0000094845-01-500045.txt : 20011009 0000094845-01-500045.hdr.sgml : 20011009 ACCESSION NUMBER: 0000094845-01-500045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010826 FILED AS OF DATE: 20011003 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEVI STRAUSS & CO CENTRAL INDEX KEY: 0000094845 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 940905160 STATE OF INCORPORATION: DE FISCAL YEAR END: 1125 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-90139 FILM NUMBER: 1751463 BUSINESS ADDRESS: STREET 1: 1155 BATTERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4155446000 MAIL ADDRESS: STREET 1: 1155 BATTERY STREET CITY: SAN FRAINCISCO STATE: CA ZIP: 94111 10-Q 1 body10q3.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 26, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 333-36234 LEVI STRAUSS & CO. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 94-0905160 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1155 BATTERY STREET, SAN FRANCISCO, CALIFORNIA 94111 (Address of Principal Executive Offices) (415) 501-6000 (Registrant's Telephone Number, Including Area Code) None (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.01 par value --- 37,278,238 shares outstanding on October 3, 2001 LEVI STRAUSS & CO. INDEX TO FORM 10-Q AUGUST 26, 2001
PAGE NUMBER ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of August 26, 2001 and November 26, 2000.............. 3 Consolidated Statements of Income for the Three and Nine Months Ended August 26, 2001 and August 27, 2000................................................. 4 Consolidated Statements of Cash Flows for the Nine Months Ended August 26, 2001 and August 27, 2000................................................. 5 Notes to the Consolidated Financial Statements....................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................... 25 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................................................... 26 SIGNATURE....................................................................................... 27 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) August 26, November 26, 2001 2000 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents...................................................... $ 63,765 $ 117,058 Trade receivables, net of allowance for doubtful accounts of $29,923 in 2001 and $29,717 in 2000......................................................... 576,880 660,128 Inventories: Raw materials.............................................................. 121,171 120,760 Work-in-process............................................................ 78,674 84,871 Finished goods............................................................. 596,318 446,618 ---------- ---------- Total inventories....................................................... 796,163 652,249 Deferred tax assets............................................................ 247,325 250,817 Other current assets........................................................... 134,037 168,621 ---------- ---------- Total current assets............................................... 1,818,170 1,848,873 Property, plant and equipment, net of accumulated depreciation of $529,808 in 2001 and $495,986 in 2000......................................................... 528,577 574,039 Goodwill and other intangibles, net of accumulated amortization of $172,877 in 2001 and $164,826 in 2000......................................................... 257,103 264,956 Non-current deferred tax assets...................................................... 420,532 439,692 Other assets ........................................................................ 113,639 78,168 ---------- ---------- Total Assets....................................................... $3,138,021 $3,205,728 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Current maturities of long-term debt and short-term borrowings................. $ 109,273 $ 231,290 Accounts payable............................................................... 208,452 268,473 Restructuring reserves......................................................... 53,411 71,595 Accrued liabilities............................................................ 359,813 395,660 Accrued salaries, wages and employee benefits.................................. 180,010 257,021 Accrued taxes.................................................................. 14,281 69,772 ---------- ---------- Total current liabilities.......................................... 925,240 1,293,811 Long-term debt, less current maturities.............................................. 2,048,677 1,895,140 Postretirement medical benefits...................................................... 550,331 545,574 Long-term employee related benefits.................................................. 392,103 358,849 Long-term tax liability.............................................................. 175,492 166,854 Other long-term liabilities.......................................................... 21,394 20,588 Minority interest ................................................................... 21,055 23,485 ---------- ---------- Total liabilities.................................................. 4,134,292 4,304,301 ---------- ---------- Stockholders' Deficit: Common stock--$.01 par value; authorized 270,000,000 shares; issued and outstanding: 37,278,238 shares.............................................. 373 373 Additional paid-in capital..................................................... 88,808 88,808 Accumulated deficit............................................................ (1,083,841) (1,171,864) Accumulated other comprehensive loss........................................... (1,611) (15,890) ---------- ---------- Total stockholders' deficit........................................ (996,271) (1,098,573) ---------- ---------- Total Liabilities and Stockholders' Deficit........................ $3,138,021 $3,205,728 ========== ========== The accompanying notes are an integral part of these financial statements. 3
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Data) (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- August 26, August 27, August 26, August 27, 2001 2000 2001 2000 ---- ---- ---- ---- Net sales........................................................ $ 983,508 $1,127,740 $3,023,828 $3,359,221 Cost of goods sold............................................... 584,279 663,418 1,732,170 1,957,328 ---------- ---------- ---------- ---------- Gross profit.................................................. 399,229 464,322 1,291,658 1,401,893 Marketing, general and administrative expenses................... 314,482 358,524 976,706 1,048,052 Other operating income........................................... 8,377 10,404 22,916 20,852 ---------- ---------- ---------- ---------- Operating income.............................................. 93,124 116,202 337,868 374,693 Interest expense................................................. 55,429 59,406 178,532 177,177 Other (income) expense, net...................................... 13,850 (1,359) 19,617 (30,151) ---------- ---------- ---------- ---------- Income before taxes........................................... 23,845 58,155 139,719 227,667 Provision for taxes.............................................. 8,822 20,354 51,696 79,683 ---------- ---------- ---------- ---------- Net income.................................................... $ 15,023 $ 37,801 $ 88,023 $ 147,984 ========== ========== ========== ========== Earnings per share--basic and diluted............................. $ 0.40 $ 1.01 $ 2.36 $ 3.97 ========== ========== ========== ========== Weighted-average common shares outstanding....................... 37,278,238 37,278,238 37,278,238 37,278,238 ========== ========== ========== ========== The accompanying notes are an integral part of these financial statements. 4
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended ----------------- August 26, August 27, 2001 2000 ---- ---- Cash Flows from Operating Activities: Net income................................................................... $ 88,023 $147,984 Adjustments to reconcile net cash (used for) provided by operating activities: Depreciation and amortization........................................ 60,810 69,563 (Gain) loss on disposition of property, plant and equipment.......... 1,167 (26,025) Unrealized foreign exchange gains.................................... (5,143) (6,877) Decrease in trade receivables........................................ 84,532 74,746 Decrease in income taxes receivables................................. -- 70,000 (Increase) decrease in inventories................................... (135,120) 10,836 Decrease (increase) in other current assets.......................... 31,151 (5,198) Increase in other long-term assets................................... (35,189) (18,377) Decrease in net deferred tax assets.................................. 18,310 42,836 Decrease in accounts payable and accrued liabilities................. (100,729) (13,010) Decrease in restructuring reserves................................... (18,184) (169,043) (Decrease) increase in accrued salaries, wages and employee benefits. (78,315) 9,358 (Decrease) increase in accrued taxes................................. (54,418) 37,815 Increase in long-term employee benefits.............................. 38,070 22,529 Increase (decrease) in other long-term liabilities................... 8,251 (33,921) Other, net........................................................... 3,440 (13,924) ---------- -------- Net cash (used for) provided by operating activities.............. (93,344) 199,292 ---------- -------- Cash Flows from Investing Activities: Purchases of property, plant and equipment........................... (14,621) (15,799) Proceeds from sale of property, plant and equipment.................. 2,903 106,965 (Increase) decrease in net investment hedges......................... (1,664) 52,884 Other, net........................................................... -- 152 --------- -------- Net cash (used for) provided by investing activities.............. (13,382) 144,202 --------- -------- Cash Flows from Financing Activities: Proceeds from issuance of long-term debt............................. 1,801,702 340,500 Repayments of long-term debt......................................... (1,744,955) (799,238) Net (decrease) increase in short-term borrowings..................... (6,439) 1,549 ---------- -------- Net cash provided by (used for) financing activities.............. 50,308 (457,189) ---------- -------- Effect of exchange rate changes on cash...................................... 3,125 (3,675) ---------- -------- Net decrease in cash and cash equivalents......................... (53,293) (117,370) Beginning cash and cash equivalents.......................................... 117,058 192,816 ---------- -------- Ending Cash and Cash Equivalents............................................. $ 63,765 $ 75,446 ========== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest............................................................. $ 138,702 $135,052 Income taxes......................................................... 78,664 30,641 Restructuring initiatives............................................ 18,184 169,043 The accompanying notes are an integral part of these financial statements. 5
LEVI STRAUSS & CO. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: PREPARATION OF FINANCIAL STATEMENTS The unaudited consolidated financial statements of Levi Strauss & Co. and subsidiaries ("LS&CO." or "Company") are prepared in conformity with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and operating results for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of LS&CO. for the year ended November 26, 2000 included in the annual report on Form 10-K filed by LS&CO. with the Securities and Exchange Commission (the "SEC") on February 5, 2001. The consolidated financial statements include the accounts of LS&CO. and its subsidiaries. All intercompany transactions have been eliminated. Management believes that, along with the following information, the disclosures are adequate to make the information presented herein not misleading. Certain prior year amounts have been reclassified to conform to the current presentation. The results of operations for the three and nine months ended August 26, 2001 may not be indicative of the results to be expected for the year ending November 25, 2001. The Company adopted Statement of Financial Accounting Standards No.("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," on the first day of fiscal year 2001. Due to the adoption of SFAS 133, the Company reported a net transition gain in other income/expense for the nine months ended August 26, 2001 of $87 thousand. This transition amount was not recorded as a separate line item as a change in accounting principle, net of tax, due to the minimal impact on the Company's results of operations. In addition, the Company recorded a transition amount of $0.7 million (or $0.4 million net of related income taxes) that reduced other comprehensive income. (See Note 7 to the Consolidated Financial Statements.) The Company adopted SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which replaces SFAS 125, "Accounting for Transfers and Services of Financial Assets and Extinguishments of Liabilities," in fiscal year 2001. SFAS 140 revises the methods for accounting for securitizations and other transfers of financial assets and collateral as outlined in SFAS 125, and requires certain additional disclosures. The adoption of SFAS 140 had no financial impact on the Company. (See Note 4 to the Consolidated Financial Statements.) The Financial Accounting Standards Board issued SFAS 142, "Goodwill and Other Intangible Assets," dated June 2001, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be reviewed annually for impairment using a fair-value based approach. Intangible assets that have a finite life will continue to be amortized over their respective estimated useful lives. The Company is required to adopt the provisions of SFAS 142 on the first day of fiscal year 2003; however, early application is permitted in which the Company can adopt SFAS 142 on November 26, 2001. The Company has not yet determined if it will adopt this standard early and is currently evaluating the impact SFAS 142 may have on its financial position and results of operations. 6
LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 2: COMPREHENSIVE INCOME The following is a summary of the components of total comprehensive income, net of related income taxes: Three Months Ended Nine Months Ended ------------------ ----------------- August 26, August 27, August 26, August 27, 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in Thousands) Net income.......................................................... $15,023 $37,801 $ 88,023 $147,984 ------- ------- -------- -------- Other comprehensive income (loss): Transition adjustments: Unrealized losses on cash flow hedges........................ -- -- (522) -- Reclassification of cash flow hedges to other income/expense............................................. 130 -- 391 -- ------- ------- -------- -------- Net gains (losses) on cash flow hedges...................... 130 -- (131) -- Net investment hedges........................................ -- -- 76 -- ------- ------- -------- -------- Total transition adjustments............................... 130 -- (55) -- ------- ------- -------- -------- Foreign currency translation adjustments: Net investment hedges........................................ (5,403) 6,011 (3,081) 23,207 Foreign currency translations................................ 10,628 12,657 18,009 (20,190) ------- ------- -------- -------- Total foreign currency translation adjustments............. 5,225 18,668 14,928 3,017 ------- ------- -------- -------- Unrealized gains (losses) on cash flow hedges.................. (2,163) -- 1,364 -- Reclassification of cash flow hedges to other income/expense............................................... (953) -- (1,958) -- ------- ------- -------- -------- Net gains on cash flow hedges................................ (3,116) -- (594) -- ------- ------- -------- -------- Total other comprehensive income........................... 2,239 18,668 14,279 3,017 ------- ------- -------- -------- Total comprehensive income.......................................... $17,262 $56,469 $102,302 $151,001 ======= ======= ======== ======== The following is a summary of the components of accumulated other comprehensive income (loss) balances: August 26, November 26, 2001 2000 ---- ---- (Dollars in Thousands) Cumulated transition adjustments: Beginning balance of cash flow hedges.................. $ -- $ -- Unrealized losses on cash flow hedges................. (522) -- Reclassification of cash flow hedges to other income/expense...................................... 391 -- ------- -------- Ending balance of cash flow hedges..................... (131) -- Net investment hedges.................................. 76 -- ------- -------- Total cumulated transition adjustments............... (55) -- ------- -------- Cumulated translation adjustments: Net investment hedges.................................. 36,393 39,474 Foreign currency translations.......................... (37,355) (55,364) ------- -------- Total cumulated translation adjustments.............. (962) (15,890) ------- -------- Beginning balance of cash flow hedges.................. -- -- Unrealized gains on cash flow hedges.................. 1,364 -- Reclassification of cash flow hedges to other income/expense...................................... (1,958) -- ------- -------- Ending balance of cash flow hedges..................... (594) -- ------- -------- Accumulated other comprehensive loss..................... $(1,611) $(15,890) ======= ========
7 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 3: EXCESS CAPACITY/RESTRUCTURING RESERVES NORTH AMERICA PLANT CLOSURES In view of declining sales that started in 1997, the need to bring manufacturing capacity in line with sales projections and the need to reduce costs, the Company decided to close some of its owned and operated production facilities in North America. The Company announced in 1997 the closure of ten manufacturing facilities and a finishing center in the U.S., which were closed during 1998 and displaced approximately 6,400 employees. The table below displays the activity and liability balances of this reserve. In 1998, the Company announced the closures of two more finishing centers in the U.S. that were closed during 1999 and displaced approximately 990 employees. The table below displays the activity and liability balances of this reserve. The Company announced in February 1999 plans to close 11 manufacturing facilities in North America. The 11 manufacturing facilities were closed during 1999 and approximately 5,900 employees were displaced. The table below displays the activity and liability balances of this reserve. 1997 NORTH AMERICA PLANT CLOSURES
Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits........................................ $ 221 $ (35) $ 186 Other restructuring costs.............................................. 2,226 (473) 1,753 ------ ----- ------ Total............................................................... $2,447 $(508) $1,939 ====== ===== ====== 1998 NORTH AMERICA PLANT CLOSURES Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits........................................ $1,449 $(121) $1,328 Other restructuring costs.............................................. 608 (4) 604 ------ ----- ------ Total............................................................... $2,057 $(125) $1,932 ====== ===== ====== 1999 NORTH AMERICA PLANT CLOSURES Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits........................................ $19,852 $ (6,965) $12,887 Other restructuring costs.............................................. 34,765 (5,238) 29,527 ------- -------- ------- Total............................................................... $54,617 $(12,203) $42,414 ======= ======== =======
8 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) CORPORATE REORGANIZATION INITIATIVES Starting in 1998, the Company instituted various overhead reorganization initiatives to reduce overhead costs and consolidate operations. The reorganization initiative instituted in 1998 displaced approximately 770 employees. The table below displays the activity and liability balances of this reserve. In conjunction with the overhead reorganization initiatives, the Company announced restructuring plans during 1999 that are estimated to displace approximately 730 employees. As of August 26, 2001, approximately 715 employees had been displaced. The table below displays the activity and liability balances of this reserve.
1998 CORPORATE REORGANIZATION INITIATIVES Balance Balance 11/26/00 Reductions 8/26/01 --------- ---------- ------- (Dollars in Thousands) Severance and employee benefits..................................... $ 100 $ (100) $ - Other restructuring costs........................................... 1,773 (230) 1,543 ------ ------ ------ Total............................................................ $1,873 $ (330) $1,543 ====== ====== ====== 1999 CORPORATE REORGANIZATION INITIATIVES Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits..................................... $2,762 $(1,198) $1,564 ====== ======= ======
EUROPE REORGANIZATION AND PLANT CLOSURES In 1998, the Company announced plans to close two manufacturing and two finishing facilities, and reorganize operations throughout Europe, displacing approximately 1,650 employees. These plans were prompted by decreased demand for denim jeans products and a resulting over-capacity in the Company's European owned and operated plants. The production facilities were closed by the end of 1999 and as of August 26, 2001, approximately 1,645 employees had been displaced. The table below displays the activity and liability balances of this reserve. In conjunction with these plans in Europe, the Company announced in September 1999 plans to close a production facility and reduce capacity at a finishing facility in the United Kingdom. The production facility closed in December 1999. As of August 26, 2001, approximately 945 employees were displaced. The table below displays the activity and liability balances of this reserve. 9
LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) 1998 EUROPE REORGANIZATION AND PLANT CLOSURES Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits................................... $1,508 $(989) $519 ====== ===== ==== 1999 EUROPE REORGANIZATION AND PLANT CLOSURES Balance Balance 11/26/00 Reductions 8/26/01 -------- ---------- ------- (Dollars in Thousands) Severance and employee benefits................................... $5,691 $(2,831) $2,860 Other restructuring costs......................................... 640 -- 640 ------ ------- ------ Total.......................................................... $6,331 $(2,831) $3,500 ====== ======= ======
Reductions consist of payments for severance and employee benefits and other restructuring costs. The balance of severance and employee benefits and other restructuring costs are included under restructuring reserves on the balance sheet. NOTE 4: FINANCING SENIOR NOTES OFFERING On January 18, 2001, the Company issued two series of notes payable totaling the equivalent of $497.5 million to qualified institutional investors in reliance on Rule 144A under the Securities Act of 1933 (the "Securities Act") and outside the U.S. in accordance with Regulation S under the Securities Act. The notes are unsecured obligations of the Company and may be redeemed at any time after January 15, 2005. The issuance was divided into two series: U.S. $380.0 million dollar notes ("Dollar Notes") and 125.0 million euro notes ("Euro Notes"), (collectively, the "Notes"). Both series of notes are seven-year notes maturing on January 15, 2008 and bear interest at 11.625% per annum, payable semi-annually in January and July of each year. These Notes were offered at a discount of $5.2 million to be amortized over the term of the Notes. Costs representing underwriting fees and other expenses of $14.4 million on the original issue will be amortized over the term of the Notes. Net proceeds from the offering were used to repay a portion of the indebtedness outstanding under the credit facility. The indentures governing the Notes contain covenants that limit the Company's and its subsidiaries' ability to incur additional debt; pay dividends or make other restricted payments; consummate specified asset sales; enter into transactions with affiliates; incur liens; impose restrictions on the ability of a subsidiary to pay dividends or make payments to the Company and its subsidiaries; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets or the assets of the Company's subsidiaries. If the Company experiences a change in control as defined in the indentures governing the Notes, the Company will be required under the indentures to make an offer to repurchase the Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of repurchase. If the Notes receive and maintain an investment grade rating by both Standard and Poor's Ratings Service and Moody's Investors Service and the Company and its subsidiaries are and remain in compliance with the indentures, then the Company and its subsidiaries will not be required to comply with specified covenants contained in the indentures. 10 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) SENIOR NOTES EXCHANGE OFFER In March 2001, the Company, as required under registration rights agreements it entered into when it issued the Notes, filed a registration statement on Form S-4 under the Securities Act with the SEC relating to an exchange offer for the Notes. The exchange offer gave holders the opportunity to exchange the Notes for new notes that are registered under the Securities Act. The new notes are identical in all material respects to the old notes except that the new notes are registered under the Securities Act. The exchange offer ended on April 6, 2001. As a result of the exchange offer, all but $200 thousand of the $380.0 million aggregate principal amount of old Dollar Notes were exchanged for new Dollar Notes, and all but 595 thousand euro of the 125.0 million aggregate principal amount of old Euro Notes were exchanged for new Euro Notes. SENIOR SECURED CREDIT FACILITY On February 1, 2001, the Company entered into a $1.05 billion senior secured credit facility to replace its existing credit facility on more favorable terms. The credit facility consists of a $700.0 million revolving credit facility and $350.0 million of term loans. This facility reduces the Company's borrowing costs and extends the maturity of the Company's principal bank credit facility to August 2003. The facility is secured in substantially the same manner as the prior facility. Collateral includes: domestic inventories, certain domestic equipment, trademarks, other intellectual property, 100% of the stock in domestic subsidiaries, 65% of the stock of certain foreign subsidiaries and other assets. Borrowings under the facility bear interest at LIBOR or the agent bank's base rate plus an incremental borrowing spread. Before the domestic receivables securitization transaction described below, the collateral also included domestic receivables. In connection with the securitization transaction, the lenders under the credit facility released their security interest in receivables sold in that transaction, and retained security interests in certain related assets. The facility contains customary covenants restricting the Company's activities as well as those of its subsidiaries, including limitations on the Company's and its subsidiaries' ability to sell assets; engage in mergers; enter into operating leases or capital leases; enter into transactions involving related parties, derivatives or letters of credit; enter into intercompany transactions; incur indebtedness or grant liens or negative pledges on the Company's assets; make loans or other investments; pay dividends or repurchase stock or other securities; guaranty third party obligations; make capital expenditures; and make changes in the Company's corporate structure. The facility also contains financial covenants that the Company must satisfy on an ongoing basis, including maximum leverage ratios and minimum coverage ratios. As of August 26, 2001, the Company was in compliance with the financial covenants under the facility. EUROPEAN RECEIVABLES SECURITIZATION AGREEMENTS In February 2000, several of the Company's European subsidiaries entered into receivable securitization financing agreements with several lenders to borrow up to $125.0 million. Borrowings are collateralized by a security interest in the receivables of these subsidiaries. The Company adopted SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," in fiscal year 2001. The securitizations did not meet the criteria for sales accounting under SFAS 140 and therefore have been consistently accounted for as a secured borrowing. 11 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) DOMESTIC RECEIVABLES SECURITIZATION TRANSACTION On July 31, 2001, the Company and several of its subsidiaries completed a receivables securitization transaction involving receivables generated from sales of products to the Company's U.S. customers. The transaction involved the issuance by Levi Strauss Receivables Funding, LLC, an indirect subsidiary of the Company, of $110.0 million in secured term notes. The notes, which are secured by trade receivables originated by Levi Strauss & Co., bear interest at a rate equal to the one-month LIBOR rate plus 0.32% per annum, and have a stated maturity date of November 2005. Net proceeds of the offering were used to repay a portion of the outstanding debt under the Company's senior secured credit facility. The transaction is accounted for under SFAS 140. The transaction did not meet the criteria for sales accounting under SFAS 140 and therefore is accounted for as a secured borrowing. The purpose of the transaction was to lower the Company's interest expense and diversify its funding sources. The notes were issued in a private placement transaction in accordance with Rule 144A under the Securities Act and, accordingly, have not been registered under the Securities Act and may not be sold in the United States absent registration or an applicable exemption from the registration requirements under the Securities Act. Under the securitization arrangement, collections on receivables remaining after payment of interest and fees relating to the notes are used to purchase new receivables from Levi Strauss & Co. The securitization agreements provide that, in specified cases, the collections will not be released but will instead be deposited and used to pay the principal amount of the notes. Those circumstances include, among other things, failure to maintain the required level of overcollaterization due to deterioration in the credit quality of the receivables, failure to pay interest or other amounts which is not cured, breaches of covenants, representations and warranties or events of bankruptcy relating to the Company and certain of its subsidiaries. INTEREST RATE CONTRACTS The Company is exposed to interest rate risk. It is the Company's policy and practice to use derivative instruments, primarily interest rate swaps and options, to manage and reduce interest rate exposures. The Company has entered into interest rate option contracts to reduce or neutralize the exposure to changes in variable interest rates. As of August 26, 2001, the contracts represent an outstanding notional amount of $425.0 million and cover a series of variable cash flows through November 2001. The contracts do not qualify for hedge accounting and therefore the Company reports changes in fair value in other income/expense (see Note 7 to the Consolidated Financial Statements). At August 26, 2001, the Company had no interest rate swap transactions outstanding. The Company's market risk is generally related to fluctuations in interest rates. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate derivative transactions. However, the Company believes these counterparties are creditworthy financial institutions and does not anticipate nonperformance. INTEREST RATES ON BORROWINGS The Company's weighted average interest rate on average borrowings outstanding during the three and nine months ended August 26, 2001, including the amortization of capitalized bank fees, interest rate swap cancellations and underwriting fees, was 9.4% and 9.6%, respectively. These interest rates exclude the write-off of fees that resulted from the replacement of the credit agreement dated January 31, 2000 (see "Senior Secured Credit Facility" above). 12 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 5: COMMITMENTS AND CONTINGENCIES FOREIGN EXCHANGE CONTRACTS At August 26, 2001, the Company had U.S. dollar forward currency contracts to buy $1.0 billion and to sell $515.6 million against various foreign currencies. The Company also had euro forward currency contracts to buy 119.6 million euro against various foreign currencies and to sell 70.3 million euro against various foreign currencies. In addition, the Company had U.S. dollar option contracts to buy $1.5 billion and to sell $841.0 million against various foreign currencies. The Company also had euro option currency contracts to buy 160.0 million euro against various foreign currencies and to sell 60.0 million euro against various foreign currencies. These contracts are at various exchange rates and expire at various dates through December 2002. The Company has entered into option contracts to hedge its exposure to numerous foreign currencies. Option transactions included in the amounts above are principally for the exchange of the euro and U.S. dollar. At August 26, 2001, the Company had bought U.S. dollar options to sell $347.0 million against the euro. To finance the option premiums related to these options, the Company sold options having the obligation to buy $245.7 million against the euro. The Company's market risk is generally related to fluctuations in the currency exchange rates. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the foreign exchange contracts. However, the Company believes these counterparties are creditworthy financial institutions and does not anticipate nonperformance. OTHER CONTINGENCIES In the ordinary course of its business, the Company has pending various cases involving contractual, employee-related, distribution, product liability, product recall, trademark infringement and other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company's financial position or results of operations. The operations and properties of the Company comply with all applicable federal, state and local laws enacted for the protection of the environment, and with permits and approvals issued in connection therewith, except where the failure to comply would not reasonably be expected to have a material adverse effect on the Company's financial position or business operations. Based on currently available information, the Company does not consider there to be any circumstances existing that would be reasonably likely to form the basis of an action against the Company that could have a material adverse effect on the Company's financial position or business operations. 13 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of certain financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying amount and estimated fair value (in each case including accrued interest) of the Company's financial instrument assets and (liabilities) at August 26, 2001 and November 26, 2000 are as follows:
August 26, November 26, 2001 2000 ---- ---- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value ----- ---------- ----- ---------- (Dollars in Thousands) DEBT INSTRUMENTS: Credit facilities.................................. $ (439,009) $(439,009) $(1,000,131) $(1,000,131) Yen-denominated eurobond placement................. (168,943) (123,333) (184,043) (133,945) U.S. dollar notes offering......................... (1,195,394) (983,500) (799,606) (628,000) Euro notes offering................................ (115,397) (101,905) -- -- European receivables-backed securitization......... (42,960) (42,960) (31,148) (31,148) Domestic receivables-backed securitization......... (110,145) (110,145) -- -- Industrial development revenue refunding bond...... (10,021) (10,021) (10,036) (10,036) Customer service center equipment financing........ (80,065) (80,065) (86,901) (86,901) CURRENCY AND INTEREST RATE HEDGES: Foreign exchange forward contracts................. $ (6,482) $ (6,482) $ 9,830 $ 9,593 Foreign exchange option contracts.................. (1,312) (1,312) 7,309 6,289 Interest rate option contracts..................... (4,643) (4,643) 457 (789)
Quoted market prices or dealer quotes are used to determine the estimated fair value of foreign exchange contracts, option contracts and interest rate swap contracts. Dealer quotes and other valuation methods, such as the discounted value of future cash flows, replacement cost and termination cost have been used to determine the estimated fair value for long-term debt and the remaining financial instruments. The carrying values of cash and cash equivalents, trade receivables, current assets, certain current and non-current maturities of long-term debt, short-term borrowings and taxes approximate fair value. The fair value estimates presented herein are based on information available to the Company as of August 26, 2001 and November 26, 2000. These amounts have not been updated since those dates and, therefore, the current estimates of fair value at dates subsequent to August 26, 2001 and November 26, 2000 may differ substantially from these amounts. In addition, the aggregation of the fair value calculations presented herein do not represent and should not be construed to represent the underlying value of the Company. 14 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 7: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on the first day of fiscal year 2001. Due to the adoption of SFAS 133, the Company reported a net gain transition amount of $87 thousand in other income/expense. This transition amount was not recorded on a separate line item as a change in accounting principle net of tax, due to the minimal impact on the Company's results of operations. In addition, the Company recorded a transition amount of $0.7 million (or $0.4 million net of related income taxes) that reduced accumulated other comprehensive income. Foreign Exchange Hedging The primary purpose of the Company's foreign exchange hedging activities is to maximize the U.S. dollar value over the long term. The Company manages foreign currency exposures in a way that makes it unlikely to obtain hedge accounting treatment for all exposure management activities. The Company attempts to take a long-term view of managing exposures on an economic basis, using forecasts to develop exposure positions and engaging in active management of those exposures with the objective of protecting future cash flows and mitigating risks. As a result, not all exposure management activities and foreign currency derivative instruments will qualify for hedge accounting treatment. Derivative instruments utilized in these transactions are being valued at fair value with changes in fair value classified into earnings. The Company does not enter into or hold any derivative instruments for trading purposes. The Company uses a variety of derivative instruments, including forward, swap and option contracts, to protect against foreign currency exposures related to sourcing, net investment positions, royalties and cash management. The derivative instruments used to hedge sourcing exposures do not qualify for hedge accounting treatment and are recorded at their fair value and any changes in fair value are included in other income/expense. The Company hedges its net investment position in its subsidiaries in major currencies by using forward, swap and option contracts. Part of the contracts hedging these net investments qualify for hedge accounting and the related gains and losses are consequently categorized in the cumulative translation adjustment in the accumulated other comprehensive income section of stockholders' deficit. At August 26, 2001, the fair value of qualifying net investment hedges was a $0.5 million net asset of which $0.5 million was recorded in the cumulative translation adjustment section of accumulated other comprehensive income. There were no gains or losses excluded from hedge effectiveness testing. In addition, the Company holds derivatives hedging the net investment positions in major currencies that do not qualify for hedge accounting. The fair value of these net investment hedges at August 26, 2001 represented a $1.6 million net asset. The Company designates a portion of its outstanding yen-denominated eurobond as a net investment hedge. As of August 26, 2001, a $5.3 million net asset related to the translation effects of the eurobond was recorded in the cumulative translation adjustment section of accumulated other comprehensive income. 15 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) The Company holds derivatives hedging forecasted intercompany royalty flows that qualify as cash flow hedges. The fair value of the outstanding contracts qualifying as cash flow hedges amounted to a $1.3 million net liability as of August 26, 2001. The gains and losses on the contracts that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income until the underlying royalty flow has been settled. Hedging activity for qualifying cash flow hedges of a net loss of $0.9 million is expected to be reclassified to earnings in the next sixteen months as the underlying hedged items affect earnings. For the three months ended August 26, 2001, a net loss of $0.3 million related to ineffectiveness of qualifying cash flow hedges of such intercompany royalty flows was recorded in other income/expense. The amount of matured cash flow hedges reclassified during the three months ended August 26, 2001 from accumulated other comprehensive income to other income/expense amounted to a net gain of $1.5 million. No cash flow hedges were discontinued during the three months ended August 26, 2001. The Company also enters into contracts hedging forecasted intercompany royalty flows that do not qualify as cash flow hedges. The fair value of these instruments as of August 26, 2001 was a $1.2 million net liability. The derivative instruments utilized in transactions hedging cash management exposures are currently marked to market at their fair value and any changes in fair value are recorded in other income/expense. The Company also entered into transactions hedging the exposure related to the Euro Notes issued on January 18, 2001. These derivative instruments are currently marked to market at their fair value and any changes in fair value are recorded in other income/expense. Fair values of forward transactions and of the forward portion of swap transactions are calculated using the discounted difference between the contract forward price and the forward price at the closing date for the remaining life of the contract. Prior to the adoption of SFAS 133, forward points and option premiums were recorded as assets or liabilities on the balance sheet and amortized over the life of the contract. Option contracts are also recorded at fair value. Due to the adoption of SFAS 133, these changes in valuation methods resulted in a net gain of $1.3 million that was recorded in other income/expense. In addition, the accumulated other comprehensive income section of stockholders' deficit decreased by approximately $0.7 million. As of August 26, 2001, the transition adjustment related to qualifying cash flow hedges amounted to a net loss of $0.2 million. This net loss is expected to be reclassified to earnings in the next three months as the underlying hedged items affect earnings. For the three months ended August 26, 2001, the Company reclassified a net realized loss of $0.2 million related to transition adjustment of matured cash flow hedges from accumulated other comprehensive income to other income/expense. Interest Rate Hedging The Company is exposed to interest rate risk. It is the Company's policy and practice to use derivative instruments, primarily interest rate swaps and options, to manage and reduce interest rate exposures using a mix of fixed and variable debt. The fair value of the derivative instruments hedging interest rate risk as of August 26, 2001 was a $4.6 million net liability. As the outstanding transactions either do not qualify for hedge accounting or management has elected not to designate such transactions for hedge accounting, the Company reports the changes in fair value of such derivatives in other income/expense. Due to the adoption of SFAS 133, the Company adjusted the carrying value of the outstanding interest rate derivatives to their fair value, which resulted in a net loss of $1.2 million and was recorded in other income/expense during the first quarter of fiscal year 2001. 16 LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) The tables below give an overview of the realized and unrealized gains and losses reported in other income/expense, realized and unrealized other comprehensive income ("OCI") balances, realized and unrealized cumulated translation adjustments ("CTA") balances, and the fair values of derivative instruments reported as an asset or liability. OCI and CTA are components of the accumulated other comprehensive income section of stockholders' deficit.
