable Accounts (and invested by the Trustee under the same rules as for the other assets of such Accounts); (ii) used to make payments on an Acquisition Loan the proceeds of which were used to acquire the Employer Stock with respect to which the dividend is paid (provided that the applicable requirements of Code Section 404(k)(2) are satisfied); and/or (iii) paid to such Participants (or former Participants or Beneficiaries), all at the sole discretion of the Employer (to be applied in a nondiscriminatory manner). If the dividends are to be paid to the Participants (or former Participants or Beneficiaries) the dividends may, at the election of such Participants (or former Participants or Beneficiaries), be paid to the applicable Participants (or former Participants or Beneficiaries) in a current payment in cash or be retained in the Trust. Any such dividends for which a current cash payment is to be made must be made within 90 days of the end of the Plan Year in which the dividends are received by the Trustee. The Employer may elect to pay any such cash dividend directly to the Participants or Beneficiaries. Any such payment of cash dividends on shares of Employer Stock shall not be treated as a distribution under the Plan. 14. The first sentence of subparagraph (b)(1) of Section 4. 1 1 shall be amended and restated to read as follows: A portion (or all) of the Employer Stock released from the Shares Suspense Account pursuant to Section 4.3(b) as a result of the use of the cash dividend on Employer Stock acquired with the proceeds of the Acquisition Loan (whether such Employer Stock is allocated or unallocated) to make payments on the Acquisition Loan shall first be allocated to Participants' Accounts in accordance with this Section 4. 1 1 (b)(1). 15. Paragraph (a) of Section 4.13 shall be amended and restated to read as follows: (a) In General. For each Plan Year, the Plan shall satisfy the non-discrimination test in Code Section 40 1 (k) and 40 1 (m) in accordance with Final Treasury Regulation Section 1.401(k)-l and Final Treasury Regulation Sections 1.401(m)-l and -2. The Code and Regulation Sections are incorporated herein by this reference. 16. Paragraph (h) of Section 4.13 shall be revoked. 17. Section 4.13 shall be amended to add to the end thereto new Paragraphs (h) through (o) which shall read as follows: (h) The ACP Test. In accordance with Code Section 401(m), the ACP for the group of eligible Participants for any Plan Year who are Highly Compensated Employees must satisfy one of the following tests: (1) The ACP for the Highly Compensated Employees may not be more than the ACP for all Non-Highly Compensated Employees multiplied by 1.25; or (2) The ACP for the group of Highly Compensated Employees is not more than the ACP for all Non-Highly Compensated Employees multiplied by two (2) and the difference between the ACP is not more than two (2) percentage points. (i) Special Rules. For purposes of Section 4.13(b): (1) Matching Contributions will be considered made for a Plan Year if made no later than the end of the twelve month period beginning on the day after the close of the Plan Year. (2) If two or more plans which include cash or defer-red arrangements (as defined under Treas. Reg. Section 1.401(k)-I(a)(2) and referred to for purposes of this Section as "Arrangements") are considered one plan for the purposes of Code Section 401(a)(4) or 401(b), and to satisfy Code Section 401(m), the Arrangements included in such plans shall be treated as one Arrangement provided the Arrangements have the same Plan Year. (3) If a Highly Compensated Employee is a Participant under two (2) or more Arrangements of the Employer or a member of the Employer's Controlled Group and such Arrangements are aggregated on a mandatory or permissive basis to satisfy the requirements Of Code Sections 401(m), 401(a)(4) or 410(b), all such Arrangements shall be treated as one Arrangement for the purpose of determining the ACP with respect to such Highly Compensated Employee. Any Arrangement ending with or within the same calendar year shall be aggregated for purposes of determining the ACP with respect to such Highly Compensated Employee and the aggregate ACP shall be treated as if made under each Arrangement. However, plans required to be disaggregated under Code Section 401(m) regulations shall be treated as separate plans. (4) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test. (5) The determination and treatment of the ACP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (j) Correction Excess Aggregate Contributions. If the ACP of the Highly Compensated Employees would exceed the limits in 4.13(h), the Plan Administrator shall correct the ACP, determine the amount of Excess Aggregate Contributions and reduce such Excess Aggregate Contributions as follows: (1) The ACP of the Highly Compensated Employee with the highest ACP shall be reduced by having his/her Excess Aggregate Contributions under 4.13(h) be forfeited, if forfeitable, or distributed to the Highly Compensated Employee to whom they apply on a pro rata basis from the Highly Compensated Employee's Matching Contribution Account. (2) If the ACP test of the Highly Compensated Employees continues to exceed the limits in Section 4.13(h) after reducing the ACP of the Highly Compensated Employee with the highest ACP, then the Plan Administrator will continue to reduce the ACP similarly by this method of leveling to the ACP of the Highly Compensated Employee with the next highest ACP until such ACP test is satisfied. (3) Forfeitures of Excess Aggregate Contributions shall be reallocated to the Accounts of Non-Highly Compensated Employees. After the allocation of all other Forfeitures of the Plan, Forfeitures of Excess Aggregate Contributions shall be reallocated to the Matching Contribution Account of each Non-Highly Compensated Employee, who made Elective Deferral Contributions to the Plan for the Plan Year during which such Excess Aggregate Contributions are attributable, in the ratio which each of such Non-Highly Compensated Employee's Compensation bears to the Compensation of all such Non-Highly Compensated Employees' Compensation for the Plan Year. (k) Multiple Use of Alternative Limitation. To satisfy the ADP test and the ACP test, both tests may not rely on the alternative method, namely Section 4.13(b)(2) and Section 4.13(h)(2) above. The ADP test and the ACP test must satisfy the following "aggregate limit", which is the sum of: (1) 125 percent of the greater of (1) the ADP for the Non-Highly Compensated Employees for the Plan Year, or (ii) the ACP of the Non-Highly Compensated Employees, and (2) Two (2) plus the lesser of the ADP or ACP for the Non-Highly Compensated Employees, but not more than 200% of the lesser of such ADP or ACP. "Lesser" shall be substituted for "greater" in (1) above, and,"greater" shall be substituted for "lesser" after "Two (2) plus the" in (2) above, if a larger "aggregate limit" results. The Plan Administrator will correct multiple use of the alternative limitation by first reducing the ACP of Highly Compensated Employees in order of their contribution percentages beginning with the highest of such percentages and as further specified in Section 4.130) above. (l) When to Distribute Excess Amounts. Distribution of such Excess Contributions and Excess Aggregate Contributions shall be made no later than the last day of the Plan Year immediately following the last day of the Plan Year in which such excess amounts apply. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, the Code imposes a ten percent (10%) excise tax on the Employer with respect to such amounts. (m) Correction of Excess Aggregate Contributions for "Family Members". Excess Aggregate Contributions of Participants who are subject to "family member" aggregation rules shall be allocated among the "family members" in proportion to the Matching Contributions (or amounts treated as Matching Contributions) of each "family member" that is combined to determine the combined ACP. (n) Income Allocable to Excess Aggregate Contributions. The income allocable to Excess Aggregate Contributions for the Plan Year in which such excess amounts apply shall be distributed along with distributions designated as Excess Aggregate Contributions for the Plan Year. Income allocable to such Excess Aggregate Contributions shall be equal to allocable gains and income, less allocable losses and expenses for such Plan Year. The Plan shall allocate income for this section in the same manner as set forth in Section 5. 1 of the Plan. No income shall be allocated to Excess Aggregate Contributions for the period between the end of the Plan Year and the date of distribution (the "gap period"). (o) Excess Aggregate Contributions as Annual Additions. Any Excess Aggregate Contributions made pursuant to this Section shall be treated as an Annual Addition under Section 4.6 of the Plan. 18. There shall be added to the Plan a new Section 4.15: Section 4.15. Matching Contribution (1) All Matching Contributions made by the Employer shall be deposited in the appropriate Participant's Account. Each such Matching Contribution Account shall be credited with income applicable to such Matching Contribution. 19. Section 5.1 of the Plan shall be amended and restated as follows: Section 5. 1. Trust Fund and Allocation of Ear The Trustee shall maintain or cause to be maintained Accounts which shall accurately reflect, from time to time, the value of the interest of each Participant in the Trust Fund resulting from the contributions of the Employer allocated to each Participant. In this condition the Accounts shall reflect each Participant's share of interest, dividends, realized and unrealized gains and income from all source ' s, less realized and unrealized losses and expenses (other than those to be borne by the Employer in accordance with this Plan). Such sum shall be determined as of the Valuation Date of each Plan Year and, after allocating the (i) Employer ESOP Contributions, (ii) Elective Deferral Contributions, and (iii) Matching Contributions for such Plan Year, allocated as a credit or charge to the Account of each Participant in the same proportion that the balance of the Account of each Participant as of the date following the last Valuation Date bears to the total of the balances of the Accounts of all Participants as of such date; provided, however, that distribution payments made during the Plan Year, but prior to the Valuation Date shall first be deducted from such balances. 20. Section 5.4 of the Plan shall be amended and restated as follows: (a) Elective Deferral Contributions and Matching Contributions to the Plan together with any earnings thereon shall be deposited in the Trust Fund and held temporarily in a stable income or similar fund designed to protect principal at a rate of return competitive with money market funds (the "Fund") until such monies are used to acquire Employer Stock. (d) The Participant's Elective Deferral Account and Matching Contribution Account which is invested in the Fund at the annual purchase date shall be used to purchase Employer Stock unless other-wise directed by the Participant as to the Participant's Elective Deferral Contributions, in which case such monies shall continue to be invested in accordance with paragraph (a) above, until the next annual purchase of Employer stock. 21. The vesting schedule contained in Paragraph (a) of Section 6.7 of the Plan shall be amended and restated to provide as follows: Fewer than 5 years 0% 5 years but fewer than 6 60% 6 years but fewer than 7 80% 7 years of more 100% 22. Subparagraph (c)(1) of Section 8.5 of the Plan shall be amended in its entirety to provide as follows: (1) The amount deferred is adequately secured in the following manner: a promissory note shall be given to the Participant, the full payment of which could be required by the holder if the repurchaser defaults in the payment of a scheduled installment payment, together with a pledge of the Employer Stock being repurchased as adequate security for the outstanding amount of the note. In addition, if the term of the installment obligation exceeds five (5) years, the repurchaser must give the holder additional adequate security for the outstanding amount of the note. 23. Paragraph (b) of Section 8.13 shall be amended and restated to read as follows: (b) If a Participant elects to withdraw all or part of his vested Account balance by making a written request for a distribution, then the distribution of the Participant's vested Account balance for which an election is made shall be made as follows: A distribution shall be made within one year after the end of the Plan Year to which the election applies in an amount equal to the requested amount, but not more than the greater of (i) an amount determined by the Plan Administrator for such Plan Year or (ii) the maximum annual distribution allowed under Section 498OA(c)(1) for non-lump sum distributions without incurring an excise tax, for the Plan Year in which the request is made. The amount to be determined by the Plan Administrator shall be determined for each Plan Year as of the last day of the Plan Year, and may be changed from year to year. Any requested amount which exceeds the amount to be distributed in the first year shall be distributed in substantially equal installments over a period not to exceed ten (10) years, commencing with the year following the year in which the initial distribution is made. 24. Paragraph (a) of Section 8.15 shall be amended to add to the end thereto the following language: The Plan Administrator shall provide a Distributee with notice of this right not less than 30 days or more than 90 days before the distribution, provided that distributions may commence less than 30 days after notice is given if: The Plan Administrator clearly informs the Distributee that the Distributee has a right to a period of at least 30 days after receiving- the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and The Distributee after receiving the notice, affirmatively elects a distribution. IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates indicated below. G.R. HERBERGER'S, INC., Employer Dated: ________________________ By: ____________________________ Its: President By: ____________________________ Its: Vice President NORWEST BANK MINNEAPOLIS, NATIONAL ASSOCIATION, as Trustee Dated: _________________________ By: _____________________________ Its: Asst. Vice President By: _____________________________ Vice President NO. 4 TO G.R. HERBERGER'S, INC. 401(k) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, G.R. Herberger's, Inc. (the "Sponsor") has adopted and currently maintains the G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (the "Plan") and has established the related Employee Stock Ownership Trust (the "Trust"); and WHEREAS, the Sponsor wishes to amend the Plan to clarify certain provisions of the Plan; NOW, THEREFORE, the Sponsor hereby amends the Plan as follows: 1. Section 2.15 shall be amended and restated as follows: Section 2.15 Fair Market Value Per Share shall mean that value per share as determined by the Plan Administrative Committee, provided that in determining Fair Market Value Per Share the Plan Administrative Committee shall obtain and rely upon a valuation made by an independent appraiser, who satisfies the requirements contained in Section 170(a)(1) of the Code and the Regulations prescribed thereunder. 2. Section 5.2 shall be amended and restated as follows: Section 5.2 Determination of Market Value The Trustee shall, as provided in the Agreement and Declaration of Trust, ascertain and certify the fair market value of the Trust Fund as of the Valuation Date. Such valuation shall include the Employer's contribution with respect to such Plan Year. Similar valuations shall be made at such other times as necessary for the purpose of determining the value of a Participant's Account. In determining the fair market value of the Fund, the Trustee shall use the Fair Market Value Per Share of the Employer Stock. 3. The fifth paragraph of Paragraph (a)(ii) of Section 8.1 shall be amended and restated as follows: The amount of any such earlier distribution shall be made in an amount up to the full amount of the Participant's vested Account balance but not in excess of a maximum distribution amount as determined by the Plan Administrator for the Plan Year in which the request is made. The amount determined by the Plan Administrator shall be determined for each Plan Year as of the last day of the Plan Year, and may be changed from year to year. Any requested amount which exceeds the amount to be distributed in the first year shall be distributed in substantially equal installments over a period not to exceed ten (10) years, commencing with the year following the year in which the initial distribution is made; provided, however, that each subsequent installment will be subject to the maximum amount for such Plan Year, as determined pursuant to this Section 8. 1 (a)(ii). 4. Paragraph (b) of Section 8.13 shall be amended and restated as follows: (b) If a Participant elects to withdraw all or part of his vested Account balance by making a written request for a distribution, then the distribution of the Participant's vested Account balance for which an election is made shall be made as follows: A distribution shall be made within one year after the end of the Plan Year to which the election applies in an amount equal to the requested amount, but not more than the greater of (i) an amount determined by the Plan Administrator for such Plan Year or (ii) the maximum annual distribution allowed under Section 498OA(c)(1) for non-lump sum distributions without incurring an excise tax, for the Plan Year in which the request is made. The amount to be determined by the Plan Administrator shall be determined for each Plan Year as of the last day of the Plan Year, and may be changed from year to year. Any requested amount which exceeds the amount to be distributed in the first year shall be distributed in substantially equal installments over a period not to exceed ten (10) years, commencing with the year following the year in which the initial distribution is made; provided, however, that each subsequent installment will be subject to the maximum amount for such Plan Year, as determined pursuant to this Section 8.13(b). 5. Section 10.4 shall be amended and restated as follows: Section 10.4 Plan Administrative Committee The Board of Directors of the Sponsor may, in its discretion, appoint a committee of one or more persons, to be known as the Plan Administrative Committee (Committee) to act as the Plan Administrator in performing the duties of the Sponsor; provided, however, that in determining the Fair Market Value Per Share pursuant to Section 2.15, the Committee shall act as agents of the Trustee and not as Plan Administrator. The members of the Committee shall serve at the pleasure of the Board of Directors; they may be officers, directors, or Employees of the Employer or any other individuals. Any member may resign by delivering his written resignation to the Board of Directors and to the Committee. Vacancies in the Committee arising by resignation, death, removal or otherwise, shall be filled by the Board of Directors. The Sponsor shall advise the Trustee in writing of the names of the members of the Committee and of changes in membership from time to time. IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates indicated below. G.R. HERBERGER'S, INC., Employer Dated: ________________________ By: ____________________________ Its: President By: ____________________________ Its: Vice President NORWEST BANK MINNEAPOLIS, NATIONAL ASSOCIATION, as Trustee Dated: _________________________ By: _____________________________ Its: Asst. Vice President By: _____________________________ Vice President AMENDMENT NO. 5 TO G.R. HERBERGER'S, INC. 401 (k) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, G.R. Herberger's, Inc. (the "Sponsor") has adopted and currently maintains the G. R. Herberger's, Inc. 401 (k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (the "Plan") and has established the related Employee Stock Ownership Trust (the "Trust"); and WHEREAS, the Sponsor has retained the right to amend. the Plan under Section 13.1 of the Plan; and WHEREAS, due to the changing nature of the Employer Stock it may hold in the future, when such Employer Stock is publicly traded; NOW, THEREFORE, the Sponsor hereby amends the Plan in the following respects: 1. Section 2.15, "Fair Market Value Per Share" shall mean that value per share determined as follows: (a) If the Employer Stock is traded on a national securities exchange or admitted to unlisted trading privileges on such exchange, the fair market value on any given day shall be the closing sales price for the Employer Stock on such day, as reported in the Wall Street Journal or other newspaper of general circulation; (b) If the Employer Stock is not listed on a national securities exchange, the fair market value on any given day shall be the closing sale price for the Employer Stock on the NASDAQ National Market System on such date, as reported in the Wall Street Journal or other newspaper of general circulation; (c) If the Employer Stock is not listed on a national securities exchange, is not admitted to unlisted trading privileges on any such exchange, and is not eligible for inclusion on the NASDAQ National Market System, the fair market value on any given day shall be the average of the closing representative's bid and asked prices on such day, as reported on the NASDAQ National Market System, and if not reported on such system, then as reported by the National Quotation Bureau, Inc. or such other publicly available compilation of the bid and asked prices of such common stock in any over-the-counter market on which the Employer Stock is traded; (d) If no public trading market for the Employer Stock exists, the fair market value on any given day shall be an amount determined by the Plan Administrator provided that in determining Fair Market Value Per Share, the Plan Administrator shall obtain and rely upon an evaluation made by an independent appraiser, provided such appraiser satisfies requirements similar contained in the Regulations prescribed under Section 170(a)(i) of the Code. 2. Subsection 2.19(d) shall be deleted in its entirety. 3. Section 2.33, "Valuation Date" shall be amended by deleting the section and replacing it with the following language: "Valuation Date" shall mean the last day of each Plan Year and, in addition, any day of the Plan Year upon which the Fair Market Value Per Share of Employer Stock and the fair market value of all other investments can be determined in accordance with Sections 2.15 and 5.2." 4. Subsection 4.13(m) shall be deleted in its entirety. 5. A new subsection (f) shall be added to Section 5.4 to read as follows: "The Trustee shall purchase Employer Stock required for employee investment under the 401 (k) Employee Stock Purchase Plan on the open market or otherwise, with no obligation being imposed on the Plan Sponsor or any member of its Controlled Group to sell Employer Stock to the Trustee." 6. Subsection 6.2(a) shall be amended by deleting the text in the third line which immediately follows the parenthetical, and replacing it with the following: "shall have his interest in that portion of this Account attributable to Employer and Matching Contributions determined in accordance with the following schedule:" 7. Subsection 6.2(b) shall be amended by deleting the text in the third line which immediately follows the parenthetical, and replacing it with the following: "shall have his interest in that portion of this Account attributable to Employer and Matching Contributions determined in accordance with the following schedule:" 8. Subsection 6.7(a) shall be amended by deleting the third line, and replacing it with the following: "his interest in that portion of this Account attributable to Employer and Matching Contributions determined in accordance with the following schedule:" 9. Subsection 6.7(b) shall be amended by deleting the second line and replacing it with the following: "Employee misconduct shall have his vested interest in that portion of this Account attributable to Employer and Matching Contributions determined in accordance with the following schedule:" 10. Section 8.1, subsection (a)(ii) shall be amended by deleting the second paragraph of subsection (a)(ii) and replacing it with the following language: "Notwithstanding anything contained in this Article VIII to the contrary, any Participant who is eligible to receive a distribution and who requests an immediate distribution of such Participant's Elective Deferral Account shall receive a distribution of such Elective Deferral Account in Employer Stock as soon as practicable following such request unless the Participant has directed that his Elective Deferral Account be held in cash, in which case, the Elective Deferral Account shall be distributed in cash." 11. Section 8.1, subsection (a)(ii) Small be amended by deleting the third paragraph of that Section and replacing it with the following language: "Amounts to be distributed under this Section 8.'l (a) (ii) prior to the end of the fifth Plan Year following the Plan Year in which Participant separated from service shall be distributed in the form of Employer Stock except that partial shares, any Participant Elective Deferral Account assets held in cash subject to the Participant's direction and any dividends shall be paid in cash." The remainder of Section 8.1 (a) (ii) shall remain in its current form. 12. Section 8.1, subsection (c)(i) shall be deleted and replaced with the following language: "(c) Required Distributions Before Death (i) General Rule. Effective January 1, 1997, distribution of a Participant's Account must be made or commenced to the Participant not later than April 1 of the calendar year following the calendar year in which the later of two events occurs: (A) the Participant attains age 70@; or (B) the Participant retires from active employment. Between January 1, 1989 and January 1, 1997, distribution of a Participant's Account must be made or commenced to the Participant not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70%, regardless of whether the Participant is actually retired from active employment." 13. Section 8.3 "Form of Distribution" shall be amended by deleting subparagraph (a) and replacing it with the following language: "(a) Distribution of a Participant's Account shall be made in whole shares of Employer Stock valued at its Fair Market Value Per Share as of the date set forth in Section 5.2. Balances representing fractional shares, dividends and Elective Deferral Account assets held in cash at the Participant's direction will be distributed in cash. In the event Employer Stock is not available for distribution on the date a distribution is due hereunder, the trustee shall hold such amount until Employer Stock is acquired." 14. Section 8.5 "Put Option" shall be amended by adding the following sentence at the beginning of the Section: "(a) This Section 8.5 shall only apply if the Employer Stock is not publicly traded at the time of distribution." The remaining subsections of Section 8.5 shall be redesignated (b) through (f). 15. Section 8.6 "Right of First Refusal" shall be amended by adding the following sentence at the beginning of the Section: "(a) This Section 8.6 shall only apply if the Employer Stock is not publicly traded at the time of distribution." The remaining subsections of Section 8.6 shall be renumbered (b) through (f). 16. Section 8.13 "Distribution Upon Attaining Age 59@" shall be amended by adding a new subsection (c) to read as follows: "(c) Any distributions under this Section shall be made in Employer Stock with respect to whole shares, valued at their Fair Market Value Per Share as of the date set forth in Section 5.2 hereof. Balances representing fractional shares, dividends and Elective Deferral Account assets held in cash at the direction of the Participant will be distributed in cash." 17. Section 8.14 shall be amended by adding a new subsection (g) to read as follows: "(g) Any distributions under this Section shall be made in Employer Stock with respect to whole shares, valued at their Fair Market Value Per Share as of the date set forth in Section 5.2 hereof. Balances representing fractional shares, dividends and account assets held in cash at the direction of the Participant will be distributed in cash." 18. Subsection 10.2(a) shall be deleted and replaced with the following: "The Plan Administrator shall be responsible for, and shall have the discretionary authority to control and manage, the operation and administration of the Plan." 19. The first sentence of Subsection 10.2(b) shall be deleted and replaced with the following: "The Plan Administrator shall have the discretionary authority to interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan, including but not limited to questions of eligibility and the status and rights of Participants, Beneficiaries and other persons." 20. Section 10.4 shall be deleted in its entirety and replaced with the following: "10.4 Plan Administrative Committee. The Board of Directors of the Sponsor may, in its discretion, appoint a committee of one or more persons, to be known as the Plan Administrative Committee ("Committee") to act as the Plan Administrator. The members of the Committee shall serve at the pleasure of the Board of Directors, they may be officers, directors, or Employees of the Employer or any other individuals. Any member may resign by delivering his written resignation to the Board of Directors and to the Committee. Vacancies in the Committee arising by resignation, death, removal or otherwise, shall be filled by the Board of Directors. The Sponsor shall advise the Trustee in writing of the names of the members of the Committee and of changes in membership from time to time." 21. Section 10.9 shall be amended by adding a new subsection (c) to read as follows: " (c) If the Employer Stock is publicly traded, a Participant shall be entitled to direct the Trustee as to the manner in which voting rights of the Employer Stock allocated to his Account are to be exercised with respect to all corporate matters subject to shareholder vote." Subsections (c) and (d) shall be redesignated (d) and (e). 22. The first sentence of Section 13.1 shall be amended by inserting a period immediately following "advisable" and deleting the remainder of the sentence. 