-------------------------------- -------------------------- ------------------------ ----------------------------------------------- Three Months Ended Nine Months Ended August 26, 2001 August 26, 2001 At August 26, 2001 -------------------------------- -------------------------- ------------------------ ----------------------------------------------- Other (income)/expense Other (income)/expense OCI gain/(loss) CTA gain/(loss) -------------------------------- -------------------------- ------------------------ ----------------------- ----------------------- (Dollars in Thousands) Realized Unrealized Realized Unrealized Realized Unrealized Realized Unrealized -------------------------------- ----------- -------------- ----------- ------------ ---------- ------------ ---------- ------------ Foreign Exchange Hedging: Sourcing $12,985 $ 12,387 $10,488 $19,143 $-- $ -- $ -- $ -- Net Investment 1,736 (3,970) 2,381 (1,419) -- -- 52,112 497 Yen Bond -- 1,829 -- (7,569) -- -- -- 5,277 Royalties (323) (1,290) (6,785) 3,734 -- (943) -- -- Cash Management (10,179) 5,597 (8,751) 994 -- -- -- -- Transition Adjustments 207 -- 621 -- -- (207) -- 120 Euro Notes Offering (6,307) (315) 1,929 845 -- -- -- -- -------------------------------- ----------- -------------- ----------- ------------ ---------- ------------ ---------- ------------ Interest Rate Hedging $ -- $(1,008) $ -- $ 3,854 $ -- $ -- Transition Adjustments -- -- -- 1,246 -- -- -------------------------------- ----------- -------------- ----------- ------------ ----------------------- ----------------------- ------------------------------ ---------------- At August 26, 2001 ------------------------------ ---------------- Fair value asset/(liability) ------------------------------ ---------------- (Dollars in Thousands) ------------------------------ ---------------- Foreign Exchange Hedging: Sourcing $(4,017) Net Investment 2,139 Royalties (2,549) Cash Management (2,522) Euro Notes Offering (845) ------------------------------ ---------------- Interest Rate Hedging $(4,643) ------------------------------ ---------------- 17
LEVI STRAUSS & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) NOTE 8: BUSINESS SEGMENT INFORMATION Asia All Americas Europe Pacific Other Consolidated -------- ------ ------- ----- ------------ (Dollars in Thousands) THREE MONTHS ENDED AUGUST 26, 2001: Net sales....................................... $689,892 $222,515 $71,101 $ -- $983,508 Earnings contribution........................... 74,161 33,530 6,027 -- 113,718 Interest expense................................ -- -- -- 55,429 55,429 Corporate and other expense, net................ -- -- -- 34,444 34,444 Income before income taxes...................... -- -- -- -- 23,845 THREE MONTHS ENDED AUGUST 27, 2000: Net sales....................................... $802,637 $235,869 $89,234 $ -- $1,127,740 Earnings contribution........................... 132,524 33,916 10,623 -- 177,063 Interest expense................................ -- -- -- 59,406 59,406 Corporate and other expense, net................ -- -- -- 59,502 59,502 Income before income taxes...................... -- -- -- -- 58,155 Asia All Americas Europe Pacific Other Consolidated -------- ------ ------- ----- ------------ (Dollars in Thousands) NINE MONTHS ENDED AUGUST 26, 2001: Net sales....................................... $2,034,171 $756,524 $233,133 $ -- $3,023,828 Earnings contribution........................... 270,370 147,905 31,078 -- 449,353 Interest expense................................ -- -- -- 178,532 178,532 Corporate and other expense, net................ -- -- -- 131,102 131,102 Income before income taxes...................... -- -- -- -- 139,719 NINE MONTHS ENDED AUGUST 27, 2000: Net sales....................................... $2,255,279 $817,529 $286,413 $ -- $3,359,221 Earnings contribution........................... 304,623 175,689 37,176 -- 517,488 Interest expense................................ -- -- -- 177,177 177,177 Corporate and other expense, net................ -- -- -- 112,644 112,644 Income before income taxes...................... -- -- -- -- 227,667
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected items in our consolidated statements of operations, expressed as a percentage of net sales (amounts may not total due to rounding).
Three Months Ended Nine Months Ended ------------------ ----------------- August 26, August 27, August 26, August 27, 2001 2000 2001 2000 ---- ----- ----- ----- MARGIN DATA: Net sales..................................................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold............................................ 59.4 58.8 57.3 58.3 ----- ----- ----- ----- Gross profit.................................................. 40.6 41.2 42.7 41.7 Marketing, general and administrative expenses................ 32.0 31.8 32.3 31.2 Other operating income........................................ 0.9 0.9 0.8 0.6 ----- ----- ----- ----- Operating income.............................................. 9.5 10.3 11.2 11.2 Interest expense.............................................. 5.6 5.3 5.9 5.3 Other (income) expense, net................................... 1.4 (0.1) 0.6 (0.9) ----- ----- ----- ----- Income before taxes........................................... 2.4 5.2 4.6 6.8 Income tax expense............................................ 0.9 1.8 1.7 2.4 ----- ----- ----- ----- Net income.................................................... 1.5% 3.4% 2.9% 4.4% ===== ===== ===== ===== NET SALES SEGMENT DATA: Geographic Americas............................................. 70.1% 71.2% 67.3% 67.1% Europe............................................... 22.6 20.9 25.0 24.3 Asia Pacific......................................... 7.2 7.9 7.7 8.5
Net sales. Net sales for the three months ended August 26, 2001 decreased 12.8% to $983.5 million, as compared to $1,127.7 million for the same period in 2000. Net sales for the nine months ended August 26, 2001 decreased 10.0% to $3,023.8 million, as compared to $3,359.2 million for the same period in 2000. These decreases reflect volume declines primarily due to weak economies and retail markets in the U.S. and Japan and the impact of a weaker euro and yen. If currency exchange rates were unchanged from the prior year periods, net sales for the three months ended August 26, 2001 would have declined approximately 10.7% and net sales for the nine months ended August 26, 2001 would have declined approximately 7.5% from the same periods in 2000. Although net sales levels decreased from the prior year periods, we are seeing positive developments across several dimensions of our business where improvements are needed. They include our experience with new products, our service levels, our relations with customers and presentation of our products at retail. In addition, we continued to maintain our margins and control our operating expenses and, during the third quarter of fiscal year 2001, we reduced our debt. Before the terrorist attacks of September 11, 2001, we had expected a decline in net sales for the full fiscal year in the high single digits on a constant currency basis. This expectation reflected continuing poor retail and economic conditions in the U.S. and Japan, coupled with some positive indicators for the fourth fiscal quarter of 2001. Those indicators included sell-through data, early experience with new products such as our Levi's(R) Superlow jeans and planned advertising activities for the quarter. 19 Since the terrorist attacks, several retailers have issued warnings that they may have to cut their earnings outlook, and there are widespread expressions of concern about the U.S. and European economies. We believe the events of September 11th create considerable uncertainty about the world economy in general and the retail apparel environment, and retailer and consumer buying behavior specifically, and add greater risk to our expectations for the balance of the year. In addition, we currently anticipate difficult retail and economic conditions to continue into 2002, along with the continued need for executional improvements, including bringing greater focus on core products and innovation to the U.S. product line. As a result, we believe our net sales will decline in 2002, and we are planning our production and operating expenses accordingly. In the Americas, net sales for the three months ended August 26, 2001 decreased 14.0% to $689.9 million, as compared to $802.6 million for the same period in 2000. Net sales for the nine months ended August 26, 2001 decreased 9.8% to $2,034.2 million, as compared to $2,255.3 million for the same period in 2000. These decreases were primarily attributable to the weak economy and retail apparel market in the U.S. We also believe retailers are reducing their open-to-buy and overall inventory levels in response to the weak apparel market. However, where we have introduced updated and relevant products, supporting them with the right advertising and retail programs, our data shows good sell-through to consumers. This is the case with our Levi's(R) Superlow jeans and Dockers(R) Mobile(TM) pant. In Europe, net sales for the three months ended August 26, 2001 decreased 5.7% to $222.5 million, as compared to $235.9 million for the same period in 2000. Net sales for the nine months ended August 26, 2001 decreased 7.5% to $756.5 million, as compared to $817.5 million for the same period in 2000. The net sales decreases for the three and nine months ended August 26, 2001 were primarily due to the effects of translation to U.S. dollar reported results. The net sales decrease for the nine months ended August 26, 2001 was also due to a decline in volume. On a constant currency basis, net sales would have increased by approximately 0.6% for the three months ended August 26, 2001 compared to the same period in 2000, and would have decreased approximately 0.7% for the nine months ended August 26, 2001 compared to the same period in 2000. We believe the constant currency results indicate that our business in Europe is beginning to stabilize, reflecting the impact of our innovative products, such as Levi's(R) Engineered Jeans(TM), marketing, retail presentation programs, and improved delivery performance. In our Asia Pacific region, net sales for the three months ended August 26, 2001 decreased 20.3% to $71.1 million, as compared to $89.2 million for the same period in 2000. Net sales for the nine months ended August 26, 2001 decreased 18.6% to $233.1 million, as compared to $286.4 million. These decreases were primarily driven by the economic uncertainty in Japan and the effects of translation to U.S. dollar reported results. If exchange rates were unchanged from the prior year periods, the net sales decreases would have been approximately 10.3% for the three months ended August 26, 2001 and 9.2% for the nine months ended August 26, 2001 compared to the same periods in 2000. In Japan, which accounts for approximately 55% of our business in Asia, difficult business conditions have resulted in retail consolidation, closure of retail store locations and bankruptcies, including four of our key retail customers. Gross profit. Gross profit for the three months ended August 26, 2001 totaled $399.2 million compared with $464.3 million for the same period in 2000. Gross profit as a percentage of net sales, or gross margin, for the three months ended August 26, 2001 decreased to 40.6%, as compared to 41.2% for the same period in 2000. Gross profit for the nine months ended August 26, 2001 totaled $1,291.7 million, compared to $1,401.9 million. Gross margin increased for the nine months ended August 26, 2001 to 42.7%, as compared to 41.7% for the same period in 2000. The gross margin decline for the three months ended August 26, 2001 was primarily due to costs of approximately $8.0 million associated with production down time we took in our domestic plants in response to the weak retail market, as well as costs of approximately $3.0 million attributed to a product recall in Europe. In late August, we recalled a limited collection of "glossy finish" Levi's(R) jeans, shirts and jackets that were on the market for just under one month and accounted for less than one percent of our Levi's brand volume in Europe. The gross margin improvement for the nine months ended August 26, 2001 was primarily due to lower sourcing and fabric costs, and reduced inventory markdowns. The Caribbean Basin Initiative trade act was a key reason for the sourcing cost improvements. We anticipate that our full year gross margin for 2001 will be within our target range of 40% to 42%. 20 Marketing, general and administrative expenses. Marketing, general and administrative expenses for the three months ended August 26, 2001 decreased 12.3% to $314.5 million as compared to $358.5 million for the same period in 2000. Marketing, general and administrative expenses as a percentage of sales for the three months ended August 26, 2001 increased slightly to 32.0% as compared to 31.8% for the same period in 2000. Marketing, general and administrative expenses for the nine months ended August 26, 2001 decreased 6.8% to $976.7 million as compared to $1,048.1 million for the same period in 2000. Marketing, general and administrative expenses as a percentage of sales for the nine months ended August 26, 2001 increased slightly to 32.3% as compared to 31.2% for the same period in 2000. The dollar decreases in marketing, general and administrative expenses for the three and nine months ended August 26, 2001 were primarily due to our continuing cost containment efforts, including lower levels of incentive plan accruals and advertising expenses, as well as lower volume-related costs. The lower levels of incentive plan accruals include a reversal of costs associated with an employee long-term incentive plan as a result of forfeitures of $12.0 million for the three months ended August 26, 2001 and $18.0 million for the nine months ended August 26, 2001. Marketing, general and administrative expenses for the three and nine months ended August 27, 2000 also included a reversal of employee benefit costs of approximately $24.0 million due to changes in the demographic profile of our workforce. We continue to look for opportunities to streamline our organization, in line with our core product focus and related initiatives to reduce business complexity. Advertising expense for the three months ended August 26, 2001 decreased 13.1% to $84.5 million, as compared to $97.3 million for the same period in 2000. Advertising expense as a percentage of sales for the three months ended August 26, 2001 was flat at 8.6% compared to the same period in 2000. Advertising expense for the nine months ended August 26, 2001 decreased 12.0% to $252.0 million, as compared to $286.3 million for the same period in 2000. Advertising expense as a percentage of sales for the nine months ended August 26, 2001 decreased slightly to 8.3%, as compared to 8.5% for the same period in 2000. Advertising expense as a percentage of sales for the three and nine month periods in 2001 is consistent with our annual target range of 8% to 9%. We expect to be within our target range for fiscal year 2001. Other operating income. Licensing income for the three months ended August 26, 2001 of $8.4 million decreased 19.5%, as compared to $10.4 million for the same period in 2000. The decrease for the three months ended August 26, 2001 was primarily due to the timing of licensing income accruals. Licensing income for the nine months ended August 26, 2001 of $22.9 million increased 9.9%, as compared to $20.9 million for the same period in 2000. This increase was primarily due to an increase in licensed merchandise such as outerwear, shoes, belts, headwear and handbags. Operating income. Operating income for the three months ended August 26, 2001 of $93.1 million decreased 19.9%, as compared to $116.2 million from the same period in 2000. The decrease was primarily due to lower sales, partially offset by lower marketing, general and administrative expenses. Operating income for the nine months ended August 26, 2001 of $337.9 million decreased 9.8%, as compared to $374.7 million from the same period in 2000. The decrease was primarily due to lower sales, partially offset by an improved gross margin and lower marketing, general and administrative expenses. Interest expense. Interest expense for the three months ended August 26, 2001 decreased 6.7% to $55.4 million, as compared to $59.4 million for the same period in 2000. The decrease was primarily due to lower market interest rates and lower average debt levels. The average cost of borrowings for the three months ended August 26, 2001 and August 27, 2000 were 9.4% and 10.0%, respectively. Interest expense for the nine months ended August 26, 2001 increased 0.8% to $178.5 million, as compared to $177.2 million for the same period in 2000. The increase was due to a write-off of fees related to the credit agreement replaced by a new credit facility in February 2001 (see Note 4 to the Consolidated Financial Statements). Excluding the fee write-off, interest expense would have been 5.3% lower than the same period in 2000 primarily due to lower average debt levels, partially offset by higher interest rates associated with the senior notes issued January 18, 2001. The average cost of borrowings for the nine months ended August 26, 2001 and August 27, 2000 were 9.6% and 9.4%, respectively, excluding the write-off of fees. 21 Other income/expense, net. Other expense, net for the three months ended August 26, 2001 was $13.9 million, as compared to income of $1.4 million for the same period in 2000. Other expense, net for the nine months ended August 26, 2001 was $19.6 million, as compared to income of $30.2 million for the same period in 2000. The expenses for the three and nine months ended August 26, 2001 were primarily due to net losses from foreign currency exposures and the contracts to hedge foreign currency exposures. These net losses are primarily due to foreign currency and market value fluctuations, which introduces an element of volatility in our income statement quarter-to-quarter. (See Note 7 to the Consolidated Financial Statements.) In addition, the income for the nine months ended August 27, 2000 was primarily attributable to a $26.1 million gain from the sale of two office buildings in San Francisco located next to our corporate headquarters. Income tax expense. Income tax expense for the three months ended August 26, 2001 decreased 56.7% to $8.8 million as compared to $20.4 million for the same period in 2000. Income tax expense for the nine months ended August 26, 2001 decreased 35.1% to $51.7 million as compared to $79.7 million for the same period in 2000. The decrease in income taxes for both periods in 2001 was primarily due to lower income before taxes. Our effective tax rate for the three and nine month periods in 2001 was 37% compared to 35% for the same periods in 2000. Net income. Net income for the three months ended August 26, 2001 decreased 60.3% to $15.0 million from $37.8 million for the same period in 2000. Net income for the nine months ended August 26, 2001 decreased 40.5% to $88.0 million from $148.0 million for the same period in 2000. These decreases were primarily due to lower sales and the impact of currency volatility on our foreign currency hedging activities, partially offset by lower marketing, general and administrative expenses and, for the nine months ended August 26, 2001, higher gross margins. The nine months ended August 27, 2000 results also included a gain from the sale of office buildings. RESTRUCTURING AND EXCESS CAPACITY REDUCTION Since 1997, we have closed 29 of our owned and operated production and finishing facilities in North America and Europe and instituted restructuring initiatives in order to reduce costs, eliminate excess capacity and align our sourcing strategy with changes in the industry and in consumer demand. The total balance of the reserves at August 26, 2001 was $53.4 million compared to $71.6 million at November 26, 2000. (See Note 3 to the Consolidated Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements have been to fund working capital and capital expenditures. As of August 26, 2001, total cash and cash equivalents were $63.8 million, a $53.3 million decrease from the $117.1 million cash balance reported as of November 26, 2000. Cash used for/provided by operations. Cash used for operating activities for the nine months ended August 26, 2001 was $93.3 million, as compared to cash provided by operating activities of $199.3 million for the same period in 2000. The use of cash for the nine months ended August 26, 2001 was primarily attributable to payments on annual incentive programs, an increase in inventory and the payment of income taxes on an Internal Revenue Service settlement. Inventory, primarily first quality basic products, increased during the nine months ended August 26, 2001 primarily due to lower sales in the U.S. We are focusing on managing inventory levels to be more in line with sales but we do not expect to be able to work through the entire excess by year-end. In addition, we took production down time of approximately $8.0 million in the third quarter of fiscal year 2001 to help manage our inventories and expect our total down time cost to be approximately $15.0 million by the end of this fiscal year. Inventory consists primarily of first quality basic products in which we do not expect significant markdowns of that inventory. 22 Other long-term assets increased during the nine months ended August 26, 2001 primarily due to the capitalization of underwriting and other fees for the senior notes issued in January 2001 and fees associated with the credit facility entered into in February 2001. Net deferred tax assets and restructuring reserves decreased during the nine months ended August 26, 2001 primarily due to spending related to the restructuring initiatives. Accrued salaries, wages, and employee benefits decreased during the nine months ended August 26, 2001 primarily due to the payment of annual employee incentives. Long-term employee benefits increased primarily due to increased accruals for long-term employee incentive plans. Accrued taxes decreased during the nine months ended August 26, 2001 primarily due to a payment of approximately $40.0 million to the Internal Revenue Service in connection with an examination of our income tax returns for the years 1986 - 1989. Cash used for/provided by investing activities. Cash used for investing activities during the nine months ended August 26, 2001 was $13.4 million, as compared to cash provided by investing activities of $144.2 million during the same period in 2000. Cash used for investing activities during the nine months ended August 26, 2001 resulted primarily from purchases of property, plant and equipment. Cash provided by investing activities during the nine months ended August 27, 2000 was primarily attributable to proceeds received from the sale of office buildings. We expect that capital expenditures for fiscal year 2001 will not exceed the 2000 fiscal year-end level of $28.0 million. Cash provided by/used for financing activities. Cash provided by financing activities for the nine months ended August 26, 2001 was $50.3 million, as compared to cash used for financing activities of $457.2 million for the same period in 2000. Cash provided by financing activities during the nine months ended August 26, 2001 was primarily from the senior notes issued in January and the domestic receivables securitization transaction completed in July (see Note 4 to the Consolidated Financial Statements). Financial Condition Credit Agreement. On February 1, 2001, we entered into a $1.05 billion senior secured credit facility to replace the then existing 2000 credit facility on more favorable terms. The credit facility consists of a $700.0 million revolving credit facility and $350.0 million of term loans. This facility reduces our borrowing costs and extends the maturity of our principal bank credit facility to August 2003. The facility is secured in substantially the same manner as the 2000 credit facility. Collateral includes: domestic inventories, certain domestic equipment, trademarks, other intellectual property, 100% of the stock of domestic subsidiaries, 65% of the stock of certain foreign subsidiaries and other assets. Borrowings under the facility bear interest at LIBOR or the agent bank's base rate plus an incremental borrowing spread. Before the domestic receivables securitization transaction described below, the collateral also included domestic receivables. In connection with the securitization transaction, the lenders under the credit facility released their security interest in receivables sold in that transaction, and retained security interests in certain related assets. The facility contains customary covenants restricting our activities as well as those of our subsidiaries, including limitations on our and our subsidiaries' ability to sell assets; engage in mergers; enter into operating leases or capital leases; enter into transactions involving related parties, derivatives or letters of credit; enter into intercompany transactions; incur indebtedness or grant liens or negative pledges on our assets; make loans or other investments; pay dividends or repurchase stock or other securities; guaranty third party obligations; make capital expenditures; and make changes in our corporate structure. The credit agreements will also contain financial covenants that we must satisfy on an ongoing basis, including maximum leverage ratios and minimum coverage ratios. As of August 26, 2001, we were in compliance with the financial covenants under the facility. Notes Offering. In January 2001, we issued two series of notes payable, U.S. $380.0 million dollar notes and 125.0 million euro notes, totaling the equivalent of $497.5 million to qualified institutional investors. The notes are unsecured obligations and may be redeemed at any time after January 15, 2005. The notes mature on January 15, 2008. We used the net proceeds from the offering to repay a portion of the indebtedness outstanding under the 2000 credit facility. 23 The indentures governing the notes contain covenants that limit our and our subsidiaries' ability to incur additional debt; pay dividends or make other restricted payments; consummate specified asset sales; enter into transactions with affiliates; incur liens; impose restrictions on the ability of a subsidiary to pay dividends or make payments to us and our subsidiaries; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets or the assets of our subsidiaries. If the notes receive and maintain an investment grade rating by both Standard and Poor's Ratings Service and Moody's Investors Service and we and our subsidiaries are and remain in compliance with the indentures, then we and our subsidiaries will not be required to comply with specified covenants contained in the indentures. (See Note 4 to the Consolidated Financial Statements.) On August 31, 2001, Moody's Investors Service downgraded the ratings of both our senior secured credit facility and our senior unsecured notes. The senior secured credit facility was downgraded to "Ba3" from "Ba2" and the senior unsecured notes were downgraded to "B2" from "Ba3" with a negative outlook primarily due, according to Moody's, to our declining sales and excess inventory. Domestic Securitization. On July 31, 2001, we completed a receivables securitization transaction involving receivables generated from sales of products to our U.S. customers. The transaction involved the issuance by Levi Strauss Receivables Funding, LLC, an indirect subsidiary, of $110.0 million of term notes. The notes, which are secured by trade receivables originated by Levi Strauss & Co., bear interest at a rate equal to the one-month LIBOR rate plus 0.32% per annum, and have a stated maturity date of November 2005. Net proceeds of the offering were used to repay a portion of the outstanding debt under our senior secured credit facility. The transaction is accounted for under SFAS 140. The transaction did not meet the criteria for sales accounting under SFAS 140 and therefore is accounted for as a secured borrowing. The purpose of the transaction was to lower our interest expense and diversify funding sources. The notes were issued in a private placement transaction in accordance with Rule 144A under the Securities Act and, accordingly, have not been registered under the Securities Act and may not be sold in the United States absent registration or an applicable exemption from the registration requirements under the Securities Act. Under the securitization arrangement, collections on receivables remaining after payment of interest and fees relating to the notes are used to purchase new receivables from Levi Strauss & Co. The securitization agreements provide that, in specified cases, the collections will not be released but will instead be deposited and used to pay the principal amount of the notes. Those circumstances include, among other things, failure to maintain the required level of overcollaterization due to deterioration in the credit quality of the receivables, failure to pay interest or other amounts which is not cured, breaches of covenants, representations and warranties or events of bankruptcy relating to us and certain of our subsidiaries. Non-release of collections in these limited circumstances could have an adverse effect on our liquidity. NEW ACCOUNTING STANDARDS We adopted Statement of Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," on the first day of fiscal year 2001. Due to the adoption of SFAS 133, we reported a net transition gain in other income/expense for the nine months ended August 26, 2001 of $87 thousand. This transition amount was not recorded as a separate line item as a change in accounting principle, net of tax, due to the minimal impact on results of operations. In addition, we recorded a transition amount of $0.7 million (or $0.4 million net of related income taxes) that reduced other comprehensive income. (See Note 7 to the Consolidated Financial Statements.) We adopted SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which replaces SFAS 125, "Accounting for Transfers and Services of Financial Assets and Extinguishments of Liabilities," in fiscal year 2001. SFAS 140 revises the methods for accounting for securitizations and other transfers of financial assets and collateral as outlined in SFAS 125, and requires certain additional disclosures. The adoption of SFAS 140 had no financial impact. (See Note 4 to the Consolidated Financial Statements.) 24 The Financial Accounting Standards Board issued SFAS 142, "Goodwill and Other Intangible Assets," dated June 2001, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be reviewed annually for impairment using a fair-value based approach. Intangible assets that have a finite life will continue to be amortized over their respective estimated useful lives. We are required to adopt the provisions of SFAS 142 on the first day of fiscal year 2003; however, early application is permitted in which we can adopt SFAS 142 on November 26, 2001. We have not yet determined if we will adopt this standard early and are currently evaluating the impact SFAS 142 may have on our financial position and results of operations. STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE This Form 10-Q includes forward-looking statements about retail conditions; sales performance and trends; inventory position and management; debt repayment and liquidity; gross margins; product innovation and new product development in our brands; expense levels including overhead and advertising expense; retail relationships and developments including sell-through; presentation of product at retail and marketing collaborations; marketing and advertising initiatives; and other matters. We have based these forward-looking statements on our current assumptions, expectations and projections about future events. When used in this document, the words "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are subject to risks and uncertainties including, without limitation, risks related to the impact of changing domestic and international retail environments; changes in the level of consumer spending or preferences in apparel; impact of the terrorist attacks in the U.S. on September 11, 2001; dependence on key distribution channels, customers and suppliers; changing fashion trends; our supply chain executional performance; internal impact of organizational developments; ongoing competitive pressures in the apparel industry; trade restrictions; political or financial instability in countries where our products are manufactured; and other risks detailed in our annual report on Form 10-K for the year ended November 26, 2000, registration statements and other filings with the Securities and Exchange Commission. Our actual results might differ materially from historical performance or current expectations. We do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DERIVATIVE FINANCIAL INSTRUMENTS We are exposed to market risk primarily related to foreign exchange, interest rates and the price of cotton. We actively manage foreign currency and interest rate risk with the objective of reducing fluctuations in actual and anticipated cash flows by entering into a variety of derivative instruments including spot, forward, options and swaps. We currently do not hedge our exposure to the price of cotton with derivative instruments. FOREIGN EXCHANGE RISK Foreign exchange market risk exposures are primarily related to cash management activities, raw material and finished goods purchases, net investments and royalty flows from affiliates. INTEREST RATE RISK We have an interest rate risk management policy designed to manage the interest rate risk on our borrowings by entering into a variety of interest rate derivatives. For more information about market risk, see Notes 4, 5 and 7 to the Consolidated Financial Statements. 25 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (A) EXHIBITS: 10.1 First Amendment to Credit Agreement, dated as of July 11, 2001, among the Registrant, the Initial Lenders and Issuing Banks named therein, Bank of America, N.A., as Administrative Agency and Collateral Agent, Bank of America Securities LLC and Salomon Smith Barney Inc., as Co-Lead Arrangers and Joint Book Managers, Citicorp USA, Inc., as Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent. Filed herewith. 10.2 Master Indenture, dated as of July 31, 2001, by and between Levi Strauss Receivables Funding, LLC, as issuer, and Citibank, N.A. as Indenture Trustee, Paying Agent, Authentication Agent and Transfer Agent and Registrar. Filed herewith. 10.3 Indenture Supplement, dated as of July 31, 2001, by and among Levi Strauss Receivables Funding, LLC, as Issuer, Levi Strauss Financial Center Corporation as Servicer and Citibank, N.A. as Indenture Trustee, Paying Agent, Authentication Agent and Transfer Agent and Registrar. Filed herewith. 10.4 Receivables Purchase Agreement, dated as of July 31, 2001, is made by and among Levi Strauss Receivables Funding, LLC, as Issuer, Levi Strauss Funding, LLC, as Transferor, Levi Strauss Financial Center Corporation, as Seller and Servicer, and Levi Strauss Securitization Corp. as SPC Member. Filed herewith. 10.5 Parent Undertaking, dated as of July 31, 2001, made by the Registrant in favor of Levi Strauss Receivables Funding, LLC. Filed herewith. 10.6 Consent and Release Agreement, dated as of July 31, 2001, is entered into by and among Levi Strauss Funding, LLC, as Transferor, Levi Strauss Financial Center Corporation, as Seller, the Registrant, as Originator, Levi Strauss Receivables Funding, LLC, as Issuer, Citibank, N.A. as Indenture Trustee, and Bank of America, N.A. as Agent. Filed herewith. (B) REPORTS ON FORM 8-K: Current Report on Form 8-K on July 31, 2001 filed pursuant to Item 5 of the report and relating to completion, on July 31, 2001, by Levi Strauss & Co. and various of its subsidiaries of a receivables securitization transaction involving receivables generated from sales of products to the Company's U.S. customers. Current Report on Form 8-K on September 19, 2001 filed pursuant to Item 5 of the report and containing a copy of the Company's press release titled "Levi Strauss & Co. Reports Third-Quarter Financial Results." 26 SIGNATURE --------- Pursuant to the requirements 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. Date: October 3, 2001 Levi Strauss & Co. ------------------ (Registrant) By: /s/ William B. Chiasson ----------------------- William B. Chiasson Senior Vice President and Chief Financial Officer 27 EX-10 2 a10qex101.txt EXHIBIT 10.1 FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.1 EXECUTION COPY LEVI STRAUSS & CO. FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of July 11, 2001 and entered into by and among LEVI STRAUSS & CO., a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof ("Lenders"), BANK OF AMERICA, N.A. ("Bank of America"), as the provider of Swing Line Advances (as hereinafter defined) hereunder (the "Swing Line Bank"), BANC OF AMERICA SECURITIES LLC and SALOMON SMITH BARNEY INC., as co-lead arrangers and joint book managers (the "Co-Lead Arrangers"), CITICORP USA, INC., as the syndication agent (the "Syndication Agent"), THE BANK OF NOVA SCOTIA, as the documentation agent (the "Documentation Agent"), and BANK OF AMERICA, N.A., as the administrative and collateral agent (the "Administrative Agent"), and is made with reference to that certain Credit Agreement dated as of February 1, 2001 (as so amended, the "Credit Agreement"), by and among the Borrower, Lenders, Swing Line Bank, Syndication Agent, Documentation Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, LSFLLC, which is an indirect, wholly-owned Subsidiary of the Borrower, has formed Levi Strauss Receivables Funding, LLC ("Issuer"), initially a wholly-owned Subsidiary of LSFLLC, for the purpose of entering into a securitization transaction with Banc One Capital Markets in order to issue term notes pursuant to Rule 144A under the Securities Act of 1933, as amended ("Proposed Transaction"); WHEREAS, prior to the First Amendment Effective Date (as defined in Section 2 below), LSFLLC will have transferred its 100% membership interest in Issuer as follows: (i) 1% to Levi Strauss Securitization Corp., a Delaware corporation wholly-owned by LSFLLC; and (ii) 99% to NF Industries, Inc., a wholly-owned Subsidiary of the Borrower; WHEREAS, in connection with the Proposed Transaction, on the effective date thereof, LSFLLC will sell to Issuer all of LSFLLC's right, title and interest in and to all Domestic Receivables then owned by LSFLLC; WHEREAS, after the date of the initial sale of such Domestic Receivables from LSFLLC to Issuer, (i) LSFLLC shall cease to purchase Domestic Receivables from LSFCC, (ii) 1 LSFCC shall thereafter sell to Issuer directly all of the Domestic Receivables and (iii) LSFLLC shall make a liquidating distribution and shall be formally liquidated and dissolved; WHEREAS, the Borrower and Lenders desire to amend the Credit Agreement in order to facilitate the Proposed Transaction and the other matters described herein; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Amendment to Article 1: Definitions and Accounting Terms --------------------------------------------------------- A. Section 1.01 of the Credit Agreement is hereby amended by adding thereto the following definition, which shall be inserted in proper alphabetical order: "'Issuer' means Levi Strauss Receivables Funding, LLC." "'Newco' means Levi Strauss Securitization Corp." B. Section 1.01 of the Credit Agreement is hereby further amended by amending the definition of "Receivables Transfer Agreements" to read in its entirety as follows: "'Receivables Transfer Agreements' means that certain Receivables Purchase and Sale Agreement dated as of January 28, 2000 among the Borrower, LSFCC, Levi Strauss Funding Corp., and LSFLLC and that certain Third Amended and Fully Restated Receivables Purchase and Sale Agreement between LSFCC and the Borrower effective January 28, 2000, each as amended by that certain Master Amendment and Consent to Receivables Sale Agreements to be dated on or about July 27, 2001." 1.2 Amendments to Article V: Covenants of the Borrower A. Section 5.01(i) of the Credit Agreement is hereby amended by adding the following at the end thereof: "provided, further, that neither Issuer nor Newco shall be considered to be a Material Subsidiary for purposes of this Section 5.01(i) during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction." B. Section 5.01(k) of the Credit Agreement is hereby amended to read in its entirety as follows: "Additional Material Subsidiaries. In the event that, as of the -------------------------------- end of any Fiscal Quarter, the aggregate gross revenue of the Subsidiaries of the Borrower not constituting Material Subsidiaries for the four-Fiscal Quarter period then ended were more than 5% of the aggregate gross revenues of the Borrower and its Subsidiaries on a Consolidated basis for such period, the Borrower shall designate 2 one or more of its Subsidiaries (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) as Material Subsidiaries for purposes of this Agreement and shall take all action required by Sections 5.01(i) and 5.01(j) with respect to such Subsidiary." C. Section 5.01(l)(iv) of the Credit Agreement is hereby amended to read in its entirety as follows: "deliver to the Administrative Agent executed control agreements with respect to all material deposit, savings, investment and other accounts maintained by the Borrower or any of its Material Domestic Subsidiaries (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction or, to the extent that it maintains or controls accounts in its role as servicer under a Permitted Domestic Receivables Transaction, LSFCC); and" D. Section 5.01(n) of the Credit Agreement is hereby amended to read in its entirety as follows: "Except during any period that Domestic Receivables are being sold to Issuer under a Permitted Domestic Receivables Transaction, LSFCC shall sell to LSFLLC or to another Subsidiary of the Borrower acceptable to Administrative Agent all accounts receivable purchased by it from the Borrower immediately upon consummation of such purchase." E. The first sentence of Section 5.01(p) of the Credit Agreement is hereby amended to read in its entirety as follows: "Maintain, and cause each of its Material Domestic Subsidiaries (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction or, to the extent that it maintains or controls accounts in its role as servicer under a Permitted Domestic Receivables Transaction, LSFCC) to maintain, the Cash Collateral Account and the L/C Cash Collateral Account with Bank of America or another commercial bank located in the United States which has accepted the assignment of such accounts to the Administrative Agent for the benefit of the Secured Parties pursuant to the Pledge and Security Agreement." F. Section 5.02(b)(i)(A) of the Credit Agreement is hereby amended to read in its entirety as follows: "Debt owed to a Material Domestic Subsidiary (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) of the Borrower, which Debt (x) shall constitute Pledged Debt and (y) shall be evidenced by promissory notes in form and substance satisfactory to the Administrative Agent, shall be subordinated in right of payment to the payment in full of the Obligations and such promissory notes shall be pledged as security for the Obligations of the holder thereof under the Loan Documents to which such holder is a 3 party and delivered to the Administrative Agent pursuant to the terms of the Pledge and Security Agreement;" G. Section 5.02(b)(ii)(A) of the Credit Agreement is hereby amended to read in its entirety as follows: "(A) Debt owed to the Borrower or to a Material Domestic Subsidiary of the Borrower (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) by a Material Domestic Subsidiary or a Pledged Foreign Subsidiary (other than Debt owed by a Restricted Subsidiary), which Debt (x) shall constitute Pledged Debt and (y) shall, except in the case of redeemable preferred stock, be evidenced by promissory notes in form and substance satisfactory to the Administrative Agent, shall be subordinated in right of payment in full of the Obligations, and such promissory notes shall be pledged as security for the Obligations of the holder thereof under the Loan Documents to which such holder is a party and delivered to the Administrative Agent pursuant to the terms of the Pledge and Security Agreement;" H. Section 5.02(b) of the Credit Agreement is hereby further amended by (i) deleting the period at the end of clause (iii)(Q) thereof and substituting a semicolon therefor and (ii) adding the following as new clause (iv) thereof: "(iv) in the case of the Borrower, LSFCC, LSFLLC and LSRFLLC, (A) Debt of the Borrower, Newco, NF Industries, Inc., LSFCC, LSFLLC or Issuer to the Borrower, LSFCC, LSFLLC or Issuer incurred from time to time in connection with a Permitted Domestic Receivables Transaction permitted under Section 5.02(b)(iii)(J) in an amount not to exceed the purchase price of any Domestic Receivables purchased and sold in connection therewith, which Debt, in the case of Debt owed to the Borrower, LSFCC or LSFLLC, (x) shall constitute Pledged Debt and (y) shall be evidenced by promissory notes in form and substance satisfactory to the Administrative Agent, shall, except in the case of Debt owed by Issuer, be subordinated in right of payment to the payment in full of the Obligations and such promissory notes shall be pledged as security for the Obligations of the holder thereof under the Loan Documents to which such holder is a party and delivered to the Administrative Agent pursuant to the terms of the Pledge and Security Agreement; and (B) customary indemnification obligations and other Contingent Obligations of the Borrower, LSFCC, LSFLLC or Issuer incurred in connection with a Permitted Domestic Receivables Transaction permitted under Section 5.02(b)(iii)(J)." I. Section 5.02(c) of the Credit Agreement is hereby amended by amending the third sentence contained therein to read in its entirety as follows: "The Borrower shall not suffer or permit LSFLLC or any other Subsidiary of the Borrower (other than Issuer) to which LSFCC sells receivables to engage in any business other than the purchase, holding and securitization of accounts receivable and shall not suffer or permit LSFCC to engage in any business other than the purchase, sale to LSFLLC, another Subsidiary 4 of the Borrower acceptable to Administrative Agent or, during any period that Domestic Receivables are being sold to Issuer under a Permitted Domestic Receivables Transaction, to Issuer and servicing of accounts receivable generated by the Borrower, the processing of accounts payable of the Borrower and its Subsidiaries, procurement support services for the Borrower and its Subsidiaries and other accounting and general customer relationship functions." J. Section 5.02(d)(i) of the Credit Agreement is hereby amended to read in its entirety as follows: "any Domestic Subsidiary (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) of the Borrower may merge into or consolidate with any other Domestic Subsidiary (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) of the Borrower or be liquidated, wound-up or dissolved or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of to any other Domestic Subsidiary (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) of the Borrower, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a Domestic Subsidiary of the Borrower, provided further that, in the case of any such merger or consolidation to which a Material Domestic Subsidiary is a party, the Person formed by such merger or consolidation shall be or become a Material Domestic Subsidiary;" K. Section 5.02(d)(ii) of the Credit Agreement is hereby amended to read in its entirety as follows: "any Pledged Foreign Subsidiary may merge into or consolidate with any other Pledged Foreign Subsidiary or be liquidated, wound-up or dissolved or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of to the Borrower, any Material Domestic Subsidiary (other than Issuer and Newco during any period that either such Person has any obligations under a Permitted Domestic Receivables Transaction) or any other Pledged Foreign Subsidiary; and" L. Section 5.02(e)(iv) of the Credit Agreement is hereby amended to read in its entirety as follows: "dispositions of accounts receivable (A) from the Borrower to LSFCC, (B) from LSFCC to LSFLLC, another Subsidiary of the Borrower acceptable to Administrative Agent or, during any period that Domestic Receivables are being sold to Issuer under a Permitted Domestic Receivables Transaction, to Issuer, and (C) during any period that Issuer has any obligations under a Permitted Domestic Receivables Transaction, from LSFLLC to Issuer;" M. Section 5.02(f)(v) of the Credit Agreement is hereby amended by (i) deleting the word "or" immediately preceding the reference to "5.02(b)(iii)(P)" contained therein and substituting a comma therefor and (ii) adding the phrase "or 5.02(b)(iv)" at the end thereof. 5 N. Section 5.02(f) of the Credit Agreement is hereby further amended by (i) deleting the word "and" at the end of clause (xiii) thereof, (ii) deleting the period at the end of clause (xiv) thereof and substituting the phrase"; and "therefor, and (iii) adding the following as new clause (xv) thereof: "(xv) contribution of a promissory note executed by Levi Strauss & Co. Europe S.A. in favor of Levi Strauss Continental S.A. from Levi Strauss Continental S.A. to Levi Strauss International Group Finance Coordination Services C.V.A./S.C.A. in connection with the sale by Levi Strauss Continental S.A. of Levi Strauss (U.K.) Limited to Levi Strauss & Co. Europe S.A. as permitted under Section 5.02(e)(xii)." O. Section 5.02(k) of the Credit Agreement is hereby amended by (i) deleting the word "and" before clause (v) thereof and (ii) adding the following at the end of clause (v) thereof: ", and (vi) the prepayment of Debt in the form of Permitted Domestic Receivables Transactions (A) when, through amortization only 10% of the initial principal balance of such Debt remains outstanding or (B) in the event that the average aggregate outstanding principal balance of such Debt exceeds the average net eligible receivables balance of the applicable Domestic Receivables (as determined in accordance with the formula set forth in the related documentation) by more than $25,000,000 for more than 90 consecutive days." P. Section 5.02(l)(v) of the Credit Agreement is hereby amended by deleting the phrase "negative pledges on accounts receivable of Domestic Subsidiaries and associated assets" contained therein and substituting the phrase "negative pledges on Domestic Receivables" therefor. 1.3 Clarification of Defined Terms ------------------------------ A. The term "Permitted Domestic Receivables Purchase Transaction" is hereby deleted each time it appears in the Credit Agreement and the term "Permitted Domestic Receivables Transaction" is hereby substituted therefor. B. The term "Permitted Foreign Receivables Purchase Transaction" is hereby deleted each time it appears in the Credit Agreement and the term "Permitted Foreign Receivables Transaction" is hereby substituted therefore. 1.4. Modification of Schedules ------------------------- A. Schedule 4.01(b): Subsidiaries. Schedule 4.01(b) and ---------------- Schedule 4.01(bb) to the Credit Agreement are hereby amended by adding thereto ----------------- the information contained in Annex A to this Amendment. ------- 1.5. Consent to Permitted Domestic Receivables Transaction ----------------------------------------------------- The Administrative Agent hereby consents, pursuant to Section 5.02(b)(iii)(J) of the Credit Agreement, to the Proposed Transaction. Lenders hereby authorize the Administrative 6 Agent to execute that certain Consent and Release Agreement to be dated on or about July 27, 2001, on behalf of the Lenders and to take all actions and make all determinations required to be taken or made by the Administrative Agent thereunder. Section 2. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "First Amendment Effective Date"): A. On or before the First Amendment Effective Date, the Borrower shall deliver to Lenders (or to the Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the First Amendment Effective Date: 1. Certified copies of its Articles of Incorporation, together with a good standing certificate from the Secretary of State of the State of Delaware, each dated a recent date prior to the First Amendment Effective Date; copies of the Bylaws, certified as of the First Amendment Effective Date by its corporate secretary or an assistant secretary; 2. Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the First Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; and 3. Signature and incumbency certificates of its officers executing this Amendment. B. On or before the First Amendment Effective Date, the Borrower shall deliver to Lenders amendments to the Receivables Transfer Agreements in form and substance satisfactory to Administrative Agent. C. On or before the First Amendment Effective Date, the Administrative Agent and the parties to the Proposed Transaction shall have entered into a Consent and Release Agreement in form and substance satisfactory to Administrative Agent. D. On or before the First Amendment Effective Date, the Borrower shall deliver to the Administrative Agent, a Pledge Supplement in respect of the capital stock of Newco held by LSFCC, the membership interests in Issuer held by NF Industries, Inc. and the intercompany debt, if any, created in connection with the Proposed Transaction and required to be pledged under Section 5.02(b)(iv). E. On or before the First Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Agent and such counsel, 7 and Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Agent may reasonably request. Section 3. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Borrower represents and warrants to each Lender that the following statements are true, correct and complete: A. Organization and Powers. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including, without limitation, all Governmental Authorizations) to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. No Conflict. The execution and delivery of this Amendment and performance by the Borrower of the Amended Agreement is within the Borrower's corporate powers, has been duly authorized by all necessary corporate action, and do not (i) contravene the Borrower's Constitutive Documents, (ii) violate any Requirements of Law, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Borrower, any of its Subsidiaries or any of their properties or (iv) except for the Liens created or permitted under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower or any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries is in violation of any such Requirements of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect. C. Governmental Consents. No Governmental Authorization, and no other authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other third party is required for the due execution, delivery, recordation or filing of this Amendment or the performance by the Borrower of the Amended Agreement. D. Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by the Borrower, and are, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. E. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Article IV of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to 8 the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. F. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. Section 4. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (i) On and after the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. Fees and Expenses. The Borrower acknowledges that all costs, fees and expenses as described in Section 2.08 of the Credit Agreement incurred by Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Borrower. C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE APPLICATION OF ANOTHER LAW. E. Execution in 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 taken together shall constitute one and the same agreement. Delivery by telecopier of an executed counterpart of a signature page to this Amendment shall be effective as delivery of an original executed counterpart of this Amendment. This Amendment shall become effective upon the execution of a 9 counterpart hereof by the Borrower and Required Lenders and receipt by the Borrower and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 10 ANNEX A ------- Supplement to Schedules 4.01(b) and 4.01(bb) Levi Strauss Receivables Funding, LLC Delaware 99% NF Industries, Inc. 1% Levi Strauss Securitization Corp. A-1 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 written above. LEVI STRAUSS & CO. By: ----------------------------------- Joseph M. Maurer Vice President & Treasurer BANK OF AMERICA, N.A. as Administrative Agent By: ----------------------------------- Title: -------------------------------- BANK OF AMERICA, N.A. as an Issuing Bank, Swing Line Bank and a Lender By: ----------------------------------- Title: -------------------------------- THE BANK OF NOVA SCOTIA, as Documentation Agent, an Issuing Bank and a Lender By: ----------------------------------- Title: -------------------------------- CITICORP USA, INC., as Syndication Agent and a Lender By: ----------------------------------- Title: -------------------------------- CITIBANK, N.A., as an Issuing Bank By: ----------------------------------- Title: -------------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Lender By: ----------------------------------- Title: -------------------------------- BANK ONE, NA, as a Lender By: ----------------------------------- Title: -------------------------------- ABN AMRO BANK, N.V., as an Issuing Bank and a Lender By: ----------------------------------- Title: -------------------------------- By: ----------------------------------- Title: -------------------------------- TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender By: ----------------------------------- Title: -------------------------------- THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender By: ----------------------------------- Title: -------------------------------- OAK BROOK BANK, as a Lender By: ----------------------------------- Title: -------------------------------- FLEET NATIONAL BANK, as an Issuing Bank and a Lender By: ----------------------------------- Title: -------------------------------- KEMPER FLOATING RATE FUND, as a Lender By: ----------------------------------- Title: -------------------------------- OPPENHEIMER SENIOR FLOATING RATE FUND, as a Lender By: ----------------------------------- Title: -------------------------------- PILGRIM PRIME RATE TRUST, as a Lender By: ING Pilgrim Investments, Inc., as its Investment Manager By: ----------------------------------- Title: -------------------------------- MASS MUTUAL HIGH YIELD PARTNERS II LLC, as a Lender By: HYP Management, Inc., as Managing Member By: ----------------------------------- Title: -------------------------------- MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, as a Lender By: David L. Babson & Company, Inc., as Investment Advisor By: ----------------------------------- Title: -------------------------------- BILL & MELINDA GATES FOUNDATION, as a Lender By: David L. Babson & Company, Inc., as Investment Advisor By: ----------------------------------- Title: -------------------------------- ADDISON CDO, LIMITED, as a Lender By: Pacific Investment Management Company LLC, as its Investment Advisor By: ----------------------------------- Title: -------------------------------- AIMCO CDO SERIES 2000-A, as a Lender By: ----------------------------------- Title: -------------------------------- ALLSTATE LIFE INSURANCE COMPANY, as a Lender By: ----------------------------------- Title: -------------------------------- AMARA-I FINANCE, LTD., as a Lender By: INVESCO Senior Secured Management, Inc., as Subadvisor By: ----------------------------------- Title: -------------------------------- ARCHIMEDES FUNDING IV (CAYMAN), LTD., as a Lender By: ----------------------------------- Title: -------------------------------- ARES III CLO LTD., as a Lender By: ARES CLO Management LLC, Investment Manager By: ----------------------------------- Title: -------------------------------- ARES IV CLO LTD., as a Lender By: Ares CLO Management IV, L.P., Investment Manager By: Ares CLO GP IV, LLC, its Managing Manager By: ----------------------------------- Title: -------------------------------- AVALON CAPITAL LTD. 2, as a Lender By: INVESCO Senior Secured Management, Inc., as Portfolio Advisor By: ----------------------------------- Title: -------------------------------- BANK OF SCOTLAND, as a Lender By: ----------------------------------- Title: -------------------------------- BLACK DIAMOND CLO 2000-1 LTD., as a Lender By: ----------------------------------- Title: -------------------------------- BNP PARIBAS, as a Lender By: ----------------------------------- Title: -------------------------------- By: ----------------------------------- Title: -------------------------------- CAPTIVA IV FINANCE LTD., as a Lender as advised by Pacific Investment Management Company LLC By: ----------------------------------- Title: -------------------------------- CARLYLE HIGH YIELD PARTNERS II, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- CARLYLE HIGH YIELD PARTNERS III, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- CENTURION CDO II, LTD., as a Lender By: American Express Asset Management Group Inc., as Collateral Agent By: ----------------------------------- Title: -------------------------------- CENTURION CDO III, LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- CERES II FINANCE LTD., as a Lender By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent (Financial) By: ----------------------------------- Title: -------------------------------- CHARTER VIEW PORTFOLIO, as a Lender By: INVESCO Senior Secured Management, Inc., as Investment Advisor By: ----------------------------------- Title: -------------------------------- CITADEL HILL 2000 LTD., as a Lender By: ----------------------------------- Title: -------------------------------- CREDIT SUISSE FIRST BOSTON, as a Lender By: ----------------------------------- Title: -------------------------------- CSAM FUNDING I, as a Lender By: ----------------------------------- Title: -------------------------------- DELANO COMPANY, as a Lender By: Pacific Investment Management LLC, as its Investment Advisor By: ----------------------------------- Title: -------------------------------- ELT LTD., as a Lender By: ----------------------------------- Title: -------------------------------- EMERALD ORCHARD LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- FIDELITY ADVISOR SERIES II: FIDELITY ADVISOR FLOATING RATE HIGH INCOME FUND, as a Lender By: ----------------------------------- Title: -------------------------------- FLOATING RATE PORTFOLIO, as a Lender By: INVESCO Senior Secured Management, Inc., as attorney in fact By: ----------------------------------- Title: -------------------------------- FRANKLIN CLO I, LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- FRANKLIN FLOATING RATE DAILY ACCESS FUND, as a Lender By: ----------------------------------- Title: -------------------------------- FRANKLIN FLOATING RATE MASTER SERIES, as a Lender By: ----------------------------------- Title: -------------------------------- FRANKLIN CLO II, LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- HAMPDEN CBO LTD., as a Lender By: David L. Babson & Company Inc., as Investment Advisor By: ----------------------------------- Title: -------------------------------- HARBOURVIEW CDO II LTD., FUND, as a Lender By: ----------------------------------- Title: -------------------------------- HIGHLAND OFFSHORE PARTNERS, L.P., as a Lender By: ----------------------------------- Title: -------------------------------- INDOSUEZ CAPITAL FUNDING IIA, LIMITED, as a Lender By: Indosuez Capital Luxembourg, as Collateral Manager By: ----------------------------------- Title: -------------------------------- INDOSUEZ CAPITAL FUNDING IV, L.P., as a Lender By: Indosuez Capital Luxembourg, as Collateral Manager By: ----------------------------------- Title: -------------------------------- INDOSUEZ CAPITAL FUNDING VI, LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- JHW CASH FLOW FUND I, L.P., as a Lender By: ----------------------------------- Title: -------------------------------- JISSEKIKUN FUNDING, LTD., as a Lender By: Pacific Investment Management Company LLC, as its Investment Advisor By: ----------------------------------- Title: -------------------------------- KEMPER FLOATING RATE FUND, as a Lender By: ----------------------------------- Title: -------------------------------- SteinRoe & Farnham Incorporated As Agent for Keyport Life Insurance Company, as a Lender By: ----------------------------------- Title: -------------------------------- KZH CYPRESS TREE-1 LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH LANGDALE LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH PONDVIEW LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH RIVERSIDE LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH SHOSHONE LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH STERLING LLC, as a Lender By: ----------------------------------- Title: -------------------------------- KZH WATERSIDE LLC, as a Lender By: ----------------------------------- Title: -------------------------------- LIBERTY-STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND, as a Lender By: Stein Roe & Farnham Incorporated as Advisor By: ----------------------------------- Title: -------------------------------- LONGHORN CDO (CAYMAN) LTD, as a Lender By: Merrill Lynch Investment Managers, L.P., as Investment Advisor By: ----------------------------------- Title: -------------------------------- MAGNETITE ASSET INVESTORS III L.L.C., as a Lender By: ----------------------------------- Title: -------------------------------- MAGNETITE ASSET INVESTORS, LLC, as a Lender By: ----------------------------------- Title: -------------------------------- MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, as a Lender By: ----------------------------------- Title: -------------------------------- MASSMUTUAL HIGH YIELD PARTNERS II, LLC, as a Lender By: ----------------------------------- Title: -------------------------------- ML CLO XV PILGRIM AMERICA (CAYMAN) LTD., as a Lender By: Pilgrim Investments, Inc. By: ----------------------------------- Title: -------------------------------- ML CLO XX PILGRIM AMERICA (CAYMAN) LTD., as a Lender By: ING Pilgrim Investments, Inc., as its Investment Manager By: ----------------------------------- Title: -------------------------------- MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST, as a Lender By: ----------------------------------- Title: -------------------------------- NATEXIS BANQUE POPULAIRES, as a Lender By: ----------------------------------- Title: -------------------------------- NEMEAN CLO, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- NORTHWOODS CAPITAL II, LIMITED, as a