23. Article XIII shall be amended by adding the following Section 13.4: "13.4 Amendment of Vesting Schedule. At any time that the vesting schedule of the Plan is amended, or the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable interest in his Account, each Participant who has completed at least three Years of Service, whether or not consecutive, may elect to have his vested interest in his Employer and Matching Contributions Accounts determined under the vesting schedule in effect prior to such amendment. A Participant shall deliver such written election to the Plan Administrator at any time within 60 days after the later of the date: (a) the amendment is adopted; (b) the amendment becomes effective; or (c) the Participant is issued written notice of the amendment. "An election under this Section shall be irrevocable. For purposes of this Section, a Participant shall be considered to have completed three Years of Service if he shall have completed such years prior to the end of the period during which he could make an election hereunder." Except as where otherwise noted, this Amendment shall be effective January 1, 1997. IN WITNESS WHEREOF, the parties have executes this Agreement as of the dates indicated below: G.R. HERBERGER'S, INC., Sponsor Dated: ________________________ By: ____________________________ Its: President By: ____________________________ Its: Vice President NORWEST BANK MINNEAPOLIS, NATIONAL ASSOCIATION, as Trustee Dated: _________________________ By: _____________________________ Its: Asst. Vice President By: _____________________________ Vice President EX-10 10 EXHIBIT 10.44 THIRD AMENDMENT AND RESTATEMENT OF THE PARISIAN, INC. STOCK OPTION PLAN FOR OFFICERS TABLE OF CONTENTS Article Page 1 - INTRODUCTION, PURPOSE AND INTENT . . . . . . . . . . . . . . . . 1 2 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 - PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . 5 4 - CONVERSION AND GRANT OF OPTIONS. . . . . . . . . . . . . . . . . 5 5 - FORFEITURE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . 8 6 - EXERCISE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . 9 7 - TRANSFERS OF SHARES. . . . . . . . . . . . . . . . . . . . . . . 12 8 - AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . . 13 9 - BENEFICIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . 13 10 - ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 14 11 - ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 14 12 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 15 THIRD AMENDMENT AND RESTATEMENT OF THE PARISIAN, INC. STOCK OPTION PLAN FOR OFFICERS On April 26, 1988, Parisian, Inc., an Alabama corporation (the "Corporation") adopted the Parisian, Inc. Stock Option Plan for Officers (the "Plan"). On May 12, 1989 and May 21, 1990, the Corporation, having obtained the written consent of all of the Participant Representatives, amended and restated the Plan. On November 17, 1992 and April 8, 1996, the Corporation, having obtained the consent of all of the Participant Representatives, amended the Plan. Pursuant to an Agreement and Plan of Merger, dated July 8, 1996, among Proffitt's, the Corporation and a wholly-owned subsidiary of Proffitt's, Inc., a Tennessee corporation ("Proffitt's") (the "Merger Agreement"), said subsidiary shall merge with and into the Corporation on the date which includes the "Effective Time" (as that term is defined in the Merger Agreement). As a result of said merger, the Corporation shall become a wholly-owned subsidiary of Proffitt's. Pursuant to Section 4.4 of the Plan as in effect immediately prior to this Third Amendment and Restatement (the "Pre-Merger Plan"), said merger requires an equitable adjustment of the number and option prices of the options granted by the Corporation pursuant to this Plan (the "Parisian Options") so as to preserve their aggregate value. Pursuant to Section 1.5 (d) of the Merger Agreement, Proffitt's is required to assume the Pre-Merger Plan and the Corporation's obligations thereunder. Proffitt's and the Corporation have determined that the Pre-Merger Plan should be amended and restated to reflect the equitable adjustment of number and option prices of the Parisian Options and that the same does not deprive any Participant, Beneficiary or Plan Shareholder of any right or benefit which has accrued under the Pre-Merger Plan as of the Effective Date. Accordingly, in order to comply with Section 4.4 of the Pre-Merger Plan and Section 1.5(d) of the Merger Agreement and having obtained the written consent of all of the Participant Representatives, Proffitt's and the Corporation, pursuant to the provisions of Article 8 of the Pre-Merger Plan, hereby amend and restate the Pre-Merger Plan effective as of the Effective Date. ARTICLE 1 - INTRODUCTION, PURPOSE AND INTENT Proffitt's owns all of the issued and outstanding shares of the capital stock of the Corporation. The Corporation owns and operates a chain of specialty apparel department stores. In order to conduct and advance its business effectively, the Corporation must attract and retain qualified executives and provide them with meaningful financial incentives. Accordingly, Proffitt's and the Corporation have established this Plan to provide the Officers with long-range financial incentives and shall maintain and administer this Plan for the exclusive benefit of the Participants and their Beneficiaries. ARTICLE 2 - DEFINITIONS Unless otherwise provided herein, the following terms shall have the following meanings: 2.1 ADMINISTRATOR: The party determined pursuant to Article 11. 2.2 BENEFICIARY. With respect to a Participant, the party who, pursuant to Article 9, owns any options owned by such Participant at the time of his death. 2.3 BOARD: With respect to Proffitt's or the Corporation, as applicable, its Board of Directors. 2.4 COMMISSION: The Securities and Exchange Commission. 2.5 CORPORATION: Parisian, Inc., an Alabama corporation. 2.6 DISABILITY: A Participant's physical or mental inability to perform the normal duties of his employment by the Corporation which continues for more than 180 consecutive days and which is not attributable to chronic or excessive use of intoxicants, drugs or narcotics, intentional self-inflicted injury or self-induced sickness or any felonious act or enterprise on the part of the Participant. If there is any disagreement between the Corporation and a Participant as to the Participant's Disability or as to the date any such Disability began, the same shall be determined by a physician to be selected by the Administrator who shall make such determination after an examination of the Participant by such physician. The Participant shall be available for such an examination at any reasonable time. The determination of such physician shall be conclusive evidence of the Disability or non-Disability of the Participant and of the date any such Disability began. If the Participant fails or refuses to cooperate in such examination, the determination of the Participant's Disability or non-Disability and the date any such Disability began shall be made by the Administrator in its sole discretion. 2.7 EFFECTIVE DATE: The date which includes the "Effective Time" (as that term is defined in the Merger Agreement). 2.8 OFFICER: Any person who is an employee of the Corporation and either the President or an Executive Vice President, Senior Vice President or Vice President of the Corporation or Proffitt's. 2.9 OPTION: The right to purchase one Share from Proffitt's for the Option Price and upon the terms and conditions set forth in this Plan. 2.10 OPTIONHOLDER: The owner of an Option. 2.11 OPTION PRICE: With respect to an Option, the price determined pursuant to Article 4 for which one Share may be purchased from Proffitt's upon the exercise of such Option. 2.12 OPTION TRANSFEREE. With respect to a Participant, his spouse and lineal descendants who have attained age 21 and a Qualified Trust, the sole beneficiaries of which may not include anyone other than such Participant, his spouse and lineal descendants. 2.13 PARISIAN OPTION: An option granted by the Corporation pursuant to this Plan prior to this Third Amendment and Restatement which entitles the holder thereof to purchase from the Corporation one share of the One Cent ($0.01) par value common stock of the Corporation for the option price and upon the terms and conditions of the Pre-Merger Plan. 2.14 PARTICIPANT: At any relevant time, an Officer or former Officer who is a Participant pursuant to Article 3. 2.15 PARTICIPANT REPRESENTATIVES: The Corporation's Chief Executive Officer, D. Warren Bailey and Steven B. Corenblum; provided, however, that if either of said named individuals ceases to be a Participant, Proffitt's shall give written notice of that fact to the other Participants who shall elect another Participant to succeed said named individual as a Participant Representative. Each Participant shall have one vote in the election of such successor regardless of the number of Options and Shares owned by such Participant. Any action required or permitted to be taken by the Participant Representatives hereunder or any consent, approval or notice required or permitted to be given by the Participant Representatives hereunder shall be taken or given by a majority of the Participant Representatives. 2.16 PLAN SHAREHOLDER: An owner of Shares. 2.17 PRE-MERGER PLAN: This Plan as in effect immediately prior to this Third Amendment and Restatement. 2.18 PROFFITT'S: Proffitt's, Inc., a Tennessee corporation. 2.19 QUALIFIED EMPLOYEE: A person who, on April 8, 1996, was an Officer of the Corporation. 2.20 QUALIFIED TRUST: A trust established pursuant to a written document which has been approved in writing by the Corporation in its sole discretion and which, by its terms: (a) authorizes the trustee of such trust to: (i) acquire, own and dispose of shares of stock and other securities and options to purchase shares of stock and other securities; (ii) exercise any such options; (iii) grant proxies to vote any securities owned by such trust; and (iv) enter into agreements with respect to such securities, the term of which may extend beyond the term of such trust; and (b) provides that Options and Shares held by the trustee of such trust shall only be distributed to a beneficiary of such trust if such beneficiary (i) is an Option Transferee of the grantor of such trust and (ii) prior to such distribution, has agreed in writing, in form and substance satisfactory to the Corporation, in its sole discretion, that such beneficiary and the options and Shares distributed to him shall be bound by the provisions of this Plan including, without limitation, those of Articles 4 and 7 hereof; (c) cannot be amended without the prior written approval of the Corporation, which approval may be withheld by the Corporation in its sole discretion; (d) provides that any such amendment which is not so approved by the Corporation shall be invalid; and (e) contains such other terms and provisions as the Corporation, in its sole discretion, shall determine to be appropriate. 2.21 RULE 144: Rule 144 under the Securities Act or any similar provision then in force promulgated under the Securities Act. 2.22 SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 2.23 SHARES: The shares of the Ten Cent ($0.10) par value common stock of Proffitt's purchased from Proffitt's pursuant to the terms and conditions set forth in this Plan and any shares of Stock received upon the conversion of such shares but excluding any shares of Stock acquired other than pursuant to this Plan. 2.24 STOCK: All classes of the preferred and common capital stock of Proffitt's. 2.25 TRANSFEROR: With respect to an Option Transferee, the Participant to whom the Options owned by such Option Transferee were originally granted. ARTICLE 3 - PARTICIPATION 3.1 PARTICIPATION. Any person who, on the Effective Date, was an Officer or a former Officer of the Corporation and held any Parisian Options shall be a Participant as of the Effective Date. An Officer who is not a Participant on the Effective Date shall become a Participant if and when Options are granted to him pursuant to Article 4. 3.2 TERMINATION OF PARTICIPATION. A Participant shall cease to be a Participant on the date on which he exercises all Options then owned by him. ARTICLE 4 - CONVERSION AND GRANT OF OPTIONS 4.1 CONVERSION OF PARISIAN OPTIONS. Pursuant to Section 4.4 of the Pre-Merger Plan, the Parisian Options are hereby converted into Options in accordance with the provisions of this Section. As a result of said conversion, the Parisian Options are hereby cancelled and the owner of such Parisian Options shall have no further right to purchase from the Corporation any of the shares of its capital stock but such owners shall receive the number of Options determined pursuant to the provisions of this Section. (a) Number of Options. The Parisian Options held by each owner of Parisian Options are hereby converted into a number of Options equal to 80% of the number of such Parisian Options; provided, however, that if an owner of Parisian Options would receive a fractional Option, then, as determined by the Participant Representatives in their sole discretion, such owner shall receive the next lowest or next highest whole number of Options; provided, further, however, that the total number of Options received by all such owners shall equal 80% of the number of Parisian Options held by them. (b) Option Price. If the option price of the Parisian Option from which an Option is hereby converted was $18.00, the Option Price of such Option shall be $22.50. If the option price of the Option from which an Option is converted was $20.40, the Option Price of such Option shall be $25.50. (c) Agreements. Upon its receipt of a certificate evidencing Parisian Options, Proffitt's shall execute and deliver to the holder of such Parisian Options an agreement evidencing his ownership of the Options into which said Parisian Options have been converted and reflecting the Option Prices of such Options. 4.2 FULL VESTING OF OPTIONS. All of the Options are and, unless and until forfeited in accordance with the provisions of Article 5, shall remain fully vested. 4.3 GRANT OF FORFEITED OPTIONS. In the event any Options are forfeited pursuant to Article 5, then, on the third business day following its receipt of written notice from a majority of the Participant Representatives, Proffitt's shall grant to each Officer named in such notice the number of such Options specified therein. The Option Price of each Option granted pursuant to any such notice shall be: (a) with respect to an Option granted to a Qualified Employee, $22.50; and (b) with respect to an Option granted to an Officer who is not a Qualified Employee, $25.50. 4.4 GRANT OF OPTIONS TO PARTICIPANT REPRESENTATIVE. Notwithstanding the foregoing provisions of this Section, the Corporation shall not grant any of the Options referred to in a written notice described in Section 4.3 to any Officer named in such notice unless: (a) none of such Officers is a Participant Representative; (b) the Corporation's Board approves Proffitt's grant of such Options to such Officers prior to the date such Options are to be granted pursuant to such notice; or (c) pursuant to such notice, each Participant is to be granted his pro-rata portion of such Options. For purposes of this Section 4.4, a Participant's pro-rata portion of such Options shall be a fraction, the numerator of which shall be the number of Options and Shares owned by such Participant and his Permitted Transferees, Transferees, Pledgees and Remote Transferees (as such terms are defined in the Pre-Merger Plan) on the date of such notice and the denominator of which shall be the number of Options and Shares owned by all Participants on such date. 4.5 ADJUSTMENTS. If, at any time prior to the termination of this Plan, there is an increase or decrease or other change in the shares of Stock by reason of stock dividends (or payment of a dividend consisting of money or other property to the extent the recipient thereof immediately reinvests such dividend in Proffitt's and receives from Proffitt's in exchange therefor additional shares of Stock), split-ups, recapitalizations, combinations, conversions, exchanges of shares or the like, then, as of the date of such increase, decrease or other change, there shall be an equitable adjustment of the number and Option Prices of the Options then owned by the Participants and Beneficiaries so as to preserve the aggregate value of such Options determined as of such date. 4.6 EVIDENCE OF OPTIONS. All Options shall be evidenced by an agreement reflecting the name of the owner of such Options and the number and Option Price of such Options and bearing a conspicuous notice of (a) the restrictions imposed by this Plan on the exercise and transferability of such Options and the transferability of the Shares purchased pursuant to such exercise and (b) such other matters relating to the Options, the Shares and this Plan as the Administrator shall deem appropriate. 4.7 RESTRICTIONS ON TRANSFER OF OPTIONS. Except as permitted by this Section 4.7, no Optionholder may sell, transfer, assign, convey or otherwise dispose of or alienate any of his options or any right or interest therein (whether voluntarily, by operation of law, by gift or otherwise) or enter into any contract or agreement or grant any option with respect to the sale, transfer, assignment, conveyance or other disposition of his Options or any right or interest therein. Any purported transfer of Options in violation of this Section shall be void and ineffective and shall not operate to transfer any interest in or title to such options to the purported transferee and Proffitt's shall not record any such purported transfer in its transfer records. (a) Permitted Transfers Of Options By Participants. Upon ten (10) days prior written notice to Proffitt's (or such lesser number of days as Proffitt's may agree to in writing) , a Participant may sell, transfer or assign all or any number of his Options to a transferee who (or which) is an Option Transferee only if, prior to such transfer, such transferee has agreed in writing, in form and substance satisfactory to Proffitt's, in its sole discretion, that such transferee and the Options transferred to him shall be bound by the provisions of this Plan including, without limitation, those of this Article 4. Such notice shall specify the name and address of the proposed transferee, the relationship between the Participant and the proposed transferee which establishes the proposed transferee as an Option Transferee of the Participant and the number and Option Prices of the Options to be transferred to such proposed transferee. Notwithstanding the foregoing provisions of this Section, if Options are transferred to an Option Transferee which is a Qualified Trust and the written document pursuant to which such Qualified Trust was established is later amended without the prior written approval of Proffitt's then, on the effective date of such amendment, ownership of all Options then owned by such Qualified Trust shall revert to its Transferor. (b) Permitted Transfers Of Options By Other Optionholders. Upon ten (10) days prior written notice to Proffitt's (or such lesser number of days as Proffitt's may agree to in writing), an Optionholder other than a Participant may sell, transfer or assign all or any number of his Options to his Transferor if, prior to such transfer, such Transferor has agreed in writing, in form and substance satisfactory to Proffitt's, that such Transferor and the Options transferred to him shall be bound by the provisions of this Plan including, without limitation, those of this Article 4. Such notice shall specify the number and Option Prices of the options to be transferred to such Transferor. 4.8 EFFECT OF TRANSFER OF OPTIONS. The provisions of this Section 4.8 shall apply in the event a Participant transfers Options to an Option Transferee pursuant to Section 4.7. (a) Forfeitures of Options. All of an Option Transferee's Options shall be forfeited on the date any Options owned by his Transferor are or would be forfeited pursuant to Article 5. On the date an Option Transferee's Options are forfeited pursuant to this Section 4.8(a), the rights of such Option Transferee shall be terminated and, thereafter, such Options shall be granted to the Participants pursuant to the provisions of Section 4.3. (b) Exercise of Options. An Option Transferee shall be entitled to exercise his Options at such times, in such manner, upon such terms and subject to such conditions, limitations and restrictions as his Transferor is or would be entitled to exercise any Options owned by such Transferor. (c) Beneficiaries. Upon an Option Transferee's receipt of any Options pursuant to Section 4.7, the provisions of Article 9 (governing the determination of a Participant's Beneficiary) shall apply to such Option Transferee as if such Option Transferee was a Participant. (d) Deemed Ownership of Options. Each Participant shall be deemed to own all of the Options actually owned by his Option Transferees for the purpose of determining: (1) the number of Options to be granted to a Participant pursuant to Section 4.4; and (2) whether Proffitt's has obtained the consent of the Participants required by Section 8.1. ARTICLE 5 - FORFEITURE OF OPTIONS 5.1 EFFECT OF FORFEITURES. On the date any Options are forfeited pursuant to the following provisions of this Article, the rights of the Participant or Beneficiary then owning such Options shall be terminated and, thereafter, such Options shall be granted to the Participants pursuant to the provisions of Section 4.3. 5.2 FORFEITURES UPON TERMINATION FOR CERTAIN CAUSES. If a Participant's employment with the Corporation is terminated by the Corporation on account of the Participant's: (a) proven dishonesty, theft, fraud or embezzlement; (b) breach of any fiduciary duty or duty of loyalty to the Corporation; (c) involvement or participation (whether direct or indirect) in any business competitive with that of the Corporation or Proffitt's without the Administrator's prior written consent; (d) usurpation of any business opportunity of the Corporation or Proffitt's without the Administrator's prior written consent; (e) conviction of a felony or a crime involving moral turpitude; or (f) divulgence to a party unrelated to the Corporation or Proffitt's of any material non-public confidential information concerning the Corporation or Proffitt's or their businesses or activities, then, on the effective date of such termination, all Options then owned by him or his Beneficiary shall be forfeited. 5.3 FORFEITURES FOR CERTAIN CAUSES AFTER TERMINATION. If, during the 120 day period following the effective date of the termination of a Participant's employment with the Corporation, the Administrator shall determine that, prior to the effective date of such termination, such Participant engaged in any conduct described in Section 5.2, then, as of the date of such determination, all Options then owned by him or his Beneficiary shall be forfeited. 5.4 FORFEITURES AFTER FIFTEEN YEARS. If not previously forfeited pursuant to the foregoing provisions of this Section, each Option shall be forfeited on the fifteenth anniversary of the date on which the Parisian Option from which such Option was converted pursuant to Section 4.1 became a "Vested Option" (as that term is defined in the Pre-Merger Plan). ARTICLE 6 - EXERCISE OF OPTIONS 6.1 RIGHT TO EXERCISE. Subject to Section 6.5, each Participant shall be entitled to exercise any or all of his Options at any time. 6.2 METHOD OF EXERCISE. A Participant may elect to exercise his Options only by written notice (the "Exercise Notice") to Proffitt's. In order to be effective, such Exercise Notice must: (a) specify the number and Option Prices of the Options to be exercised; (b) be received by Proffitt's prior to the date such Options are forfeited; (c) be accompanied by the certificate evidencing such Participant's ownership of such Options; (d) specify the date on which such Options are to be exercised which shall not be earlier than the third business day following Proffitt's receipt of such Exercise Notice; and (e) specify whether such Participant shall exercise such Options (1) by paying their aggregate Option Price pursuant to Section 6.3 or (2) pursuant to the cashless exercise program referred to in Section 6.4. 6.3 PAYMENT FOR SHARES. If a Participant's Exercise Notice specifies that such Participant shall exercise the Options which are the subject of such Exercise Notice pursuant to this Section 6.3, then, on the date determined pursuant to Section 6.2(d): (a) the Participant shall deliver to Proffitt's: (1) a certified or cashier's check, made payable to the order of Proffitt's, in an amount equal to the aggregate Option Price of the Options which are the subject of such Exercise Notice; and (2) if the same shall be requested by Proffitt's in order for Proffitt's issuance of Shares pursuant to the exercise of such Options to satisfy one or more exemptions from the registration requirements of the Securities Act, a certificate pursuant to which such Participant shall (A) represent that he is exercising such Options and acquiring the Shares issued upon such exercise for investment purposes only for his own account and not with a view to the distribution thereof and (B) acknowledge that such Shares have not been registered under the Securities Act and may not be resold or otherwise transferred in the absence of an effective registration statement under the Securities Act or an opinion of counsel satisfactory to the Corporation that such registration is not required; and (b) Proffitt's shall deliver to such Participant: (1) a stock certificate evidencing his ownership of a number of Shares equal to the number of such Options exercised pursuant to such Exercise Notice and bearing a conspicuous notice of the restrictions on the transferability of such Shares which may be required by the applicable provisions of the Securities Act and those which are imposed by Article 7; and (2) to the extent necessary, a certificate evidencing his ownership of any Options not exercised pursuant to such Exercise Notice. 6.4 CASHLESS EXERCISE. If a Participant's Exercise Notice specifies that such Participant shall exercise the Options which are the subject of such Exercise Notice pursuant to this Section 6.4, then such Participant shall exercise such Options in accordance with the applicable provisions of the cashless exercise program then maintained by Proffitt's in connection with any stock option plan then available to employees of Proffitt's. 6.5 RESTRICTION ON EXERCISE OF OPTIONS. Notwithstanding anything to the contrary contained herein, a Participant may not exercise any of his Options unless entitled to do so pursuant to this Section. (a) Registration. A Participant shall be entitled to exercise his Options if, on the date of his Exercise Notice, the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (b) Exemption. If, on the date of a Participant's Exercise Notice, the Shares to be issued upon such exercise are not the subject of an effective registration statement under the Securities Act, he shall be entitled to exercise his Options only if an exemption from such registration is available. For purposes of this Article, the availability of such an exemption shall be determined in the manner set forth in this Section 6.5(b). (i) Upon request by such Participant, Proffitt's shall seek an opinion of counsel of recognized standing in securities law as to whether such an exemption is available. If, in the opinion of such counsel, such an exemption is available, the Participant shall be entitled to exercise such Options on such date, not later than the tenth day following the date of such opinion, as Proffitt's and such Participant shall agree. (ii) If, in the opinion of such counsel, such an exemption is not available, the Participant may seek an opinion of another counsel of recognized standing in securities law (which counsel shall be reasonably satisfactory to Proffitt's) as to whether such an exemption is available. If, in the opinion of such other counsel (the "Participant's Counsel"), such an exemption is not available, the Participant shall not be entitled to exercise such Options until the date the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (iii) If, in the opinion of the Participant's Counsel, such an exemption is available, then, promptly upon its receipt of such opinion, Proffitt's shall: (A) request the Participant Representatives to determine whether or not Proffitt's should seek a no-action letter from the Commission as to whether such an exemption is available; and (B) reimburse the Participant for the cost of obtaining such opinion. (iv) If a majority of the Participant Representatives determine that Proffitt's should not seek such no-action letter, the Participant shall be entitled to exercise such Options on such date, not later than the tenth day following the date of such determination, as Proffitt's and such Participant shall agree. (v) If a majority of the Participant Representatives determine that Proffitt's should seek such no-action letter, Proffitt's shall use its reasonable good faith efforts to seek such no-action letter. (vi) If such no-action letter indicates that such an exemption is not available, the Participant shall not be entitled to exercise such Options until the date the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (vii) If such no-action letter indicates that such an exemption is available, the Participant shall exercise such Options on such date, not later than the tenth day following the date of such no-action letter, as Proffitt's and such Participant shall agree. (c) Insider Trading. A Participant shall not be entitled to exercise his Options in any manner or at any time which is prohibited by Proffitt's insider trading policies then in effect. ARTICLE 7 - TRANSFERS OF SHARES 7.1 REGISTRATION. As soon as reasonably practical following the Effective Date but in no event later than the tenth (10th) day following the Effective Date, Proffitt's shall take such action and file such documents with the Commission as may be necessary to cause the Shares to be the subject of an effective registration statement under the Securities Act. 7.2 GENERAL RESTRICTIONS. No Plan Shareholder may sell, transfer, assign, convey or otherwise dispose of or alienate any of his Shares or any right, or interest therein (whether voluntarily, by operation of law, by gift or otherwise) or enter into any contract or agreement or grant any option with respect to the sale, transfer, assignment, conveyance or other disposition of his Shares or any right or interest therein, unless such sale, transfer, assignment, conveyance or other disposition is: (a) required or permitted by this Plan; (b) made in accordance with Proffitt's insider trading policies then in effect; (c) made pursuant to (i) an effective registration statement under the Securities Act or (ii) an exemption from registration under the Securities Act; and (d) made in compliance with applicable federal and state securities laws; provided, however, that if the Plan Shareholder is an "affiliate" (within the meaning of the Securities Act) of Proffitt's or his Shares were issued by Proffitt's pursuant to Section 6.5(b), he may not sell, transfer, assign, convey or otherwise dispose of his Shares pursuant to Section 7.1(b)(ii) prior to the tenth (10th) day following Proffitt's receipt of an opinion of counsel (which opinion and counsel shall be reasonably satisfactory to the corporation) or a no-action letter from the Commission to the effect that such exemption is available. Any purported transfer of Shares in violation of this Section shall be void and ineffective and shall not operate to transfer any interest in or title to such Shares to the purported transferee and Proffitt's shall not record any such purported transfer in its transfer records. 