Lender By: Angelo, Gordon & Co., L.P., as Collateral Manager By: ----------------------------------- Title: -------------------------------- NORTHWOODS CAPITAL, LIMITED, as a Lender By: Angelo, Gordon & Co., L.P., as Collateral Manager By: ----------------------------------- Title: -------------------------------- NOVA CDO 2000, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- OAK HILL SECURITIES FUND II, L.P., as a Lender By: Oak Hill Securities GenPar II, L.P., its General Partner By: Oak Hill Securities MGP II, Inc., its General Partner By: ----------------------------------- Title: -------------------------------- OAK HILL SECURITIES FUND, L.P., as a Lender By: Oak Hill Securities Gen Par, L.P., its General Partner By: Oak Hill Securities MGP, Inc., its General Partner By: ----------------------------------- Title: -------------------------------- OAK HILL CREDIT PARTNERS I, LIMITED, as a Lender BY: Oakhill CLO Management I, LLC as Investment Manager By: ----------------------------------- Title: -------------------------------- OFFIT INVESTMENT FUND, INC., as a Lender By: ----------------------------------- Title: -------------------------------- RIVIERA FUNDING LLC, as a Lender By: ----------------------------------- Title: -------------------------------- SEQUILS I, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- SEABOARD CLO 2000 LTD, as a Lender By: ----------------------------------- Title: -------------------------------- SEQUILS CENTURION V, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- SEQUILS IV, LTD., as a Lender By: TCW Advisors, Inc., as its Collateral Manager By: ----------------------------------- Title: -------------------------------- SRF TRADING, INC., as a Lender By: ----------------------------------- Title: -------------------------------- STANFIELD CLO, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- STANFIELD RMF/TRANSATLANTIC CDO, LTD., as a Lender By: ----------------------------------- Title: -------------------------------- STEIN ROE & FARNHAM CLO I LTD., as a Lender By: Stein Roe & Farnham Incorporated, as Portfolio Manager By: ----------------------------------- Title: -------------------------------- STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY, as a Lender By: ----------------------------------- Title: -------------------------------- STRONG SHORT TERM HIGH YIELD BOND FUND, a Series of Strong Income Funds, Inc., as a Lender By: ----------------------------------- Title: -------------------------------- SUFFIELD CLO, LIMITED, as a Lender By: David L. Babson & Company Inc., as Collateral Manager By: ----------------------------------- Title: -------------------------------- SUMITOMO MITSUI BANKING CORPORATION, formerly known as The Sumitomo Bank, Limited, as a Lender By: ----------------------------------- Title: -------------------------------- SUNTRUST BANKS, INC., as a Lender By: ----------------------------------- Title: -------------------------------- TCW SELECT LOAN FUND, LIMITED, as a Lender By: ----------------------------------- Title: -------------------------------- TEXTRON FINANCIAL CORPORATION, as a Lender By: ----------------------------------- Title: -------------------------------- THERMOPYLAE FUNDING CORP., as a Lender By: ----------------------------------- Title: -------------------------------- TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender By: ----------------------------------- Title: -------------------------------- TYLER TRADING INC., as a Lender By: ----------------------------------- Title: -------------------------------- WINDSOR LOAN FUNDING, LIMITED, as a Lender By: Stanfield Capital Partners LLC, as its Investment Manager By: ----------------------------------- Title: -------------------------------- ACKNOWLEDGED: BATTERY STREET ENTERPRISES, INC. By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS FINANCIAL CENTER CORPORATION By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS FUNDINC, LLC By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS GLOBAL FULFILLMENT SERVICES, INC. By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS GLOBAL OPERATIONS, INC. By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS INTERNATIONAL By: ----------------------------------- Joseph M. Maurer Treasurer LEVI STRAUSS LATIN AMERICA, INC. By: ----------------------------------- Joseph M. Maurer Treasurer LEVI'S ONLY STORES, INC. By: ----------------------------------- Joseph M. Maurer Treasurer NF INDUSTRIES, INC. By: ----------------------------------- Joseph M. Maurer Treasurer EX-10 3 a10qex102.txt EXHIBIT 10.2 MASTER INDENTURE EXHIBIT 10.2 EXECUTION COPY -------------------------------------------------------------------------------- MASTER INDENTURE -------------------------------------------------------------------------------- LEVI STRAUSS RECEIVABLES FUNDING, LLC as Issuer, CITIBANK, N.A. as Indenture Trustee and as Paying Agent, Authentication Agent and Transfer Agent and Registrar MASTER INDENTURE Dated as of July 31, 2001 -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01. Definitions....................................................................................2 Section 1.02. Other Definitional Provisions.................................................................24 ARTICLE II THE NOTES Section 2.01. Form Generally................................................................................25 Section 2.02. Denominations.................................................................................26 Section 2.03. Execution, Authentication and Delivery........................................................26 Section 2.04. Authentication Agent..........................................................................26 Section 2.05. Registration of and Limitations on Transfer and Exchange of Notes.............................28 Section 2.06. Mutilated, Destroyed, Lost or Stolen Notes....................................................29 Section 2.07. Persons Deemed Owners.........................................................................30 Section 2.08. Paying Agent..................................................................................30 Section 2.09. Cancellation..................................................................................31 Section 2.10. New Issuances.................................................................................32 Section 2.11. Book-Entry Notes..............................................................................33 Section 2.12. Notices to Clearing Agency or Foreign Clearing Agency.........................................34 Section 2.13. Definitive Notes..............................................................................35 Section 2.14. Global Note; Euro-Note Exchange Date..........................................................35 Section 2.15. Representations and Covenants of Paying Agent, Authentication Agent and Transfer Agent and Registrar.................................................................................35 ARTICLE III REPRESENTATIONS AND COVENANTS OF THE ISSUER Section 3.01. Representations and Warranties of the Issuer..................................................36 Section 3.02. Affirmative Covenants of the Issuer...........................................................40 Section 3.03. Negative Covenants of the Issuer..............................................................42 Section 3.04. Protection of Pledged Assets..................................................................43 Section 3.05. Opinions as to Pledged Assets.................................................................44 i Section 3.06. Obligations Regarding Servicing of Receivables................................................44 Section 3.07. Separate Existence of the Issuer..............................................................45 ARTICLE IV SATISFACTION AND DISCHARGE Section 4.01. Satisfaction and Discharge of this Indenture..................................................47 Section 4.02. Application of Trust Money....................................................................48 ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5.01. Events of Default.............................................................................48 Section 5.02. Acceleration of Maturity; Rescission and Annulment............................................48 Section 5.03. Collection of Indebtedness and Suits for Enforcement by the Indenture Trustee.................49 Section 5.04. Remedies; Priorities..........................................................................51 Section 5.05. Sale of Assets................................................................................52 Section 5.06. Limitations on Suits..........................................................................52 Section 5.07. Unconditional Right of Noteholders to Receive Principal and Interest..........................53 Section 5.08. Restoration of Rights and Remedies............................................................53 Section 5.09. Rights and Remedies Cumulative................................................................54 Section 5.10. Delay or Omission Not a Waiver................................................................54 Section 5.11. Control by Noteholders........................................................................54 Section 5.12. Waiver of Past Defaults.......................................................................55 Section 5.13. Undertaking for Costs.........................................................................55 Section 5.14. Waiver of Stay or Extension Laws..............................................................55 Section 5.15. Action on Notes...............................................................................56 ARTICLE VI THE INDENTURE TRUSTEE Section 6.01. Duties of the Indenture Trustee...............................................................56 Section 6.02. Notice of Event of Default....................................................................58 Section 6.03. Rights of Indenture Trustee...................................................................58 Section 6.04. Not Responsible for Recitals or Issuance of Notes.............................................60 Section 6.05. May Hold Notes................................................................................60 ii Section 6.06. Money Held in Trust...........................................................................60 Section 6.07. Compensation, Reimbursement and Indemnification...............................................60 Section 6.08. Replacement of Indenture Trustee..............................................................61 Section 6.09. Successor Indenture Trustee by Merger.........................................................62 Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee.............................62 Section 6.11. Eligibility; Disqualification.................................................................63 Section 6.12. Representations and Covenants of the Indenture Trustee........................................63 Section 6.13. Custody of Pledged Assets and Other Collateral................................................64 ARTICLE VII NOTEHOLDERS' LIST AND REPORTS BY INDENTURE TRUSTEE Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders........................64 Section 7.02. Preservation of Information...................................................................64 ARTICLE VIII ALLOCATION AND APPLICATION OF COLLECTIONS Section 8.01. Collection of Money...........................................................................65 Section 8.02. Rights of Noteholders.........................................................................65 Section 8.03. Establishment of Accounts.....................................................................65 Section 8.04. Collections and Allocations...................................................................66 Section 8.05. Release of Pledged Assets.....................................................................68 Section 8.06. Officer's Certificate.........................................................................69 Section 8.07. Money for Note Payments to Be Held in Trust...................................................69 ARTICLE IX DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS ARTICLE X SUPPLEMENTAL INDENTURES Section 10.01. Supplemental Indentures Without Consent of Noteholders........................................69 Section 10.02. Supplemental Indentures with Consent of Noteholders...........................................71 Section 10.03. Execution of Supplemental Indentures..........................................................72 Section 10.04. Effect of Supplemental Indenture..............................................................73 Section 10.05. Reference in Notes to Supplemental Indentures.................................................73 iii ARTICLE XI DEFEASANCE Section 11.01. Defeasance....................................................................................73 ARTICLE XII MISCELLANEOUS Section 12.01. Compliance Certificates and Opinions, etc.....................................................75 Section 12.02. Form of Documents Delivered to Indenture Trustee..............................................77 Section 12.03. Acts of Noteholders...........................................................................77 Section 12.04. Notices to Issuer, Indenture Trustee, Paying Agent, Authentication Agent and Transfer Agent and Registrar...........................................................................78 Section 12.05. Notices to Noteholders; Waiver................................................................78 Section 12.06. Alternate Payment and Notice Provisions.......................................................79 Section 12.07. Effect of Headings and Table of Contents......................................................79 Section 12.08. Successors and Assigns........................................................................79 Section 12.09. Separability..................................................................................79 Section 12.10. Benefits of Indenture.........................................................................79 Section 12.11. Legal Holidays................................................................................80 Section 12.12. GOVERNING LAW.................................................................................80 Section 12.13. Counterparts..................................................................................80 Section 12.14. No Petition; Limited Recourse to Issuer.......................................................80 Section 12.15. Provision of Information to Rating Agencies...................................................81 iv
This MASTER INDENTURE, dated as of July 31, 2001 (as amended, modified or supplemented from time to time, the "Indenture"), by and between --------- Levi Strauss Receivables Funding, LLC, a Delaware limited liability company together with its permitted successors and assigns, the "Issuer") and Citibank, ------ N.A., a national banking association, as indenture trustee (in such capacity, together with its successors in the trusts hereunder, the "Indenture Trustee"), ----------------- and in its separate capacities as paying agent, authentication agent and transfer agent and registrar (together with its permitted successors and assigns, the "Agent"). This Indenture may be supplemented at any time and from ----- time to time by a supplemental indenture in accordance with Article X hereof, --------- including a supplemental indenture providing for the issuance of a particular Series of Notes (each such supplemental indenture, an "Indenture Supplement"). --------------------- If a conflict exists between the terms and provisions of this Indenture and any Indenture Supplement, the terms and provisions of the Indenture Supplement shall be controlling with respect to the related Series. PRELIMINARY STATEMENT The Issuer has duly authorized the execution and delivery of this Indenture to provide for issuances from time to time of its asset-backed notes as provided in this Indenture. All covenants and agreements made by the Issuer herein are for the benefit and security of the Noteholders. The Issuer is entering into this Indenture, and the Indenture Trustee is accepting the trusts created hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. Simultaneously with the delivery of this Indenture the Issuer is entering into the Receivables Purchase Agreement (the "Receivables Purchase --------------------- Agreement") with Levi Strauss Funding, LLC, a Delaware limited liability company --------- as transferor (the "Transferor") and Levi Strauss Financial Center Corporation, ---------- a California corporation, in its separate capacities as seller (the "Seller") ------ and as servicer (the "Servicer"), pursuant to which (a) each of the Seller and -------- the Transferor will sell to the Issuer all of its right, title and interest in, to and under the Pledged Assets and (b) the Servicer will agree to service the Pledged Assets and make collections thereon on behalf of the Noteholders. The Pledged Assets were, and in the future will be, originated by Levi Strauss & Co., a Delaware corporation (the "Originator") and have been and will continue ---------- to be purchased by the Seller from the Originator pursuant to the Receivables Purchase and Sale Agreement and, solely with respect to the Pledged Assets as of the date hereof, have been purchased by the Transferor from the Seller pursuant to the Receivables Sale Agreement. Under the Receivables Purchase Agreement, additional Pledged Assets from time to time will automatically be conveyed thereunder to the Issuer without any further action by the Originator, the Seller or the Transferor. GRANTING CLAUSE The Issuer hereby Grants to the Indenture Trustee, for the benefit of the Holders of the Notes, all of the Issuer's right, title and interest, whether now owned or hereafter acquired, in, to and under all of the following: (i) all Receivables; (ii) all Related Security; (iii) all Collections; (iv) the Collection Account, the Distribution Account, and all money, instruments, investment property and other property credited to or deposited in such accounts; (v) the Parent Undertaking, the Receivables Sale Agreements and the Consent and Release Agreement; (vi) all accounts, money, chattel paper, investment property, instruments, documents, deposit accounts, certificates of deposit, letters of credit, advices of credit, general intangibles and goods consisting of, arising from or relating to any of the foregoing; (vii) all other property of the Issuer; and (viii) all proceeds of the foregoing (collectively, the "Pledged Assets"). -------------- ARTICLE I DEFINITIONS Section 1.01 Definitions. ----------- Whenever used in this Indenture, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. "Act" shall have the meaning specified in Section 12.03(a). --- "Actual Knowledge" shall mean, with respect to any Person, the ---------------- actual knowledge of an officer of such Person responsible for overseeing the administration of or ensuring compliance with this Indenture. "Adjusted Obligor Balance" shall mean, with respect to any ------------------------ Obligor, its Obligor Balance times the Advance Factor. "Advance Factor" shall mean, as of any date of determination, -------------- an amount equal to one minus the greater of (x) 18% and (y) the "Loss Reserve Ratio" (as such term is defined in the Indenture Supplement for the Series 2001-A Notes). "Affiliate" shall mean, when used with respect to any Person, --------- any other Person directly or indirectly controlling, controlled by or under common control with, such Person. As used in this definition of Affiliate, the term "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of a Person, whether through ownership of such Person's voting securities, by contract or otherwise, and the terms "affiliated," "controlling" and "controlled" have correlative meanings. "Agent" shall mean Citibank, N.A., in its capacity as ----- Authentication Agent, Paying Agent and Transfer Agent and Note Registrar. "Aggregate Adjustment Amount" shall mean, as of any date of --------------------------- determination, an amount equal to the sum of (a) the Aggregate Overconcentration Amount plus (b) the amount, if any, by which the aggregate Unpaid Balance of Eligible Receivables owed by the United States federal government, or 2 any subdivision thereof or any agency, department, or instrumentality thereof, exceeds 2.5% of the Aggregate Receivables Balance plus (c) the amount, if any, by which the aggregate Unpaid Balance of Eligible Receivables owed by any state or local government or any subdivision thereof or any agency, department, or instrumentality thereof exceeds 1.5% of the Aggregate Receivables Balance plus (d) the amount, if any, by which the Aggregate Unpaid Balance of Eligible Receivables constituting Specialty Receivables exceeds 10% of the Aggregate Receivables Balance plus (e) the Marketing Allowance Reserve. "Aggregate Loss Reserve" shall mean, as of any date of ------------------------ determination, the product of (i) the greater of (x) 18% and (y) the "Loss Reserve Ratio" (as such term is defined in the Indenture Supplement for the Series 2001-A Notes) as calculated for the last day of the related Monthly Period times (ii) the Net Eligible Receivables Balance as of the last day of such Monthly Period. "Aggregate Overconcentration Amount" shall mean, as of any ---------------------------------- date of determination, an amount equal to the sum of the Overconcentration Amounts of all Eligible Obligors at the end of the preceding Business Day. "Aggregate Receivables Balance" shall mean, as of any date of ----------------------------- determination, the aggregate Unpaid Balances of all Eligible Receivables included in the Purchased Assets. "Amortization Event" with respect to each Series of Notes ------------------ shall be specified in the related Indenture Supplement. "Amortization Period" shall mean, with respect to any Series, ------------------- a period following the Revolving Period during which Collections are distributed to Noteholders, in each case as defined with respect to such Series in the related Indenture Supplement. "Annual Budgeted Expenditures" shall mean, as of the end of ---------------------------- any Monthly Period during any calendar year (i) the aggregate dollar amount of Marketing Support Expenditures included in the Originator's annual advertising budget determined as of the beginning of such year plus (ii) the amount, if any, by which cumulative Marketing Support Expenditures during such calendar year through such Monthly Period exceed the amount described in clause (i). "Applicable Payment Terms" shall mean, with respect to a ------------------------ particular Receivable described below, the number of days set forth opposite such Receivable below: Type of Applicable Payment Receivable Terms --------------------------- ------------------ Finished Goods Up to 37 Days Fabric Sales Up to 60 Days Offshore Shipments Up to 67 Days Preshipped Goods Up to 52 Days 3 New Store/Natural Disaster Up to 120 Days Specialty Receivables Up to 90 Days
"Asset Deficiency" shall mean, on any date of determination, ---------------- the amount, if any, by which the sum of the Target Receivables Amounts as of such date exceeds the Net Eligible Receivables Balance as of such date. "Authentication Agent" shall mean Citibank, N.A., and any -------------------- successor thereto. "Authorized Officer" shall mean: ------------------ (a) with respect to the Issuer, any officer of the Issuer or other Person who is authorized to act for the Issuer in matters relating to the Issuer and who is identified on the list of Authorized Officers (containing the specimen signature of each such Person) delivered by the Issuer to the Indenture Trustee on the initial Closing Date (as such list may be modified or supplemented from time to time thereafter); or (b) with respect to the Servicer, any officer of the Servicer or other Person who is authorized to act for the Servicer in matters relating to the Servicer and who is identified on the list of Authorized Officers (containing the specimen signature of each such Person) delivered by the Servicer to the Indenture Trustee on the initial Closing Date (as such list may be modified or supplemented from time to time thereafter). "Average Seasonality Ratio" shall mean, for any Monthly ------------------------- Period, the sum of (i) the average of the Monthly Marketing Ratios for the succeeding calendar month during the three immediately preceding calendar years (i.e., so that for the Monthly Period ending January 31, the amount in this clause (i) shall be the average of the Monthly Marketing Ratios for the three preceding months of February) plus (ii) the average of the Monthly Marketing Ratios for the second succeeding calendar month during the three immediately preceding calendar years (i.e., so that for the Monthly Period ending January 31, the amount in this clause (ii) shall be the average of the Monthly Marketing Ratios for the three preceding months of March) plus (iii) the average of the Monthly Marketing Ratios for the third succeeding calendar month during the three immediately preceding calendar years (i.e., so that for the Monthly Period ending January 31, the amount in this clause (iii) shall be the average of the Monthly Marketing Ratios for the three preceding months of April). "Bankruptcy Code" shall mean the provisions of title 11 of ---------------- the United States Code, 11 U.S.C. (2 section symbols) 101 et seq. ------ "Beneficial Owner" shall mean, with respect to a Book-Entry ---------------- Note, the Person who is the owner of such Book-Entry Note, as reflected on the books of the Clearing Agency or Foreign Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency or Foreign Clearing Agency (directly as a Clearing Agency Participant or as an Indirect Participant, in accordance with the rules of such Clearing Agency or Foreign Clearing Agency). 4 "Book-Entry Notes" shall mean beneficial interests in the ----------------- Notes, ownership and transfers of which shall be made through book entries by a Clearing Agency or Foreign Clearing Agency as described in Section 2.11. "Business Day" shall mean any day that is not a Saturday, a ------------ Sunday or a day on which banks are required or permitted to be closed in the State of New York or the State of California. "Clearing Agency" shall mean an organization registered as a --------------- "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and serving as clearing agency for a Series of Book-Entry Notes. "Clearing Agency Participant" shall mean a broker, dealer, --------------------------- bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Clearstream Banking" shall mean Clearstream Banking, societe ------------------- anonyme, a professional depository incorporated under the laws of Luxembourg, and its successors. "Closing Date" shall mean, with respect to any Series, the ------------ closing date specified in the related Indenture Supplement. "Code" shall mean the Internal Revenue Code of 1986, as ---- amended. "Collection Account" shall have the meaning provided in ------------------- Section 4.02 of the Receivables Purchase Agreement. "Collections" shall mean, with respect to any Receivable, all ----------- cash collections and other proceeds of such Receivable, including without limitation, all proceeds of Related Security (including late charges, fees and interest arising thereon, and all recoveries with respect thereto that have been written off as uncollectible). "Commission" shall mean the Securities and Exchange Commission ---------- or any successor thereto. "Concentration Factor" shall mean, for any Monthly Period, an -------------------- amount computed by (i) adding the sums of the Adjusted Obligor Balances as of the end of such Monthly Period for the Obligors with the largest Adjusted Obligor Balances, starting with the Obligor with the largest Adjusted Obligor Balance and continuing until the aggregate amount calculated in this clause (i) equals the Aggregate Loss Reserve; (ii) adding the total dollar amount of the Marketing Support Expenditures paid during such Monthly Period to the Obligors whose Adjusted Obligor Balances are included in the calculation described in the preceding clause (i); and (iii) calculating a fraction, the numerator of which equals the amount in clause (ii) and the denominator of which equals the total dollar amount of Marketing Support Expenditures paid to all Obligors during such Monthly Period. The Concentration Factor shall equal the fraction calculated in clause (iii). 5 "Consent and Release Agreement" shall mean that certain -------------------------------- Consent and Release Agreement dated as of July 31, 2001, as amended from time to time, among the Originator, the Seller, the Indenture Trustee and Bank of America, N.A., as the holder of the security interest under the terms of the Credit Agreement, in certain inventory and accounts receivable of any of the Originator, the Seller or the Transferor. "Contract" shall mean any agreement or invoice pursuant to, or -------- under which, an Obligor shall be obligated to make payments with respect to any Receivable. "Corporate Trust Office" shall mean the principal office of ---------------------- the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office on the date of the execution of this Indenture is located at 111 Wall Street, 14th Floor, NY, NY 10005, Attn: Agency and Trust Structured Finance, Levi Strauss Series 2001-A or at such other address as the Indenture Trustee may designate from time to time by notice to the Noteholders and the Issuer, or the principal corporate trust office of any successor Indenture Trustee (of which address any successor Indenture Trustee shall notify the Noteholders and the Issuer). "Credit Agreement" shall mean that certain Credit Agreement ---------------- dated as of February 1, 2001, as amended, among the Originator, as borrower, the initial lenders, initial issuing banks and swing line lenders party thereto, Bank of America, as administrative agent and collateral agent; Bank of America Securities LLC and Salomon Smith Barney Inc., as co-lead arrangers and joint book managers, Citicorp USA, Inc., as syndication agent, and The Bank of Nova Scotia, as documentation agent. "Credit and Collection Policy" shall have the meaning set ---------------------------- forth in the Receivables Purchase Agreement. "Daily Receivables Activity Report" shall have the meaning set --------------------------------- forth in the Receivables Purchase Agreement. "Default" shall mean any occurrence that is, or with notice or ------- the lapse of time or both would become, an Event of Default. "Defaulted Receivables" shall mean any Receivable (a) the ---------------------- Obligor of which is subject to an Insolvency Proceeding, (b) which is unpaid in whole or in part for more than 60 days after its original due date or (c) which is determined to be or that should have been determined to be classified as "doubtful" or written off as uncollectible in accordance with the Credit and Collection Policy. "Defeasance" shall have the meaning specified in Section ---------- ------- 11.01(a). -------- "Defeased Series" shall have the meaning specified in Section --------------- ------- 11.01(a). -------- "Definitive Notes" shall mean Notes in definitive, fully ---------------- registered form. 6 "Deposit Date" shall mean each day on which Collections are ------------ deposited in the Collection Account. "Distribution Account" shall have the meaning specified in -------------------- Section 8.03(b). --------------- "Dollars" or "$" shall mean United States dollars. ------- - "DTC" shall mean The Depository Trust Company. --- "Effective Date" shall mean July 31, 2001. -------------- "Eligible Investments" shall mean the following instruments, -------------------- investment property, or other property, in each case denominated in Dollars, other than securities issued by or obligations of the Originator or any of its Affiliates: (a) direct obligations of, or obligations fully guaranteed as to timely payment by, the United States of America; (b) time deposit accounts, banker's acceptances, certificates of deposit and money market deposits issued by (i) a bank or trust company (A) organized under the laws of the United States of America or any state thereof, (B) having capital, surplus and undivided profits aggregating in excess of $500 million and (C) whose short-term debt is rated A-1+ by S&P and P-1 by Moody's or (ii) a commercial bank (A) organized under the laws of any country other than the United States that is a member of the Organization for Economic Cooperation and Development and has a foreign currency rating of A-1+ by S&P and P-1 by Moody's, (B) having total assets in excess of $500 million (or its foreign currency equivalent at the time), and (C) whose short-term debt is rated A-1+ by S&P and P-1 by Moody's; (c) commercial paper (having original or remaining maturities of no more than 30 days) issued by a corporation organized and in existence under the laws of the United States of America or any other country that is a member of the Organization for Economic Cooperation and Development and has a foreign currency rating of A-1+ by S&P and P-1 by Moody's, in any case, having, at the time of the Issuer's investment or contractual commitment to invest therein, a short-term debt rating of A-1+ by S&P and P-1 by Moody's; (d) demand deposits, time deposits and certificates of deposit that are fully insured by the FDIC having, at the time of the Issuer's investment therein, a short-term debt rating of A-1+ by S&P and P-1 by Moody's; (e) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) ---------- entered into with: (i) a bank meeting the qualifications described in clause (b) above, or ---------- 7 (ii) any primary government securities dealer having the debt ratings described in clause (c) above reporting to ---------- the Market Reports Division of the Federal Reserve Bank of New York; (f) time deposits and eurodollar deposits (having maturities not later than the succeeding Payment Date) other than as referred to in clause (d) above, with a Person the commercial paper of which has a --------- credit rating of at least A-1+ by S&P and P-1 by Moody's; (g) investments in money market funds or money market mutual funds having (i) a rating from each of S&P and Moody's in the highest investment category granted thereby, (ii) capital and undivided profits aggregating at least $500 million and (iii) total assets in excess of $500 million, including funds for which the Indenture Trustee or any of its affiliates is investment manager or advisor; or (h) any other investment of a type or rating that satisfies the Rating Agency Condition. "Eligible Obligor" shall mean each Obligor that satisfies the ---------------- following criteria (and as further defined in the existing documentation): (a) it is a United States resident (which term includes a United States division or branch of a foreign entity so long as such division or branch maintains a place of business within the United States to which all Receivables are billed); (b) it is not the Originator or an Affiliate of the Originator; (c) it is not the Obligor of any Defaulted Receivables which in the aggregate constitute more than 30% of the aggregate Unpaid Balance of all Receivables owed by such Obligor (with the foregoing to be determined as if an Obligor and its Affiliates were a single Obligor); (d) it is not the Obligor of any Receivables written off as uncollectible; and (e) it is not the subject of any voluntary or involuntary bankruptcy proceeding. "Eligible Receivable" shall mean, as of any date of -------------------- determination, each Receivable owing by an Eligible Obligor in existence as of such date that satisfies the following criteria (and as further defined in the existing documentation): (a) it constitutes an "account" within the meaning of Article 9 of the Uniform Commercial Code of the state whose law governs the perfection of the interest granted in it; (b) it represents an enforceable obligation of such Obligor to pay the full principal amount thereof, and it is not subject to any disputes in whole or in part, or to 8 any offset, right of rescission, counterclaim or defense; provided that ------- an otherwise Eligible Receivable that is subject only in part to any of the foregoing shall be an Eligible Receivable to the extent not subject to dispute, offset, right of rescission, counterclaim or defense; (c) it is not a Defaulted Receivable; (d) it is denominated and payable only in Dollars in the United States of America; (e) it arose in the ordinary course of business from the sale of products or services (which may include sales of fabric or other unfinished goods and including shipping, freight or other non-merchandise costs) of the Originator and in accordance with the Credit and Collection Policy of the Servicer and was not purchased by the Originator from any Person; (f) it does not contravene any applicable law, rule or regulation and none of the Seller, the Originator or the Transferor is in violation of any law, rule or regulation in connection with it which in any way renders it unenforceable or would otherwise impair in any material respect the collectibility of such Receivable; (g) it is an "eligible asset" within the meaning of Rule 3a-7 of the Investment Company Act, and it is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act; (h) it is not a Receivable for which the Originator or the Servicer has established an offsetting specific reserve; (i) it is not a Receivable in respect of which the Originator has (i) entered into an arrangement with the Obligor pursuant to which payment of any portion of the purchase price has been extended or deferred, whether by means of a promissory note or by any other means, to a date more than 60 days from the otherwise applicable due date provided, however, that no more than 2% of the aggregate outstanding -------- ------- balance of the Receivables may allow such extended payment terms, (ii) altered the basis of the aging from the initial due date for payment such that the final due date extends to a date more than 90 days from the billing date or (iii) otherwise made any modification except in the ordinary course of business and consistent with the Credit and Collection Policy; (j) (i) the related goods shall have been delivered to the related Obligor or to a third-party shipping company for delivery to the related Obligor or (ii) the related services shall have been performed and, in either case, the Receivable shall have been billed to the related Obligor; (k) the Issuer has good and marketable title thereto free and clear of all Liens (except for Liens in favor of the Indenture Trustee); 9 (l) the Indenture Trustee has a valid and first priority perfected security interest in such Receivable; (m) the Originator is not in default in any material respect under the terms of the contract, if any, from which such Receivable arose; (n) all required consents, approvals or authorizations (including without limitation, any consent of the Obligor thereof required for the assignment and sale thereof to the Issuer) have been obtained with respect to such Receivable; (o) all right, title and interest of the Originator, the Seller and/or the Transferor in such Receivable has been validly sold to the Issuer pursuant to the Receivables Sale Agreements; (p) at the time such Receivable was sold to the Issuer under the Receivables Purchase Agreement, no Insolvency Proceeding was pending against the Originator, the Seller or the Transferor; (q) the Originator, the Seller and the Transferor or its designees have duly given all notices of assignment of such Receivable in form and substance required by, and is otherwise in compliance in all respects with, applicable law, all such notices are in full force and effect to permit the legal, valid and enforceable transfer of such Receivable to the Issuer; (r) the obligation to pay such Receivable will at all times be the legal, valid and binding payment obligation of the Obligor thereon, enforceable against such Obligor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); (s) on the relevant purchase date of such Receivable, none of the Originator, the Seller or the Transferor has (i) taken any action that would impair the rights of the Issuer or the Indenture Trustee therein or (ii) failed to take any action that was necessary to avoid impairing the rights of the Issuer or the Indenture Trustee for the benefit of the Noteholders; (t) it is fully assignable (except insofar as assignability may be limited by the Federal Assignment of Claims Act); (u) each of the representations and warranties made by the Originator, the Seller and the Transferor in the Receivables Sale Agreements with respect to such Receivable is true and correct in all material respects; (v) it is not required by the Originator to be secured by collateral; provided that an otherwise Eligible Receivable secured by -------- (i) cash deposits in the possession or 10 control of the Indenture Trustee and/or (ii) a letter of credit from a domestic financial institution, shall be an Eligible Receivable to the extent such Receivable is so secured; (w) the Obligor of which is an Eligible Obligor; (x) such Receivable is not created under a long-term supply contract unless the Rating Agency Condition has been satisfied with respect to the inclusion of Receivables under such long-term contract as Eligible Receivables; (y) no portion of such Receivable is payable on account of sales taxes; and (z) pursuant to the contract related to such Receivable, such Receivable is required to be paid in full within the Applicable Payment Terms for such Receivable. For the avoidance of doubt, a Receivable which meets the foregoing criteria will be an Eligible Receivable notwithstanding that the Servicer has not yet entered the outstanding balance of such Receivable into its master data processing records so long as the Servicer makes such entries within the next Business Day. "ERISA Affiliate" shall mean any trade or business (whether or --------------- not incorporated) that is treated as a single employer with the Originator under Section 414 of the Code. "Euroclear Operator" shall mean Euroclear Bank S.A., N.V., as ------------------ operator of the Euroclear System. "Event of Bankruptcy" shall mean, for any Person: ------------------- (a) that such Person shall admit in writing its inability, or fail generally, to pay its debts as they become due; or (b) (i) an Insolvency Proceeding shall have been instituted by a creditor of such Person in a court having jurisdiction in the premises seeking a decree or order for relief in respect of such Person, or for the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for any substantial part of its property, or for the winding-up or liquidation of its affairs and (ii) either such Insolvency Proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceedings shall occur, provided that the grace period allowed for by this clause (ii) -------- ----------- shall not apply to any Insolvency Proceeding instituted by an Affiliate of such Person in furtherance of any of the actions set forth in the preceding clause (i); or ---------- (c) a Insolvency Proceeding shall have been commenced by such Person or such Person's consent to the entry of an order for relief in an Insolvency Proceeding commenced against it by another party, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator 11 or other similar official of such Person or for any substantial part of its property, or any general assignment for the benefit of creditors; or (d) if such Person is a corporation or a limited liability company, such Person or any Subsidiary of such Person shall take any corporate or limited liability company action in furtherance of any of the actions set forth in the preceding clause (a), (b) or (c). ---------- --- --- "Event of Default" shall have the meaning specified in ------------------ Section 5.01. ------------ "Expense Subaccount" shall mean, with respect to any Series of ------------------ Notes, the subaccount of the Collection Account established under the related Indenture Supplement for the payment of Monthly Interest and Fees. "FDIC" shall mean the Federal Deposit Insurance Corporation or ---- any successor. "Final Stated Maturity Date" shall mean, with respect to any -------------------------- Series, the date specified in the related Indenture Supplement. "Foreign Clearing Agency" shall mean Clearstream Banking and ----------------------- the Euroclear Operator. "Funding" shall mean Levi Strauss Funding Corp., a Delaware ------- corporation. "GAAP" shall mean generally accepted accounting principles, ---- including the opinions, statements and pronouncements of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and the Commission, as in effect from time to time. "Global Note" shall have the meaning specified in Section ------------ ------- 2.14. ---- "Governmental Authority" shall mean any nation or government, ---------------------- any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Grant" shall mean to mortgage, pledge, bargain, warrant, ----- alienate, remise, release, convey, assign, transfer, create and grant a Lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to this Indenture. A Grant of the Pledged Assets or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Pledged Assets and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the granting party or otherwise and generally to do and receive anything that the granting party is or may be entitled to do or receive thereunder or with respect thereto. 12 "Guaranty" shall mean any agreement, undertaking or -------- arrangement by which any Person guarantees, endorses, agrees to purchase or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions on the shares of any other Person. "Indebtedness" of any Person shall mean, in the aggregate, ------------ without duplication, (i) all indebtedness, obligations and other liabilities of such Person and its Subsidiaries that are, at the date as of which Indebtedness is to be determined, includable as liabilities in a consolidated balance sheet of such Person and its Subsidiaries, other than (x) accounts payable and accrued expenses, and (y) current and deferred income taxes, (ii) all liabilities of such Person or any of its Subsidiaries under any Guaranty, indemnity or similar undertaking given or assumed of or in respect of, the indebtedness, obligations or other liabilities, of any other Person or any agreement to maintain the net worth or working capital of any other Person, (iii) all other obligations or liabilities of such Person evidenced by notes, acceptances and similar instruments, (iv) net liabilities of such Person under any interest rate swap, cap or exchange agreements and (v) all obligations whether or not assumed, secured by any liens on the property of such Person. "Indenture" shall have the meaning set forth in the --------- introductory paragraph to this Indenture. "Indenture Supplement" shall have the meaning set forth in the -------------------- introductory paragraph to this Indenture. "Indenture Trustee" shall have the meaning set forth in the ----------------- introductory paragraph of this Indenture. "Independent" shall mean, when used with respect to any ----------- specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor upon the Notes, the Transferor, the Originator, the Seller and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest or any material indirect financial interest in the outstanding equity or debt securities of the Issuer, any such other obligor, the Transferor, the Originator, the Seller or any Affiliate of any of the foregoing Persons and (c) is not connected with the Transferor, the Originator, the Seller or any Affiliate of any of the foregoing Persons (other than the Issuer or the SPC Member) as an officer, employee, promoter, underwriter, trustee, partner or person performing similar functions. "Independent Certificate" shall mean a certificate or opinion ----------------------- to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 12.01, made ------------- by an Independent appraiser or other expert, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this ----------- Indenture and that the signer is Independent within the meaning thereof. 13 "Independent Director" shall mean, with respect to any entity, -------------------- an individual who is an Independent Director as defined in the organizational documents of such entity as in effect on the date of this Indenture. "Indirect Participant" shall mean Persons such as securities -------------------- brokers and dealers, banks and trust companies that clear or maintain a custodial relationship with a participant of DTC, either directly or indirectly. "Insolvency Proceeding" shall mean, with respect to any ---------------------- Person, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law now or hereafter in effect or any other similar proceeding, whether voluntary or involuntary. "Investment Company Act" shall mean the Investment Company Act ---------------------- of 1940, as amended. "Issuer" shall have the meaning set forth in the introductory ------ paragraph to this Indenture. "Issuer Order" shall mean a written order or request signed in ------------ the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee or the Agent, as the case may be. "Lien" shall mean, when used with respect to any Person, any ---- mortgage, lien, pledge, encumbrance, charge, retained security title of a conditional vendor or lessor, security interest or other right or claim in or on such Person's assets or properties in favor of any other Person. "Lockbox Account" shall mean any lockbox account, ----------------- concentration account, depositary account or similar account (including any associated demand deposit account) established by the Originator or the Servicer and into which any Collections are collected or deposited. "Lockbox Agreement" shall have the meaning set forth in the ----------------- Receivables Purchase Agreement. "Majority Investors" shall mean Noteholders holding Notes ------------------ evidencing more than 50% of the Outstanding Amount. "Marketing Allowance Reserve" shall mean, as of any date of --------------------------- determination, an amount equal to the greater of (x) the total dollar amount of Marketing Support Expenditures paid by the Originator to Obligors during the most recently ended Monthly Period and (y) the sum of (i) the Monthly Marketing Reserves for such Monthly Period plus (ii) all accrued Marketing Support ---- Expenditures approved for payment as of the end of such Monthly Period but not yet paid. 14 "Marketing Stress Factor" shall mean 1.25, provided that, if, ----------------------- as of the end of any Monthly Period, (x) the cumulative Marketing Support Expenditures for the calendar year to date exceed (y) 75% of the Annual Budgeted Expenditures for such year, then, commencing at such time and continuing until an entire calendar year has elapsed during which the total Marketing Support Expenditures paid during such year remained below 75% of the Annual Budgeted Expenditures for such year, the Marketing Stress Factor shall equal (i) 1.25 times (ii) a percentage factor equal to the sum of (A) 100% plus (B) the lesser of (1) a fraction (expressed as a percentage), the numerator of which equals the amount described in clause (x) above minus the amount described in clause (y) above, and the denominator of which equals 100% of the Annual Budgeted Expenditures for such year and (2) the lowest incremental percentage, if any, with respect to which the Rating Agency Condition has been satisfied, provided, that the Marketing Stress Factor shall not exceed 1.5. "Marketing Support Expenditures" shall mean expenditures paid ------------------------------ by the Parent or any Affiliate to Obligors in connection with cooperative advertising programs and other retail marketing funding programs involving reimbursement by the Parent of Obligors through specified procedures for certain approved advertising and other marketing activities by such Obligors. "Master Amendment and Consent" shall mean that certain Master ---------------------------- Amendment and Consent dated as of July 31, 2001 among the Originator, the Seller, the Transferor and the Issuer. "Material Adverse Effect" shall mean, with respect to any ------------------------- event or circumstance, a material adverse effect on (a) the business, financial condition, operations or assets of the Issuer or of the Transaction Parties (taken as a whole) (b) the ability of any Transaction Party to perform its obligations under any Transaction Document to which it is a party, (c) the validity or enforceability of, or collectibility of, amounts payable by any Transaction Party under any Transaction Document to which it is a party, (d) the status, existence, perfection or priority of the interest of the Issuer or the Indenture Trustee thereof in the Pledged Assets, or (e) the validity, enforceability or collectibility of all or any substantial portion of the Pledged Assets; provided, however, that a downturn, recession or similar -------- ------- economic condition in respect of the apparel industry or of the United States economy shall not, in and of itself, constitute a "Material Adverse Effect." "Monthly Marketing Ratio" shall mean, for any Monthly Period, ----------------------- a ratio computed as (i) the dollar amount of Marketing Support Expenditures paid during such Monthly Period divided by (ii) the total dollar amount of Marketing ---------- Support Expenditures paid during the calendar year during which such Monthly Period occurs. "Monthly Marketing Reserves" for any Monthly Period shall mean -------------------------- an amount computed in accordance with the following formula: MMR = (ASR x ABE x MSF x NCF) where: MMR = the Monthly Marketing Reserves; 15 ASR = the Average Seasonality Ratio for such Monthly Period; ABE = the Annual Budgeted Expenditures for the calendar year during which such Monthly Period occurs; MSF = the Marketing Stress Factor; and NCF = the greater of (x) 20% and (y)one minus the Concentration Factor for such Monthly Period. "Monthly Interest and Fees" shall mean, with respect to any ------------------------- Series of Notes, interest on such Notes, the Servicing Fee allocable to such Series, premium payable to any Series Enhancer, and any other fees which are included in the calculation of the Required Reserves for such Series as specified in the related Indenture Supplement. "Monthly Period" shall mean (i) a calendar month or (ii) with -------------- respect to the initial Monthly Period, the period commencing on the Closing Date with respect to the initial Series of Notes and ending on the last day of the same month, or such other period set forth in the related Indenture Supplement. "Moody's" shall mean Moody's Investors Service, Inc. ------- "Net Eligible Receivables Balance" shall mean, as of any date -------------------------------- of determination, the excess of (a) the Aggregate Receivables Balance on such date over (b) the Aggregate Adjustment Amount on such date. "New Issuance" shall have the meaning specified in Section ------------ ------- 2.10. ---- "Note Interest Rate" shall mean, as of any date of ------------------- determination and with respect to any Series, the rate at which interest accrues on the Notes of such Series (or formula on the basis of which such rate shall be determined) specified therefor in the related Indenture Supplement. "Note Register" shall have the meaning specified in Section ------------- ------- 2.05. ---- "Noteholder" or "Holder" shall mean the Person in whose name a ---------- ------ Note is registered on the Note Register or such other Person deemed to be a "Noteholder" or "Holder" in any related Indenture Supplement. ---------- ------ "Notes" shall mean all Series of Notes issued by the Issuer ----- pursuant to this Indenture and the applicable Indenture Supplement. "Obligor" shall mean, with respect to any Receivable, the ------- Person or Persons obligated to make payments in respect thereof. "Obligor Balance" shall mean, for each Obligor at any time of --------------- determination, the lesser of (i) the aggregate Unpaid Balance of all Eligible Receivables owed by such Obligor and (ii) its Obligor Limit. 16 "Obligor Limit" shall mean, as of any date of determination, ------------- with respect to each Eligible Obligor having a short-term debt rating (or, if it has no short-term debt rating, the equivalent unsecured long-term debt rating) from each of S&P and Moody's as described below, an amount equal to the applicable percentage listed opposite such Obligor's debt rating times the Aggregate Receivables Balance as of the immediately preceding Business Day: -------------------------- ------------------------------ ----------------- Short-Term Equivalent Applicable Rating Long-Term Percentage of Obligor Unsecured Rating -------------------------- ------------------------------ ----------------- A-1+/P-1 AAA/Aaa or higher 10% -------------------------- ------------------------------ ----------------- A-1/P-1 AA-/Aa3 or higher (but lower than 8% AAA/Aaa) 8% -------------------------- ------------------------------ ----------------- A-2/P-2 A-/A3 or higher (but lower than AA/Aa3) 6% -------------------------- ------------------------------ ----------------- A-3/P-3 BBB-/Baa3 or higher (but lower than A-/A3) 5% -------------------------- ------------------------------ ----------------- Lower than A-3/P-3 Lower than BBB-/Baa3 or not rated 3% -------------------------- ------------------------------ ----------------- For purposes of calculating the foregoing, (i) if an Eligible Obligor's short-term debt rating (or equivalent unsecured long-term rating) results in two different Obligor Limits (because of differences in the debt ratings assigned by each of the Rating Agencies), the lower Obligor Limit shall be the Obligor Limit for such Obligor and (ii) in the case of an Eligible Obligor which is affiliated with one or more other Eligible Obligors, the foregoing Obligor Limits shall be calculated as if such Obligor and such affiliated Obligors were one Obligor. "Officer's Certificate" shall mean, unless otherwise specified --------------------- in this Indenture, a certificate delivered as provided herein, signed by: (a) an Authorized Officer of the Issuer or the Servicer, as the case may be, or (b) by the President, any Vice President, the Treasurer or any Assistant Treasurer or the financial controller of any Successor Servicer (or by an officer holding an office with equivalent or more senior responsibilities or, in the case of the Servicer or Successor Servicer, a Servicing Officer). "Opinion of Counsel" shall mean a written opinion, subject to ------------------ the usual and customary assumptions and exclusions with regard to the subject matter thereof, of counsel, who may be counsel for, or an employee of, the Person providing the opinion and who shall be reasonably acceptable to the Indenture Trustee and each Series Enhancer. 17 "Originator" shall have the meaning set forth in the ---------- preliminary statement to this Indenture. "Outstanding" shall mean, with respect to the Notes as of any ----------- date of determination, all Notes authenticated and delivered under this Indenture except: (i) Notes previously cancelled by the Transfer Agent and Registrar or delivered to the Transfer Agent and Registrar for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been previously deposited with the Indenture Trustee or any Paying Agent in trust for the Holders of such Notes (provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to the applicable Indenture Supplement or provision therefor, satisfactory to the Indenture Trustee, has been made); and (iii) Notes in exchange for or in lieu of other Notes that have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a protected purchaser; provided that in determining whether the Holders of the requisite Outstanding Amount of the Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Issuer, any other obligor on the Notes, the Transferor, the Seller, the Servicer or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding (except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that a Trustee Officer actually knows to be so owned shall be so disregarded). Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor on the Notes, the Transferor, the Originator, the Seller, the Servicer or any Affiliate of any of the foregoing Persons. In making any such determination, the Indenture Trustee may rely on the representations of the pledgee and shall not be required to undertake any independent investigation. "Outstanding Amount" shall mean the aggregate Series ------------------ Outstanding Amount of all Series of Notes Outstanding at the date of determination. "Overconcentration Amount" shall mean, with respect to each ------------------------ Eligible Obligor as of any date of determination, the amount by which the aggregate Unpaid Balance of all Receivables owed by such Eligible Obligor exceeds its Obligor Limit. "Parent" shall mean Levi Strauss & Co., a Delaware ------ corporation. "Parent Affiliated Group" shall mean the Parent and each ------------------------- of its Affiliates other than the Issuer. 18 "Parent Undertaking" shall mean the Parent Undertaking dated ------------------ as of July 31, 2001 from the Parent to the Issuer. "Paying Agent" shall mean Citibank, N.A., and any successor ------------ thereto. "Payment Date" shall mean, with respect to any Series, the ------------ date specified in the applicable Indenture Supplement. "Permitted Lien" shall mean any Lien (i) created under any of -------------- the Transaction Documents, (ii) on goods contemplated to remain in effect pursuant to the Consent and Release Agreement, (iii) which is released pursuant to the Consent and Release Agreement or (iv) any materialman's, workman's, warehouseman's or shipper's or other similar lien on any goods arising by operation of law or in the ordinary course of the Transaction Parties' business. "Person" shall mean any person or entity, including any ------ individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of any nature. "Pledged Assets" shall have the meaning set forth in the -------------- granting clause of this Indenture. "Principal Subaccount" shall mean, with respect to any Series -------------------- of Notes, the subaccount of the Collection Account established under the related Indenture Supplement for the amortization of principal of such Notes. "Principal Terms" shall mean, with respect to any Series, (a) --------------- the name or designation; (b) the initial principal amount (or method for calculating such amount) and the Series Outstanding Amount; (c) the Note Interest Rate for the Notes of such Series (or method for the determination thereof); (d) the payment date or dates and the date or dates from which interest shall accrue; (e) Required Reserves for such Series and the method by which the principal amount for the Notes of such Series shall amortize; (f) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts; (g) the portion of the Servicing Fee allocable to such Series; (h) the Series Enhancer and terms of any of Series Enhancement, if applicable; (i) the terms on which the Notes of such Series may be exchanged for Notes of another Series, repurchased or redeemed by the Issuer or remarketed to other investors; (j) the maturity date; (k) the extent to which the Notes of such Series will be issuable in temporary or permanent global form (and, in such case, the depositary for such global note or notes, the terms and conditions, if any, upon which such global note may be exchanged, in whole or in part, for Definitive Notes, and the manner in which any interest payable on a temporary or global note will be paid); (l) the priority of such Series with respect to any other Series; (m) the Payment Date with respect to such Series; and (n) any other terms of such Series. "Proceeding" shall mean any suit in equity, action at law or ---------- other judicial or administrative proceeding. "Qualified Account" shall mean either (a) a segregated account ----------------- with a Qualified Institution or (b) a segregated trust account with the corporate trust department of a depository 19 institution organized under the laws of the United States of America or any one of the states thereof, or the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as any of the unsecured, unguaranteed senior debt securities of such depository institution shall have a credit rating from each Rating Agency in one of its generic credit rating categories that signifies investment grade. "Qualified Institution" shall mean (a) a depository ---------------------- institution, which may include the Indenture Trustee (if it is a Paying Agent hereunder), organized under the laws of the United States of America or any one of the states thereof, or the District of Columbia, the deposits in which are insured by the Federal Deposit Insurance Corporation and that at all times has a short-term unsecured debt rating of at least A-1+ by S&P and P-1 by Moody's or a long-term unsecured debt rating of AA- by S&P and Aa3 by Moody's or (b) a depository institution acceptable to each Rating Agency. "Rating Agency" shall mean, with respect to any outstanding ------------- Series, each rating agency selected by the Issuer to rate the Notes of such Series, as specified in the applicable Indenture Supplement. "Rating Agency Condition" shall mean, with respect to any ----------------------- action, that each Rating Agency shall have notified the Issuer, the Servicer, any Series Enhancer and the Indenture Trustee in writing that such action will not result in a reduction or withdrawal of the then existing rating of any outstanding Series with respect to which it is a Rating Agency (both with and without giving effect to any letter of credit, surety bond or insurance policy issued by any Series Enhancer) or, with respect to any outstanding Series not rated by any Rating Agency, such written consent as is specified in the Indenture Supplement for such Series. "Receivables" shall mean with respect to an Obligor, the ----------- indebtedness of such Obligor arising under a Contract with the Originator from the sale of merchandise or services by or on behalf of the Originator, whether constituting an account, chattel paper, instrument or general intangible and shall include the right of payment of any interest, finance charges, returned check or late charges and other obligations of such Obligor with respect thereto. "Receivables Purchase Agreement" shall mean the Receivables ------------------------------ Purchase Agreement, dated as of the date hereof, among the Transferor, the Seller, the Servicer and the Issuer, as the same may be amended, supplemented or otherwise modified from time to time. "Receivables Purchase and Sale Agreement" shall mean the Third --------------------------------------- Amended and Fully Restated Receivables Purchase and Sale Agreement dated as of January 28, 2000 between the Originator and the Seller, as amended from time to time. "Receivables Sale Agreement" shall mean the Receivables ---------------------------- Purchase and Sale Agreement dated as of January 28, 2000, among the Originator, the Seller, Funding and the Transferor, as amended from time to time. "Receivables Sale Agreements" shall mean the Receivables ----------------------------- Purchase and Sale Agreement, the Receivables Sale Agreement and the Receivables Purchase Agreement. 