7.3 PUBLIC SALES. A Plan Shareholder may sell all or any number of his Shares on any date if: (a) such sale is made pursuant to Rule 144 (provided that such transfer complies with paragraph (f) of such Rule) or otherwise on a national securities exchange or in the over-the-counter market; and (b) on such date, such sale is permitted under Section 7.2. ARTICLE 8 - AMENDMENT AND TERMINATION 8.1 REQUIRED CONSENT. This Plan cannot be amended or terminated without the consent of a majority of the Participant Representatives who are then Participants; provided, however, that if less than two Participant Representatives are then Participants, Proffitt's may not amend or terminate this Plan without the consent of the Participants who own at least 66.67% of the number of Options and Shares then owned by the Participants. 8.2 EFFECTIVE DATE. No amendment or termination of the Plan shall be effective as of any date prior to the date on which Proffitt's obtains the consent required by this Article. 8.3 RESTRICTIONS ON AMENDMENTS. Notwithstanding anything to the contrary contained herein, no amendment to this Plan shall deprive any Participant, Beneficiary or Plan Shareholder of any right or benefit which had accrued prior to the effective date of such amendment. Without limiting the generality of the foregoing, no such amendment shall cause any Option to be forfeited, adversely affect the right of a Participant or Beneficiary to exercise any Option or adversely affect any Plan Shareholder's right to sell any Shares in accordance with the provisions of Article 7. 8.4 EFFECT OF TERMINATION. In the event Proffitt's terminates this Plan in accordance with the provisions of this Article: (a) none of the Options forfeited pursuant to Article 5 after such effective date shall be granted to any Participant pursuant to this Plan; and (b) the rights of the Participants, Beneficiaries and Plan Shareholders hereunder (including, without limitation, their rights to exercise Options pursuant to Article 6 and to sell Shares pursuant to Article 7) shall survive such termination. ARTICLE 9 - BENEFICIARIES Upon becoming eligible to participate in this Plan, each Participant, pursuant to a written instrument delivered to the Administrator, shall designate a Beneficiary who shall own any Options owned by such Participant at the time of his death and who shall be entitled to exercise any of such Options. Such designation may be changed by the Participant from time to time by written notice to the Administrator. In the event a Participant does not designate a Beneficiary or a Beneficiary designated by a Participant predeceases such Participant and no new Beneficiary has been designated, then such Participant's Beneficiary shall be his surviving spouse, if any, or if none, his estate. Upon a Beneficiary's receipt of any Options pursuant to this Article, the provisions of this Article shall apply to such Beneficiary and such Options as if such Beneficiary was a Participant. ARTICLE 10 - ASSIGNABILITY No Participant or Beneficiary shall alienate, sell, transfer, assign, pledge or otherwise encumber any interest in this Plan or any Option granted to him pursuant to this Plan without the prior written consent of the Administrator. Any attempt by a Participant or Beneficiary to alienate, sell, transfer, assign, pledge or encumber any such interest or Option in contravention of this Article shall be ineffective. ARTICLE 11 - ADMINISTRATION 11.1 ADMINISTRATOR. The Administrator shall be the Corporation's Board or, as designated by it in writing, the Executive Committee or any other committee of said Board. 11.2 ADMINISTRATION. The Administrator shall administer the Plan and shall have all powers necessary or appropriate to enable it to carry out its duties including, without limitation, the power to interpret the Plan, to decide all issues arising under the Plan, to make, establish and change rules and procedures with respect to the operation of the Plan, and all other powers conferred upon it herein. The Administrator shall have the authority to decide all questions relating to eligibility, participation, vesting and forfeitures. The Administrator may rely and act on any information provided by Proffitt's and the Corporation without further inquiry or liability. 11.3 EXCULPATION AND INDEMNIFICATION. No Participant Representative, officer of Proffitt's or Corporation or member of either Board shall be responsible or liable for any mistake or error of judgment in connection with their responsibilities, obligations or duties with respect to this Plan. Proffitt's shall indemnify each Participant Representative, officer of Proffitt's or the Corporation and member of either Board to the full extent of any liabilities, expenses, penalties, damages or other pecuniary loss, including attorney's fees, which he may suffer as a result of his responsibilities, obligations or duties in connection with this Plan. Such indemnification shall be paid by Proffitt's to the extent that liability insurance is not available to cover the payment of such items. Proffitt's may purchase and maintain such insurance on behalf of such individuals. 11.4 REPORTS TO PARTICIPANTS. The Administrator shall, from time to time in its sole discretion, but at least annually, notify each Participant of the number and Option Prices of the Options then owned by him and such other information as the Administrator, in its sole discretion, deems to be reasonable under the circumstances. No Participant other than a Participant Representative shall be entitled to receive or review any information or data with regard to the number or Option Prices of Options owned by any other Participant. Such information shall only be disclosed to Participants to the extent the Administrator deems it to be appropriate and in the best interest of Proffitt's and the Corporation. ARTICLE 12 - MISCELLANEOUS 12.1 NO RIGHT TO EMPLOYMENT. Nothing contained herein shall give any Officer the right to be employed by Proffitt's or the Corporation, nor shall this Plan interfere with the right of Proffitt's or the Corporation to discharge any Officer at any time, to change the duties of any Officer at any time or to change the title or position of any Participant at any time. 12.2 GRANT OF OPTIONS TO OTHERS. If the Administrator shall determine that Options are to be granted hereunder to any person who is incapable or unable to care for his affairs due to minority or any other incapacity, whether or not such incapacity has been judicially determined, then, in the discretion of the Administrator, all or any number of such Options may be granted to and, pursuant to the provisions of this Plan, exercised by his spouse, a relative of such person, an institution maintaining or having custody of such person or any person deemed by the Administrator to be a proper party for such purpose. Alternatively, the Administrator may, in its discretion, delay the grant of such Options until a legal representative is appointed for such person. Any grant of options made pursuant to this Section shall constitute a complete discharge of the liabilities of the Administrator, Proffitt's and the Corporation to such person hereunder. 12.3 SUBORDINATION OF RIGHTS. If, and only to the extent that, a majority of the Participant Representatives and a majority of the members of the Corporation's Board deem such subordination to be in Proffitt's or the Corporation's best interests, the rights of each Participant, Beneficiary and Plan Shareholder hereunder shall be subordinate to the provisions of any loan agreement, note, bond, indenture, debenture, capitalized lease or other evidence of Proffitt's or the Corporation's indebtedness. 12.4 GOVERNING LAW. This Plan shall be construed according to the laws of the State of Alabama. 12.5 NUMBER AND GENDER. Whenever the context so requires, the singular number shall include the plural and the plural shall include the singular and the gender of any pronoun shall include the other genders. 12.6 NOTICE. Any notice required or permitted to be given hereunder shall be in writing and signed by the party making the same and shall specify the Section hereof pursuant to which it is given. Any such notice shall be deemed given (i) on the date delivered, if delivered in person and (ii) on the fifth business day after mailing, if mailed. Any such notice shall be mailed registered or certified first class mail, return receipt requested (with postage and other fees prepaid) as follows: If to Proffitt's, to: Proffitt's, Inc. 115 North Calderwood Alcoa, Tennessee 37701 Attention: Senior Vice President of Investor Relations If to the Corporation, to: Parisian, Inc. 750 Lakeshore Parkway Birmingham, Alabama 35211 Attention: President If to the Administrator, to: Parisian, Inc. 750 Lakeshore Parkway Birmingham, Alabama 35211 ttention: Administrator, Parisian, Inc. Stock Option Plan for Officers and, if to a Participant, Beneficiary or Plan Shareholder, to such Participant's, Beneficiary's or Plan Shareholder's last known residence or office address appearing in the Corporation's employment or other records. If any such notice is given to Proffitt's, the Corporation or the Administrator, a copy thereof shall be given to: (a) Donald E. Hess (or such other person who is then the President of the Corporation) at the address of the Corporation set forth above; and (b) D. Warren Bailey and Steven B. Corenblum at the address of the Corporation set forth above (or if either of them ceases to be an Officer, at his last known residence address); provided, however, that if either of said individuals ceases to be a Participant, such notice shall not be given to him but shall instead be given to the Participant who succeeds him as a Participant Representative at the address of the Corporation set forth above. 12.7 SEVERABILITY. The invalidity of this Plan with respect to one or more persons shall not affect the rights and obligations of any other person hereunder in any manner whatsoever. The invalidity of one or more provisions of this Plan shall not affect the validity of any other provision of this Plan in any manner whatsoever. 12.8 RIGHTS OF TRANSFEREES. Notwithstanding anything to the contrary contained in this Plan: (a) the rights of an Option Transferee with respect to all Options owned by such Option Transferee shall be the same as those of the Participant who first owned such Option determined as if such Participant then owned such Option; and (b) the rights of a Plan Shareholder who is not a Participant with respect to a Share owned by such Plan Shareholder shall be the same as those of the Participant who first owned such Share determined as if such Participant then owned such Option. IN WITNESS WHEREOF, Proffitt's and the Corporation have executed this Third Amendment and Restatement on ______________, 1996. PROFFITT'S, INC. PARISIAN, INC. By:__________________________ By:_______________________ _____________,____________ Donald E. Hess, President X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-44.ASC EX-10 11 EXHIBIT 10.45 FIRST AMENDMENT AND RESTATEMENT OF THE PARISIAN, INC. MANAGEMENT INCENTIVE PLAN TABLE OF CONTENTS Article Page 1 - INTRODUCTION, PURPOSE AND INTENT . . . . . . . . . . . . . . . . 1 2 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 - PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 - CONVERSION AND GRANT OF OPTIONS. . . . . . . . . . . . . . . . . 4 5 - FORFEITURE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . 5 6 - EXERCISE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . 6 7 - TRANSFERS OF SHARES. . . . . . . . . . . . . . . . . . . . . . . 9 8 - AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . . 10 9 - BENEFICIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 - ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 - ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 11 12 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 12 FIRST AMENDMENT AND RESTATEMENT OF THE PARISIAN, INC. MANAGEMENT INCENTIVE PLAN On July 2, 1990, Parisian, Inc., an Alabama corporation (the "Corporation") adopted the Parisian, Inc. Management Incentive Plan (the "Plan"). On April 8, 1996, the Corporation, having obtained the consent of all of the Participant Representatives, amended the Plan. Pursuant to an Agreement and Plan of Merger, dated July 8, 1996, among Proffitt's, Inc., a Tennessee corporation ("Proffitt's"), the Corporation and a wholly-owned subsidiary of Proffitt's (the "Merger Agreement"), said subsidiary shall merge with and into the Corporation on the date which includes the "Effective Time" (as that term is defined in the Merger Agreement). As a result of said merger, the Corporation shall become a wholly-owned subsidiary of Proffitt's. Pursuant to Section 4.4 of the Plan as in effect immediately prior to this First Amendment and Restatement (the "Pre-Merger Plan"), said merger requires an equitable adjustment of the number and option prices of the options granted by the Corporation pursuant to this Plan (the "Parisian Options") so as to preserve their aggregate value. Pursuant to Section 1.5 (d) of the Merger Agreement, Proffitt's is required to assume the Pre-Merger Plan and the Corporation's obligations thereunder. Proffitt's and the Corporation have determined that the Pre-Merger Plan should be amended and restated to reflect the equitable adjustment of number and option prices of the Parisian Options and that the same does not deprive any Participant, Beneficiary or Plan Shareholder of any right or benefit which has accrued under the Pre-Merger Plan as of the Effective Date. Accordingly, in order to comply with Section 4.4 of the Pre-Merger Plan and Section 1.5(d) of the Merger Agreement and having obtained the written consent of all of the Participant Representatives, Proffitt's and the Corporation, pursuant to the provisions of Article 8 of the Pre-Merger Plan, hereby amend and restate the Pre-Merger Plan effective as of the Effective Date. ARTICLE 1 - INTRODUCTION, PURPOSE AND INTENT Proffitt's owns all of the issued and outstanding shares of the capital stock of the Corporation. The Corporation owns and operates a chain of specialty apparel department stores. In order to conduct and advance its business effectively, the Corporation must attract and retain qualified management personnel and provide them with meaningful financial incentives. Accordingly, Proffitt's and the Corporation have established this Plan to provide the Managers with long-range financial incentives and shall maintain and administer this Plan for the exclusive benefit of the Participants and their Beneficiaries. ARTICLE 2 - DEFINITIONS Unless otherwise provided herein, the following terms shall have the following meanings: 2.1 ADMINISTRATOR: The party determined pursuant to Article 11. 2.2 BENEFICIARY. With respect to a Participant, the party who, pursuant to Article 9, owns any Options owned by such Participant at the time of his death. 2.3 BOARD: With respect to Proffitt's or the Corporation, as applicable, its Board of Directors. 2.4 COMMISSION: The Securities and Exchange Commission. 2.5 CORPORATION: Parisian, Inc., an Alabama corporation. 2.6 DISABILITY: A Participant's physical or mental inability to perform the normal duties of his employment by the Corporation which continues for more than 180 consecutive days and which is not attributable to chronic or excessive use of intoxicants, drugs or narcotics, intentional self-inflicted injury or self-induced sickness or any felonious act or enterprise on the part of the Participant. If there is any disagreement between the Corporation and a Participant as to the Participant's Disability or as to the date any such Disability began, the same shall be determined by a physician to be selected by the Administrator who shall make such determination after an examination of the Participant by such physician. The Participant shall be available for such an examination at any reasonable time. The determination of such physician shall be conclusive evidence of the Disability or non-Disability of the Participant and of the date any such Disability began. If the Participant fails or refuses to cooperate in such examination, the determination of the Participant's Disability or non-Disability and the date any such Disability began shall be made by the Administrator in its sole discretion. 2.7 EFFECTIVE DATE: The date which includes the "Effective Time" (as that term is defined in the Merger Agreement). 2.8 MANAGER: An employee of the Corporation who: (a) has been designated as a Manager in writing by the Corporation's Board; and (b) at the time of such designation, has never been an "Officer" as that term is defined in the Senior Plan. 2.9 OPTION: The right to purchase one Share from Proffitt's for the Option Price and upon the terms and conditions set forth in this Plan. 2.10 OPTIONHOLDER: The owner of an Option. 2.11 OPTION PRICE: With respect to an Option, the price determined pursuant to Article 4 for which one Share may be purchased from Proffitt's upon the exercise of such Option. 2.12 PARISIAN OPTION: An option granted by the Corporation pursuant to this Plan prior to this First Amendment and Restatement which entitles the holder thereof to purchase from the Corporation one share of the One Cent ($0.01) par value common stock of the Corporation for the option price and upon the terms and conditions of the Pre-Merger Plan. 2.13 PARTICIPANT: At any relevant time, a Manager or former Manager who is a Participant pursuant to Article 3. 2.14 PARTICIPANT REPRESENTATIVES: The individual or individuals who are the "Participant Representatives" as that term is defined in the Senior Plan; provided, however, that if there are no such "Participant Representatives", the Participant Representatives shall be the two Participants who own the largest number of Options. Any action required or permitted to be taken by the Participant Representatives hereunder or any consent, approval or notice required or permitted to be given by the Participant Representatives hereunder shall be taken or given by a majority of the Participant Representatives. 2.15 PLAN SHAREHOLDER: An owner of Shares. 2.16 PRE-MERGER PLAN: This Plan as in effect immediately prior to this Third Amendment and Restatement. 2.17 PROFFITT'S: Proffitt's, Inc., a Tennessee corporation. 2.18 RULE 144: Rule 144 under the Securities Act or any similar provision then in force promulgated under the Securities Act. 2.19 SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 2.20 SENIOR PLAN. The Parisian, Inc. Stock Option Plan for Officers. 2.21 SHARES: The shares of the Ten Cent ($0.10) par value common stock of Proffitt's purchased from Proffitt's pursuant to the terms and conditions set forth in this Plan and any shares of Stock received upon the conversion of such shares but excluding any shares of Stock acquired other than pursuant to this Plan. 2.22 STOCK: All classes of the preferred and common capital stock of Proffitt's. ARTICLE 3 - PARTICIPATION 3.1 PARTICIPATION. Any person who, on the Effective Date, was a Manager or a former Manager of the Corporation and held any Parisian Options shall be a Participant as of the Effective Date. A Manager who is not a Participant on the Effective Date shall become a Participant if and when Options are granted to him pursuant to Article 4. 3.2 TERMINATION OF PARTICIPATION. A Participant shall cease to be a Participant on the date on which he exercises all Options then owned by him. ARTICLE 4 - CONVERSION AND GRANT OF OPTIONS 4.1 CONVERSION OF PARISIAN OPTIONS. Pursuant to Section 4.4 of the Pre-Merger Plan, the Parisian Options are hereby converted into Options in accordance with the provisions of this Section. As a result of said conversion, the Parisian Options are hereby cancelled and the owner of such Parisian Options shall have no further right to purchase from the Corporation any of the shares of its capital stock but such owners shall receive the number of Options determined pursuant to the provisions of this Section. (a) Number of Options. The Parisian Options held by each owner of Parisian Options are hereby converted into a number of Options equal to 80% of the number of such Parisian Options; provided, however, that if an owner of Parisian Options would receive a fractional Option, then, as determined by the Participant Representatives in their sole discretion, such owner shall receive the next lowest or next highest whole number of Options; provided, further, however, that the total number of Options received by all such owners shall equal 80% of the number of Parisian Options held by them. (b) Option Price. If the option price of the Parisian Option from which an Option is hereby converted was $18.00, the Option Price of such Option shall be $22.50. If the option price of the Parisian Option from which an Option is converted was $20.40, the Option Price of such Option shall be $25.50. (c) Agreements. Upon its receipt of a certificate evidencing Parisian Options, Proffitt's shall execute and deliver to the holder of such Parisian Options an agreement evidencing his ownership of the Options into which said Parisian Options have been converted and reflecting the Option Prices of such Options. 4.2 FULL VESTING OF OPTIONS. All of the Options are and, unless and until forfeited in accordance with the provisions of Article 5, shall remain fully vested. 4.3 GRANT OF FORFEITED OPTIONS. In the event any Options are forfeited pursuant to Article 5, then, on the third business day following its receipt of written notice from a majority of the Participant Representatives, Proffitt's shall grant to each Manager named in such notice the number of such Options specified therein. The Option Price of each Option granted pursuant to any such notice shall be $22.50. 4.4 ADJUSTMENTS. If, at any time prior to the termination of this Plan, there is an increase or decrease or other change in the shares of Stock by reason of stock dividends (or payment of a dividend consisting of money or other property to the extent the recipient thereof immediately reinvests such dividend in Proffitt's and receives from Proffitt's in exchange therefor additional shares of Stock), split-ups, recapitalizations, combinations, conversions, exchanges of shares or the like, then, as of the date of such increase, decrease or other change, there shall be an equitable adjustment of the number and Option Prices of the Options then owned by the Participants and Beneficiaries so as to preserve the aggregate value of such Options determined as of such date. 4.5 EVIDENCE OF OPTIONS. All Options shall be evidenced by an agreement reflecting the name of the owner of such Options and the number and Option Price of such Options and bearing a conspicuous notice of (a) the restrictions imposed by this Plan on the exercise and transferability of such Options and the transferability of the Shares purchased pursuant to such exercise and (b) such other matters relating to the Options, the Shares and this Plan as the Administrator shall deem appropriate. ARTICLE 5 - FORFEITURE OF OPTIONS 5.1 EFFECT OF FORFEITURES. On the date any Options are forfeited pursuant to the following provisions of this Article, the rights of the Participant or Beneficiary then owning such Options shall be terminated and, thereafter, such Options shall be granted to the Participants pursuant to the provisions of Section 4.3. 5.2 FORFEITURES UPON TERMINATION FOR CERTAIN CAUSES. If a Participant's employment with the Corporation is terminated by the Corporation on account of the Participant's: (a) proven dishonesty, theft, fraud or embezzlement; (b) breach of any fiduciary duty or duty of loyalty to the Corporation; (c) involvement or participation (whether direct or indirect) in any business competitive with that of the Corporation or Proffitt's without the Administrator's prior written consent; (d) usurpation of any business opportunity of the Corporation or Proffitt's without the Administrator's prior written consent; (e) conviction of a felony or a crime involving moral turpitude; or (f) divulgence to a party unrelated to the Corporation or Proffitt's of any material non-public confidential information concerning the Corporation or Proffitt's or their businesses or activities, then, on the effective date of such termination, all Options then owned by him or his Beneficiary shall be forfeited. 5.3 FORFEITURES FOR CERTAIN CAUSES AFTER TERMINATION. If, during the 120 day period following the effective date of the termination of a Participant's employment with the Corporation, the Administrator shall determine that, prior to the effective date of such termination, such Participant engaged in any conduct described in Section 5.2, then, as of the date of such determination, all Options then owned by him or his Beneficiary shall be forfeited. 5.4 FORFEITURES AFTER FIFTEEN YEARS. If not previously forfeited pursuant to the foregoing provisions of this Section, each Option shall be forfeited on the fifteenth anniversary of the date on which the Parisian Option from which such Option was converted pursuant to Section 4.1 became a "Vested Option" (as that term is defined in the Pre-Merger Plan). ARTICLE 6 - EXERCISE OF OPTIONS 6.1 RIGHT TO EXERCISE. Subject to Section 6.5, each Participant shall be entitled to exercise any or all of his Options at any time. 6.2 METHOD OF EXERCISE. A Participant may elect to exercise his Options only by written notice (the "Exercise Notice") to Proffitt's. In order to be effective, such Exercise Notice must: (a) specify the number and Option Prices of the Options to be exercised; (b) be received by Proffitt's prior to the date such Options are forfeited; (c) be accompanied by the certificate evidencing such Participant's ownership of such Options; (d) specify the date on which such Options are to be exercised which shall not be earlier than the third business day following Proffitt's receipt of such Exercise Notice; and (e) specify whether such Participant shall exercise such Options (1) by paying their aggregate Option Price pursuant to Section 6.3 or (2) pursuant to the cashless exercise program referred to in Section 6.4. 6.3 PAYMENT FOR SHARES. If a Participant's Exercise Notice specifies that such Participant shall exercise the Options which are the subject of such Exercise Notice pursuant to this Section 6.3, then, on the date determined pursuant to Section 6.2(d): (a) the Participant shall deliver to Proffitt's: (1) a certified or cashier's check, made payable to the order of Proffitt's, in an amount equal to the aggregate Option Price of the Options which are the subject of such Exercise Notice; and (2) if the same shall be requested by Proffitt's in order for Proffitt's issuance of Shares pursuant to the exercise of such Options to satisfy one or more exemptions from the registration requirements of the Securities Act, a certificate pursuant to which such Participant shall (A) represent that he is exercising such Options and acquiring the Shares issued upon such exercise for investment purposes only for his own account and not with a view to the distribution thereof and (B) acknowledge that such Shares have not been registered under the Securities Act and may not be resold or otherwise transferred in the absence of an effective registration statement under the Securities Act or an opinion of counsel satisfactory to the Corporation that such registration is not required; and (b) Proffitt's shall deliver to such Participant: (1) a stock certificate evidencing his ownership of a number of Shares equal to the number of such Options exercised pursuant to such Exercise Notice and bearing a conspicuous notice of the restrictions on the transferability of such Shares which may be required by the applicable provisions of the Securities Act and those which are imposed by Article 7; and (2) to the extent necessary, a certificate evidencing his ownership of any Options not exercised pursuant to such Exercise Notice. 6.4 CASHLESS EXERCISE. If a Participant's Exercise Notice specifies that such Participant shall exercise the Options which are the subject of such Exercise Notice pursuant to this Section 6.4, then such Participant shall exercise such Options in accordance with the applicable provisions of the cashless exercise program then maintained by Proffitt's in connection with any stock option plan then available to employees of Proffitt's. 6.5 RESTRICTION ON EXERCISE OF OPTIONS. Notwithstanding anything to the contrary contained herein, a Participant may not exercise any of his Options unless entitled to do so pursuant to this Section. (a) Registration. A Participant shall be entitled to exercise his Options if, on the date of his Exercise Notice, the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (b) Exemption. If, on the date of a Participant's Exercise Notice, the Shares to be issued upon such exercise are not the subject of an effective registration statement under the Securities Act, he shall be entitled to exercise his Options only if an exemption from such registration is available. For purposes of this Article, the availability of such an exemption shall be determined in the manner set forth in this Section 6.5(b). (i) Upon request by such Participant, Proffitt's shall seek an opinion of counsel of recognized standing in securities law as to whether such an exemption is available. If, in the opinion of such counsel, such an exemption is available, the Participant shall be entitled to exercise such Options on such date, not later than the tenth day following the date of such opinion, as Proffitt's and such Participant shall agree. (ii) If, in the opinion of such counsel, such an exemption is not available, the Participant may seek an opinion of another counsel of recognized standing in securities law (which counsel shall be reasonably satisfactory to Proffitt's) as to whether such an exemption is available. If, in the opinion of such other counsel (the "Participant's Counsel"), such an exemption is not available, the Participant shall not be entitled to exercise such Options until the date the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (iii) If, in the opinion of the Participant's Counsel, such an exemption is available, then, promptly upon its receipt of such opinion, Proffitt's shall: (A) request the Participant Representatives to determine whether or not Proffitt's should seek a no-action letter from the Commission as to whether such an exemption is available; and (B) reimburse the Participant for the cost of obtaining such opinion. (iv) If a majority of the Participant Representatives determine that Proffitt's should not seek such no-action letter, the Participant shall be entitled to exercise such Options on such date, not later than the tenth day following the date of such determination, as Proffitt's and such Participant shall agree. (v) If a majority of the Participant Representatives determine that Proffitt's should seek such no-action letter, Proffitt's shall use its reasonable good faith efforts to seek such no-action letter. (vi) If such no-action letter indicates that such an exemption is not available, the Participant shall not be entitled to exercise such Options until the date the Shares to be issued upon such exercise are the subject of an effective registration statement under the Securities Act. (vii) If such no-action letter indicates that such an exemption is available, the Participant shall exercise such Options on such date, not later than the tenth day following the date of such no-action letter, as Proffitt's and such Participant shall agree. (c) Insider Trading. A Participant shall not be entitled to exercise his Options in any manner or at any time which is prohibited by Proffitt's insider trading policies then in effect. ARTICLE 7 - TRANSFERS OF SHARES 7.1 REGISTRATION. As soon as reasonably practical following the Effective Date but in no event later than the tenth (10th) day following the Effective Date, Proffitt's shall take such action and file such documents with the Commission as may be necessary to cause the Shares to be the subject of an effective registration statement under the Securities Act. 7.2 GENERAL RESTRICTIONS. No Plan Shareholder may sell, transfer, assign, convey or otherwise dispose of or alienate any of his Shares or any right, or interest therein (whether voluntarily, by operation of law, by gift or otherwise) or enter into any contract or agreement or grant any option with respect to the sale, transfer, assignment, conveyance or other disposition of his Shares or any right or interest therein, unless such sale, transfer, assignment, conveyance or other disposition is: (a) required or permitted by this Plan; (b) made in compliance with Proffitt's insider trading policies in effect; (c) made pursuant to (i) an effective registration statement under the Securities Act or (ii) an exemption from registration under the Securities Act; and (d) made in compliance with applicable federal and state securities laws; provided, however, that if the Plan Shareholder is an "affiliate" (within the meaning of the Securities Act) of Proffitt's or his Shares were issued by Proffitt's pursuant to Section 6.5(b), he may not sell, transfer, assign, convey or otherwise dispose of his Shares pursuant to Section 7.2(b)(ii) prior to the tenth (10th) day following Proffitt's receipt of an opinion of counsel (which opinion and counsel shall be reasonably satisfactory to the corporation) or a no-action letter from the Commission to the effect that such exemption is available. Any purported transfer of Shares in violation of this Section shall be void and ineffective and shall not operate to transfer any interest in or title to such Shares to the purported transferee and Proffitt's shall not record any such purported transfer in its transfer records. 7.3 PUBLIC SALES. A Plan Shareholder may sell all or any number of his Shares on any date if: (a) such sale is made pursuant to Rule 144 (provided that such transfer complies with paragraph (f) of such Rule) or otherwise on a national securities exchange or in the over-the-counter market; and (b) on such date, such sale is permitted under Section 7.2. ARTICLE 8 - AMENDMENT AND TERMINATION 8.1 REQUIRED CONSENT. This Plan cannot be amended or terminated without the consent of a majority of the Participant Representatives. 8.2 EFFECTIVE DATE. No amendment or termination of the Plan shall be effective as of any date prior to the date on which Proffitt's obtains the consent required by this Article. 8.3 RESTRICTIONS ON AMENDMENTS. Notwithstanding anything to the contrary contained herein, no amendment to this Plan shall deprive any Participant, Beneficiary or Plan Shareholder of any right or benefit which had accrued prior to the effective date of such amendment. Without limiting the generality of the foregoing, no such amendment shall cause any Option to be forfeited, adversely affect the right of a Participant or Beneficiary to exercise any Option or adversely affect any Plan Shareholder's right to sell any Shares in accordance with the provisions of Article 7. 8.4 EFFECT OF TERMINATION. In the event Proffitt's terminates this Plan in accordance with the provisions of this Article: (a) none of the Options forfeited pursuant to Article 5 after such effective date shall be granted to any Participant pursuant to this Plan; and (b) the rights of the Participants, Beneficiaries and Plan Shareholders hereunder (including, without limitation, their rights to exercise Options pursuant to Article 6 and to sell Shares pursuant to Article 7) shall survive such termination. ARTICLE 9 - BENEFICIARIES Upon becoming eligible to participate in this Plan, each Participant, pursuant to a written instrument delivered to the Administrator, shall designate a Beneficiary who shall own any Options owned by such Participant at the time of his death and who shall be entitled to exercise any of such Options. Such designation may be changed by the Participant from time to time by written notice to the Administrator. In the event a Participant does not designate a Beneficiary or a Beneficiary designated by a Participant predeceases such Participant and no new Beneficiary has been designated, then such Participant's Beneficiary shall be his surviving spouse, if any, or if none, his estate. Upon a Beneficiary's receipt of any Options pursuant to this Article, the provisions of this Article shall apply to such Beneficiary and such Options as if such Beneficiary was a Participant. ARTICLE 10 - ASSIGNABILITY No Participant or Beneficiary shall alienate, sell, transfer, assign, pledge or otherwise encumber any interest in this Plan or any Option granted to him pursuant to this Plan without the prior written consent of the Administrator. Any attempt by a Participant or Beneficiary to alienate, sell, transfer, assign, pledge or encumber any such interest or Option in contravention of this Article shall be ineffective. ARTICLE 11 - ADMINISTRATION 11.1 ADMINISTRATOR. The Administrator shall be the Corporation's Board or, as designated by it in writing, the Executive Committee or any other committee of said Board. 11.2 ADMINISTRATION. The Administrator shall administer the Plan and shall have all powers necessary or appropriate to enable it to carry out its duties including, without limitation, the power to interpret the Plan, to decide all issues arising under the Plan, to make, establish and change rules and procedures with respect to the operation of the Plan, and all other powers conferred upon it herein. The Administrator shall have the authority to decide all questions relating to eligibility, participation, vesting and forfeitures. The Administrator may rely and act on any information provided by Proffitt's and the Corporation without further inquiry or liability. 11.3 EXCULPATION AND INDEMNIFICATION. No Participant Representative, officer of Proffitt's or Corporation or member of either Board shall be responsible or liable for any mistake or error of judgment in connection with their responsibilities, obligations or duties with respect to this Plan. Proffitt's shall indemnify each Participant Representative, officer of Proffitt's or the Corporation and member of either Board to the full extent of any liabilities, expenses, penalties, damages or other pecuniary loss, including attorney's fees, which he may suffer as a result of his responsibilities, obligations or duties in connection with this Plan. Such indemnification shall be paid by Proffitt's to the extent that liability insurance is not available to cover the payment of such items. Proffitt's may purchase and maintain such insurance on behalf of such individuals. 11.4 REPORTS TO PARTICIPANTS. The Administrator shall, from time to time in its sole discretion, but at least annually, notify each Participant of the number and Option Prices of the Options then owned by him and such other information as the Administrator, in its sole discretion, deems to be reasonable under the circumstances. No Participant shall be entitled to receive or review any information or data with regard to the number or Option Prices of Options owned by any other Participant. Such information shall only be disclosed to Participants to the extent the Administrator deems it to be appropriate and in the best interest of Proffitt's and the Corporation. ARTICLE 12 - MISCELLANEOUS 12.1 NO RIGHT TO EMPLOYMENT. Nothing contained herein shall give any Manager the right to be employed by Proffitt's or the Corporation, nor shall this Plan interfere with the right of Proffitt's or the Corporation to discharge any Manager at any time, to change the duties of any Manager at any time or to change the title or position of any Participant at any time. 12.2 GRANT OF OPTIONS TO OTHERS. If the Administrator shall determine that Options are to be granted hereunder to any person who is incapable or unable to care for his affairs due to minority or any other incapacity, whether or not such incapacity has been judicially determined, then, in the discretion of the Administrator, all or any number of such Options may be granted to and, pursuant to the provisions of this Plan, exercised by his spouse, a relative of such person, an institution maintaining or having custody of such person or any person deemed by the Administrator to be a proper party for such purpose. Alternatively, the Administrator may, in its discretion, delay the grant of such Options until a legal representative is appointed for such person. Any grant of options made pursuant to this Section shall constitute a complete discharge of the liabilities of the Administrator, Proffitt's and the Corporation to such person hereunder. 12.3 SUBORDINATION OF RIGHTS. If, and only to the extent that, a majority of the Participant Representatives and a majority of the members of the Corporation's Board deem such subordination to be in Proffitt's or the Corporation's best interests, the rights of each Participant, Beneficiary and Plan Shareholder hereunder shall be subordinate to the provisions of any loan agreement, note, bond, indenture, debenture, capitalized lease or other evidence of Proffitt's or the Corporation's indebtedness. 12.4 GOVERNING LAW. This Plan shall be construed according to the laws of the State of Alabama. 12.5 NUMBER AND GENDER. Whenever the context so requires, the singular number shall include the plural and the plural shall include the singular and the gender of any pronoun shall include the other genders. 12.6 NOTICE. Any notice required or permitted to be given hereunder shall be in writing and signed by the party making the same and shall specify the Section hereof pursuant to which it is given. Any such notice shall be deemed given (i) on the date delivered, if delivered in person and (ii) on the fifth business day after mailing, if mailed. Any such notice shall be mailed registered or certified first class mail, return receipt requested (with postage and other fees prepaid) as follows: If to Proffitt's, to: Proffitt's, Inc. 115 North Calderwood Alcoa, Tennessee 37701 Attention: Senior V.P. of Investor Relations If to the Corporation, to: Parisian, Inc. 750 Lakeshore Parkway Birmingham, Alabama 35211 Attention: President If to the Administrator, to: Parisian, Inc. 750 Lakeshore Parkway Birmingham, Alabama 35211 Attention: Administrator, Parisian, Inc. Management Incentive Plan and, if to a Participant, Beneficiary or Plan Shareholder, to such Participant's, Beneficiary's or Plan Shareholder's last known residence or office address appearing in the Corporation's employment or other records. If any such notice is given to Proffitt's, the Corporation or the Administrator, a copy thereof shall be given to: (a) Donald E. Hess (or such other person who is then the President of the Corporation) at the address of the Corporation set forth above; and (b) D. Warren Bailey and Steven B. Corenblum at the address of the Corporation set forth above (or if either of them ceases to be an "Officer," as that term is defined in the Senior Plan, at his last known residence address); provided, however, that if either of said individuals ceases to be a Participant Representative, such notice shall not be given to him but shall instead be given to the individual who succeeds him as a Participant Representative at the address of the Corporation set forth above. 12.7 SEVERABILITY. The invalidity of this Plan with respect to one or more persons shall not affect the rights and obligations of any other person hereunder in any manner whatsoever. The invalidity of one or more provisions of this Plan shall not affect the validity of any other provision of this Plan in any manner whatsoever. IN WITNESS WHEREOF, Proffitt's and the Corporation have executed this First Amendment and Restatement on ______________, 1996. PROFFITT'S, INC. PARISIAN, INC. By:_______________________ By:____________________________ ___________,___________ Donald E. Hess, President X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-45.ASC EX-10 12 EXHIBIT 10.53 AMENDMENT TO YOUNKERS, INC. DEFERRED COMPENSATION AGREEMENT It is agreed that the distribution provisions of each of the Deferred Compensation Agreements between Younkers, Inc. ("Younkers") and W. Thomas Gould (the "Employee"), dated June 10, 1985, January 1, 1986, January 1, 1987, January 1, 1988 and December 28, 1988, as amended effective September 30, 1991 (the "1991 Amendment"), are hereby amended effective February 13, 1997, as follows: 1. The first sentence of Paragraph 2 (a) of the 1991 Amendment is amended to read in its entirety as follows: (a) Following termination of the services of the Employee with Proffitt's, Inc. ("Proffitt's") for any reason (including but not limited to death, total and limited disability, retirement and voluntary or involuntary termination as an employee), Proffitt's shall distribute to Employee or his beneficiary(ies), pursuant to paragraph (b) below, shares of Proffitt's stock represented by the units in said Stock Account, together with any assets credited to the Cash Account (including interest). 2. Paragraph 2 (b) of the 1991 Amendment is amended to read in its entirety as follows: (b) Upon the first to occur of the Employee's termination of employment, death or total and permanent disability, all benefits payable hereunder (including without limitation, all interest credits thereon) shall be paid on the first business day in January of the year immediately following such event. IN WITNESS WHEREOF, the parties have executed this Amendment on the date and year first above written. PROFFITT'S, INC. By: _____________________________ R. Brad Martin Chairman of the Board of Directors and Chief Executive Officer EXECUTIVE ____________________________ W. Thomas Gould EX-10 13 EXHIBIT 10.58 AMENDMENT TO EMPLOYMENT AGREEMENT The Employment Agreement, dated as of October 22, 1995, by and between PROFFITT'S, INC., a Tennessee Corporation (the "Company"), and W. Thomas Gould (the "Executive"), is hereby amended, effective as of February 13, 1997, by amending Section 3.2 of the Employment Agreement as set forth below. 1. Section 3.2 of the Employment Agreement is deleted, and replaced in its entirety as follows: Section 3.2. Severance Amounts. If the Executive's employment terminates for any reason, other than by the Company upon conviction of the Executive of, or plea by the Executive of guilty or nolo contendere to, a felony involving moral turpitude with respect to the business of the Company, the Company shall, in addition to the payments under Section 3.1, (a) continue to pay Executive (or his designated beneficiary), through February [2], 2001, his base compensation ($750,000), payable at such intervals as such base compensation would ordinarily be paid, (b) continue to allow the Executive (or his designated beneficiary) to exercise his Option (and any subsequently granted options) to purchase common stock of the Company pursuant to the terms set forth in the LTIP (other than any provisions in the LTIP that terminate the exercise period for the Option) until the first to occur of (i) February [2], 2001 or (ii) the second anniversary of the Executive's Date of Termination, (c) continue to provide, through February [2], 2001, medical and life insurance coverage in accordance with such Company's programs for similarly situated senior management (and their dependents) as it may exist from time to time and (d) continue to allow the Executive (or his designated beneficiary) to exercise all outstanding stock options granted to Executive by Younkers, Inc., and assumed by the Company, until the first to occur of (i) the regularly scheduled expiration of the term of the stock option or (ii) the first anniversary of the Executive's Date of Termination. If the Executive's employment is terminated by his death, the Company shall direct that all amounts described in Section 3.1 and this Section 3.2 be paid to the Executive's designated beneficiaries, or to the executors, administrators or other legal representatives of the Executive (in such order of priority) as the Executive may have filed with the Company. IN WITNESS WHEREOF, the parties have executed this Amendment on the date and year first above written. PROFFITT'S, INC. By:____________________________ R. Brad Martin Chairman of the Board of Directors and Chief Executive Officer EXECUTIVE ____________________________ W. Thomas Gould X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-58.ASC EX-10 14 EXHIBIT 10.71 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of the 24th day of March 1997, by and between Proffitt's, Inc. ("Company"), and Frank E. Kulp ("Executive"). Company and Executive agree as follows: 1. Employment. Company hereby employs Executive as President and Chief Executive Officer of its Herberger's Division or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate. 2. Duties. During his employment, Executive shall devote substantially all of his working time, energies, and skills to the benefit of Company's business. Executive agrees to serve Company diligently and to the best of his ability and to use his best efforts to follow the policies and directions of Company's Board of Directors. 3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows: (a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $290,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law. (b) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus of up to 40% of Base Salary based upon his performance in accordance withspecific annual objectives, set in advance, all as approved by the Board of Directors. (c) Incentive Compensation. Executive shall be and hereby is granted a non-qualified option as of March 24, 1997, ("Option") to purchase thirty thousand (30,000) shares of Company common stock at an option price equal to the closing price of the stock on March 24, 1997, as reported in the Wall Street Journal. The Option is granted pursuant to Company's 1994 Long-Term Incentive Plan ("1994 LTIP"), and shall be subject to the terms and conditions thereof. The Option shall be exercisable on or after March 24, 1997, (the "Grant Date") to the extent of 20% of the shares covered thereby; exercisable to the extent of an additional 20% of the shares covered thereby on and after the first anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on and after the second anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on an after the third anniversary of the Grant Date; and exercisable to the extent of any remaining shares on and after the fourth anniversary of the Grant Date; provided, however, that no portion of the Option shall be exercisable any earlier than six months from the Grant Date. The Option may be exercised (as provided in the 1994 LTIP) up to ten (10) years from the Grant Date. Any portion of the Option not exercised within said ten (10) year period shall expire. (d) Effect of Change of Control on Options. In the event of a Change of Control (as defined in the Company's 1994 Long-Term Incentive Plan), any Options granted to Executive prior to such Change of Control shall immediately vest. 4. Insurance and Benefits. Company shall allow Executive to participate in each employee benefit plan and to receive each executive benefit that Company provides for senior executives at the level of Executive's position. 5. Term. The term of this Agreement shall be for two years, provided, however, that Company may terminate this Agreement at any time upon thirty (30) days' prior written notice (at which time this Agreement shall terminate except for Section 9, which shall continue in effect as set forth in Section 9). In the event of such termination by Company, Executive shall be entitled to receive his Base Salary (at the rate in effect at the time of termination) through the end of the term of this Agreement. Such Base Salary shall be paid thereafter in regular payroll installments. In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any plan maintained by Company. 6. Termination by Company for Cause. (a) Company shall have the right to terminate Executive's employment under this Agreement for cause, in which event no salary or bonus shall be paid after termination for cause. Termination for cause shall be effective immediately upon notice sent or given to Executive. For purposes of this Agreement, the term "cause" shall mean and be strictly limited to: (i) conviction of Executive, after all applicable rights of appeal have been exhausted or waived, for any crime that materially discredits Company or is materially detrimental to the reputation or goodwill of Company; (ii) commission of any material act of fraud or dishonesty by Executive against Company or commission of an immoral or unethical act that materially reflects negatively on Company, provided that Executive shall first be provided with written notice of the claim and with an opportunity to contest said claim before the Board of Directors; or (iii) Executive's material breach of his obligations under paragraph 2 of the Agreement, as so determined by the Board of Directors. (b) In the event that Executive's employment is terminated, Executive agrees to resign as an officer and/or director of Company (or any of its subsidiaries or affiliates), effective as of the date of such termination, and Executive agrees to return to Company upon such termination any of the following which contain confidential information: all documents, instruments, papers, facsimiles, and computerized information which are the property of Company or such subsidiary or affiliate. 7. Change in Control. If Executive's employment is terminated primarily as a result of a Change in Control of Company or a Potential Change in Control of Company, as defined below, Executive shall receive his Base Salary then in effect for a period of two years or through the end of the term of this Agreement, whichever is longer. As used herein, the term "Change in Control" means the happening of any of the following: (a) Any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than Company, a subsidiary of Company, or any employee benefit plan of Company or its subsidiaries, becomes the beneficial owner of Company's securities having 25 percent or more of the combined voting power of the then outstanding securities of Company that may be cast for the election for directors of Company (other than as a result of an issuance of securities initiated by Company in the ordinary course of business); or (b) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of Company or any successor corporation or entity entitled to vote generally in the election of directors of Company or such other corporation or entity after such transaction, are held in the aggregate by holders of Company's securities entitled to vote generally in the election of directors of Company immediately prior to such transactions; or (c) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by Company's stockholders, of each director of Company first elected during such period was approved by a vote of at least two-thirds of the directors of Company then still in office who were directors of Company at the beginning of any such period. As used herein, the term "Potential Change in Control" means the happening of any of the following: (a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or (b) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than Company, a wholly-owned subsidiary thereof or any employee benefit plan of Company or its subsidiaries (including any trustee of such plan acting as trustee)) of securities of Company representing 5 percent or more of the combined voting power of Company's outstanding securities and the adoption by the Board of Directors of Company of a resolution to the effect that a Potential Change in Control of Company has occurred for purposes of this Agreement. 8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is longer. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the duties of his position under this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year. 9. Non-competition; Unauthorized Disclosure. (a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive: (i) shall not engage in any activities, whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by Company or any subsidiary or affiliate, or (ii) any business in which Company or any subsidiary or affiliate is substantially engaged at any time during the employment period; (ii) shall not do business with any vendor that is one of the top 100 vendors of the businesses conducted by Company or its affiliates at the date hereof or at any time during the term of this Agreement; and (iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or her employment relationship in order to enter into competitive employment. (b) Unauthorized Disclosure. During the period Executive is employed under this Agreement, and for a further period of one year thereafter, Executive shall not, except as required by any court or administrative agency, without the written consent of the Board of Directors, or a person authorized thereby, disclose to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his duties as an executive for Company, any confidential information obtained by him while in the employ of Company; provided, however, that confidential information shall not include any information now known or which becomes known generally to the public (other than as a result of unauthorized disclosure by Executive). (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9: (i) the covenants contained in paragraph (i) and (ii) of Section 9(a) shall apply within all the territories in which Company or its affiliates or subsidiaries are actively engaged in the conduct of business while Executive is employed under this Agreement, including, without limitation, the territories in which customers are then being solicited; (ii) without limiting the right of Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in this Section 9, it is expressly agreed by Executive and Company that such other remedies cannot fully compensate Company for any such violation and that Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; provided, however, Company shall be entitled to injunctive relief only to protect itself from unfair competition of the type protected under Tennessee law. (iii) each party intends and agrees that if, in any action before any court or agency legally empowered to enforce the covenants contained in this Section 9, any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company. 10. General Provisions. (a) Notices. Any notice to be given hereunder by either party to the other may be effected by personal delivery, in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 10 (a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt. If to Executive: Frank E. Kulp G.R. Herberger's, Inc. 518 Mall Germain St. Cloud, MN 56302 If to Company: Brian J. Martin Proffitt's, Inc. Post Office Box 9388 Alcoa, TN 37701 (b) Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall, nevertheless, continue in full force and without being impaired or invalidated in any way. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee. (d) Entire Agreement. Except for any prior grants of options, restricted stock, or other forms of incentive compensation evidenced by a written instrument or by an action of the Board or Directors, this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to employment of Executive by Company and contains all of the covenants and agreements between the parties with respect to such employment. Each party to this Agreement acknowledges that no representations, inducements or agreements, oral or otherwise, that have not been embodied herein, and no other agreement, statement or promise not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. (e) No Conflicting Agreement. By signing this Agreement, Executive warrants that he is not a party to any restrictive covenant, agreement or contract which limits the performance of his duties and responsibilities under this Agreement or under which such performance would constitute a breach. (f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PROFFITT'S, INC. BY: _____________________ Brian J. Martin Senior Vice President _____________________ Frank E. Kulp Executive X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-71.ASC EX-10 15 EXHIBIT 10.72 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of the 1st day of April 1997, by and between Proffitt's, Inc. ("Company"), and Donald E. Wright ("Executive"), with Executive being directly employed by Company's subsidiary, McRae's, Inc. Company and Executive agree as follows: 1. Employment. Company hereby employs Executive as Senior Vice President of Finance and Accounting or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate. 2. Duties. During his employment, Executive shall devote substantially all of his working time, energies, and skills to the benefit of Company's business. Executive agrees to serve Company diligently and to the best of his ability and to use his best efforts to follow the policies and directions of Company's Board of Directors. 3. Executive's compensation and benefits under this Agreement shall be as follows: (a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $250,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law. (b) Initial Stock Award. As soon as practicable after April 1, 1997, Company shall issue Executive 2,500 shares of Company stock as an initial bonus; provided, however, Executive may cause Company to withhold some shares of the Company stock to satisfy Executive's and Company's tax-withholding obligations. (c) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus of up to 50% of Base Salary based upon his performance in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors. (d) Incentive Compensation. Executive shall be and hereby is granted a non-qualified option as of April 1, 1997, ("Option") to purchase thirty-five thousand (35,000) shares of Company common stock at an option price equal to the closing price of the stock on April 1, 1997, as reported in the Wall Street Journal. The Option is granted pursuant to Company's 1994 Long-Term Incentive Plan ("1994 LTIP"), and shall be subject to the terms and conditions thereof. The Option shall be exercisable on or after April 1, 1997, (the "Grant Date") to the extent of 20% of the shares covered thereby; exercisable to the extent of an additional 20% of the shares covered thereby on and after the first anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on and after the second anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on an after the third anniversary of the Grant Date; and exercisable to the extent of any remaining shares on and after the fourth anniversary of the Grant Date; provided, however, that no portion of the Option shall be exercisable any earlier than six months from the Grant Date. The Option may be exercised (as provided in the 1994 LTIP) up to ten (10) years from the Grant Date. Any portion of the Option not exercised within said ten (10) year period shall expire. (e) Effect of Change of Control on Options. In the event of a Change of Control (as defined in the Company's 1994 Long-Term Incentive Plan), any Options granted to Executive prior to such Change of Control shall immediately vest. (f) Additional Stock Compensation. As compensation for his services, Company shall issue 2,500 shares of Company stock to Executive as soon as practicable after each of the first three anniversary dates of Executive's first date of employment with Company (for a total of 7,500 shares), provided that Executive remains employed by Company on such dates. In the event that Executive's employment is terminated by Company, 7,500 shares of stock, less any amounts already awarded under this Section 3(f), shall be awarded to Executive as soon as practicable after termination. 