20 "Record Date" shall mean, with respect to any Payment Date, ----------- the last Business Day of the preceding Monthly Period, unless otherwise specified for a Series in the related Indenture Supplement. "Records" shall mean all Contracts, purchase orders, invoices, ------- customer lists, credit files and other agreements, documents, books, records and other media for the storage of information (including without limitation tapes, disks, punch cards, computer software and databases and related property) with respect to the Receivables, the Related Security and/or the related Obligors; provided, that Records shall not include any software licenses relating to the foregoing to the extent that the assignment thereof to the Issuer would breach the terms of such licenses. "Redemption Date" shall mean, with respect to any Series, the --------------- date the Notes of any Series are redeemed in accordance with the related Indenture Supplement. "Related Security" shall mean, with respect to each ----------------- Receivable: (a) all security interests or Liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable; (b) all guaranties, letters of credit, insurance, warranties, indemnities and other agreements or arrangements of whatever character from time to time supporting or securing the payment obligation of the Obligor with respect to such Receivable whether pursuant to the Contract related to such Receivable or otherwise; (c) all of the Originator's, the Seller's, the Transferor's and the Issuer's interest in the goods (including returned or repossessed goods), if any, the sale, financing, lease or licensing of which gave rise to such Receivable; (d) all Records related to such Receivable; (e) all service contracts and other contracts and agreements associated with such Receivable; (f) all of the Issuer's right, title and interest in, to and under the Receivables Sale Agreements, the Consent and Release Agreement and the Parent Undertaking in respect of such Receivable; and (g) all proceeds of any of the foregoing. "Required Amount" shall mean, with respect to any Series of --------------- Notes, the required amount to be on deposit in the Expense Subaccount for such Series as specified in the related Indenture Supplement. 21 "Required Reserves" shall mean, with respect to any Series of ----------------- Notes, the required reserves for such Series of Notes as specified in the related Indenture Supplement. "Revolving Period" shall have, with respect to each Series, ----------------- the meaning specified in the related Indenture Supplement. "S&P" shall mean Standard & Poor's Ratings Services, a --- division of The McGraw Hill Companies, Inc. "Seller" shall have the meaning set forth in the preliminary ------ statement to this Indenture. "Series" shall mean any series of Notes issued pursuant to ------ this Indenture and the related Indenture Supplement. "Series Account" shall mean any deposit, trust, securities, -------------- escrow or similar account maintained for the benefit of the Noteholders of any Series, as specified in any Indenture Supplement. "Series Adjusted Outstanding Amount" shall mean the Series ---------------------------------- Outstanding Amount less amounts on deposit in any Principal Subaccount for such Series. "Series Enhancement" shall mean the rights and benefits ------------------- provided to the Issuer or the Noteholders of any Series pursuant to any letter of credit, surety bond, cash collateral account, collateral invested amount, insurance policy or other similar arrangement. The subordination of any Series to another Series also shall be deemed to be a Series Enhancement. "Series Enhancer" shall mean the Person or Persons providing --------------- any Series Enhancement, other than (except to the extent otherwise provided with respect to any Series in the Indenture Supplement for such Series) the Noteholders of any Series that is subordinated to another Series. "Series Fixed Allocation Percentage" shall mean, with respect ---------------------------------- to any Series of Notes for any date during the Amortization Period for such Series, the higher of (i) the Series Floating Allocation Percentage for such Series as of the date such Amortization Period commenced and (ii) the percentage designated by the Issuer in a written notice to the Servicer and the Indenture Trustee and the Rating Agencies as the "Series Fixed Allocation Percentage" for such Series; provided that if more than one Series of Notes is in an -------- Amortization Period and the sum of the Series Fixed Allocation Percentages for each such Series would otherwise exceed 100%, then the Series Fixed Allocation Percentage for any amortizing Series will equal a fraction, the numerator of which equals its Target Receivables Amount as of the date its Amortization Period commenced and the denominator of which equals the sum of the Target Receivables Amounts for all Series which are in an Amortization Period, calculated as of the date of the commencement of the Amortization Period for each such Series. "Series Floating Allocation Percentage" shall mean, with ---------------------------------------- respect to any Series of Notes and for any date during the Revolving Period for such Series, a fraction, the numerator 22 of which equals its Target Receivables Amount and the denominator of which equals the greater of (i) the Net Eligible Receivables Balance and (ii) the sum of the Target Receivables Amounts for all Series then outstanding. "Series Issuance Date" shall mean, with respect to any Series, -------------------- the date on which the Notes of such Series are to be originally issued in accordance with Section 2.10 and the related Indenture Supplement. ------------ "Series Outstanding Amount" shall mean, with respect to any ------------------------- Series of Notes, the aggregate principal amount thereof. "Servicer" shall have the meaning set forth in the preliminary -------- statement to this Indenture. "Servicer Default" shall have the meaning specified in Section ---------------- ------- 8.01 of the Receivables Purchase Agreement. ---- "Servicing Fee" shall have the meaning specified in Section ------------- ------- 3.03 of the Receivables Purchase Agreement. ---- "Servicing Officer" shall have the meaning specified in the ----------------- Receivables Purchase Agreement. "SPC Member" shall mean Levi Strauss Securitization Corp., a ---------- Delaware corporation. "Specialty Receivables" shall mean Receivables generated by --------------------- sales to new or different distribution channels or to specialty retailers for which the Originator establishes payment terms in excess of 37 days. "Stated Amount" shall mean, with respect to any Variable ------------- Funding Note, the maximum principal amount that may be required to be funded by the Holder of such Variable Funding Note pursuant to the applicable Indenture Supplement. "Subsidiary" shall mean, with respect to any Person, any ---------- corporation or other entity of which more than 50% of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors of such corporation (notwithstanding that at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) or other persons performing similar functions is at the time directly or indirectly owned by such Person. "Successor Servicer" shall have the meaning provided in ------------------- Section 8.03(a) of the Receivables Purchase Agreement. -------------- "Target Receivables Amount" shall mean, with respect to any --------------------------- Series, the sum of the Series Adjusted Outstanding Amount plus the Required Reserves for such Series. 23 "Tax Opinion" shall mean, with respect to any action, an ----------- Opinion of Counsel to the effect that, for federal income tax purposes, (a) such action will not adversely affect the tax characterization, as debt, of the Notes of any outstanding Series that were characterized as debt at the time of their issuance and (b) in connection with an issuance of Notes pursuant to an Indenture Supplement, except as is otherwise provided in the Indenture Supplement, the Notes of the Series established pursuant to such Indenture Supplement will be properly characterized as debt of the Issuer. "Transaction Documents" shall mean, collectively, the ---------------------- Receivables Sale Agreements, this Indenture, and with respect to any Series of Notes, the applicable Indenture Supplement, the Parent Undertaking, the Lockbox Agreements, the Master Amendment and Consent, the Consent and Release Agreement and all agreements, instruments, certificates, reports and documents (other than any of the Contracts) executed and delivered or to be executed and delivered by the Issuer under or in connection with any of the foregoing, as any of the foregoing may be amended, supplemented, restated or otherwise modified from time to time. "Transaction Parties" shall mean the Issuer, the Seller, the ------------------- Servicer, the Transferor and the Originator. "Transfer Agent and Registrar" shall mean Citibank, N.A., and ---------------------------- any successor thereto. "Transferor" shall have the meaning set forth in the ---------- preliminary statement to this Indenture. "Trustee Officer" shall mean, with respect to the Indenture --------------- Trustee, any officer assigned to the Corporate Trust Office, including any officer of the Indenture Trustee having direct responsibility for the administration of the applicable Transaction Documents, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "UCC" shall have the meaning specified in Section 2.05. --- ------------ "Unmatured Amortization Event" shall mean any occurrence or ------------------------------ event which, with the giving of notice, the passage of time or both, would constitute an Amortization Event. "Unpaid Balance" of any Receivable shall mean at any time the -------------- unpaid amounts due in respect of such Receivable from the relevant Obligor (exclusive of interest and penalties therein) at such time. "Variable Funding Note" shall mean any Note, the principal --------------------- amount of which may be increased and/or decreased from time to time and which is designated as a "Variable Funding Note" in the Indenture Supplement pursuant to --------------------- which such Note is issued. Section 1.02 Other Definitional Provisions. ----------------------------- 24 (a) With respect to any Series, all terms used herein and not otherwise defined herein shall have meanings ascribed to them in the Receivables Purchase Agreement. (b) All terms defined in this Indenture shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (c) As used in this Indenture and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Indenture or in any such certificate or other document, and accounting terms partly defined in this Indenture or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Indenture or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Indenture or in any such certificate or other document shall control. (d) Any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Series. (e) Unless otherwise specified, references to any amount as on deposit or outstanding on any particular date shall mean such amount at the close of business on such day. (f) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Indenture shall refer to this Indenture as a whole and not to any particular provision of this Indenture; references to any subsection, Section, Schedule or Exhibit are references to subsections, Sections, Schedules and Exhibits in or to this Indenture unless otherwise specified; and the term "including" means "including without limitation." ARTICLE II THE NOTES Section 2.01 Form Generally. -------------- Any Series of Notes, together with the Authentication Agent's certificate of authentication related thereto, shall be issued in fully registered form without coupons, and shall be substantially in the form of an exhibit to the related Indenture Supplement with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or such Indenture Supplement, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be determined by the officers of the Issuer executing such Notes consistently herewith, as evidenced by their execution of such Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The terms of any Notes set forth in an exhibit to the related Indenture Supplement are part of the terms of this Indenture, as applicable. 25 The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by such officers' execution of such Notes. Each Note shall be dated as of the date of its authentication. Section 2.02 Denominations. ------------- Except as otherwise specified in the related Indenture Supplement, the Notes of each Series shall be issued in fully registered form in minimum amounts of $250,000 and in integral multiples of $1,000 in excess thereof (except that one Note of each Series may be issued in a different amount, so long as such amount exceeds the applicable minimum denomination for such Series), and shall be issued upon initial issuance as one or more Notes in an aggregate original principal amount equal to the initial Series Outstanding Amount for such Series or, in the case of any Variable Funding Note, in an amount equal to its applicable Stated Amount. Section 2.03 Execution, Authentication and Delivery. -------------------------------------- Each Note shall be executed by manual or facsimile signature on behalf of the Issuer by an Authorized Officer. Notes bearing the manual or facsimile signature of an individual who was authorized to sign on behalf of the Issuer at the time when such signature was affixed shall not be rendered invalid, notwithstanding the fact that such individual ceased to be so authorized prior to the authentication and delivery of such Notes or does not hold such office at the date of issuance such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer to the Authentication Agent for authentication and delivery, and the Authentication Agent shall authenticate and deliver such Notes as provided in this Indenture (with the designation provided in the related Indenture Supplement) and not otherwise. No Note shall be entitled to any benefit under this Indenture or the applicable Indenture Supplement or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Authentication Agent by the manual signature of a duly authorized signatory, and such certificate of authentication on any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered under this Indenture. Section 2.04 Authentication Agent. -------------------- (a) The Authentication Agent undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and any Indenture Supplement and no implied covenants or obligations shall be read into this Indenture or such Indenture Supplement against the Authentication Agent. The Issuer may remove the Authentication Agent if the Issuer determines in its sole discretion that the Authentication Agent shall have failed to perform its 26 obligations under this Indenture or any Indenture Supplement in any material respect or for other good reason. The Authentication Agent shall be permitted to resign upon 30 days' written notice to the Issuer. Upon the removal or resignation of the Authentication Agent, the Issuer shall appoint a successor to act as Authentication Agent. The Issuer shall notify the Indenture Trustee and the Rating Agencies of the removal or resignation of the Authentication Agent and the identity and location of the successor Authentication Agent. The resignation provisions of this Section 2.04(a) shall apply to the Indenture --------------- Trustee in its capacity as Transfer Agent and Registrar as well as in its capacity as Authentication Agent. (b) Pursuant to the Receivables Purchase Agreement, the Issuer shall direct the Servicer to pay to the Agent from time to time reasonable compensation for its services and all reasonable out-of-pocket expenses incurred or made by it, including costs of collection. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Agent's counsel, accountants, agents and experts. The Issuer shall cause the Servicer to indemnify the Agent against any and all loss, liability or expense (including the fees and expenses of either in-house counsel or outside counsel, but not both) incurred by it in connection with the performance of its duties hereunder and under any Indenture Supplement. The Agent shall notify the Issuer and the Servicer promptly of any claim for which it may seek indemnity. Failure by the Agent to so notify the Issuer and the Servicer shall not relieve the Issuer of its obligations hereunder unless such loss, liability or expense could have been avoided with such prompt notification and then only to the extent of such loss, expense or liability which could have been so avoided. Neither the Issuer nor the Servicer need reimburse any expense or indemnify against any loss, liability or expense incurred by the Agent through the Agent's own willful misconduct, negligence or bad faith. (c) The provisions of Sections 6.01, 6.03, 6.04 and 6.05 shall ------------- ---- ---- ---- be applicable to the Agent. (d) Pursuant to any appointment made under this Section 2.04, ------------ the Notes may have endorsed thereon, in lieu of or in addition to the Authentication Agent's certificate of authentication, an alternative certificate of authentication in substantially the following form: "This is one of the Notes designated above and referred to in the within-mentioned Indenture. -------------------------, as Authentication Agent By: __________________________ Authorized Signatory 27 Section 2.05 Registration of and Limitations on Transfer and Exchange -------------------------------------------------------- of Notes. -------- The Transfer Agent and Registrar shall keep a register (the "Note Register") in which the Transfer Agent and Registrar shall provide for the ------------- registration of Notes and the registration of transfers of Notes. Upon any resignation of any Transfer Agent and Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Transfer Agent and Registrar. The Issuer shall notify the Indenture Trustee of the identity and location of any successor Transfer Agent and Registrar. The Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to rely upon a certificate executed on behalf of the Transfer Agent and Registrar by an officer thereof as to the names and addresses of the Noteholders and the principal amounts and numbers of such Notes. Upon surrender for registration of transfer of any Note at the office or agency of the Transfer Agent and Registrar to be maintained as provided in Section 3.02(i), if the requirements of Section 8-401(a) of the --------------- Uniform Commercial Code (the "UCC") as in effect in the State of New York are --- met and any applicable requirements for transfer set forth in the related Indenture Supplement are satisfied, the Issuer shall execute, and upon receipt of such surrendered Note the Authentication Agent shall authenticate and deliver to the Noteholder, in the name of the designated transferee or transferees, one or more new Notes (of the same Series) in any authorized denominations of like aggregate principal amount or, in the case of any Variable Funding Notes, of like aggregate Stated Amounts. At the option of a Noteholder, Notes may be exchanged for other Notes of the same Series, in any authorized denominations and of like aggregate principal amount or, in the case of any Variable Funding Notes, of like aggregate Stated Amounts, upon surrender of such Notes to be exchanged at the office or agency of the Transfer Agent and Registrar. Whenever any Notes are so surrendered for exchange, if the requirements of Section 8-401(a) of the UCC are met, the Issuer shall execute, and upon receipt of such surrendered Note the Authentication Agent shall authenticate and deliver to the Noteholder, the Notes that the Noteholder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall evidence the same obligations, evidence the same debt, and be entitled to the same rights and privileges under this Indenture and the related Indenture Supplement as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in a form satisfactory to the Transfer Agent and Registrar duly executed by, the Noteholder thereof or its attorney-in-fact duly authorized in writing, and by such other documents as the Transfer Agent and Registrar may reasonably require. 28 The registration of transfer of any Note shall be subject to the additional requirements, if any, set forth in the related Indenture Supplement. No service charge shall be made for any registration of transfer or exchange of Notes, but the Issuer or the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of such Notes. All Notes surrendered for registration of transfer or exchange shall be cancelled by the Transfer Agent and Registrar and disposed of by the Transfer Agent and Registrar in accordance with its customary procedures. The Transfer Agent and Registrar shall dispose of any Global Note upon its exchange in full for Definitive Notes (of the same Series) in accordance with its customary procedures. The preceding provisions of this section notwithstanding, the Issuer shall not be required to make, and the Transfer Agent and Registrar need not register, transfers or exchanges of Notes for a period of 20 days preceding the due date for any payment with respect to the Notes. If and so long as any Series of Notes are listed on the Luxembourg Stock Exchange and such exchange shall so require, the Transfer Agent and Registrar shall, at the discretion and expense of the Issuer, appoint a co-transfer agent and registrar in Luxembourg or another European city. Any reference in this Indenture to the Transfer Agent and Registrar shall include any such co-transfer agent and registrar unless the context otherwise requires. The Transfer Agent and Registrar shall enter into any appropriate agency agreement with any co-transfer agent and registrar not a party to this Indenture, that will implement the provisions of this Indenture that relate to such agent. Section 2.06 Mutilated, Destroyed, Lost or Stolen Notes. ------------------------------------------ If (a) any mutilated Note is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its reasonable satisfaction of the destruction, loss or theft of any Note and (b) in the case of a destroyed, lost or stolen Note there is delivered to the Transfer Agent and Registrar such security or indemnity as may be required by it to hold the Issuer and the Transfer Agent and Registrar harmless and the requirements of Section 8-405 of the UCC are met, then the Issuer shall execute, and the Authentication Agent shall authenticate and deliver, a replacement Note of like tenor (including the same date of issuance) and principal amount or, in the case of a replacement Variable Funding Note, of like tenor and Stated Amount, bearing a number not contemporaneously outstanding in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note; provided, however, that if any -------- ------- such mutilated, destroyed, lost or stolen Note shall have become, or within 7 days shall be, due and payable, or shall have been selected or called for redemption, the Issuer may pay such Note without surrender thereof instead of issuing a replacement Note, except that any mutilated Note shall be surrendered. After the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, if a protected purchaser of the original Note in lieu of which such replacement Note was issued presents such original Note 29 for payment, the Issuer and the Transfer Agent and Registrar shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person other than a protected purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Transfer Agent and Registrar in connection therewith. Upon the issuance of any replacement Note under this Section ------- 2.06, the Issuer or the Transfer Agent and Registrar may require the payment by ---- the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto and any other reasonable expenses (including the fees and expenses of the Transfer Agent and Registrar) in connection therewith. Every replacement Note issued in replacement of any mutilated, destroyed, lost or stolen Note pursuant to this Section 2.06 shall constitute ------------ complete and indefeasible evidence of an obligation of the Issuer as if originally issued, whether or not the mutilated, destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 2.06 are exclusive and shall ------------ preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 2.07 Persons Deemed Owners. --------------------- Unless otherwise specified in the applicable Indenture Supplement, prior to due presentment for registration of transfer of any Note, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar and any agent of the foregoing shall treat the Person in whose name any Note is registered as the owner of such Note for all purposes of this Indenture and the applicable Indenture Supplement, whether or not such Note is overdue, and neither the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar nor any agent of the foregoing shall be affected by any notice to the contrary. Section 2.08 Paying Agent. ------------ (a) The Paying Agent shall have the revocable power to withdraw funds and make distributions to Noteholders from the appropriate account or accounts maintained for the benefit of Noteholders as specified in this Indenture or the related Indenture Supplement for any Series. The Issuer may revoke such power and remove the Paying Agent if the Issuer determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Indenture in any material respect or for other good cause. The Paying Agent shall be permitted to resign upon 30 days' written notice to the Issuer. Upon the removal or resignation of the Paying Agent, the Issuer shall appoint a successor to act as Paying Agent (which successor shall be a bank or trust company). Any reference in this Indenture to the Paying Agent shall include any co-paying agent unless the context requires otherwise. The Issuer shall notify the Indenture 30 Trustee, each Series Enhancer and the Rating Agencies of the removal or the resignation of any Paying Agent and the identity and location of the successor Paying Agent. (b) If and so long as any Series of Notes are listed on the Luxembourg Stock Exchange or other stock exchange and such exchange shall so require, the Paying Agent shall, at the discretion and expense of the Issuer, appoint a co-paying agent in Luxembourg or other city or country as may be required by such other stock exchange. The Paying Agent shall enter into an appropriate agency agreement with any co-paying agent not a party to this Indenture, which will implement the provisions of this Indenture that relate to such agent. (c) The Paying Agent agrees that it will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and pay such sums to such Persons as herein provided; (ii) give the Indenture Trustee notice of any default by the Issuer (or any other obligor upon the Notes) of which it has Actual Knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; and (iv) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. (d) The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct the Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which such sums were held by such Paying Agent and, upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Section 2.09 Cancellation. ------------ All Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Transfer Agent and Registrar, be delivered to the Transfer Agent and Registrar and shall be promptly cancelled by it. The Issuer may at any time deliver to the Transfer Agent and Registrar for cancellation any Notes previously authenticated and delivered hereunder that the Issuer may have acquired in any lawful manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Transfer Agent and Registrar. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.09, except as ------------ expressly permitted by this Indenture. All 31 cancelled Notes held by the Transfer Agent and Registrar shall be disposed of by the Transfer Agent and Register in accordance with its customary procedures. Section 2.10 New Issuances. ------------- (a) Pursuant to one or more Indenture Supplements, the Issuer may from time to time issue one or more new Series of Notes (a "New Issuance"). ------------ The Notes of all outstanding Series shall be equally and ratably entitled to the benefits of this Indenture without preference, priority or distinction, all in accordance with the terms and provisions of this Indenture and the applicable Indenture Supplement, except as provided in the related Indenture Supplement with respect to any Series. Interest on the Notes of all outstanding Series shall be paid on each Payment Date therefor as specified in the Indenture Supplement relating to such outstanding Series. Principal of the Notes of each outstanding Series shall be paid as specified in the Indenture Supplement relating to such outstanding Series. (b) On or before the Series Issuance Date for any new Series of Notes, the parties hereto shall execute and deliver an Indenture Supplement specifying the Principal Terms of such Series. The terms of such Indenture Supplement may modify or amend the terms of this Indenture solely as applied to such new Series. The obligation of the Authentication Agent to authenticate and deliver the Notes of any Series to or upon the order of the Issuer (other than any Series issued pursuant to an Indenture Supplement dated as of the date hereof) and the obligation of the Authentication Agent and the Indenture Trustee to execute and deliver the related Indenture Supplement is subject to the satisfaction of the following conditions: (i) on or before the 30th day immediately preceding the Series Issuance Date, the Issuer shall have given the Indenture Trustee, the Servicer, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar, each Series Enhancer and each Rating Agency written notice (unless such notice requirement is otherwise waived) of such issuance and the applicable Series Issuance Date; (ii) the Issuer shall have delivered to the Authentication Agent and the Indenture Trustee any related Indenture Supplement, in form satisfactory to the Authentication Agent and the Indenture Trustee, executed by each party hereto other than the Authentication Agent and the Indenture Trustee; (iii) the Issuer shall have delivered to the Indenture Trustee any related Enhancement Agreement executed by each of the parties thereto other than the Indenture Trustee; (iv) the Rating Agency Condition shall have been satisfied with respect to such issuance; (v) there shall have been delivered to the Indenture Trustee (with a copy to each Rating Agency) (A) the Opinion of Counsel required pursuant to Section 3.05(a) and (B) a Tax --------------- Opinion with respect to such issuance, dated the applicable Series Issuance Date; 32 (vi) the Issuer and the Servicer shall each have delivered to the Indenture Trustee an Officer's Certificate to the effect that on the Series Issuance Date after giving effect to the issuance of such new Series of Notes, neither an Amortization Event nor an Unmatured Amortization Event with respect to any Series of Notes nor an Asset Deficiency or Event of Default is continuing or will occur as the result of the issuance of such Series of Notes; (vii) the Issuer and the Servicer shall have delivered to the Indenture Trustee an Officer's Certificate to the effect that on the Series Issuance Date after giving effect to the issuance of such new Series of Notes, all conditions precedent provided in this Indenture and the related Indenture Supplement with respect to the authentication and delivery of the new Series of Notes have been complied with; (viii) the Servicer shall have delivered to the Indenture Trustee a Daily Receivables Activity Report disclosing that, after giving effect to such New Issuance, the Net Eligible Receivables Balance will exceed the sum of the Target Receivables Amounts for all Series then outstanding; and (ix) the Issuer shall have delivered to the Authentication Agent a written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Authentication Agent authorizing and directing the authentication and delivery of the Notes of such Series by the Authentication Agent. (c) Upon satisfaction of the above conditions, the Issuer shall execute, and the Authentication Agent shall authenticate and deliver, the Notes of such Series as provided in this Indenture and the applicable Indenture Supplement. Neither the Authentication Agent nor the Indenture Trustee shall be obligated to enter into any such Indenture Supplement that adversely affects the Authentication Agent's or the Indenture Trustee's own rights, duties or immunities under this Indenture. Section 2.11 Book-Entry Notes. ---------------- Unless otherwise provided in any related Indenture Supplement, upon original issuance, each Series of Notes shall be issued in the form of typewritten Notes representing the Book-Entry Notes to be delivered to the depository specified in such Indenture Supplement (which shall be the Clearing Agency or Foreign Clearing Agency), by or on behalf of such Series. Unless otherwise provided in the related Indenture Supplement, the Notes of each Series initially shall be registered in the Note Register in the name of the nominee of the Clearing Agency or Foreign Clearing Agency, as applicable, for such Book Entry Notes and shall be delivered to the Authentication Agent or, pursuant to such Clearing Agency's or Foreign Clearing Agency's instructions, held by the Authentication Agent's agent as custodian for the Clearing Agency or Foreign Clearing Agency. 