4. Insurance and Benefits. Company shall allow Executive to participate in each employee benefit plan and to receive each executive benefit that Company provides for senior executives at the level of Executive's position, including the revised relocation package agreed to by Executive and Company. 5. Term. The term of this Agreement shall be for three years, provided, however, that Company may terminate this Agreement at any time upon thirty (30) days' prior written notice (at which time this Agreement shall terminate except for Section 9, which shall continue in effect as set forth in Section 9). In the event of such termination by Company, Executive shall be entitled to receive his Base Salary (at the rate in effect at the time of termination) through the end of the term of this Agreement. Such Base Salary shall be paid thereafter in regular payroll installments. In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any plan maintained by Company. 6. Termination by Company for Cause. (a) Company shall have the right to terminate Executive's employment under this Agreement for cause, in which event no salary or bonus shall be paid after termination for cause. Termination for cause shall be effective immediately upon notice sent or given to Executive. For purposes of this Agreement, the term "cause" shall mean and be strictly limited to: (i) conviction of Executive, after all applicable rights of appeal have been exhausted or waived, for any crime that materially discredits Company or is materially detrimental to the reputation or goodwill of Company; (ii) commission of any material act of fraud or dishonesty by Executive against Company or commission of an immoral or unethical act that materially reflects negatively on Company, provided that Executive shall first be provided with written notice of the claim and with an opportunity to contest said claim before the Board of Directors; or (iii) Executive's material breach of his obligations under paragraph 2 of the Agreement, as so determined by the Board of Directors. (b) In the event that Executive's employment is terminated, Executive agrees to resign as an officer and/or director of Company (or any of its subsidiaries or affiliates), effective as of the date of such termination, and Executive agrees to return to Company upon such termination any of the following which contain confidential information: all documents, instruments, papers, facsimiles, and computerized information which are the property of Company or such subsidiary or affiliate. 7. Change in Control. If Executive's employment is terminated primarily as a result of a Change in Control of Company or a Potential Change in Control of Company, as defined below, Executive shall receive his Base Salary (in accordance with the schedule in Section 3(a)) for a period of three years or through the end of the term of this Agreement, whichever is longer. In addition, in the event of a Change in Control or a Potential Change in Control of Company, Executive may terminate this Agreement for "cause" and be entitled to receive his Base Salary for a period of three years or through the end of the term of this Agreement, whichever is longer. The term "cause" for this purpose shall be strictly limited to the following two circumstances: (a) Company has required Executive to relocate from the greater Birmingham, Alabama area or (b) Company has materially reduced Executive's responsibilities so that a reasonable person would view the changes as a material demotion. As used herein, the term "Change in Control" means the happening of any of the following: (a) Any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than Company, a subsidiary of Company, or any employee benefit plan of Company or its subsidiaries, becomes the beneficial owner of Company's securities having 25 percent or more of the combined voting power of the then outstanding securities of Company that may be cast for the election for directors of Company (other than as a result of an issuance of securities initiated by Company in the ordinary course of business); or (b) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of Company or any successor corporation or entity entitled to vote generally in the election of directors of Company or such other corporation or entity after such transaction, are held in the aggregate by holders of Company's securities entitled to vote generally in the election of directors of Company immediately prior to such transactions; or (c) any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by Company's stockholders, of each director of Company first elected during such period was approved by a vote of at least two-thirds of the directors of Company then still in office who were directors of Company at the beginning of any such period. As used herein, the term "Potential Change in Control" means the happening of any of the following: (a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or (b) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than Company, a wholly-owned subsidiary thereof or any employee benefit plan of Company or its subsidiaries (including any trustee of such plan acting as trustee)) of securities of Company representing 5 percent or more of the combined voting power of Company's outstanding securities and the adoption by the Board of Directors of Company of a resolution to the effect that a Potential Change in Control of Company has occurred for purposes of this Agreement. 8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is longer. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the duties of his position under this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year. 9. Non-competition; Unauthorized Disclosure. (a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive: (i) shall not engage in any activities, whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by Company or any subsidiary or affiliate, or (ii) any business in which Company or any subsidiary or affiliate is substantially engaged at any time during the employment period; (ii) shall not do business with any vendor that is one of the top 100 vendors of the businesses conducted by Company at the date hereof or of any business in which Company is substantially engaged at any time during the term of this Agreement; and (iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or her employment relationship in order to enter into competitive employment. (b) Unauthorized Disclosure. During the period Executive is employed under this Agreement, and for a further period of one year thereafter, Executive shall not, except as required by any court or administrative agency, without the written consent of the Board of Directors, or a person authorized thereby, disclose to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his duties as an executive for Company, any confidential information obtained by him while in the employ of Company; provided, however, that confidential information shall not include any information now known or which becomes known generally to the public (other than as a result of unauthorized disclosure by Executive). (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9: (i) the covenants contained in paragraph (i) and (ii) of Section 9(a) shall apply within all the territories in which Company is actively engaged in the conduct of business while Executive is employed under this Agreement, including, without limitation, the territories in which customers are then being solicited; (ii) without limiting the right of Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in this Section 9, it is expressly agreed by Executive and Company that such other remedies cannot fully compensate Company for any such violation and that Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; provided, however, Company shall be entitled to an injunction only to prevent the type of unfair competition protected by Tennessee law. (iii) each party intends and agrees that if, in any action before any court or agency legally empowered to enforce the covenants contained in this Section 9, any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company. 10. General Provisions. (a) Notices. Any notice to be given hereunder by either party to the other may be effected by personal delivery, in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 10 (a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt. If to Executive: Donald E. Wright Proffitt's, Inc. 750 Lakeshore Parkway Birmingham, AL 35211 If to Company: Brian J. Martin Proffitt's, Inc. Post Office Box 9388 Alcoa, TN 37701 (b) Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall, nevertheless, continue in full force and without being impaired or invalidated in any way. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee. (d) Entire Agreement. Except for any prior grants of options, restricted stock, or other forms of incentive compensation evidenced by a written instrument or by an action of the Board or Directors, this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to employment of Executive by Company and contains all of the covenants and agreements between the parties with respect to such employment. Each party to this Agreement acknowledges that no representations, inducements or agreements, oral or otherwise, that have not been embodied herein, and no other agreement, statement or promise not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. (e) No Conflicting Agreement. By signing this Agreement, Executive warrants that he is not a party to any restrictive covenant, agreement or contract which limits the performance of his duties and responsibilities under this Agreement or under which such performance would constitute a breach. (f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PROFFITT'S, INC. MCRAE'S, INC. BY: _____________________ Brian J. Martin Senior Vice President _____________________ Donald E. Wright Executive X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-72.ASC EX-10 16 EXHIBIT 10.73 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of the 3rd day of April 1997, by and between Parisian, Inc. ("Company"), a wholly owned subsidiary of Proffitt's, Inc., and William D. Cappiello ("Executive"). Company and Executive agree as follows: 1. Employment. Company hereby employs Executive as President and Chief Executive Officer of Company, reporting to the President of the Proffitt's Merchandising Group, or in such other position mutually agreeable by Executive, Company and Proffitt's. Executive shall also be elected to Company's Board of Directors. 2. Duties. During his employment, Executive shall devote substantially all of his working time, energies, and skills to the benefit of Company's business. Executive agrees to serve Company diligently and to the best of his ability and to use his best efforts to follow the policies and directions of Company's and Proffitt's Boards of Directors. Executive shall be based at the Parisian home office in Birmingham, Alabama, and shall be required to travel temporarily from time to time on Company business. Executive's duties shall be consistent with the duties of a chief executive officer of a company of a comparable size to Parisian. 3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows: (a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $450,000 per year; provided, however, Executive's Base Salary shall be increased by at least 10% annually (over the then existing Base Salary) during the term of this Agreement. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law. (b) Bonus. In addition to the Base Salary, Executive shall be eligible for a yearly cash bonus of up to 50% of the Base Salary then in effect, based upon his performance in accordance with specific annual objectives, set in advance, all as approved by Proffitt's Board of Directors. Executive shall be guaranteed a minimum bonus for his fiscal year 1997 performance in the amount of $100,000. (c) Initial Bonus. Company shall pay Executive $175,000 on his first date of employment, and shall cause Proffitt's to issue Executive 10,000 shares of unrestricted common stock as soon as practicable, but in no event later than 30 days after Executive's first day of employment with the Company. (d) Incentive Compensation. Executive shall be and hereby is granted a non-qualified option as of his first date of employment ("Option") to purchase seventy-five thousand (75,000) shares of Proffitt's common stock at an option price equal to the closing price of the stock on Executive's first day of employment, as reported in the Wall Street Journal. The Option will be granted pursuant either to Proffitt's 1994 Long-Term Incentive Plan ("1994 LTIP") or 1997 Long-Term Incentive Plan ("1997 LTIP"), and shall be subject to the terms and conditions thereof. The Option shall be exercisable on or after the grant date (the "Grant Date") to the extent of 20% of the shares covered thereby; exercisable to the extent of an additional 20% of the shares covered thereby on and after the first anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on and after the second anniversary of the Grant Date; exercisable to the extent of an additional 20% of the shares covered thereby on an after the third anniversary of the Grant Date; and exercisable to the extent of any remaining shares on and after the fourth anniversary of the Grant Date; provided, however, that no portion of the Option shall be exercisable any earlier than six months from the Grant Date. The Option may be exercised up to ten (10) years from the Grant Date. Any portion of the Option not exercised within said ten (10) year period shall expire. (e) Effect of Change of Control on Options. In the event of a Change of Control (as defined in the 1994 LTIP), any Options granted to Executive prior to such Change of Control shall immediately vest. (f) Service Stock Grant. In addition to the shares of unrestricted common stock referred to Section 3(c), Company shall cause Proffitt's to issue to Executive a total of 20,000 shares of Proffitt's unrestricted common stock in the following amounts and at the following times, provided that Executive shall have completed continuous and uninterrupted service with Company at the time of each grant: 5,000 shares on each of the first four anniversary dates of Executive's first date of employment with Company. These numbers shall be adjusted in the event of any change in the outstanding stock of Proffitt's of the type set forth in paragraph 20 of the 1994 LTIP. 4. Insurance and Benefits. Company shall provide those benefits to Executive and allow Executive to participate in each employee benefit plan and to receive executive benefits that Company and Proffitt's provide for their senior most executives. 5. Term. The term of this Agreement shall be for three years. 6. Company's Early Termination and Severance. Company shall have the right, at its election, to terminate Executive's employment prior to the termination date, without cause, upon 30 days prior written notice to Executive, In the event of such termination by Company, Executive shall be entitled to receive as severance his base salary, with the yearly increases referred to in Paragraph 3(a) for the greater of: (i) the end of the Term; or (ii) two years. Should Company elect to terminate Executive's employment without cause, Company shall also guarantee that 80% of all options granted to Employee under Section 3(d) of this Agreement shall be vested, and 80% of the stock to be issued under Section 3(f) of this Agreement shall be issued. Employee shall also be entitled to receive all benefits under Section 4 of this Agreement for two years after termination. This severance provision shall continue to apply after the term of this Agreement if Executive remains employed by Company and has not entered into another employment agreement with Company. It is the intent of the parties to provide Employee with two years of severance, with the yearly increases referred to in Section 3(a), in one lump sum at the time of termination without cause. In all events, provided Employee does not voluntarily terminate his employment with Company, he shall nevertheless be entitled to all severance benefits set forth herein. 7. Termination as a Result of Death. This Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect with a guarantee that at least 40% of the options under Section 3(d) shall be vested, (b) at least 8,000 shares of common stock under Section 3(f) shall have been awarded Executive or his estate, (c) other entitlements under this contract that expressly survive death, and (d) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any plan maintained by Company. 8. Termination by Company for Cause. Company shall have the right to terminate Executive's employment under this Agreement for cause, in which event no salary or bonus shall be paid after termination for cause. Termination for cause shall be effective immediately upon notice sent or given to Executive. For purposes of this Agreement, the term "cause" shall mean and be strictly limited to: (i) Executive's conviction of any crime or criminal offense involving monies or other property, or any felony, after applicable rights of appeal have been exhausted or waived and which is materially detrimental to the reputation or goodwill of the Company; (ii) Executive's breach of any of his fiduciary duties of loyalty as an officer of the Company after having received written notice from the Board of Directors of Proffitt's, Inc. and Executive has been given a reasonable opportunity to cure; or (iii) Executive's willful and continual neglect or disregard of his duties as President and Chief Executive Officer of the Company, after written notice of such neglect or disregard has been given Executive by the Board of Directors of Proffitt's, Inc. and Executive has been given a reasonable opportunity to cure. (b) In the event that Executive's employment is terminated for cause or otherwise, Executive agrees to resign as an officer and/or director of Company (or any of its subsidiaries or affiliates), effective as of the date of such termination, and Executive agrees to return to Company upon such termination any of the following which contain confidential information: all documents, instruments, papers, facsimiles, and computerized information which are the property of Company or such subsidiary or affiliate. 9. Change in Control. If Executive's employment is terminated primarily as a result of a Change in Control of Proffitt's or a Potential Change in Control of Proffitt's, as defined below, Executive shall receive all shares of common stock under Section 3(f) that have not already been awarded, and his Base Salary then in effect for a period of three years. As used herein, the term "Change in Control" means the happening of any of the following: (a) Any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than Proffitt's, a subsidiary of Proffitt's, or any employee benefit plan of Proffitt's or its subsidiaries, becomes the beneficial owner of Proffitt's securities having 25 percent or more of the combined voting power of the then outstanding securities of Proffitt's that may be cast for the election for directors of Proffitt's (other than as a result of an issuance of securities initiated by Proffitt's in the ordinary course of business); or (b) As the result of, or in connection with, any cash tender or exchange offer, merger or other businessc combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of Proffitt's or any successor corporation or entity entitled to vote generally in the election of directors of Proffitt's or such other corporation or entity after such transaction, are held in the aggregate by holders of Proffitt's securities entitled to vote generally in the election of directors of Proffitt's immediately prior to such transactions; or (c) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of Proffitt's cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by Proffitt's stockholders, of each director of Proffitt's first elected during such period was approved by a vote of at least two-thirds of the directors of Proffitt's then still in office who were directors of Proffitt's at the beginning of any such period. As used herein, the term "Potential Change in Control" means the happening of any of the following: (a) The approval by stockholders of an agreement by Proffitt's, the consummation of which would result in a Change of Control of Proffitt's; or (b) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than Proffitt's, a wholly-owned subsidiary thereof or any employee benefit plan of Proffitt's or its subsidiaries (including any trustee of such plan acting as trustee) of securities of Proffitt's representing 5 percent or more of the combined voting power of Proffitt's outstanding securities and the adoption by the Board of Directors of Proffitt's of a resolution to the effect that a Potential Change in Control of Proffitt's has occurred for purposes of this Agreement. 10. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is longer. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the duties of his position under this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year. 11. Non-competition; Unauthorized Disclosure. (a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive: (i) shall not engage in any activities, whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by Company, or (ii) any business in which Company is substantially engaged at any time during the employment period; and (ii) shall not induce or attempt to persuade any employee of Company to terminate his or her employment relationship in order to enter into competitive employment. (b) Unauthorized Disclosure. During the period Executive is employed under this Agreement, and for a further period of one year thereafter, Executive shall not, except as required by any court or administrative agency, without the written consent of the Board of Directors, or a person authorized thereby, disclose to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his duties as an executive for Company, any confidential information obtained by him while in the employ of Company; provided, however, that confidential information shall not include any information now known or which becomes known generally to the public (other than as a result of unauthorized disclosure by Executive). (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 11: (i) the covenants contained in paragraphs (i) and (ii) of Section 11(a) shall apply within all the market areas in which Company is actively engaged in the conduct of business during the Executive's employment and for one year thereafter, and it is expressly agreed that Company is not in competition in the same market areas with Macy's West, Inc.; (ii) without limiting the right of Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in this Section 11, it is expressly agreed by Executive and Company that such other remedies cannot fully compensate Company for any such violation and that Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; provided, however, Company shall be entitled to injunctive relief only to protect itself from unfair competition of the type protected under Tennessee law. (iii) each party intends and agrees that if, in any action before any court or agency legally empowered to enforce the covenants contained in this Section 11, any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (iv) the covenants contained in this Section 11 shall apply only if Executive voluntarily terminates his employment with Company, and in such case, the covenants shall survive the conclusion of Executive's employment by Company. 12. General Provisions. (a) Notices. Any notice to be given hereunder by either party to the other may be effected by personal delivery, in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 12(a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt. If to Executive: William E. Cappiello 750 Lakeshore Drive Birmingham, AL 35211 If to Company: Brian J. Martin Parisian, Inc. 750 Lakeshore Drive Birmingham, AL 35211 (b) Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall, nevertheless, continue in full force and without being impaired or invalidated in any way. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee. (d) Attorney's Fees. If any action is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs, in addition to any other relief to which he or it may be entitled. (e) Modifications and Waivers. Any modification or waiver of the provisions of this Agreement will be effective only if it is in writing signed by the party to be charged. (f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PARISIAN, INC. BY: _____________________ Brian J. Martin Senior Vice President _____________________ William D. Cappiello Executive X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-10-73.ASC EX-11 17 EXHIBIT 11.1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE PROFFITT'S, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended ------------------------------ 2/1/97 2/3/96 1/28/95 --------- --------- --------- PRIMARY: Average shares outstanding 24,741 22,780 22,699 Net effect of dilutive stock options - based on the treasury stock method using average market price 822 377 347 ------ ------ ------ Primary weighted average common shares 25,564 23,157 23,046 ======= ======= ======= Income before extraordinary loss $ 37,399 $ 641 $37,488 Less preferred dividends (796) (1,950) (1,694) Less payment for early conversion of preferred stock (3,032) ------- ------- ------- Income (loss) available to common shareholders before extraordinary loss 33,571 (1,309) 35,754 Extraordinary loss (2,060) ------- ------- ------- Net income (loss) available to common shareholders $ 33,571 $(3,369) $(35,754) ======== ======== ======== Earnings (loss) per common share before extraordinary loss $ 1.31 $(0.06) 1.55 Extraordinary Loss (0.09) -------- -------- -------- Primary earnings (loss) per share $1.31 $(0.15) $1.55 ======== ======== ======== On June 28, 1996, the Company converted 600 shares of Series A Preferred Stock ("preferred stock") into 1,422 shares of Proffitt's, Inc. common stock. In order to complete this early conversion of the preferred stock, the Company paid $3,032 to the holder of the preferred stock. Primary earnings per share are based on earnings available to common shareholders (net income reduced by preferred stock dividends and payment for early conversion) and the weighted average number of common shares and equivalents (stock options) outstanding. Common stock issued on June 28, 1996 for the conversion of preferred stock has been included in the weighted average number of shares outstanding subsequent to that date. EXHIBIT 11.1 (continued) STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE PROFFITT'S, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended ------------------------------ 2/1/97 2/3/96 1/28/95 --------- --------- --------- FULLY DILUTED: Average shares outstanding 24,741 22,780 22,699 Net effect of dilutive stock options - based on the treasury stock method using year-end market price if higher than average price 876 386 347 Assumed conversion of 4.75% subordinated debenture 2,020 2,020 Assumed conversion of preferred stock 567 1,235 ------- ------- ------- Fully diluted weighted average common shares 28,204 23,166 26,301 Income before interest adjustments and extraordinary loss $ 37,399 $ 641 $37,448 Less preferred dividends (1,950) Add 4.75% convertible sub- ordinated debenture interest, net of federal income tax effect 2,500 2,500 ------- -------- -------- Adjusted net income (loss) before extraordinary loss and cumulative affect of changes in accounting methods 39,899 (1,309) 39,948 Extraordinary loss (2,060) ------- -------- -------- Adjusted net income (loss) $39,899 $(3,369) $39,948 ======== ======== ======== Fully diluted earnings (loss) per common share before extraordinary loss $ 1.41 $(0.06) $ 1.52 Extraordinary loss (0.09) ------- ------- -------- Fully diluted earnings (loss) per share $1.41 $(0.15) $ 1.52 ======= ======= ======== As a result of the June 28, 1996 preferred stock conversion and as required by generally accepted accounting principles, fully diluted earnings per share have been presented for the periods shown based upon an "as if the 1,422 shares issued in the conversion were outstanding from the beginning of the period" basis. X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-11-1.ASC EX-13 18 EXHIBIT 13.1 1996 ANNUAL REPORT PROFFITT'S INC. Style Quality Service Integrity The production of this Proffitt's, Inc. Annual Report was based on our committment to provide accurate, timely information about the Company while incurring only modest production costs. The financial statements of this report are printed on 100% recycled paper. Who We Are Proffitt's, Inc. is one of the fastest growing specialty retailers in the United States. The Company's stores offer a wide selection of fashion apparel, accessories, cosmetics, and decorative home furnishings, featuring assortments of premier brands and unique specialty merchandise. Proffitt's commitment to style, quality, service, and integrity is the cornerstone of the Company's culture and provides the foundation for its future growth. 1 Financial Highlights 2 Report to Shareholders 7 Five-Year Financial Summary 8 Management's Discussion and Analysis 15 Consolidated Financial Statements 19 Notes to Consolidated Financial Statements 33 Report of Independent Accountants 33 Report of Management 34 Market Information 35 Directors and Officers 36 Store Locations 38 Shareholder Information Inside Back Cover Corporate Information 1996 was certainly the most extraordinary year in our Company's history. Financial Highlights
Fiscal Year Ended ------------------------------------------------- February 1, February 3, January 28, 1997 1996 1995 ---------- ----------- --------- (in thousands, except per share amounts) Net sales $1,889,779 $1,661,056 $1,513,444 Net income before special and non-recurring charges* $ 52,151 $ 38,392 $ 37,448 Fully diluted earnings per common share before special and non-recurring charges* $ 1.94 $ 1.54 $ 1.52 Net income* $ 37,399 $ 641 $ 37,448 Fully diluted earnings per common share* $ 1.41 $ 0.03 $ 1.52 Fully diluted weighted average common shares 28,204 23,166 26,301 Total assets $1,403,796 $ 919,013 $ 967,667 Shareholders' equity $ 539,898 $ 327,371 $ 337,007 *Prior to extraordinary item.
To Our Partners We will maintain our focus on generating solid operating results and cash flow, which should permit us to substantially increase the value of the enterprise. 1996 was certainly the most extraordinary year in our Company's history. It was marked by further dramatic growth, outstanding operating results, and substantial investment in the future of our business. Just prior to the beginning of our fiscal year, we completed our merger with Younkers, Inc., a department store company based in Des Moines, Iowa. In October of 1996, we acquired Parisian, Inc., a mall-based anchor specialty store chain, headquartered in Birmingham, Alabama. On February 1, 1997, immediately before the end of the fiscal year, we completed our business combination with G.R. Herberger's, Inc., a department store company based in St. Cloud, Minnesota. Today your Company operates five divisions: Proffitt's, McRae's, Younkers, Parisian, and Herberger's that comprise 175 stores in 24 states. Our annualized revenues are in excess of $2.3 billion, and we are privileged to enjoy the commitment of nearly 27,000 associates. In the midst of this dramatic growth, we again generated solid financial results with sales and earnings, prior to charges associated with the business combinations, reaching record levels. Compared to our 1991 annual report, we have realized compound annual earnings per share growth of 20%, and our share price has grown at an average compound rate of 24%. This operating and value-creating performance is among the best in the retail industry. Our strategy remains to tailor our merchandise offerings effectively to our local customers through maintaining our regional focus. We believe the ability to do so is a distinct competitive advantage for the Company. To oversee our regional merchandising and marketing operations, we recently created the Proffitt's Merchandising Group, which is headquartered in Birmingham, Alabama. The Proffitt's Merchandising Group will ensure the implementation of best practices throughout our divisions while assuring we strengthen our corporate relationships with our key suppliers. We believe the structure of our individual divisions, combined with the leadership of the Proffitt's Merchandising Group, will permit us to increase sales and merchandise margins in the future. We are continuing to aggressively focus on productivity improvement in our back office functions. Cost reductions associated with the elimination of duplicate functions and implementation of best practices associated with our acquisition program generated cost savings of $6 million in 1996, and we expect this number to grow to $20 million in 1997 and $29 million in 1998. We continue to find opportunities for new unit development in and around our existing markets. During 1996, we opened new stores in Selma, Alabama and Morgantown, West Virginia. Thus far this year, we have opened new stores in Macon, Georgia and Tupelo, Mississippi. Future store openings include a Proffitt's Division store in Parkersburg, West Virginia; McRae's stores in Biloxi and Meridian, Mississippi and Baton Rouge, Louisiana; Younkers stores in Grandville, Michigan and Iowa City, Iowa; and Parisian stores in Birmingham, Alabama and metropolitan Atlanta, Georgia. The regions of the United States in which we operate have outstanding growth potential, and we believe we have meaningful opportunities for further unit development within or contiguous to our existing markets. Our focus on productivity improvement includes store productivity, and in 1996 we closed two stores and in April of 1997, sold seven Proffitt's Division stores in Virginia. Each of these units did not meet our long-term return on investment standards, and the re-deployment of these resources will improve our sales productivity and operating margins. Our strong operating record and corporate culture have made us a preferred partner for regional department store chains seeking affiliation in our consolidating industry. We remain well positioned to consider future acquisition opportunities. I believe that by carefully executing our operating strategy, which includes enhancing our sales productivity, improving merchandise margins, and gaining operating efficiencies, we can maintain the earnings per share growth pace of the past five years. We will maintain our focus on generating solid operating results and cash flow, which should permit us to substantially increase the value of the enterprise. Three members of our Board of Directors are retiring. Harwell Proffitt, Richard McRae, and Tom Gould have enjoyed distinguished careers at our predecessor companies and have subsequently served Proffitt's, Inc. as members of our corporate board. We are all grateful to these individuals for their outstanding contributions. The financial information and graphs in this Annual Report indicate an extraordinary history of the Company over the past five years. I think we have even greater opportunity during the next five. Sincerely, /s/ R. Brad Martin R. Brad Martin Chairman of the Board and Chief Executive Officer Proffitt's, Inc. For a discussion of risk factors, refer to Forward-Looking Information contained in Management's Discussion and Analysis on page 14 of this Annual Report. Today your Company operates five divisions: Proffitt's, McRae's, Younkers, Parisian, and Herberger's that comprise 175 stores in 24 states. OUR CORPORATE MISSION Our Company will provide opportunities for its associates and will create value for its shareholders through the exceptional operation of retail enterprises. Our stores will feature outstanding assortments of premier merchandise and will delight our guests with superior, friendly, and personalized customer service. Our associates will follow the highest level of ethical standards in conducting our business affairs. We are a preferred partner for regional department store chains seeking affiliation in our consolidating industry. Proffitt's *19 department stores in 6 southeastern states *1.8 million gross square feet *Founded in 1919 McRae's *29 department stores in 4 southeastern states *2.9 million gross square feet *Founded in 1902 *Acquired March 31, 1994 Younkers *48 department stores in 7 midwestern states *4.7 million gross square feet *Founded in 1856 *Acquired February 3, 1996 Parisian *40 specialty stores in 9 southeastern and midwestern states *4.3 million gross square feet *Founded in 1997 *Acquired October 11, 1996 Herberger's *39 department stores in 10 midwestern states *2.5 million gross square feet *Founded in 1927 *Acquired February 1, 1997 Our strategy is to tailor our merchandise offerings to our local customers. FIVE-YEAR FINANCIAL SUMMARY (in thousands, except per share amounts) Proffitt's, Inc. and Subsidiaries
52 Weeks 53 Weeks 52 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended Ended 2/1/97 2/3/96 1/28/95 1/29/94 1/30/93 -------- -------- -------- -------- -------- CONSOLIDATED INCOME STATEMENT DATA: Net sales, including leased departments $1,889,779 $1,661,056 $1,513,444 $1,063,488 $858,754 COSTS AND EXPENSES: Cost of sales 1,230,454 1,087,619 986,028 690,083 523,444 Selling, general and administrative expenses 440,502 398,999 352,448 255,856 220,889 Other operating expenses 142,124 130,560 122,583 88,792 64,157 Expenses related to hostile takeover defense 3,182 (Gains) Losses from long-lived assets (1,094) 19,121 Merger, restructuring and integration costs 15,929 20,822 ------- -------- --------- -------- -------- Operating income 61,864 753 52,385 28,757 50,264 OTHER INCOME (EXPENSE): Finance charge income, net 32,305 31,273 27,934 19,312 16,151 Interest expense (26,756) (29,389) (23,286) (11,286) (11,701) Other income, net 1,572 4,051 4,826 4,063 233 Income before provision for income taxes, extraordinary loss, and cumulative effect of changes in accounting methods 68,985 6,688 61,859 40,846 54,947 Provision for income taxes 31,586 6,047 24,411 16,122 20,631 -------- --------- --------- --------- --------- Income before extraordinary loss and cumulative effect of changes in accounting methods 37,399 641 37,448 24,724 34,316 Extraordinary loss (net of tax) (2,060) (1,088) Cumulative effect of changes in accounting methods (net of tax 1,904 (1,794) -------- -------- -------- -------- ------- Net income (loss) $37,399 $(1,419) $37,448 $25,540 $32,522 ======== ======== ======== ======== ======= Earnings (loss) per common share before extraordinary loss and cumulative effect of changes in accounting methods Primary $1.31 $(0.06) $1.55 $1.12 $1.97 Fully diluted $1.41(b) $(0.06) $1.52 $1.12 $1.97 Earnings (loss) per common share (a) Primary $1.31 $(0.15) $1.55 $1.15 $1.87 Fully diluted $1.41(b) $(0.15) $1.52 $1.15 $1.87 Weighted average common shares Primary 25,564 23,157 23,046 22,167 17,396 Fully diluted 28,204 23,166 26,301 22,167 17,396 CONSILIDATED BALANCE SHEET DATA: Working capital $344,410 $235,194 $301,270 $306,853 $203,977 Total assets $1,403,796 $919,013 $967,667 $653,680 $536,603 Senior long-term debt, less current portion $276,810 $168,937 $225,232 $117,588 $216,985 Subordinated debt $225,767 $100,505 $100,269 $86,250 Shareholders' equity $539,898 $327,371 $337,007 $275,104 $122,582 (a) Losses per share attributable to extraordinary items were $.09 for the year ended February 3, 1996 and $.05 for the year ended January 29, 1994. Earnings (loss) per share attributable to cumulative effect of changes in accounting methods were $.08 for the year ended January 29, 1994 and ($.10) for the year ended January 30, 1993. (b) See Note 1 of the Consolidated Financial Statements ("Earnings per Common Share").
MANAGEMENT'S DISCUSSION AND ANALYSIS Proffitt's, Inc. ("Proffitt's" or the "Company") is a leading regional department store company offering moderate to better brand name fashion apparel, shoes, accessories, cosmetics, and decorative home furnishings. The Company's stores are principally anchor stores in leading regional or community malls. The Company currently operates five store divisions, with a total of 175 stores in 24 states. The Proffitt's Division, headquartered in Knoxville, Tennessee, operates 19 stores in Tennessee, Georgia, Kentucky, North Carolina, Virginia, and West Virginia. The McRae's Division, headquartered in Jackson, Mississippi, operates 29 stores in Alabama, Mississippi, Florida, and Louisiana. The Younkers Division, headquartered in Des Moines, Iowa, operates 48 stores in Iowa, Wisconsin, Nebraska, Michigan, Illinois, Minnesota, and South Dakota. The Parisian Division, headquartered in Birmingham, Alabama, operates 40 stores in Alabama, Georgia, Florida, Ohio, South Carolina, Tennessee, Indiana, Michigan, and Mississippi. The Herberger's Division, headquartered in St. Cloud, Minnesota, operates 39 stores in Minnesota, Montana, Nebraska, Wisconsin, North Dakota, South Dakota, Iowa, Colorado, Illinois, and Wyoming. Merchandising and various related support functions are conducted at the divisional level. The Proffitt's Merchandising Group, headquartered in Birmingham, was formed in 1996 to ensure coordination of merchandise planning and execution for the Company and was designed to also support the Company's strategy to run separate divisions with regional merchandise assortments. Certain administrative support functions for the Company, such as accounting, credit, and management information systems, are continuing to be centralized. Proffitt's has experienced significant growth beginning in 1994. In March 1994, Proffitt's acquired McRae's, a privately owned company with 28 stores. In April 1995, the Company completed the purchase of Parks-Belk Company, the owner/operator of four stores in northeast Tennessee. Effective February 3, 1996, immediately preceding the Company's prior fiscal year end, Proffitt's combined its business with Younkers, a publicly-owned company with 51 stores. On October 11, 1996, Proffitt's acquired Parisian, a 38-store closely-held company. Effective February 1, 1997, immediately preceding the Company's current fiscal year end, Proffitt's combined its business with Herberger's, an employee-owned company with 39 stores. The McRae's, Parks-Belk, and Parisian transactions were accounted for using the purchase method; the Younkers and Herberger's transactions were accounted for as poolings of interests. The Company periodically opens new stores and also eliminates unproductive stores from its store base. In April 1997, the Company sold seven Proffitt's Division stores located in Virginia (the "Virginia Stores") to an unrelated third party. Income statement information for each year presented has been restated to reflect the Younkers and Herberger's mergers, which were accounted for as poolings of interests. The operations of McRae's, Parks-Belk, and Parisian have been included in the income statements subsequent totheir respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's Consolidated Statements of Income, expressed as percentages of net sales:
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended February 1, February 3, January 28, 1997 ("1996") 1996 ("1995") 1995 ("1994") ------------- ------------ ------------- Net sales 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 65.1 65.5 65.2 Selling, general, and administrative expenses 23.3 24.0 23.3 Other operating expenses 7.5 7.9 8.1 Expenses related to hostile takeover defense 0.2 Gains (losses) from long-lived assets 1.1 Merger, restructuring, and integration costs 0.8 1.3 ------- ------ ------ Operating income 3.3 0.0 3.4 Other income (expense): Finance charge income, net 1.7 1.9 1.9 Interest expense (1.4) (1.8) (1.5) Other income, net 0.1 0.3 0.3 ------- ------ ------ Income before provision for income taxes and extraordinary loss 3.7 0.4 4.1 Provision for income taxes 1.7 0.4 1.6 ------- ------ ------ Income before extraordinary loss 2.0 0.0 2.5 Extraordinary loss (net of tax) (0.1) ------- ------ ------ Net income (loss) 2.0% (0.1)% 2.5% ======= ======= =======
NET SALES Total Company net sales increased by 14% and 10% in 1996 and 1995, respectively. The 1996 increase primarily was due to a comparable store sales increase of 3% and revenues generated from the Parisian Division acquired in October 1996. The 1995 sales increase primarily was due to a comparable store sales increase of 3% and a full year of sales generated from the McRae's stores acquired in March 1994. GROSS MARGINS Gross margins were 34.9%, 34.5%, and 34.8% in 1996, 1995, and 1994, respectively. The Company uses a full-cost method to account for inventories, which includes certain purchasing and distribution costs. Such costs which relate to obtaining merchandise and preparing it for sale are included in cost of sales. The improvement in gross margin percent in 1996 to 34.9% from 34.5% in 1995 was a result ofimproved inventory management, resulting in increased inventory turnover and lower markdowns. The decrease in gross margin percent from 34.8% in 1994 to 34.5% in 1995 was primarily as a result of increased markdowns over the prior year. Management expects that sales and gross margins can be enhanced over time through further development of key businesses in each Division; expansion of key brands (primarily at the newly acquired Herberger's Division); further private brand development; enhanced relationships and buying power with vendors due to the Company's increased scale; and continued appropriate inventory management. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general, and administrative expenses ("SG&A") were 23.3% of net sales in 1996, 24.0% of net sales in 1995, and 23.3% of net sales in 1994. In 1996, primarily in conjunction with the Herberger's business combination, the Company revised certain estimates and recorded other charges to SG&A in the fourth quarter totaling $3.7 million, or 0.2% of net sales. The most significant components of these charges were: (i) a $.7 million charge for store closing and conversion costs and (ii) a $1.7 million charge to strengthen various accruals. In addition, the Company recorded fourth quarter charges to SG&A of $1.0 million, or 0.1% of net sales, related to the sale of the Virginia Stores. In 1995, primarily in conjunction with the Younkers business combination, the Company revised certain estimates and recorded other charges to SG&A in the fourth quarter totaling $13.7 million, or 0.8% of net sales. The most significant components of these charges were: (i) a $2.4 million charge for the conversion of the Younkers leased shoe operation to an owned operation; (ii) a $2.0 million charge to strengthen the Company's bad debt reserve; and (iii) a $5.0 million reserve for various Younkers legal claims. Excluding these fourth quarter charges, SG&A as a percentage of net sales was 23.0% in 1996 and 23.2% in 1995. The reduction of the SG&A percentage in 1996 over 1995 was due to increased economies of scale and the implementation of the synergies outlined below. Management has identified synergies and developed cost savings programs in conjunction with the Younkers, Parisian, and Herberger's business combinations. The implementation of these synergies and programs reduced operating expenses by a total of $6 million in 1996 and is expected to produce annualized expense savings of $20 million in 1997 and $29 million in 1998 (compared to the 1995 cost structure). Cost reductions are being achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices, and consolidation of certain administrative support functions. These changes should deliver future additional leverage on expenses and will also contribute to the Company's competitive cost structure. OTHER OPERATING EXPENSES Other operating expenses were 7.5% of net sales in 1996, compared to 7.9% in 1995 and 8.1% in 1994. Other operating expenses for 1996 include a $1.0 million charge, or 0.1% of net sales, related to the sale of the Virginia Stores. Excluding this charge, other operating expenses as a percentage of net sales were 7.4% in 1996. The percent decline in 1996 over 1995 and 1994 levels resulted from leverage of these expenses over a larger sales base, the effect of closed underperforming stores, and lower expenses due to the write-down of certain property (see "Gains (Losses) from Long-Lived Assets" below). EXPENSES RELATED TO HOSTILE TAKEOVER DEFENSE During 1995, the Company incurred expenses of approximately $3.2 million, or 0.2% of net sales, related to the defense of the attempted hostile takeover of Younkers by Carson Pirie Scott & Co. GAINS (LOSSES) FROM LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company adopted the provision of this new accounting standard in the fourth quarter of 1995. As a result of adopting this new accounting standard and as a result of closing certain stores and warehouses, the Company incurred impairment charges totaling $1.0 million , or 0.1% of net sales, and $19.1 million, or 1.1% of net sales, in 1996 and 1995, respectively. The 1996 write-down of $1.0 million was netted against gains on the sales of certain properties totaling $2.1 million, or 0.1% of net sales, primarily related to the sale of two Younkers units in March 1996. The $19.1 million charge in 1995 is comprised of $15.9 million related to the write-down in carrying value of six store properties and $3.2 million related to the write-down of abandoned property. MERGER, RESTRUCTURING, AND INTEGRATION COSTS In connection with the merger of Proffitt's and Herberger's, the two companies incurred certain costs in the fourth quarter of 1996 to effect the transaction and other costs to restructure, integrate, and combine the operations of the two companies. These costs totaled $10.0 million, or 0.5% of net sales, and were comprised of $2.6 million of merger transaction costs (principally investment banking, legal, and other direct merger costs); $6.5 million of severance and related benefits, the consolidation of administrative operations, and systems conversions; and $.9 million for the write-off of duplicate administrative facilities. Management also expects to incur certain additional integration costs in 1997, such as transition payroll, training, and relocation expenses. These expenses are expected to total approximately $3 to $4 million in 1997. In connection with the merger of Proffitt's and Younkers, the two companies incurred certain costs in the fourth quarter of 1995 to effect the transaction and other costs to restructure, integrate, and combine the operations of the two companies. These costs totaled $20.8 million, or 1.3% of net sales, and were comprised of $8.8 million of merger transaction costs (principally investment banking, legal, and other direct merger costs); $3.2 million of severance and related benefits; $7.4 million for the write-off of duplicate administrative facilities; and $1.4 million of miscellaneous costs. The Company also incurred certain additional integration costs in 1996, such as transition payroll, training, and relocation expenses. These expenses totaled $5.9 million during 1996, or 0.3% of net sales. FINANCE CHARGE INCOME, NET Net finance charge income was 1.7% of net sales in 1996 and 1.9% of net sales in both 1995 and 1994. For 1996, gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable (see "Liquidity")) increased to 2.6% of net sales from 2.4% in 1995. This increase was primarily due to increased finance charge rates assessed in certain states and a full year's benefit of the October 1995 implementation of late fee penalties on past due charge accounts for the Proffitt's and McRae's Divisions. For 1995, gross finance charge income increased to 2.4% of net sales over 2.2% of net sales in 1994. This increase was due to increased customer usage of the Company's proprietary charge cards, increased finance charge rates assessed in certain states, the October 1995 implementation of late fee charges on past due charge account balances for the McRae's and Proffitt's Divisions, and a full year's benefit of the May 1994 implementation of late fee charges on past due charge account balances at the Younkers Division. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $16.0 million, or 0.8% of net sales, in 1996; $8.8 million, or 0.5% of net sales, in 1995; and $5.6 million, or 0.4% of net sales, in 1994. Utilization of the Company's accounts receivable securitization programs increased each year presented (see "Liquidity"), commensurate with the Company's growth in proprietary charge card sales. Each of the Company's Divisions, except for Herberger's, operates a propriety card program. A proprietary card program is being designed for and will be introduced to the Herberger's customer base in May 1997. INTEREST EXPENSE Interest expense as a percentage of net sales was 1.4% for 1996, 1.8% for 1995, and 1.5% for 1994. Total interest expense was $26.8 million, $29.4 million, and $23.3 million in 1996, 1995, and 1994, respectively. The decrease in interest expense in 1996 over 1995 was attributable to less average borrowings under the Company's revolving credit facilities due to an increase in cash flow from operations and a reduction in short-term interest rates. The increase in interest expense in 1995 over 1994 was attributable to higher borrowings associated with the purchase and operation of the Parks-Belk stores acquired in April 1995 and the acquisition of McRae's in March 1994, along with higher interest rates. INCOME TAXES The effective tax rates differ from the expected tax rates principally due to nondeductible merger costs and other nondeductible expenses related to acquisitions. NET INCOME Net income (prior to extraordinary item) was $37.4 million in 1996, or 2.0% of net sales, $.6 million in 1995, or 0.0% of net sales, and $37.4 million in 1994, or 2.5% of net sales. Earnings in 1996 were negatively affected by such items as fourth quarter charges to SG&A in conjunction with the Herberger's transaction and the sale of the Virginia Stores and merger, restructuring, and integration costs previously discussed. Without these items, 1996 net income would have totaled $52.2 million, or 2.8% of net sales. In 1995, earnings were negatively affected by such items as fourth quarter charges to SG&A in conjunction with the Younkers transaction, expenses related to the Younkers hostile takeover attempt, charges for the impairment of long-lived assets, and merger, restructuring, and integration costs previously discussed. Without these items, 1995 net income would have totaled $38.4 million, or 2.3% of net sales. EXTRAORDINARY ITEM On February 3, 1996, Younkers replaced its debt financing of accounts receivable with sales of ownership interests in its accounts receivable. In addition, Younkers canceled its $150 million revolving credit agreement. As a result of the early extinguishment of debt, certain deferred costs associated with the debt facilities, such as loan origination costs and a loss from an interest rate swap, were written off. This write-off of $3.4 million ($2.1 million net of income taxes) was recorded as an extraordinary item in 1995. INFLATION Inflation affects the costs incurred by the Company in its purchase of merchandise and in certain components of its selling, general, and administrative expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. SEASONALITY The Company's business, like that of most retailers, is subject to seasonal influences, with asignificant portion of net sales and net income realized during the fourth quarter of each year, which includes the Christmas selling season. In light of these patterns, selling, general, and administrative expenses are typically higher as a percentage of net sales during the first three quarters of each year, and working capital needs are greater in the last quarter of each year. The fourth quarter increases in working capital needs have typically been financed with internally generated funds, the sale of interests in the Company's accounts receivable, and borrowings under the Company's revolving credit facility. Generally, more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. LIQUIDITY AND CAPITAL RESOURCES Proffitt's primary needs for liquidity are to acquire, renovate, or construct stores and to provide working capital for new and existing stores. Net cash provided by operating activities was $82.5 million in 1996 and $66.6 million in 1995. In 1996 net income and depreciation and amortization charges were offset by additional working capital needs of $14.3 million. In 1995, working capital needs were reduced by $14.0 million. Net cash used in investing activities was $174.7 million in 1996 of which $119.1 million was for the acquisition of Parisian and $61.0 million was related to new store construction, store renovations, systems enhancements, and other capital expenditures. Net cash used in investing activities for 1995 totaled $62.0 million, of which $51.5 million related to new store construction, store renovations, systems enhancements, and other capital expenditures and $10.5 million was the cash portion of the Parks-Belk acquisition purchase price. Net cash provided by financing activities for 1996 totaled $66.4 million, which was primarily due to proceeds of $113.0 million from borrowings on long-term debt netted against payments on such debt of $49.3 million. Net cash provided by financing activities for 1995 totaled $7.0 million, which was primarily due to proceeds of $32.3 million from borrowings on long-term debt netted against payments on such debt of $20.3 million. In January 1997, Proffitt's entered into a $300 million facility agreement ("Accounts Receivable Facility") with a financial institution for the sale of ownership interests in accounts receivable, which expires in 1998. The Accounts Receivable Facility requires a portion of finance charges earned be allocated to the purchaser of the ownership interests in the accounts receivable, sufficient to cover the yield on commercial paper utilized by the purchaser to finance the transaction, plus fees and expenses. As of March 21, 1997, the interest rate on the Accounts Receivable Facility including program fees was approximately 5.8%, and $221 million of receivables were sold on the Accounts Receivable Facility at that date. $234 million of receivables were sold on the Accounts Receivable Facility at February 1, 1997. Amounts sold are limited to 82% of eligible accounts receivable. The Accounts Receivable Facility replaced separate facilities previously in place for: (i) Proffitt's Division and McRae's Division receivables ($175 million facility) and (ii) Parisian receivables ($160 million facility). Maximum amounts sold under these facilities in 1996 were $172.4 million and $129.0 million, respectively. Prior to February 3, 1996, Younkers utilized an accounts receivable securitization program under which its receivables were used as collateral for commercial paper issued by a wholly-owned special purpose subsidiary. Effective with the February 3, 1996 merger, Younkers replaced amounts borrowed under the securitization program with the sale of: (i) a fixed ownership interest of $75 million and (ii) a variable ownership interest of up to $50 million in its trade receivables. The $75 million receivables sold under this arrangement are from a pool of $91.5 million of tradereceivables and remain fixed until 2000 at which time a portion of collections of outstanding receivables will be retained by the purchaser until the $75 million is amortized. The purchaser retains an allocation of finance charges earned on the $75 million of receivables in an amount sufficient to provide a return of approximately 6.5%. Additional sales of receivables up to $50 million are restricted on the basis of the level of eligible receivables in excess of the $91.5 million supporting the fixed pool and a minimum ownership interest to be retained by Younkers. Younkers may obtain additional proceeds by increasing the ownership interest transferred to the purchaser or reduce the purchaser's interest by allowing a portion of the collections to be retained by the purchaser. The purchaser retains an allocation of finance charge income equal to a variable rate based on commercial paper or Eurodollar rates. The agreement expires in 2000. As of March 21, 1997, the interest rate was approximately 5.8%, and $5 million of Younkers' receivables were sold under this facility at that date. The maximum receivables sold under this facility in 1996 totaled $90.0 million. Proffitt's utilizes a $275 million revolving credit facility with several banks ("Revolver"), which expires in 1999. The Revolver provides various borrowing options, including prime rate and Eurodollar rates. As of March 21, 1997, the LIBOR-based interest rate on the $275 million Revolver was approximately 6.5%. Borrowings on the Revolver are limited to 55% of merchandise inventories (increasing to 60% on a seasonal basis). As of March 21, 1997, the Company had borrowings totaling $171.4 million outstanding under the Revolver and unused availability of $103.6 million. The maximum amount outstanding under the Revolver during 1996 was $176.7 million. At that time, Proffitt's had unused availability on the Revolver of $98.3 million. Proffitt's previous $125 million revolving credit facility was replaced by the $275 million Revolver in October 1996 in conjunction with the Parisian merger. At February 1, 1997, total debt was 49% of total book capitalization, up from 47% at February 3, 1996. Excluding subordinated debt of $226 million at February 1, 1997 and $101 million at February 3, 1996, senior debt was 27% of total capitalization, down from 31% one year ago. As of February 1, 1997, Proffitt's carried $120 million of mortgage debt related to its 27 owned store locations and other owned properties. Management believes the market value of these properties significantly exceeds the related indebtedness. Proffitt's estimates capital expenditures for 1997 will approximate $100 million, primarily for the construction of seven new stores opening in 1997, initial construction related to five to seven stores to be opened in 1998, several store expansions and renovations, and enhancements to management information systems. Proffitt's anticipates its capital expenditures and working capital requirements relating to planned new and existing stores will be funded through cash provided by operations and borrowings. Proffitt's expects to generate adequate cash flows from operating activities to sustain current levels of operations. Proffitt's maintains favorable banking relations and anticipates the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. Proffitt's also believes it has access to a variety of other capital markets. The Company's goal is to continue to maintain a strong balance sheet and prudent leverage, providing Proffitt's flexibility to capitalize on attractive opportunities for growth, thereby enhancing shareholder value. RESENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities." The new standard, which was effective for all sales of accounts receivable beginning January 1, 1997, requires that a gain be recognized at the time of sale to the extent the fair value of the undivided interest in the receivables sold and the servicing rights retained exceed the carrying value of the receivables. Historically, the Company has recognized the excess interest earned on sold receivables over the life of the receivables. The effect of this accounting change was immaterial to 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share." The new standard changes the presentation and method in which earnings per share are computed and is effective for the Company's year ending January 31, 1998. The new standard will be applied on a "retroactive restatement of all prior periods" basis. The Company is currently ascertaining the impact the new standard will have on its earnings per share amounts for 1996 and prior periods. FORWARD-LOOKING INFORMATION The forward-looking information presented in the letter to shareholders entitled "To Our Partners" contained on pages 2 through 4 of the Annual Report as well as the forward-looking statements contained throughout Management's Discussion and Analysis on pages 8 through 14 of the Annual Report are premised on many factors, some of which are outlined below. Actual consolidated results might differ materially from projected forward-looking information if there are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates and involve certain risks and uncertainties. Potential risks and uncertainties include such factors as the level of consumer spending for apparel and other merchandise carried by the Company, the competitive pricing environment within the department and specialty store industries, the effectiveness of planned advertising, marketing, and promotional campaigns, appropriate inventory management, realization of planned synergies, and effective cost containment. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Proffitt's, Inc. and Subsidiaries