33 Unless and until Definitive Notes are issued under the limited circumstances described in Section 2.13, no Beneficial Owner shall be entitled ------------ to receive a Definitive Note representing such Beneficial Owner's interest in such Note. Unless and until Definitive Notes have been issued to the Beneficial Owners pursuant to Section 2.13: ------------ (a) the provisions of this Section 2.11 shall be in full force ------------ and effect with respect to each such Series; (b) the Indenture Trustee shall be entitled to deal with the Clearing Agency or Foreign Clearing Agency and the Clearing Agency Participants for all purposes of this Indenture and any related Indenture Supplement (including the payment of principal of and interest on the Notes of each such Series) as the authorized representatives of the Beneficial Owners; (c) to the extent that the provisions of this Section 2.11 ------------ conflict with any other provisions of this Indenture, the provisions of this Section 2.11 shall control with respect to each such Series; ------------ (d) the rights of Beneficial Owners of each such Series shall be exercised only through the Clearing Agency or Foreign Clearing Agency and the applicable Clearing Agency Participants and shall be limited to those established by law and agreements between such Beneficial Owners and the Clearing Agency or Foreign Clearing Agency and/or the Clearing Agency Participants. Pursuant to the depository agreement applicable to a Series, unless and until Definitive Notes of such Series are issued pursuant to Section ------- 2.13, the initial Clearing Agency shall make book-entry transfers among the ---- Clearing Agency Participants and receive and transmit distributions of principal and interest on the Notes to such Clearing Agency Participants; and (e) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of the Holders of Notes evidencing a specified percentage of the Outstanding Amount, the Clearing Agency or Foreign Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from the Beneficial Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes and has delivered such instructions to the Indenture Trustee. Section 2.12 Notices to Clearing Agency or Foreign Clearing Agency. ------------------------------------------------------ Unless and until Definitive Notes shall have been issued to Beneficial Owners pursuant to Section 2.13, whenever a notice or other ------------ communication to the Noteholders is required under this Indenture, the Indenture Trustee shall give such notice or communication to the Clearing Agency or Foreign Clearing Agency, as applicable, for distribution to Beneficial Owners and shall have no obligation to distribute such notice or other communication directly to the Beneficial Owners. 34 Section 2.13 Definitive Notes. ---------------- If (i) (a) the Issuer advises the Indenture Trustee in writing that the Clearing Agency or Foreign Clearing Agency is no longer willing or able to properly discharge its responsibilities as Clearing Agency or Foreign Clearing Agency with respect to the Book-Entry Notes of a given Series and (b) the Issuer is unable to locate and reach an agreement on satisfactory terms with a qualified successor, (ii) the Issuer, at its option, advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or Foreign Clearing Agency with respect to such Series or (iii) after the occurrence of an Event of Default, Beneficial Owners aggregating a majority of the Outstanding Amount of the Notes of such Series advise the Indenture Trustee and the applicable Clearing Agency or Foreign Clearing Agency through the applicable Clearing Agency Participants in writing that the continuation of a book-entry system is no longer in the best interests of the Beneficial Owners of such Series, the Indenture Trustee shall notify (with a copy to the Transfer Agent and Registrar) all Beneficial Owners of such Series of the occurrence of such event and of the availability of Definitive Notes to Beneficial Owners of such Series requesting the same. Upon surrender to the Transfer Agent and Registrar of the Notes of such Series accompanied by registration instructions from the applicable Clearing Agency or Foreign Clearing Agency, the Issuer shall execute, and the Authentication Agent shall authenticate and deliver, Definitive Notes of such Series and shall recognize the registered holders of such Definitive Notes as Noteholders under this Indenture. Neither the Issuer nor the Indenture Trustee shall be liable for any delay in delivery of such instructions, and the Issuer and the Indenture Trustee may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes of such Series, all references herein to obligations imposed upon or to be performed by the applicable Clearing Agency or Foreign Clearing Agency shall be deemed to be imposed upon and performed by the Indenture Trustee to the extent applicable with respect to such Definitive Notes, and the Indenture Trustee and the Paying Agent shall recognize the registered holders of the Definitive Notes of such Series as Noteholders of such Series hereunder. Definitive Notes will be transferable and exchangeable at the offices of the Transfer Agent and Registrar. Section 2.14 Global Note; Euro-Note Exchange Date. ------------------------------------ If specified in the related Indenture Supplement for any Series, Notes initially may be issued in the form of a single temporary global note (each, a "Global Note") in the denomination of the initial Series ----------- Outstanding Amount and substantially in the form attached to the related Indenture Supplement. Unless otherwise specified in the related Indenture Supplement, the provisions of this Section 2.14 shall apply to such Global Note. ------------ Global Notes shall be authenticated by the Authentication Agent upon the same conditions, in substantially the same manner and with the same effect as the Definitive Notes. Global Notes may be exchanged in the manner described in the related Indenture Supplement for Definitive Notes. Section 2.15 Representations and Covenants of Paying Agent, ---------------------------------------------- Authentication Agent and Transfer Agent and Registrar. ----------------------------------------------------- The Indenture Trustee, as Paying Agent, Authentication Agent and Transfer Agent and Registrar, represents, warrants and covenants that: 35 (a) The Indenture Trustee is a national banking association duly organized and validly existing under the laws of the United States of America; (b) The Indenture Trustee has full power and authority to deliver and perform this Indenture and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture and any Indenture Supplement; and (c) Each of this Indenture and other Transaction Documents to which it is a party has been duly executed and delivered by The Indenture Trustee and constitutes its legal, valid and binding obligation in accordance with its terms. ARTICLE III REPRESENTATIONS AND COVENANTS OF THE ISSUER Section 3.01 Representations and Warranties of the Issuer. The ------------------------------------------------- Issuer hereby makes the representations and warranties set forth in this Section ------- 3.01, in each case as of the date hereof, as of the Effective Date, as of each ---- Series Issuance Date and as of any other date specified in such representation and warranty. (a) Organization and Good Standing. The Issuer is a limited ------------------------------ liability company duly formed and validly existing in good standing under the laws of the State of Delaware and has full power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. The Issuer is duly qualified to do business, is in good standing as a foreign entity and has obtained all necessary licenses and approvals in all jurisdictions in which the conduct of its business requires such qualification, licenses or approvals and in which the failure so to qualify or to obtain such licenses and approvals or to preserve and maintain such qualification, licenses or approvals could reasonably be expected to give rise to a Material Adverse Effect. (c) Power and Authority: Due Authorization. The Issuer (i) has -------------------------------------- all necessary power and authority to (A) execute and deliver this Indenture and the other Transaction Documents to which it is a party, (B) perform its obligations under this Indenture and the other Transaction Documents to which it is a party and (C) make a Grant of the Pledged Assets to the Indenture Trustee on the terms and subject to the conditions herein provided and (ii) has duly authorized by all necessary action such Grant and the execution, delivery and performance of, and the consummation of the transactions provided for in, this Indenture and the other Transaction Documents to which it is a party. Each Transaction Document to which the Issuer is a party has been duly executed and delivered by the Issuer. (d) Binding Obligations. This Indenture (i) constitutes a -------------------- Grant of a security interest (as defined in the UCC) in all of the Issuer's right, title and interest in, to and under the Pledged Assets, free and clear of any Lien (other than Permitted Liens) to the Indenture Trustee, which is enforceable with respect to the existing Receivables owned by the Issuer and the 36 proceeds thereof upon execution and delivery of this Indenture and which will be enforceable with respect to the Receivables hereafter acquired by the Issuer and the proceeds thereof upon such acquisition by the Issuer and (ii) constitutes, and each other Transaction Document to which the Issuer is a party when duly executed and delivered will constitute, a legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (B) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and --------------------------- performance of, and the consummation of the transactions contemplated by, this Indenture and the other Transaction Documents to be signed by the Issuer, and the fulfillment of the terms hereof and thereof, will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under the certificate of formation or the limited liability company agreement of the Issuer or any material indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which the Issuer is a party or by which it or any of its respective properties is bound, (ii) result in the creation or imposition of any Lien (other than Permitted Liens) on any of the Pledged Assets pursuant to the terms of any such material indenture, loan agreement, mortgage, deed of trust, or other material agreement or instrument other than this Indenture and the other Transaction Documents or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule or regulation applicable to the Issuer or of any Governmental Authority having jurisdiction over the Issuer, which conflict or violation described in this clause (iii), individually or in the aggregate, could reasonably be expected to ------------ have a Material Adverse Effect. (f) Litigation and Other Proceedings. (i) There is no action, -------------------------------- suit, proceeding or investigation pending or, to the best knowledge of the Issuer, threatened, against the Issuer before any Governmental Authority and (ii) the Issuer is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any Governmental Authority that, in the case of either of the foregoing clauses (i) and (ii), (A) asserts the invalidity ----------- ---- of this Indenture or any other Transaction Document, (B) seeks to prevent the Grant of any Pledged Asset by the Issuer to the Indenture Trustee, the ownership or acquisition by the Issuer of a material amount of Receivables or the consummation of any of the transactions contemplated by this Indenture or any other Transaction Document, (C) seeks any determination or ruling that, in the reasonable judgment of the Issuer, would materially and adversely affect the performance by the Issuer of its obligations under this Indenture or any other Transaction Document or the validity or enforceability of this Indenture or any other Transaction Document or (D) individually or in the aggregate for all such actions, suits, proceedings and investigations could reasonably be expected to have a Material Adverse Effect. (g) Governmental Approvals. Except where the failure to obtain ---------------------- or make such authorization, consent, order, approval or action could not reasonably be expected to have a Material Adverse Effect, all authorizations, consents, orders and approvals of, or other actions by, any Governmental Authority that are required to be obtained by the Issuer in connection with the Grant of the Pledged Assets or the due execution, delivery and performance by the Issuer of 37 this Indenture or any other Transaction Document to which it is a party and the consummation by the Issuer of the transactions contemplated by this Indenture and the other Transaction Documents to which it is a party have been obtained or made and are in full force and effect. (h) Margin Regulations. The Issuer is not engaged, principally ------------------ or as one its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meanings of Regulations T, U and X of the Board of Governors of the Federal Reserve System). The Issuer has not taken and will not take any action to cause the use of proceeds of the Notes to purchase or carry margin stock. (i) Taxes. The Issuer has filed (or there have been filed on ----- its behalf as a member of a consolidated group) all tax returns and reports required by law to have been filed by it and has paid all taxes, assessments and governmental charges thereby shown to be owing by it, other than any such taxes, assessments or charges that are being diligently contested in good faith by appropriate proceedings, for which adequate reserves in accordance with GAAP have been set aside on its books and that have not given rise to any Liens (other than Permitted Liens); provided, however, that as of the date of this -------- ------- Indenture, the Issuer is a newly established entity and as such has not been required to file any tax returns. (j) Solvency. After giving effect to the transactions -------- contemplated by this Indenture and the other Transaction Documents, the Issuer is solvent and able to pay its debts as they come due and has adequate capital to conduct its business as presently conducted. (k) Offices. The principal place of business and chief ------- executive office of the Issuer is located at 3125 Chad Drive, Eugene, Oregon 97408. (l) Investment Company Act. The Issuer is not, and is not ---------------------- controlled by, an "investment company" registered or required to be registered under the Investment Company Act. (m) Accuracy of Financial Information and Other Information. --------------------------------------------------------- All balance sheets, all statements of operations and of cash flow and other financial data that have been or shall hereafter be furnished by the Issuer to the Indenture Trustee pursuant to Section 3.02 have been prepared in accordance ------------ with GAAP (to the extent applicable) and fairly present in all material respects the financial condition of the Issuer as of the dates thereof. All certificates, reports, statements, documents and other information furnished to the Indenture Trustee by or on behalf of the Issuer pursuant to any provision of this Indenture or any other Transaction Document, or in connection with or pursuant to any amendment or modification of, or waiver under, this Indenture or any other Transaction Document, shall, at the time the same are so furnished, be complete and correct in all material respects on the date the same are furnished to the Indenture Trustee. (n) Security Interests. Other than the security interest ------------------- granted to the Indenture Trustee pursuant to this Indenture, the Issuer has not pledged, granted, sold, conveyed or otherwise assigned any interests or security interests in the Pledged Assets, and no security agreement, financing statement or equivalent security or lien instrument listing the Issuer as 38 debtor covering all or any part of the Pledged Assets is on file or of record in any jurisdiction, except such as may have been filed, recorded or made by the Issuer in favor of the Indenture Trustee on behalf of the Noteholders in connection with this Indenture. This Indenture constitutes a valid and continuing security interest (as defined in the UCC) in and Lien on the Pledged Assets in favor of the Indenture Trustee on behalf of the Noteholders, which security interest and Lien is prior to all other Liens (other than Permitted Liens) and is enforceable as such as against creditors of and purchasers from the Issuer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. The Issuer owns good and marketable title to the Pledged Assets free and clear of any Lien, claim or encumbrance of any Person other than Permitted Liens. All of the Pledged Assets constitute either accounts, deposit accounts, investment property or general intangibles (as each such term is defined in the UCC) except that proceeds of the Pledged Assets may also take the form of instruments. The Issuer has taken all action necessary to perfect the security interest granted in this Indenture. The Issuer has filed (or has caused the Servicer to file) all appropriate financing statements in the proper filing offices in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Pledged Assets granted to the Indenture Trustee. The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the Pledged Assets other than the financing statements filed in favor of the Indenture Trustee. The Issuer is not aware of any judgment or tax lien filings against the Issuer. The Purchased Assets, as defined in the Receivables Purchase Agreement, are either accounts or general intangibles within the meaning of the UCC. The Collection Account, the Distribution Account and each Series Account each constitute either a securities account or a deposit account within the meaning of the UCC. The Issuer has taken all steps necessary to cause the Indenture Trustee to be the account holder of each such deposit account and the Issuer has taken all steps necessary to cause each securities intermediary of each such securities account to identify in its records the Indenture Trustee as the person having a security entitlement against the securities intermediary in such securities account. The Lockbox Accounts constitute deposit accounts within the meaning of the UCC and the Issuer (or the Servicer on its behalf) has delivered to the Indenture Trustee a fully executed agreement pursuant to which the Bank maintaining the Lockbox Accounts has agreed to comply with all instructions originated by the Indenture Trustee directing disposition of the funds in the Lockbox Accounts without further consent by the Issuer, the Servicer or the Originator. None of the Lockbox Accounts, Collection Account, Distribution Account or Series Accounts are in the name of any person other than Issuer or the Indenture Trustee, and the Issuer has not consented to the banks maintaining any such accounts to comply with instructions of any person other than the Indenture Trustee and the Issuer has not consented to the securities intermediary of any such securities accounts to comply with entitlement orders of any person other than the Indenture Trustee. Accordingly, The Indenture Trustee has a first priority perfected security interest in all such deposit and securities accounts, all funds and financial assets on deposit therein, and all securities entitlements relating thereto. The representations and warranties set forth in this Section 3.01(n) shall survive the execution and delivery of this Indenture --------------- and the issuance of any Notes, shall be deemed re-made on each date on which any funds in the Collection Account are distributed to Issuer or otherwise released 39 from the Lien of the Indenture and may not be waived by any party hereto except pursuant to a supplemental indenture executed in accordance with Article X and --------- as to which the Rating Agency Condition has been satisfied. The Indenture Trustee, as securities intermediary for the Collection Account and each Series Account, has agreed to treat all assets credited to any such account as "financial assets" within the meaning of the UCC. Section 3.02 Affirmative Covenants of the Issuer. From the Effective ----------------------------------- Date until the termination of this Indenture, the Issuer hereby agrees that it will perform the covenants and agreements set forth in this Section 3.02. ------------- (a) Financial Reports by the Issuer. As soon as available, but ------------------------------- in any event within 120 days after the end of each fiscal year of the Issuer, the Issuer shall deliver to the Indenture Trustee and each Series Enhancer and the Indenture Trustee shall forward to each Noteholder a copy of the balance sheet and income statement of the Issuer at the end of such year. (b) Books and Records. The Issuer shall keep proper books of ------------------- record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to the Pledged Assets and its business activities in accordance with GAAP, and shall permit the Indenture Trustee and each Series Enhancer at their own cost and expense to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, directors, employees and independent public accountants, all at such reasonable times upon reasonable notice and as often as may reasonably be requested. (c) Notice of Defaults and Events of Default. The Issuer shall ---------------------------------------- give the Indenture Trustee, each Series Enhancer and the Rating Agencies prompt written notice of each Default and Event of Default hereunder and the occurrence of any Unmatured Amortization Event or Amortization Event with respect to any Series of Notes and, immediately after obtaining Actual Knowledge of any of the following occurrences, written notice of each default on the part of the Servicer, the Transferor, the Seller or the Originator of their respective obligations under the Receivables Sale Agreements, and the action, if any, being taken with respect to each such default. (d) Maintenance of Existence. The Issuer shall keep in full -------------------------- effect its existence, rights and franchises as a limited liability company under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and shall obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes, the Pledged Assets and each other related instrument or agreement. (e) Compliance with Laws. The Issuer will comply with the ---------------------- requirements of all applicable laws, rules, regulations and orders of all Governmental Authorities, a violation of which, individually or in the aggregate for all such violations, is reasonably likely to have a 40 Material Adverse Effect. Notwithstanding the foregoing, the Issuer has no contractual duty to comply with the Federal Assignment of Claims Act to the extent that the aggregate Unpaid Balances of the Eligible Receivables owed by the United States federal government or any subdivision thereof, or any agency, department, or instrumentality thereof, do not exceed 2.5% of the Aggregate Receivables Balance. (f) Rule 144A Information. For so long as any of the Notes are --------------------- "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act of 1933, as amended, the Issuer agrees to provide to any Noteholder or Beneficial Owner, and to any prospective purchaser of Notes designated by such Noteholder or Beneficial Owner upon the request of such Noteholder or Beneficial Owner or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the conditions set forth in Rule 144A(d)(4) under the Securities Act of 1933, as amended. (g) Annual Tax Information. Unless otherwise specified in the ---------------------- related Indenture Supplement, on or before January 31 of each calendar year, beginning with calendar year 2002, the Indenture Trustee or the Paying Agent shall furnish to each Person who at any time during the preceding calendar year was a Noteholder of a Series of Notes a statement prepared by or on behalf of the Issuer containing the information that is necessary or desirable to enable the Noteholders to prepare their tax returns. The obligations of the Issuer to prepare and the Indenture Trustee or the Paying Agent to distribute such information shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Indenture Trustee or the Paying Agent pursuant to any requirements of the Code as from time to time in effect. (h) Statements as to Compliance. The Issuer shall deliver to --------------------------- the Indenture Trustee, within 120 days after the end of each fiscal year of the Issuer (commencing within 120 days after the end of the fiscal year 2001), an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that (i) a review of the activities of the Issuer during the 12-month period ending at the end of such fiscal year (or in the case of the fiscal year ending November 25, 2001; the period from the initial Series Issuance Date to November 25, 2001) and of performance under this Indenture has been made under such Authorized Officer's supervision, and (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied with all material conditions and covenants under this Indenture throughout such year or, if there has been a default in its compliance with any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. (i) Maintenance of Office or Agency. The Issuer shall maintain ------------------------------- an office or agency within New York City, New York where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be 41 served. The Issuer hereby initially appoints the Transfer Agent and Registrar at the Corporate Trust Office to serve as its agent for the foregoing purposes. (j) Further Instruments and Acts. Upon request of the ------------------------------- Indenture Trustee, the Issuer shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. Section 3.03 Negative Covenants of the Issuer. From the Effective --------------------------------- Date until the termination of this Indenture, the Issuer hereby agrees that it shall not: (a) Amendment of Limited Liability Company Agreement. Amend -------------------------------------------------- the Limited Liability Company Agreement unless, prior to such amendment, each Rating Agency confirms that after such amendment the Rating Agency Condition will be met and each Series Enhancer consents thereto; (b) Change in Location of Chief Executive Office. (a) Change ---------------------------------------------- the location of its chief executive office or principal place of business (within the meaning of the applicable Uniform Commercial Code) without 60 days' prior written notice to the Indenture Trustee or (b) change its name or the jurisdiction of its formation without prior written notice to the Indenture Trustee sufficient to allow the Indenture Trustee to execute all filings prepared by the Issuer (including filings of financing statements on form UCC-1) and recordings necessary to maintain the perfection of the interest of the Indenture Trustee on behalf of the Noteholders in the Pledged Assets pursuant to this Indenture. If the Issuer desires to so change its office or change its name or the jurisdiction of its formation, the Issuer will make any required filings and prior to actually changing its office or its name or the jurisdiction of its formation the Issuer shall deliver to the Indenture Trustee (i) an Officer's Certificate and (ii) copies of all such required filings with the filing information duly noted thereon by the office in which such filings were made; (c) Capital Expenditures. Make expenditures (by long-term or -------------------- operating lease or otherwise) for capital assets (either realty or personality) in an aggregate amount that is in excess of $25,000 in any single year; (d) No Other Business or Agreements. Engage in any business ----------------------------------- other than financing, purchasing, owning and selling and managing the Pledged Assets in the manner contemplated by this Indenture and the other Transaction Documents and all activities incidental thereto, or enter into or be a party to any agreement or instrument other than any Transaction Document or documents and agreements incidental thereto; (e) Consolidation, Merger or Other Form of Combination and Sale ------------------------------------------------------------ of Assets. Enter into any consolidation, merger, joint venture, syndicate or --------- other form of combination with any Person or sell, lease or transfer of otherwise dispose of any assets, including without limitation the Pledged Assets, other than as expressly provided for in the Transaction Documents, or engage in any other transaction, that would result in a change of control of the Issuer; (f) Guarantees, Loans, Advances and other Liabilities. Except as ------------------------------------------------- contemplated by this Indenture or the other Transaction Documents (including the issuance of 42 the "Subordinated Note" in accordance with the terms of the Receivables Purchase Agreement), make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person; (g) Indebtedness. Issue, incur, assume, guarantee or otherwise ------------ become liable, directly or indirectly, for any indebtedness except as expressly provided for pursuant to the terms of the Transaction Documents (including the issuance of the "Subordinated Note" in accordance with the terms of the Receivables Purchase Agreement) and the Notes; (h) Deduction from Principal and Interest. Claim any credit on, ------------------------------------- or make any deduction from, the principal and interest payable in respect of the Notes (other than amounts properly withheld from such payments under the Code or applicable state law) or assert any claim against any present or former Noteholder by reason of the payment of any taxes levied or assessed upon any part of the Pledged Assets; (i) Effectiveness of Indenture, Liens. (i) Permit the validity --------------------------------- or effectiveness of this Indenture to be impaired, or permit the Lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby (it being understood that the adjustment or write-off of any Receivable in accordance with the Credit and Collection Policy shall not be deemed a release within the meaning of this clause), (ii) permit any Lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the Lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Pledged Assets or any part thereof or any interest therein or the proceeds thereof or (iii) permit the Lien of this Indenture not to constitute a valid first priority perfected security interest in the Pledged Assets; or (j) Dissolve or Liquidate. Dissolve or liquidate in whole or in --------------------- part. Section 3.04 Protection of Pledged Assets. ---------------------------- The Issuer shall from time to time prepare (or cause to be prepared), execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and shall take such other action reasonably necessary or advisable to: (a) grant more effectively all or any portion of the Pledged Assets for the Notes; (b) maintain or preserve the Lien (and the priority thereof) of this Indenture or to carry out more effectively the purposes hereof; 43 (c) perfect, publish notice of, or protect the validity of, any Grant made or to be made by this Indenture; (d) enforce any of the Pledged Assets; or (e) preserve and defend title to the Pledged Assets securing the Notes and the rights therein of the Indenture Trustee and the Noteholders secured thereby against the claims of all persons and parties. The Issuer hereby designates the Indenture Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required pursuant to this Section 3.04. ------------ Section 3.05 Opinions as to Pledged Assets. ----------------------------- (a) On the Series Issuance Date relating to any new Series of Notes, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken as is necessary to perfect the Lien and security interest of this Indenture, including without limitation with respect to the recording and filing of this Indenture, any indentures supplemental hereto and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain the perfection of such Lien and security interest. (b) On or before June 30 in each calendar year, beginning in the year 2002, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken as is necessary to perfect the Lien and security interest of this Indenture, including without limitation with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain the perfection of such Lien and security interest. Such Opinion of Counsel also shall describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that, in the opinion of such counsel, will be required to maintain the perfection of the Lien and security interest of this Indenture until June 30 in the following calendar year. Section 3.06 Obligations Regarding Servicing of Receivables. ---------------------------------------------- (a) The Issuer shall not take any action, and shall use its best efforts not to permit any action to be taken by others, that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Pledged Assets or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Receivables Sale Agreements or such other instrument or agreement (it being understood that the adjustment or write-off of any Receivable 44 in accordance with the Credit and Collection Policy shall not be deemed a release within the meaning of this clause). (b) The Issuer may contract with other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by such Person shall be deemed to be action taken by the Issuer. The Issuer shall cause the Servicer to comply with all the Servicer's obligations under the Transaction Documents to which the Servicer is a party and shall not agree to the resignation of the Servicer from its obligations and duties imposed by the Receivables Purchase Agreement unless (i) the Majority Investors have consented to such resignation and (ii) the Rating Agency Condition has been satisfied. (c) The Issuer shall punctually perform and observe all of its obligations and agreements contained in this Indenture, the other Transaction Documents and in the instruments and agreements relating to the Pledged Assets, including but not limited to filing or causing to be filed all UCC financing statements and continuation statements required to be filed by the terms of this Indenture and the Receivables Purchase Agreement in accordance with and within the time periods provided for herein and therein. (d) If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Receivables Purchase Agreement with respect to the Receivables, the Issuer shall take all reasonable steps available to it to remedy such failure. (e) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee or the rights of the Indenture Trustee under this Indenture, the Issuer agrees (i) that it will not, without the prior written consent of the Indenture Trustee and the Majority Investors, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Pledged Assets (except to the extent otherwise provided in the Receivables Purchase Agreement) or the Transaction Documents (except to the extent otherwise provided in the Transaction Documents), or waive timely performance or observance by the Servicer, the Transferor, the Seller or the Originator of their respective obligations under the Receivables Sale Agreements or of the Parent of its obligations under the Parent Undertaking; and (ii) that any such amendment shall not (except to the extent otherwise provided in the Transaction Documents) (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, Collections of payments on the Pledged Assets or distributions that are required to be made for the benefit of the Noteholders or (B) change the definition of Majority Investors, without the consent of the Holders of all the Outstanding Notes. If any such amendment, modification, supplement or waiver shall be so consented to by the Indenture Trustee and the Majority Investors or the Holders of all the Outstanding Notes, as required, the Issuer agrees to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee may deem necessary or appropriate in the circumstances. Section 3.07 Separate Existence of the Issuer. The Issuer hereby ---------------------------------- acknowledges that the parties to the Transaction Documents are entering into the transactions contemplated by the Transaction Documents in reliance on the Issuer's identity as a legal entity separate from the Originator, the Seller, the Transferor and all other members of the Parent Affiliated Group. 