Year Ended ---------------------------------------------- February 1, February 3, January 28, 1997 1996 1995 ---------- ---------- ---------- Net sales $1,889,779 $1,661,056 $1,513,444 COSTS AND EXPESNES Cost of sales 1,230,454 1,087,619 986,028 Selling, general and administrative expenses 440,502 398,999 352,448 Other operating expenses Property and equipment rentals 60,684 50,609 47,857 Depreciation and amortization 41,037 43,013 40,305 Taxes other than income taxes 40,403 36,938 34,421 Expenses related to hostile takeover defense 3,182 (Gains) losses from long-lived assets (1,094) 19,121 Merger, restructuring and integration costs 15,929 20,822 -------- -------- -------- OPERATING INCOME 61,864 753 52,385 OTHER INCOME (EXPENSE) Finance charge income, net 32,305 31,273 27,934 Interest expense (26,756) (29,389) (23,286) Other income, net 1,572 4,051 4,826 --------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY LOSS 68,985 6,688 61,859 Provision for income taxes 31,586 6,047 24,411 --------- -------- -------- INCOME BEFORE EXTRAORDINARY LOSS 37,399 641 37,448 Extraordinary loss on early extinguishment of debt (net of tax) (2,060) --------- -------- -------- NET INCOME (LOSS) 37,399 (1,419) 37,448 Preferred stock dividends 796 1,950 1,694 Payment for early conversion of preferred stock 3,032 --------- -------- -------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $33,571 $(3,369) $35,754 ======== ======== ======== Earnings (loss) per common share Primary $ 1.31 $ (0.15)* $1.55 ======== ========= ======== Fully diluted $ 1.41 $(0.15)* $1.52 ======== ========= ======== Weighted average common shares Primary 25,564 23,157 23,046 ======= ======== ======= Fully diluted 28,204 23,166 26,301 ======= ======== ======= *Loss per share before extraordinary item was $.06, and the loss per share attributable to the extraordinary item was $.09. The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS (in thousands) Proffitt's, Inc. and Subsidiaries
February 1, February 3, 1997 1996 ----------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,382 $ 29,178 Residual interest in trade accounts receivable 85,400 44,878 Accounts receivable - other 20,659 12,158 Merchandise inventories 447,164 329,733 Other current assets 27,658 10,106 Deferred income taxes 11,700 4,961 --------- --------- TOTAL CURRENT ASSETS 595,963 431,014 PROPERTY AND EQUIPMENT, net of depreciation 510,502 410,256 GOODWILL AND TRADENAMES, net of amortization 277,472 52,838 OTHER ASSETS 19,859 24,905 --------- --------- TOTAL ASSETS $1,403,796 $919,013 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $116,434 $87,026 Accrued expenses 86,220 60,516 Accrued compensation and related items 19,188 16,155 Sales taxes payable 17,196 12,005 Current portion of long-term debt 12,515 20,118 --------- --------- TOTAL CURRENT LIABILITIES 251,553 195,820 SENIOR DEBT 276,810 168,937 DEFERRED INCOME TAXES 62,000 53,171 OTHER LONG-TERM LIABILITIES 47,768 14,328 SUBORDINATED DEBT 225,767 100,505 REDEEMABEL COMMON STOCK HELD IN ESOP 58,881 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock 28,850 Common stock 2,802 2,711 Additional paid-in capital 378,016 243,822 Retained earnings 168,858 73,469 Treasury stock at cost (6,811 shares in 1995) (21,481) Deferred ESOP compensation (9,778) --------- --------- TOTAL SHAREHOLDERS' EQUITY 539,898 327,371 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,403,796 $ 919,013 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share amounts) Proffitt's, Inc. and Subsidiaries
Additional Deferred Total Preferred Common Paid-In Retained Treasury ESOP Shareholders' Stock Stock Capital Earnings Stock Compensation Equity --------- -------- -------- -------- ------- -------- -------- Balance at January 29, 1994 $ - $ 2,651 $223,829 $ 62,701 $(14,076) $ - $275,105 Net income 37,448 37,448 Issuance of common stock 53 9,941 9,994 Issuance of Series B preferred stock 3,296 3,296 Issuance of Series A preferred stock 28,850 28,850 Income tax benefits related to exercised stock options 112 112 Purchase of treasury stock (3,361) (3,361) Increase in stock held in ESOP (30) (11,588) (11,618) Conversion of Series B preferred stock (3,296) 16 3,280 Preferred stock dividends (1,694) (1,694) Unrealized gain on released ESOP shares 1 1 Common stock dividends, $.28 per Herberger's share (1,126) (1,126) ------- ------- ------- ------- ------- -------- ------- Balance at January 28, 1995 28,850 2,690 237,163 85,741 (17,437) - 337,007 Net loss (1,419) (1,419) Issuance of common stock 36 6,241 6,277 Income tax benefits related to exercised stock options 373 373 Purchase of treasury stock (4,044) (4,044) Increase in stock held in ESOP (15) (7,857) (7,872) Preferred stock dividends (1,950) (1,950) Unrealized gain on released ESOP shares 45 45 Common stock dividends, $.28 per Herberger's share (1,046) (1,046) ------- ------- -------- -------- -------- -------- -------- Balance at February 3, 1996 28,850 2,711 243,822 73,469 (21,481) - 327,371 Net income 37,399 37,399 Issuance of common stock 348 117,437 117,785 Income tax benefits related to exercised stock options 3,818 3,818 Purchase of treasury stock (2,056) (2,056) Retirement of treasury stock (689) (15,789) (7,059) 23,537 Reclassification of ESOP stock 290 (57) 69,907 (9,778) 60,362 Unrealized gain on released ESOP shares 122 122 Preferred stock dividends (796) (796) Payment for early conversion of preferred stock (3,032) (3,032) Conversion of Series A preferred stock (28,850) 142 28,663 (45) Common stock dividends, $.28 per Herberger's share (1,030) (1,030) ------- ------- -------- -------- -------- -------- -------- Balance at February 1, 1997 $ - $ 2,802 $ 378,016 $ 168,858 $ - $ (9,778) $ 539,898 ======= ======= ======== ======== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Proffitt's, Inc. and Subsidiaries
Year Ended ---------------------------------------- February 1, February 3, January 28, 1997 1996 1995 --------- --------- -------- Operating activities Net income (loss) $ 37,399 $ (1,419) $ 37,448 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt 3,433 Depreciation and amortization 41,257 43,626 41,013 Deferred income taxes 17,802 (13,477) 4,480 (Gains) losses from long-lived assets (1,094) 19,121 Amortization of deferred compensation 1,481 1,363 1,034 Changes in operating assets and liabilities: Trade accounts receivable 3,162 5,608 52,580 Merchandise inventories 17,940 (7,411) 1,219 Other current assets (14,351) 710 (952) Accounts payable and accrued expenses (20,709) 15,553 5,861 Other (375) (503) 580 -------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 82,512 66,604 143,263 INVESTING ACTIVITIES Purchases of property and equipment, net (61,031) (51,469) (53,293) Proceeds from sale of assets 5,410 Acquisition of Parisian (1996)/Parks-Belk (1995)/ McRae's (1994) (119,070) (10,483) (184,067) Other (1,719) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (174,691) (61,952) (239,079) FINANCING ACTIVITIES Proceeds from long-term borrowings 113,037 32,273 90,983 Payments on long-term debt (49,318) (20,345) (35,161) Proceeds from issuance of stock 9,578 2,210 29,166 Purchase of treasury stock (2,056) (4,043) (3,361) Payments to preferred and common shareholders (4,858) (3,139) (1,954) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 66,383 6,956 79,673 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (25,796) 11,608 (16,143) Cash and cash equivalents at beginning of year 29,178 17,570 33,713 Cash and cash equivalents at end of year $ 3,382 $ 29,178 $ 17,570 Noncash investing and financing activities are further described in the accompanying notes. The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) Proffitt's, Inc. and Subsidiaries NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Company is a retail organization operating regional department store divisions under the store names of Proffitt's, McRae's, Younkers, Parisian, and Herberger's. The Company's fiscal year ends on the Saturday nearest January 31. Years 1996 and 1994 consisted of 52 weeks and ended on February 1, 1997 and January 28, 1995, respectively. Year 1995 consisted of 53 weeks and ended on February 3, 1996. The financial statements include the accounts of Proffitt's and its subsidiaries other than its special purpose receivables securitization subsidiaries which are not consolidated. All significant intercompany balances and transactions have been eliminated. USE IF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. RESIDUAL INTEREST IN TRADE ACCOUNTS RECEIVABLE Residual interest in trade accounts receivable represents an owned residual interest in two special purpose subsidiaries that own the Company's proprietary revolving charge accounts. In some cases, the account's terms provide for payments exceeding one year. In accordance with usual industry practice, such receivables are included in current assets. A portion of the finance charge income on these receivables is earned by financial institutions in connection with the sales of interests in accounts receivable (see Note 4). INVENTORIES Inventories are valued at the lower of cost or market as determined by the retail inventory method using last-in, first-out (LIFO) costs for approximately 69% and 86% of the inventories at February 1, 1997 and February 3, 1996, respectively, and using first-in, first-out (FIFO) costs for the balance. At February 3, 1996 the LIFO value of inventory exceeded market, and as a result, inventory was stated at the lower market amount. At February 1, 1997 the LIFO value approximated the FIFO value. Inventory costs include invoice cost, freight, and certain purchasing and distribution costs. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Gains or losses on the sales of assets are recorded at disposal. At each balance sheet date, the Company evaluates recoverability of property and equipment based upon expectations of nondiscounted cash flows and operating income. GOODWILL AND TRADENAMES The Company has allocated substantially all the cost in excess of fair value of net tangible assets acquired in purchase transactions to goodwill and tradenames, which is being amortized on a straight-line method over 15 to 40 years. The Company recognized amortization charges of $3,369, $1,523 and $1,100 for 1996, 1995 and 1994, respectively. As of February 1, 1997, the accumulated amortization of intangible assets was $6,206. At each balance sheet date, the Company evaluates the recoverability of intangible assets based upon expectations of nondiscounted cash flows and operating income. Based upon its most recent analysis, the Company believes that no impairment of intangible assets exists at February 1, 1997. EMPLOYEE STOCK OWNERSHIP PLANS Shares acquired after January 30, 1994 are accounted for in accordance with SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." All other unreleased shares are accounted for in accordance with SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." STOCK-BASED COMPENSATION Compensation cost is measured under the intrinsic value method in accordance with Accounting Principles Bulletin No. 25. Pro forma disclosures of net income and earnings per share are presented, as if the fair value method had been applied, as required by SFAS No. 123. REVENUES Retail sales are recorded on the accrual basis and profits on installment sales are recognized in full when the sales are recorded. Sales are net of returns which are reflected as a period cost at the time of return. LEASED DEPARTMENT SALES The Company includes leased department sales as part of net sales. Leased department sales were$62,804, $73,977 and $71,369 for 1996, 1995 and 1994, respectively. STORE PRE-OPENING COSTS Store pre-opening costs are expensed when incurred. ADVERTISING COSTS Advertising and sales promotion costs are expensed as incurred. Advertising and sales promotion costs were $68,602, $60,232 and $52,206, for 1996, 1995 and 1994, respectively. INCOME TAXES Deferred income taxes reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by enacted tax rules and regulations. EARNINGS PER COMMON SHARE Primary earnings per common share have been computed based on the weighted average number of common shares outstanding, including common stock equivalents, after recognition of preferred stock dividends of $796, $1,950 and $1,694 for 1996, 1995 and 1994, respectively, and a payment of $3,032 for early conversion of the preferred stock in 1996. The Company's convertible subordinated debentures are not common stock equivalents and are therefore considered only in fully diluted earnings per share when dilutive. Common stock issued upon the conversion of the preferred stock in June 1996 has been included in the weighted average number of shares outstanding subsequent to that date for computing primary earnings per share. Fully diluted earnings per share for 1996 have been presented based upon an "as if the shares issued in the conversion were outstanding from the beginning of the year" basis. Common shares acquired after January 30, 1994 and held by the ESOP are not considered outstanding for earnings per share calculations until the shares are committed to be released and the related compensation expense recognized. NEW ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The new standard, which was effective for all sales of accounts receivable beginning January 1, 1997, requires that a gain be recognized at the time of sale to the extent the fair value of the undivided interest in the receivables sold and the servicing rights retained exceed the carrying value of the receivables. Historically, the Company has recognized the excess interest earned on sold receivables over the life of the receivables. The effect of this accounting change was immaterial to 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The new standard changes the presentation and method in which earnings per share are computed and is effective for the Company's year ending January 31, 1998. The new standard will be applied on a "retroactive restatement of all prior periods" basis. The Company is currently in the process of ascertaining the impact the new standard will have on its earnings per share amounts for 1996 and prior periods. NOTE 2 - MERGERS WITH HERBERGER'S AND YOUNKERS On February 1, 1997, Proffitt's, Inc. ("Proffitt's") issued 4,000 shares of its common stock for all the outstanding common stock of G.R. Herberger's, Inc. ("Herberger's") (collectively, the "Company"). Herberger's operated 39 stores in the Midwest. The merger has been accounted for as a pooling of interests and, accordingly, these consolidated financial statements have beenrestated for all periods to include the results of operations and financial position of Herberger's. Separate results of the combined entities were as follows:
Year Ended ------------------------------------------ February 1, February 3, January 28, 1997 1996 1995 ---------- ----------- ---------- Revenue: Proffitt's $ 1,567,995 $ 1,333,498 $ 1,216,498 Herberger's 321,784 327,558 296,946 ------------ ----------- ----------- $ 1,889,779 $ 1,661,056 $ 1,513,444 =========== =========== =========== Extraordinary loss: Proffitt's $ 0 $ (2,060) $ 0 Herberger's 0 0 0 ----------- ------------ ----------- $ 0 $ (2,060) $ 0 ============ ============ ============ Net income (loss): Proffitt's $ 43,598 $ (8,459) $ 29,744 Herberger's (6,199) 7,040 7,704 ------------ ------------ ------------ $ 37,399 $ (1,419) $ 37,448 =========== =========== ===========
Herberger's financial statements have been restated to conform to Proffitt's accounting methods and to reflect certain reclassifications with an immaterial effect on Herberger's previously reported income and shareholders' equity. On February 3, 1996, Proffitt's issued 8,816 shares of its common stock for all the outstanding common stock of Younkers, Inc. ("Younkers"). Younkers operated 51 stores in the Midwest. The merger was accounted for as a pooling of interests and, accordingly, the consolidated financial statements were restated for all periods to include the results of operations and financial position of Younkers. NOTE 3 - ACQUISITIONS OF McRAE'S, PARKS-BELK AND PARISIAN McRAE'S On March 31, 1994, Proffitt's acquired McRae's, Inc. ("McRae's") which operated 28 stores in the Southeast. The total acquisition price was approximately $212 million and is detailed below. The McRae's transaction was accounted for as a purchase and, accordingly, the results of the operations of McRae's have been included in the Company's results of operations since the date of acquisition. The purchase price has been allocated to McRae's tangible assets and liabilities based on their estimated fair values at the date of acquisition, with the remaining $45,574allocated principally to goodwill. PARKS-BELK In April 1995, Proffitt's acquired the Parks-Belk Company, which operated four department stores in northeast Tennessee. Consideration of less than $20 million was paid in Proffitt's, Inc. common stock and cash. Three of the Parks-Belk locations were converted into Proffitt's Division stores, and one was permanently closed. PARISIAN On October 11, 1996, Proffitt's acquired Parisian, Inc. ("Parisian"), which operated 38 stores in the Southeast and Midwest. The total purchase price of the Parisian transaction was approximately $224,000 (detailed below) plus the assumption of Parisian's liabilities aggregating $289,000. The Parisian transaction was accounted for as a purchase and, accordingly, the financial results of the operations of Parisian have been included in the Company's results of operations since the acquisition date. The purchase price has been allocated to Parisian's tangible assets and liabilities based on their estimated fair values at the date of acquisition, with the remaining $225,000 allocated to its tradename and goodwill. The following unaudited pro forma summary presents the consolidated results of operations as if the Parisian acquisition had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had the acquisition been made as of those dates or results which may occur in the future.
(Unaudited) ------------------------------ 1996 1995 ---------- --------- Pro forma: Net sales $ 2,320,955 $ 2,324,884 Income before extraordinary loss $ 29,768 $ 2,425 Net income $ 29,768 $ 365 Earnings (loss) per common share: Primary earnings before extraordinary loss $ 0.94 $ 0.02 Primary earnings (loss) $ 0.94 $ (0.06) Fully diluted earnings before extraordinary loss $ 1.05 $ 0.02 Fully diluted earnings (loss) $ 1.05 $ (0.06)
The purchase price of the Parisian and McRae's acquisitions consisted of the following consideration paid plus the assumption of Parisian's and McRae's liabilities:
Parisian McRae's --------- --------- Cash payments and transaction costs $ 119,000 $ 184,000 Issuance of 2,947 and 436 shares of common stock, respectively 101,000 10,000 Issuance of Series B preferred stock 3,000 Issuance of promissory notes 2,000 Issuance of subordinated debt 13,000 Issuance of 406 replacement stock options 4,000 -------- --------- CONSIDERATION PAID $ 224,000 $212,000*
*In connection with the acquisition, the Company purchased four regional mall stores owned by McRae family partnerships for $18.5 million. NOTE 4 - ACCOUNTS RECEIVABLE SECURITIZATION In April 1994, the Company began selling an undivided ownership interest in its accounts receivable. In January 1997, the Company, through its unconsolidated subsidiary Proffitt's Credit Corporation (a qualifying special purpose entity), entered into an agreement to sell a revolving undivided ownership interest in the accounts receivable of the Proffitt's, McRae's and Parisian Divisions. The agreement, which expires in January 1998, provides for the sales of receivables up to $300,000 and contains certain covenants requiring the maintenance of various financial ratios. Prior to February 3, 1996, Younkers utilized an accounts receivable securitization program under which its receivables were used as collateral for commercial paper issued by a wholly-owned special purpose subsidiary. Effective with the February 3, 1996 merger, Younkers, through its unconsolidated subsidiary Younkers Credit Corporation (a qualifying special purpose entity), replaced amounts borrowed under the securitization program by selling a revolving undivided ownership interest in its accounts receivable. The agreement expires in 2000 and provides for the sales of receivables up to $125,000, of which $75,000 is a fixed ownership interest and remains fixed until 2000 at which time a portion of collections of outstanding receivables will be retained by the purchaser until the $75,000 is extinguished. The ownership interest transferred to the purchasers was $324,000 and $220,229 at February 1, 1997 and February 3, 1996, respectively. Finance charges earned by the purchasers were $16,013, $8,809 and $5,567 for 1996, 1995 and 1994, respectively. NOTE 5 - PROPERTY AND EQUIPMENT A summary of property and equipment was as follows: February 1, February 3, 1997 1996 ---------- ---------- Land and land improvements $ 59,140 $ 39,442 Buildings 178,265 146,792 Leasehold improvements 98,697 91,795 Fixtures and equipment 304,479 286,225 Construction in progress 8,242 17,134 --------- -------- 648,823 581,388 Accumulated depreciation (159,668) (171,132) --------- -------- 489,155 410,256 Stores held for sale, net of accumulated depreciation 21,347 --------- -------- $ 510,502 $ 410,256
The Company realized gains (losses) from store sales or closings and impairment charges as follows: 1996 1996 ---------- ---------- Write-down in carrying value of operating stores (3 Proffitt's, 1 McRae's and 2 Younkers in 1995; 1 Herberger's in 1996) due to recurring poor operating results $ (1,010) $(15,897) Abandonment of stores and duplicate warehouses related to the Parks-Belk acquisition and the Younkers merger (1,797) Gain (loss) related to closed or sold stores, net 2,104 (1,427) -------- --------- $1,094 $(19,121)
NOTE 6 - INCOME TAXES The components of income tax expense were as follows: Year Ended ------------------------------- 2/1/97 2/3/96 1/28/95 -------- -------- ------- Current: Federal $ 10,026 $ 14,432 $ 15,753 State 3,758 3,719 4,178 ------ ------- -------- 13,784 18,151 19,931 Deferred: Federal 16,272 (10,962) 3,858 State 1,530 (2,515) 622 ------- ------- -------- 17,802 (13,477) 4,480 ------- ------- -------- $ 31,586 $ 4,674 $ 24,411 ======= ======== ========
Components of the net deferred tax asset or liability recognized in the consolidated balance sheets were as follows: February 1, February 3, 1997 1996 ---------- ---------- Current: Deferred tax assets: Trade accounts receivable $ 3,350 $ 2,400 Accrued expenses 18,700 10,972 Other 250 552 ------- -------- 22,300 13,924 Deferred tax liabilities: Inventory (9,100) (8,463) Other (1,500) (500) ------- -------- (10,600) (8,963) ------- -------- Net current deferred tax asset $ 11,700 $ 4,961 ======= ======== Noncurrent: Deferred tax assets: Capital leases $ 950 $ 900 Other long-term liabilities 21,150 4,021 Deferred compensation 2,200 950 --------- -------- 24,300 5,871 Deferred tax liabilities: Property and equipment (77,000) (52,342) Other assets (8,100) (5,400) Junior subordinated debentures (1,200) (1,300) -------- -------- (86,300) (59,042) --------- -------- Net noncurrent deferred tax liability $ (62,000) $(53,171) ========= ========
Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows: 1996 1995 1994 --------- --------- --------- Expected tax rate 35.0 % 35.0 % 35.0 % State income taxes, net of federal benefit 4.0 (6.5) 4.4 Nondeductible merger related costs 2.7 92.1 Amortization of goodwill 1.9 15.9 Other items, net 2.2 7.1 0.1 --------- -------- ------- Actual tax rate 45.8 % 143.6 % 39.5 % ========= ========= ========
The Company made income tax payments, net of refunds received, of $33,884, $12,263 and $16,882 during 1996, 1995 and 1994, respectively. NOTE 7 - SENIOR DEBT A summary of senior debt was as follows: February 1, February 3, 1997 1996 --------- ---------- Real estate and mortgage notes, interest ranging from 3.6% to 10.38%, maturing 1998 to 2007, collateralized by property and equipment $ 120,317 $ 97,365 Revolving credit agreement 154,437 41,400 Capital lease obligations, implicit interest ranging from 8.63% to 12.05% 10,735 11,318 Notes payable, interest ranging from 7.88% to 13.0%, maturing 1997 to 2000 3,836 38,972 --------- --------- 289,325 189,055 Current portion (12,515) (20,118) --------- --------- $ 276,810 $ 168,937 ========== ==========
Effective with the February 3, 1996 merger, Younkers replaced debt collateralized by its trade accounts receivable with the sale of a revolving undivided interest in its accounts receivable and canceled its revolving credit facility. As a result of this early extinguishment of debt, certain deferred debt costs aggregating $3,433 ($2,060 net of income taxes) were written off as an extraordinary item. In conjunction with a real estate mortgage note having a balance of $5,850 at February 1, 1997, the Company has an interest rate swap agreement for the management of interest rate exposure. This agreement extends to June 30, 2003 and swaps the variable rate for a fixed rate of 5.7%. The differential to be paid or received is included in interest expense. In connection with the Parisian merger, the Company amended and restated its existing revolving credit agreement ("Revolver") with certain banks. The agreement provides for borrowings limited to 55% of merchandise inventories up to an aggregate principal amount of $275,000, including a standby letter of credit facility of $15,000. The Revolver includes interest rate options of prime and Eurodollar. The agreement, which expires in 1999, requires the Company to meet specific covenants related to net worth, capitalization, fixed charges, capital expenditures, indebtedness and earnings. Certain other notes also impose restrictions and financial covenants. At February 1, 1997, maturities of senior debt for the next five years and thereafter, giving consideration to lenders' call privileges, were as follows: 1997 $ 12,515 1998 35,010 1999 185,524 2000 10,192 2001 23,304 Thereafter 22,780 -------- $ 289,325 ========= The Company made interest payments of $28,304, $29,516 and $20,494 during 1996, 1995 and 1994, respectively. Capitalized interest was $368, $285 and $467 during 1996, 1995 and 1994, respectively. NOTE 8 - SUBORDINATED DEBT Subordinated debt represents uncollateralized obligations subordinated in right of payment to all senior debt and was composed of the following: February 1, February 3, 1997 1996 ----------- ---------- Convertible debentures, interest at 4.75%, maturing November 2003 $ 86,250 $ 86,250 Notes, interest at 9.875%, maturing July 2003 125,000 Junior debentures, interest at 7.5%, maturing March 2004 14,517 14,255 -------- --------- $ 225,767 $ 100,505 ========= =========
The subordinated convertible debentures are convertible into the Company's common stock at any time prior to maturity, unless previously redeemed, at a conversion price of $42.70 per share. The debentures are redeemable for cash at the option of the Company at specified redemption prices. Effective with the Parisian acquisition, the Company assumed the existing Parisian 9.875% subordinated notes. The notes are redeemable at the option of the Company, in whole or in part, after July 15, 1998, 1999 and 2000 at approximately 105%, 102.5% and 100% of face value, respectively. The notes contain certain covenants, the most restrictive of which limits indebtedness, dividends and transactions with Proffitt's and its other subsidiaries. The 7.5% junior subordinated debentures were discounted at the date of issue to reflect their fair value and are being accreted to a face value of $17,500. NOTE 9 - OPERATING LEASES The Company is committed under long-term leases primarily for the rentals of retail stores. The leases generally provide for minimum annual rentals (including executory costs such as real estate taxes and insurance) and contingent rentals based on a percentage of sales in excess of stated amounts. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 10 to 15 years. At February 1, 1997, minimum rental commitments under operating leases with terms in excess of one year were as follows: 1997 $ 58,821 1998 56,592 1999 54,252 2000 50,988 2001 49,338 Thereafter 445,972 --------- $ 715,963 ========== Total rental expense for operating leases was $60,684, $50,609 and $47,857 during 1996, 1995 and 1994, respectively, including contingent rents of approximately $7,400, $5,600 and $4,800. NOTE 10 - RETIREMENT AND SAVINGS PLAN The Company sponsors various profit sharing and savings plans that cover substantially all full-time employees. Company contributions charged to expense under these plans, or similar predecessor plans, excluding the Herberger's employee stock ownership plan ("ESOP"; Note 12)for 1996, 1995 and 1994 were $735, $1,382 and $1,106, respectively. As a part of a 1987 acquisition, Younkers assumed certain obligations under a frozen defined benefit pension plan. During 1996, the Company terminated the plan realizing non-cash expenses of $1,362. NOTE 11 - SHAREHOLDERS' EQUITY PREFERRED STOCK On March 31, 1994, Proffitt's issued 600 shares of Series A Cumulative Convertible Exchangeable Preferred Stock in a private offering (10,000 total shares authorized). Net proceeds to the Company were approximately $28.9 million after offering expenses. Dividends were cumulative and were paid at $3.25 per annum per share. On June 28, 1996, the holder converted the preferred stock into 1,422 shares of common stock. The Company paid $3,032 to the holder of the preferred stock to induce early conversion. The Company has available 33 shares of authorized, unissued Series B Preferred Stock. COMMON STOCK The Company has 100,000 shares of $.10 par value common shares authorized of which 28,016 and 23,206 shares were issued and outstanding at February 1, 1997 and February 3, 1996, respectively. Each outstanding share of common stock has one preferred stock purchase right attached. The rights generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/100 share of Series C Junior Preferred Stock at an exercise price of $85. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquiror) to purchase common stock of the acquiring company or, in certain circumstances, common stock of the Company having a market value of twice the exercise price of the right. The rights expire on March 28, 2005. TREASURY STOCK Previously, Herberger's was required to repurchase shares from inactive participants of the ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on transactions credited or charged to additional paid-in capital. Total shares purchased in 1996, 1995 and 1994 were 85, 179 and 164, respectively. In connection with the rescission of the put option on the ESOP shares (see Note 12), the Company retired all 6,897 shares of the Company's common stock held in treasury. NOTE 12 - EMPLOYEE STOCK PLANS ESOP Herberger's sponsors an employee stock ownership plan ("ESOP") for the benefit of its employees. Contributions to the ESOP are made at the discretion of the Board of Directors and were $3,670, $3,418 and $3,103 in 1996, 1995 and 1994, respectively. At various times, the ESOP has purchased shares of the Company's common stock using the proceeds of ESOP loans (leveraged shares). These shares are initially held in a suspense account by the Plan Trustee (unallocated shares). As contributions are made and dividends are paid and the ESOP debt is repaid, leveraged shares are released from suspense and allocated to the accounts of participants, and the Company recognizes compensation expense. Dividends earned on all shares acquired prior to January 30, 1994 are recorded as a reduction of retained earnings, while dividends on unallocated shares acquired after January 30, 1994 are reflected as a reduction of compensationexpense. Dividends on ESOP shares used for debt service were $264, $226 and $130 in 1996, 1995 and 1994, respectively. For shares acquired after January 30, 1994, expense is recorded equal to the estimated fair value of shares allocated and those shares become outstanding for earnings per share computations. For all other shares, expense is recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 are considered outstanding for earnings per share calculations. Total ESOP expense recognized was $4,130, $4,013 and $3,287 for 1996, 1995 and 1994, respectively, and compensation expense recognized in 1996 reflects the increase in value of Herberger's stock related to its merger with Proffitt's. As of February 1, 1997, the number of shares held by the ESOP was as follows: Number of Shares --------------------------- Allocated Unallocated --------- ---------- Shares acquired on or prior to January 30, 1994 387 152 Shares acquired after January 30, 1994 68 332 Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. STOCK OPTIONS AND GRANTS The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to or above fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the two stock-based compensation plans been determined under the fair value method provided in SFAS No. 123 (using the Black-Scholes option-pricing model), the Company's net income (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below.
1996 1995 -------------------------- ------------------------- As Reported Pro forma As Reported Pro forma ----------- ---------- ---------- ---------- Net income (loss) $ 37,399 $ 35,756 $ (1,419) $ (2,540) Primary earnings (loss) per share $ 1.31 $ 1.25 $ (0.15) $ (0.19) Fully diluted earnings (loss) per share $ 1.41 $ 1.36 $ (0.15) $ (0.19)
The assumptions for determining compensation costs under the fair value method included i) a risk-free interest rate based on zero-coupon governmental issues on each grant date with the maturity equal to the expected term of the option (6.84% and 5.74% for 1996 and 1995,respectively), ii) an expected term of five years, iii) an expected volatility of 37.1% and 39.9% for 1996 and 1995, respectively, and iv) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, key employees and Directors. At February 1, 1997 the Company has available for grant 350 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting if the Company meets certain performance objectives. A summary of the stock option plans for 1996, 1995 and 1994 is presented below:
1996 --------------------- Weighted- Average Exercise 1995 1994 Shares Price Shares Shares ---------- --------- -------- --------- Outstanding at beginning of year 1,840 $ 19.25 1,652 1,030 Granted 490 34.00 455 783 Converted in acquisition 406 22.50 Exercised (487) 19.67 (178) (118) Forfeited (84) 25.00 (89) (43) --------- -------- -------- -------- Outstanding at end of year 2,165 $ 22.88 1,840 1,652 ========= ======== ======== ======== Options exercisable at year end 1,466 $ 20.76 ========= ======== Weighted average fair value of options granted during the year $ 12.62 $ 11.71 ========= ======== Contemporaneous with the Parisian acquisition, outstanding Parisian stock options were converted into Proffitt's options.
The following table summarizes information about stock options outstanding at February 1, 1997:
Options Outstanding Options Exercisable ----------------------------------- ----------------------- Weighted- Number Average Weighted- Number Weighted- OutstandingRemaining Average Exercisable Average Range of at Contractual Exercise at Exercise Exercise Prices 2/1/97 Life (years) Price 2/1/97 Price - ------------------ --------- ---------- --------- --------- -------- $7.50 to $11.25 266 5 $ 9.40 266 $ 9.40 $11.26 to $16.88 39 6 12.00 39 12.00 $16.89 to $25.31 1,374 7 23.26 1,015 22.97 $25.32 to $37.97 467 8 29.64 142 28.30 $37.98 to $39.88 19 9 39.88 4 39.88 ------- ------- ------- -------- 2,165 $ 22.88 1,466 $ 20.76 ======= ======== ======= ========
The Company also granted restricted stock awards of 129, 20 and 8 shares to certain employees in 1996, 1995 and 1994, respectively. The fair value of these awards on the dates of grants was $3,763, $499 and $120 for 1996, 1995 and 1994, respectively. During 1996, 1995 and 1994, compensation cost of $2,239, $449 and $120, respectively, has been recognized in connection with these awards. STOCK PURCHASE PLAN The stock purchase plan (the "Plan") provides that an aggregate of 350 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15% discount to market value. Under the Plan, 14 and 13 shares of the Company's common stock were purchased by employees in 1996 and 1995, respectively. At January 31, 1997 the Plan has available 323 shares for future offerings. NOTE 13 - RELATED PARTY TRANSACTIONS In 1989, an unsecured $500 interest-free loan was made as a supplement to the Chairman of the Board and Chief Executive Officer's base compensation. The loan is due January 31, 1999. During 1996, 1995 and 1994, the Company paid $796, $1,950 and $1,694 of preferred stock dividends and a $3,032 payment for early conversion of the preferred stock to an investment group in which a Director is a partner. NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument: The fair values of cash and cash equivalents and short-term debt approximates cost due to theimmediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, fair value approximates carrying value. The fair value of fixed rate notes are estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms and credit risk. As of February 1, 1997, the fair value of fixed rate notes approximated the carrying value. The fair values of the 4.75% convertible debentures and the 9.875% notes are based on quoted market prices. For the junior debentures, the fair value is estimated using discounted cash flow analyses with interest rates currently offered for financial instruments with similar terms and credit risk. The fair values of the Company's aforementioned financial instruments at February 1, 1997 were as follows: Carrying Estimated Amount Fair Value ---------- ---------- 4.75% convertible debentures $ 86,250 $ 84,525 9.875% notes $ 125,000 $ 127,500 7.5% junior debentures $ 14,517 $ 14,517 NOTE 15 - MERGER, RESTRUCTURING AND INTEGRATION COSTS Merger, restructuring and integration costs incurred in 1996 and 1995 were as follows: 1996 ---------- Merger transaction costs, principally investment banking, legal and other direct merger costs - Herberger's $ 2,649 Severance and related benefits - Herberger's 3,129 Conversion and consolidation of information systems and administrative operations - Herberger's 3,355 Abandonment of duplicate data processing equipment and software and other assets - Herberger's 885 Termination of Younkers benefit plan 1,362 Conversion and consolidation of management information systems - Younkers 4,549 -------- $ 15,929 ========= 1995 --------- Merger transaction costs, principally investment banking, legal and other direct merger costs - Younkers $ 8,778 Severance and related benefits - Younkers 3,235 Abandonment of duplicate administrative office space and property and duplicate data processing equipment and software (including leases) - Younkers 7,422 Other costs - Younkers 1,387 --------- $ 20,822 ========= A reconciliation of the above charges to the amounts remaining unpaid at February 1, 1997 was as follows: 1996 1995 -------- ------- Merger, restructuring and integration charges $ 15,929 $ 20,822 Amounts representing non-cash write-offs (2,417) (4,086) Amounts paid in 1995 (1,636) Amounts paid in 1996 (7,308) (11,913) ---------- --------- Amounts unpaid at February 1, 1997 $ 6,204 $ 3,187 ========== ========= The significant amount of charges remaining unpaid from 1995 relate principally to the lease payments related to the abandoned Younkers administrative office space. NOTE 16 - HOSTILE TAKEOVER DEFENSE In 1995, prior to the Proffitt's and Younkers merger, Younkers was subjected to a hostile takeover attempt by Carson Pirie Scott. In defending itself against this takeover attempt, Younkers incurred legal fees and investment banking advisory fees aggregating $3,182. NOTE 17 - QUARTERLY FINANCIAL INFORMATION In the following summary of quarterly financial information, all adjustments necessary for a fair presentation of each period were included. (Unaudited) ---------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- --------- ------- Fiscal year ended February 1, 1997 Net sales $ 365,179 $ 343,359 $ 453,256 $ 727,985 Gross margin $ 127,978 $ 122,320 $ 162,789 $ 246,238 Net income $ 6,308 $ 3,533 $ 12,141 $ 15,417 Primary earnings per common share $ 0.25 $ 0.01 $ 0.47 $ 0.54 Fully diluted earnings per common share $ 0.25 $ 0.14 $ 0.45 $ 0.53 Primary - pro forma (a) $ 0.25 $ 0.14 $ 0.47 $ 0.54 Fiscal year ended February 3, 1996 Net sales $ 353,809 $ 351,419 $ 412,148 $ 543,680 Gross margin $ 123,080 $ 124,837 $ 146,098 $ 179,422 Income (loss) before extraordinary item $ 3,125 $ 2,866 $ 10,130 $ (15,480) Net income (loss) $ 3,125 $ 2,866 $ 10,130 $ (17,540) Primary earnings (loss) per common share: Before extraordinary item $ 0.11 $ 0.10 $ 0.42 $ (0.69) Extraordinary item $ (0.09) Earnings (loss) per common share $ 0.11 $ 0.10 $ 0.42 $ (0.78)
(a) Pro forma amounts represent primary earnings per common share assuming the conversion of the preferred stock had occurred as of the beginning of the year. In addition to the extraordinary loss on the early extinguishment of debt, the impairment of long-lived assets and the merger, restructuring and integration charges recorded in the fourth quarters of 1996 and 1995, the Company also revised certain estimates and recorded other charges related to Herberger's and Younkers in the fourth quarters of 1996 and 1995,respectively. In 1995, those charges were comprised principally of a strengthened provision for bad debts of $2,000, litigation of $5,000, conversion of leased shoe operations of $2,400, vendor chargebacks of $800 and depreciation of $700. In 1996, those charges were comprised principally of $1,000 of store closing and conversion costs and $1,700 to strengthen various accruals. REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors Proffitt's, Inc. We have audited the accompanying consolidated balance sheets of Proffitt's, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended February 1, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger with Younkers, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. We did not audit the financial statements of Younkers for the year ended January 28, 1995. Such statements reflect total revenues constituting 39.6% of the related consolidated totals in 1994. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Younkers, Inc., is based solely on the report of the other auditors. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Proffitt's, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. Birmingham, Alabama March 20, 1997 REPORT OF MANAGEMENT The accompanying consolidated financial statements, including the notes thereto, and the other financial information presented in the Annual Report have been prepared by management. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based upon our best estimates and judgments. Management is responsible for the consolidated financial statements, as well as the other financial information in this Annual Report. The Company maintains an effective system of internal accounting control. We believe that this system provides reasonable assurance that transactions are executed in accordance withmanagement authorization and that they are appropriately recorded in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify, and maintain accountability of assets. Reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by independent certified public accountants. Management has made available to them all of the Company's financial records and related data and believes all representations made to them during their audits were valid and appropriate. Their reports provide an independent opinion upon the fairness of the financial statements. The Audit Committee of the Board of Directors is composed of four independent Directors. The Committee is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting control, and financial reporting matters. The independent auditors have unrestricted access to the Audit Committee. R. Brad Martin Douglas E. Coltharp Chairman of the Board and Executive Vice President and Chief Executive Officer Chief Financial Officer MARKET INFORMATION The Company's Common Stock trades on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol PRFT. As of March 17, 1997, there were approximately 1,436 shareholders of record. Below is a summary of the high and low bid quotations for the Company's Common Stock for each quarterly period for the prior two years. The source of these quotations is the Monthly Statistical Report of the National Association of Securities Dealers, Inc. These quotations represent inter-dealer prices for actual transactions, without adjustment for retail markup, markdown, or commission. The Company presently follows the policy of retaining earnings to provide funds for the operation and expansion of the business and has no present intention to declare cash dividends in the foreseeable future. Future dividends, if any, will be determined by the Board of Directors of the Company in light of circumstances then existing, including the earnings of the Company, its financial requirements, and general business conditions. The Company declared no dividends to common shareholders in either 1996 or 1995. Fiscal Year Ended -------------------------------------- February 1, 1997 February 3, 1996 ---------------- ---------------- Price Range Price Range ------------- ------------- Quarter High Low High Low - --------- ------- ------- -------- ------ First 33 3/4 23 1/2 26 1/2 20 3/4 Second 40 31 1/2 33 24 Third 42 35 1/2 34 1/4 23 1/8 Fourth 42 3/4 32 5/8 29 21 1/2
DIRECTORS AND OFFICERS PROFFITT'S, INC. DIRECTORS R. Brad Martin Chairman of the Board of Directors and Chief Executive Officer of Proffitt's, Inc. Bernard E. Bernstein Partner in the law firm of Bernstein, Stair & McAdams Edmond D. Cicala President of Edmond Enterprises, Inc. Retired Chairman and Chief Executive Officer of the Goldsmith's Division of Federated Department Stores Ronald de Waal Chairman of We International, B.V. Gerard K. Donnelly Chairman of Princeton Middletown Partners, Inc. Former President and Chief Executive Officer of H.C. Prange Company Donald F. Dunn Retired Senior Vice President of Allied Stores Corporation W. Thomas Gould Former Chairman and Chief Executive Officer of Younkers, Inc. Michael S. Gross Vice President of Apollo Capital Management, Inc. Donald E. Hess Chairman of the Parisian Division G. David Hurd Emeritus Chairman and retired Chief Executive Officer of The Principal Financial Group Richard D. McRae Former Chairman, President, and Chief Executive Officer of McRae s, Inc. C. Warren Neel Dean of the College of Business Administration at the University of Tennessee, Knoxville Harwell W. Proffitt Former Chairman, President, and Chief Executive Officer of Proffitt's, Inc. Marguerite W. Sallee President and Chief Executive Officer of CorporateFamily Solutions Gerald Tsai, Jr. Chairman, President, and Chief Executive Officer of Delta Life Corporation PROFFITT'S, INC. OFFICERS R. Brad Martin Chairman of the Board of Directors and Chief Executive Officer James A. Coggin President and Chief Operating Officer Robert M. Mosco President and Chief Executive Officer Proffitt's Merchandising Group David W. Baker Senior Vice President of Operations Julia A. Bentley Senior Vice President of Investor Relations and Planning and Secretary Douglas E. Coltharp Executive Vice President and Chief Financial Officer Peggy Eskenasi Senior Vice President of Private Label and Brand Development Fran U. Jose Senior Vice President of Marketing and Visual Brian J. Martin Senior Vice President of Human Resources and Law General Counsel Michael R. Molitor Senior Vice President of Merchandise Planning and Analysis James E. VanNoy Senior Vice President of Management Information Systems John J. White Senior Vice President of Profit Improvement and Special Projects Sharron Williams Senior Vice President and Corporate General Merchandise Manager of Cosmetics Donald E. Wright Senior Vice President of Finance and Accounting PROFFITT'S DIVISION OFFICERS A. Coleman Piper Executive Vice President of Stores Don M. Alexander Vice President of Sales Promotion Linda Kerr Vice President and General Merchandise Manager Max W. Jones Vice President and General Merchandise Manager McRAE'S DIVISION OFFICERS Gary L. Howard President and Chief Executive Officer Robert Oliver Executive Vice President of Stores Thomas M. Ford Vice President of Sales Promotion Laurence J. Donoghue Senior Vice President and General Merchandise Manager H.R. Harvey Vice President and General Merchandise Manager Joseph A. Sherman Vice President and General Merchandise Manager YOUNKERS DIVISION OFFICERS Toni E. Browning Senior Vice President of Stores Robert H. Ferguson Senior Vice President of Marketing and Sales Promotion Ric L. Anderson Vice President and General Merchandise Manager Alan E. Miller Senior Vice President and General Merchandise Manager John T. Parros Senior Vice President and General Merchandise Manager PARISIAN DIVISION OFFICERS Donald E. Hess Chairman William D. Cappiello President and Chief Executive Officer Howard R. Finkelstein Executive Vice President of Merchandising Jim W. Adams Executive Vice President of Stores Michael Green Senior Vice President of Marketing Ernest E. Brown Vice President and General Merchandise Manager W. Travis Saucer Vice President and General Merchandise Manager HERBERGER'S DIVISION OFFICERS Frank E. Kulp, III President and Chief Executive Officer John B. Brownson Executive Vice President and Chief Operating Officer Gary L. Pralle Vice President of Stores G. Stephen Lindgren Vice President of Marketing Mari J. Johnson Vice President and General Merchandise Manager William C. Lewis Vice President and General Merchandise Manager Joseph W. Thebert Vice President and General Merchandise Manager STORE LOCATIONS PROFFITT'S STORES GEORGIA Dalton Rome KENTUCKY Ashland Elizabethtown NORTH CAROLINA Asheville TENNESSEE Athens Chattanooga (2) Cleveland Greeneville Johnson City Kingsport Knoxville (2) Maryville Morristown Oak Ridge VIRGINIA Bristol West Virginia Morgantown McRAE'S STORES ALABAMA Birmingham (5) Dothan Florence Gadsden Huntsville (2) Mobile Montgomery Selma Tuscaloosa FLORIDA Mary Esther Pensacola LOUISIANA Monroe MISSISSIPPI Columbus Gautier Greenville Hattiesburg Jackson (3) Laurel Meridian Natchez Tupelo Vicksburg YOUNKERS STORES ILLINOIS Moline IOWA Ames Bettendorf Cedar Falls Cedar Rapids (2) Davenport Des Moines (4) Dubuque Fort Dodge Iowa City Marshalltown Mason City Sioux City (2) West Burlington MICHIGAN Bay City Holland Marquette Port Huron Traverse City MINNESOTA Austin NEBRASKA Grand Island Lincoln Omaha (3) SOUTH DAKOTA Sioux Falls WISCONSIN Appleton Eau Claire Fond du Lac Green Bay Madison (2) Manitowoc Marinette Marshfield Milwaukee (2) Racine Sheboygan Sturgeon Bay Superior Wausau Wisconsin Rapids PARISIAN STORES ALABAMA Birmingham (6) Decatur Dothan Florence Huntsville (2) Mobile Montgomery (2) Tuscaloosa FLORIDA Jacksonville Orlando Pensacola Tallahassee GEORGIA Atlanta (4) Columbus Macon Savannah INDIANA Indianapolis (2) MICHIGAN Livonia MISSISSIPPI Tupelo OHIO Cincinnati (3) Dayton SOUTH CAROLINA Columbia (2) Greenville TENNESSEE Chattanooga Knoxville Nashville HERBERGER'S STORES COLORADO Grand Junction ILLINOIS Urbana IOWA Ottumwa Waterloo MINNESOTA Albert Lea Alexandria Bemidji Brainerd Fergus Falls Mankato Minneapolis Moorhead New Ulm St. Cloud St. Paul Stillwater VIRGINIA Willmar MONTANA Billings Butte Great Falls Havre Kalispell NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Dickinson Bismarck Minot SOUTH DAKOTA Aberdeen Rapid City Watertown WISCONSIN Appleton Beaver Dam La Crosse Rice Lake WYOMING Rock Springs The regions of the United States in which we operate have outstanding growth potential. SHAREHOLDER INFORMATION SALES RELESE DATES FOR 1997 Sales Period Release Date ------------ -------------- February 1997 3/6/97 March 1997 4/10/97 April 1997 5/8/97 May 1997 6/5/97 June 1997 7/10/97 July 1997 8/7/97 August 1997 9/4/97 September 1997 10/9/97 October 1997 11/6/97 November 1997 12/4/97 December 1997 1/8/98 January 1998 2/5/98 EARNINGS RELEASE DATES FOR 1997 Quarter Release Date ------------- -------------- First 5/22/97 Second 8/21/97 Third 11/20/97 Fourth To be determined ANNUAL MEETING The Annual Meeting of Shareholders of Proffitt's, Inc. will be held at 8:30 a.m., June 19, 1997, at Proffitt's West Town Mall Store, 7600 Kingston Pike, Knoxville, Tennessee 37919. Shareholders are cordially invited to attend. INQUIRIES REGARDING YOUR STOCK HOLDINGS Registered shareholders (shares held by you in your name) should address communications regarding address changes, lost certificates, and other administrative matters to the Company's Transfer Agent and Registrar: Union Planters National Bank P.O. Box 387 Memphis, Tennessee 38147 (901) 580-5513 (telephone) (901) 580-5411 (facsimile) In all correspondence or telephone inquiries, please mention Proffitt's, Inc., your name as printed on your stock certificate, your social security number, your address, and your phone number. Beneficial shareholders (shares held by your broker in the name of the brokerage house) should direct communications on all administrative matters to your stockbroker. FINANCIAL AND OTHER INFORMATION Copies of Proffitt's Form 10-K and 10-Q reports as filed with the SEC and quarterly shareholders' reports are available free of charge by contacting: Investor Relations Proffitt's, Inc. P.O. Box 9388 Alcoa, Tennessee 37701 (423) 983-7000, ext. 410 Security analysts, portfolio managers, representatives of financial institutions, and other individuals with questions regarding Proffitt's, Inc. are invited to contact: Julia Bentley Senior Vice President of Investor Relations P.O. Box 9388 Alcoa, Tennessee 37701 (423) 981-6243 (telephone) (423) 981-6336 (facsimile) Financial results, corporate news, and other Company information are available on Proffitt's web site: http://www.proffitts.com CORPORATE INFORMATION LEGAL COUNSEL Sommer & Barnard, P.C. Indianapolis, Indiana INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. Birmingham, Alabama PROFFITT'S DIVISION HOME OFFICES 115 North Calderwood Alcoa, Tennessee 37701 (423) 983-7000 McRAE'S DIVISION HOME OFFICES 3455 Highway 80 West Jackson, Mississippi 39209 (601) 968-4400 YOUNKERS DIVISION HOME OFFICES 701 Walnut Street Des Moines, Iowa 50397 (515) 244-1112 PARISIAN DIVISION HOME OFFICES 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000 HERBERGER'S DIVISION HOME OFFICES 600 Mall Germain St. Cloud, Minnesota 56301 (320) 251-5351 X:\WPDATA\JAS\PROFFITT\SECURITI\10-K.497\EX-13-1.ASC EX-21 19 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT PROFFITT'S, INC. AND SUBSIDIARIES Name of Subsidiary State of Incorporation G.R. Herberger's, Inc. Delaware McRae's, Inc. Mississippi McRae's of Alabama, Inc. Alabama McRae's Stores Partnership, G.P. Mississippi Parisian, Inc. Alabama Proffitt's Credit Corporation Nevada Younkers Credit Corporation Delaware EX-23 20 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-88390 and 333-25213) of our report dated March 20, 1997 on our audits of the consolidated financial statements of Proffitt's, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996, for each of the three years in the period ended February 1, 1997 which report is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Birmingham, Alabama April 28, 1997 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in these Registration Statements of Proffitts, Inc. on Form S-8 of our report dated March 3, 1995, with respect to the consolidated financial statements of Younkers, Inc. and subsidiary for the year ended January 28, 1995 not separately presented, appearing in this Annual Report on Form 10-K of Proffitts, Inc. for the year ended January 25, 1997. Des Moines, Iowa April 28, 1997 EX-27 21 EXHIBIT 27.1
5 12-MOS FEB-01-1997 FEB-01-1997 3,382,000 0 85,400,000 0 447,164,000 595,963,000 510,502,000 0 1,403,796,000 251,553,000 612,345,000 0 0 2,802,000 537,096,000 1,403,796,000 1,889,779,000 1,924,750,000 1,230,454,000 1,230,454,000 158,053,000 0 26,756,000 68,985,000 31,586,000 37,399,000 0 0 0 37,399,000 1.31 1.41
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