45 From and after the date hereof until one year and one day after the date on which there are no Notes of any Series Outstanding, the Issuer shall take such actions as shall be required in order that: (a) The Issuer will conduct its business in office space allocated to it and for which it pays an appropriate rent and overhead allocation; (b) The Issuer will maintain records and books of account separate from those of each of its Affiliates and telephone numbers and stationery that are separate and distinct from those of each of its Affiliates; (c) The Issuer's assets will be maintained in a manner that facilitates their identification and segregation from those of any of its Affiliates; (d) The Issuer will strictly observe formalities relating to its separate existence in its dealings with the public and with each of its Affiliates, and funds or other assets of the Issuer will not be commingled with those of any of its Affiliates, except as may be permitted by the Transaction Documents. The Issuer will at all times, in its dealings with the public and with each of its Affiliates, hold itself out and conduct itself as a legal entity separate and distinct from each of its Affiliates. The Issuer will not maintain joint bank accounts or other depository accounts to which any of its Affiliates (other than the Servicer) has independent access; (e) The duly admitted members of the Issuer and duly appointed managers or officers of the Issuer will at all times have sole authority to control decisions and actions with respect to the daily business affairs of the Issuer; (f) Levi Strauss Securitization Corp. shall remain one of the members of the Issuer. Not less than two directors of Levi Strauss Securitization Corp. will be Independent Directors. The Issuer will observe those provisions in its limited liability company agreement that provide that the Issuer will not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Issuer unless each director on the board of directors of Levi Strauss Securitization Corp. (including each Independent Director thereof) and all other managers unanimously approve the taking of such action in writing prior to the taking of such action; (g) The Issuer will compensate each of its employees, consultants and agents from the Issuer's own funds for services provided to the Issuer; (h) The Issuer will not hold itself out to be responsible for the debts of any of its Affiliates; and (i) The Issuer will take all actions necessary on its part to be taken in order to ensure that the facts and assumptions relating to the Issuer set forth in the opinion of Bingham Dana LLP of even date herewith Relating to substantive consolidation matters with respect to the Transferor, the Seller, the Originator and the Issuer will be true and correct at all times. 46 ARTICLE IV SATISFACTION AND DISCHARGE Section 4.01 Satisfaction and Discharge of this Indenture. --------------------------------------------- This Indenture shall cease to be of further effect with respect to the Notes (except as to (a) rights of registration of transfer and exchange, (b) substitution of mutilated, destroyed, lost or stolen Notes, (c) the rights of Noteholders to receive payments of principal thereof and interest thereon, (d) Sections 3.02(j), 3.03, 3.05, 3.06 and 12.14, (e) the rights and immunities ---------------- ---- ---- ---- ----- of the Indenture Trustee hereunder, including the rights of the Indenture Trustee under Sections 6.01, 6.03 and 6.07 and the obligations of the Indenture ------------- ---- ---- Trustee under Section 4.02, the rights and immunities of the Agent hereunder, ------------ including the rights of the Agent under Section 2.04(b) and the obligations of --------------- the Agent under Sections 2.05, 2.06, 2.08 and 2.09 and (g) the rights of -------------- ---- ---- ---- Noteholders as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee and payable to all or any of them) and the Indenture Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes when: (i) either (A) all Notes theretofore authenticated and delivered other than (1) Notes that have been destroyed, lost or stolen and that have been replaced, or paid as provided in Section 2.06 and (2) Notes ------------ for which full payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 11.01) have ------------- been delivered to the Indenture Trustee for cancellation; or (B) all Notes not theretofore delivered to the Indenture Trustee for cancellation: (1) have become due and payable; or (2) will become due and payable at the maturity date for such Series of Notes; (ii) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer (including without limitation all amounts due to the Indenture Trustee); (iii) the Issuer has delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel and an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 12.01(a)and each stating that all ---------------- conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with; and 47 (iv) the Rating Agency Condition is satisfied with respect to each Series of Outstanding Notes. Section 4.02 Application of Trust Money. -------------------------- All monies deposited with the Indenture Trustee pursuant to Section 4.01 shall be held in trust and applied by it in accordance with the ------------- provisions of the Notes, this Indenture and the applicable Indenture Supplement, to make payments, through the Paying Agent, to the Noteholders and for the payment in respect of which such monies have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such monies need not be segregated from other funds except to the extent required herein or required by law. ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5.01 Events of Default. ----------------- Each of the following events shall be an "Event of Default" with respect to any Series of Notes hereunder: (a) Any Note shall not be paid in full by the Stated Final Maturity Date of such Note; or (b) An Event of Bankruptcy shall have occurred and be continuing with respect to the Issuer; or (c) The Issuer shall become an "investment company" within the meaning of the Investment Company Act. The Issuer shall deliver to the Indenture Trustee, within 5 days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event that with the giving of notice and the lapse of time would become an Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto. Section 5.02 Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default referred to in clause (b) or (c) of ---------- --- Section 5.01 has occurred, the unpaid principal amount of all Series of Notes, ------------ together with interest accrued but unpaid thereon, and all other amounts due to the Noteholders under this Indenture shall immediately and without further act become due and payable. If an Event of Default referred to in clause (a) of ---------- Section 5.01 shall occur and be continuing with respect to any Series of Notes, ------------ then and in every such case the Indenture Trustee may, and at the direction of Noteholders holding Notes evidencing a majority of the Series Outstanding Amount of such Series of Notes, shall declare all 48 the Notes of such Series to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee if given by the Noteholders), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. Section 5.03 Collection of Indebtedness and Suits for Enforcement by -------------------------------------------------------- the Indenture Trustee. --------------------- The Issuer covenants that if a default is made in the payment of the principal of any Note when the same becomes due and payable, by acceleration or at stated maturity, the Issuer will, upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Holders of such Notes, the entire amount then due and payable on such Notes for principal and interest, with interest on the overdue principal, and to the extent payment at such rate of interest shall be legally enforceable, on overdue installments of interest, at the Note Interest Rate borne by the Notes and, in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel. If the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and on behalf of the Noteholders of such Series, may institute a proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer the moneys adjudged or decreed to be payable. If an Event of Default occurs and is continuing, the Indenture Trustee may in its discretion, as more particularly provided in Section 5.04, proceed to ------------ protect and enforce its rights and the rights of the Noteholders by such appropriate proceedings as the Indenture Trustee deems most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or any Indenture Supplement or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture, any Indenture Supplement or by law. If there shall be pending, relative to the Issuer or any Person having or claiming an ownership interest in the Pledged Assets, proceedings under the Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in the event of any other comparable judicial proceedings relative to the Issuer or to the creditors or property of the Issuer, then the Indenture Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise and whether or not the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and whether or not the Indenture Trustee shall have made any demand pursuant to the provisions of this Section 5.03: ------------ 49 (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in Respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all reasonable expenses and liabilities incurred and all advances made by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence, bad faith or willful misconduct) and of the Noteholders allowed in such proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of the Notes in any election of a trustee, a standby trustee or person performing similar functions in any such proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Noteholders and of the Indenture Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Holders of the Notes allowed in any judicial proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such proceeding is hereby authorized by each of such Noteholders to make payments to the Indenture Trustee and, if the Indenture Trustee consents to the making of payments directly to such Noteholders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other reasonable expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith. Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to, or vote for or accept or adopt on behalf of any Noteholder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any Noteholder in any such proceeding except to vote for the election of a trustee in bankruptcy or similar person as aforesaid. All rights of action and of asserting claims under this Indenture or any Indenture Supplement or under any of the Notes may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture 50 Trustee and their respective agents and attorneys, shall Be for the ratable benefit of the Holders of the Notes. In any proceedings brought by the Indenture Trustee (and also any proceedings involving the interpretation of any provision of this Indenture or any Indenture Supplement to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Holders of the Notes, and it shall not be necessary to make any Noteholder a party to any such proceedings. Section 5.04 Remedies; Priorities. -------------------- (a) If an Event of Default shall have occurred and be continuing with respect to any Series of Outstanding Notes and such Series of Notes has been accelerated under Section 5.02, the Indenture Trustee may institute ------------- proceedings to enforce the obligations of the Issuer hereunder and under the Indenture Supplement with respect to such Series of Notes in its own name and on behalf of the Noteholders of such Series for the collection of all amounts then payable on the Notes of such Series or under this Indenture or such Indenture Supplement with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer moneys adjudged due. (b) If an Event of Default shall have occurred and be continuing with respect to all Series of Outstanding Notes and all Series of Outstanding Notes have been accelerated under Section 5.02, the Indenture Trustee may or, if ------------ so directed by the Majority Investors, the Indenture Trustee shall, do one or more of the following: (i) institute proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Pledged Assets; (ii) exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Holders of the Notes; and (iii) in the case of an Event of Default referred to in clause (a) of Section 5.01, sell the Pledged Assets or rights ---------- ------------ or interest therein, at one or more public or private sales called and conducted in accordance with Section 5.05; ------------ provided that the Indenture Trustee may not sell or otherwise liquidate the -------- Pledged Assets following an Event of Default referred to in clause (a) of ----------- Section 5.01 unless (A) the proceeds of the sale or liquidation of the Pledged ------------ Assets are sufficient to discharge in full all amounts due and unpaid with respect to the Notes or (B) if the Indenture Trustee has determined that the Pledged Assets will not continue to provide sufficient funds for the payment of principal of and interest on the Notes, Holders of Notes evidencing 66 2/3% of the Outstanding Amount, voting as a single class, consent to such sale or liquidation. In determining such sufficiency or insufficiency with respect to clauses (A) and (B), the Indenture Trustee may, but is not required to, obtain ----------- --- and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the 51 Pledged Assets for such purpose. All reasonable costs and expenses incurred in obtaining such opinion shall be paid by the Issuer. (c) If the Indenture Trustee collects any money or property pursuant to this Article V, such money or property shall be held by the ----------- Indenture Trustee as additional collateral hereunder and the Indenture Trustee shall pay out such money or property to the Collection Account for distribution in accordance with the provisions of Article VIII. ------------ Section 5.05 Sale of Assets. -------------- (a) The method, manner and time, place and terms of any sale of all of the Pledged Assets pursuant to Section 5.04(b) shall be commercially ---------------- reasonable. The Indenture Trustee may from time to time postpone any sale by public announcement made at the time and place of such sale. The Indenture Trustee hereby expressly waives its right to any amount fixed by law as compensation for such sale. (b) In connection with a sale of all of the Pledged Assets pursuant to Section 5.04(b), any Noteholder may bid for and purchase the ---------------- property offered for sale, and upon compliance with the terms of such sale may hold, retain and possess and dispose of such property, without further accountability, and may, in paying the purchase money therefor, deliver any Outstanding Notes or claims for interest thereon in lieu of cash up to the amount that shall, upon distribution of the net proceeds of such sale, be payable thereon. (c) The Indenture Trustee may bid for and acquire any portion of the Pledged Assets securing the Notes in connection with a public sale thereof, and may pay all or part of the purchase price by crediting against amounts owing to the Indenture Trustee under this Indenture, including without limitation the costs, charges and expenses incurred by the Indenture Trustee in connection with such sale. (d) The Indenture Trustee shall execute and deliver an appropriate instrument of conveyance transferring its interest in any portion of the Pledged Assets in connection with a sale thereof. In addition, the Indenture Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to transfer and convey its interest in any portion of the Pledged Assets in connection with a sale thereof, and to take all action necessary to effect such sale. No purchaser or transferee at such a sale shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. Section 5.06 Limitations on Suits. -------------------- No Noteholder shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or any Indenture Supplement, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Indenture Trustee of a continuing Event of Default; 52 (b) Noteholders holding Notes evidencing at least 33-1/3% of the Series Outstanding Amount of each Series of Outstanding Notes have made written request to the Indenture Trustee to institute such proceeding in respect of such Event of Default in its own name as the Indenture Trustee hereunder; (c) such Noteholder or Noteholders have offered to the Indenture Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request; (d) the Indenture Trustee has failed to institute such proceedings for 60 days after its receipt of such notice, request and offer of indemnity; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Majority Investors; it being understood and intended that no one or more Noteholders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholders or to obtain or to seek to obtain priority or preference over any other Noteholders or to enforce any right under this Indenture, except in the manner herein provided. If the Indenture Trustee receives conflicting or inconsistent requests and indemnity from two or more groups of Noteholders holding Notes, each evidencing less than a majority of the Series Outstanding Amount of each Series of Outstanding Notes, the Indenture Trustee shall act at the direction of the group of Noteholders holding Notes evidencing the greater amount of Notes; provided, however, that, notwithstanding any other provisions of this Indenture, -------- ------- if the Indenture Trustee receives conflicting or inconsistent requests and indemnity from two or more groups of Noteholders holding an equal amount of Notes, the Indenture Trustee in its sole discretion may determine what, if any, action shall be taken. Section 5.07 Unconditional Right of Noteholders to Receive Principal -------------------------------------------------------- and Interest. ------------ Notwithstanding any other provision of this Indenture, other than provisions hereof limiting the right to recover amounts due on the Notes to recoveries from the Pledged Assets, the holder of any Note shall have the absolute and unconditional right to receive payment of the principal of and interest on such Note as such principal and interest becomes due and payable and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Noteholder. Section 5.08 Restoration of Rights and Remedies. ---------------------------------- If the Indenture Trustee or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture or any Indenture Supplement and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Noteholder, then and in every such case the Issuer, the Indenture Trustee and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights 53 and remedies of the Indenture Trustee and the Noteholders shall continue as though no such Proceeding had been instituted. Section 5.09 Rights and Remedies Cumulative. ------------------------------ No right or remedy herein conferred upon or reserved to the Indenture Trustee or to the Noteholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.10 Delay or Omission Not a Waiver. ------------------------------ No delay or omission of the Indenture Trustee or any Noteholder to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee or to the Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as the case may be. Section 5.11 Control by Noteholders. ---------------------- Except as specifically set forth herein, and subject to Section 6.03(d), the Majority Investors shall have the right to direct the time, -------------- method and place of conducting any proceeding for any remedy available to the Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the Indenture Trustee, provided that: -------- (a) such direction shall not be in conflict with any rule of law or with this Indenture nor, with respect to each Noteholder in such majority, the Indenture Supplement pursuant to which such Noteholder's Notes were issued; (b) if an Event of Default occurs with respect to less than all Series of Outstanding Notes, then the Indenture Trustee's rights and remedies shall be limited to the rights and remedies pertaining only to those Series of Notes with respect to which such Event of Default has occurred, and the Indenture Trustee shall exercise such rights and remedies at the direction of the Noteholders holding Notes evidencing a majority of the Series Outstanding Amount of all such Series of Notes; (c) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction; and (d) such direction shall be in writing; and provided, further, that subject to Section 6.01, the Indenture Trustee need -------- ------- ------------ not take any action that it determines might involve it in liability or might materially adversely affect the rights of any Noteholders not consenting to such action. 54 Section 5.12 Waiver of Past Defaults. ----------------------- Prior to the declaration of the acceleration of the maturity of the Notes of any Series as provided in Section 5.02, Noteholders holding Notes ------------ evidencing a majority of the Series Outstanding Amount of such Series of Notes may, on behalf of all such Noteholders, waive any past Default or Event of Default with respect to such Series of Notes and its consequences except a Default (a) in payment of principal of or interest on any of the Notes of such Series or (b) in respect of a covenant or provision hereof that cannot be modified or amended without the consent of the Holder of each Note of such Series. In the event of any such waiver, the Issuer, the Indenture Trustee and the Noteholders of such outstanding Series shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. The Issuer shall give prompt written notice of any waiver to the Rating Agencies. Section 5.13 Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Noteholder by such Noteholder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as the Indenture Trustee, the filing by any party litigant in such Proceeding of an undertaking to pay the costs of such Proceeding, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such Proceeding, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, the provisions of this -------- ------- Section 5.13 shall not apply to (a) any suit instituted by the Indenture ------------- Trustee, (b) any suit instituted by any Noteholder or group of Noteholders, in each case holding Notes evidencing in the aggregate more than 33-1/3% of the Series Outstanding Amount of any Series of Notes, or (c) any suit instituted by any Noteholder for the enforcement of the payment of principal of or interest on any Note on or after the respective due dates expressed in such Note and in this Indenture. Section 5.14 Waiver of Stay or Extension Laws. -------------------------------- The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture, and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to 55 the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.15 Action on Notes. --------------- The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the Lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Pledged Assets or upon any of the assets of the Issuer. ARTICLE VI THE INDENTURE TRUSTEE Section 6.01 Duties of the Indenture Trustee. ------------------------------- (a) If an Event of Default has occurred and is continuing and a Trustee Officer shall have actual knowledge or written notice of such Event of Default, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture 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. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith or negligence on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions and calculations expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements o this Indenture; provided, however, that the -------- ------- Indenture Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Indenture Trustee that are specifically required to be furnished pursuant to any provision of this Indenture or any Indenture Supplement, shall examine them to determine whether they substantially conform, without verification of the accuracy of any computations therein, to the requirements of this Indenture or any Indenture Supplement. The Indenture Trustee shall give prompt written notice to the Noteholders and each Rating Agency of any material lack of conformity of any such instrument to the applicable requirements of this Indenture or any Indenture Supplement discovered by the Indenture Trustee in the event that the Indenture Trustee, after so requesting, does not receive a satisfactory corrected instrument. 56 (c) No provision of this Indenture shall be construed to relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this Section 6.01(c) shall not be construed to limit --------------- the effect of Section 6.01(a); --------------- (ii) permissive rights of the Indenture Trustee shall not be construed as duties; (iii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Trustee Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; (iv) the Indenture Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with this Indenture, any Indenture Supplement or at the direction of the Majority Investors relating to the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or for exercising any trust or power conferred upon the Indenture Trustee under this Indenture or any Indenture Supplement; and (v) no provision of this Indenture or of any Transaction Document shall require the Indenture Trustee to be responsible for the acts or omissions of the Servicer or to act as Successor Servicer until such time as it is required to act as Successor Servicer under this Indenture. (d) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Each provision of this Indenture that in any way relates to the Indenture Trustee is subject to Sections 6.01(a) and (b). ---------------- --- (f) The Indenture Trustee shall have no responsibility or liability for investment losses on Eligible Investments, except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor, in accordance with the terms of such Eligible Investments. (g) The Indenture Trustee shall notify each Rating Agency of any change in any rating of the Notes of any other Rating Agency of which the Indenture Trustee has received written notice pursuant to any of the Transaction Documents. 57 (h) For all purposes under this Indenture, the Indenture Trustee shall not be deemed to have notice or knowledge of any Event of Default, Servicer Default or Amortization Event unless a Trustee Officer assigned to and working in the Corporate Trust Office of the Indenture Trustee has actual knowledge thereof or has received written notice thereof. For purposes of determining the Indenture Trustee's responsibility and liability hereunder, any reference to an Event of Default, Servicer Default, Unmatured Amortization Event or Amortization Event shall be construed to refer only to such event of which the Indenture Trustee is deemed to have notice as described in this Section ------- 6.01(h). ------- (i) The Indenture Trustee shall not have any duty (A) to see to any recording, filing, or depositing of this Indenture or any agreement referred to herein or any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing or depositing or to any rerecording, refiling or redepositing of any thereof, (B) to see to any insurance, (C) to see to the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, the Issuer other than from funds available in the Collection Account or Distribution Account, or (D) to confirm or verify the contents of any reports or certificates of the Issuer delivered to the Indenture Trustee pursuant to this Agreement believed by the Indenture Trustee to be genuine and to have been signed or presented by the proper party or parties. Section 6.02 Notice of Event of Default. -------------------------- Upon the occurrence of any Event of Default of which a Trustee Officer has actual knowledge or has received notice, the Indenture Trustee shall transmit by mail to all Noteholders as their names and addresses appear on the Note Register and to the Rating Agencies, notice of such Event of Default known to the Indenture Trustee within the later of (i) 30 days after such Event of Default occurs or (ii) 10 Business Days after the Indenture Trustee receives such notice or obtains actual notice, if later. Section 6.03 Rights of Indenture Trustee. --------------------------- Except as otherwise provided in Section 6.01: ------------ (a) The Indenture Trustee may conclusively rely and shall fully be protected in acting or refraining from acting on any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) Whenever in the administration of this Indenture the Indenture Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Indenture Trustee may (unless other evidence be herein specifically prescribed), in the absence of bad faith on its part, rely on an Officer's Certificate of the Issuer. 58 (c) The Indenture Trustee may consult with counsel with respect to any action to be taken, suffered or omitted by it hereunder and the written advice of such counsel, obtained in good faith, or any Opinion of Counsel or any Tax Opinion shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith reliance thereon. (d) The Indenture Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or to honor the request or direction of any of the Noteholders pursuant to this Indenture, or a Series Enhancer if so authorized by an Indenture Supplement unless such Noteholders or Series Enhancer shall have offered to the Indenture Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (e) The Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document, but the Indenture Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Indenture Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer, personally or by agent or attorney. (f) Subject to Section 6.13 hereof, the Indenture Trustee may ------------ execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, Affiliates, attorneys, custodians or nominees, and the Indenture Trustee shall not be liable for any misconduct or negligence on the part of any agent, Affiliates, attorney, custodians or nominees appointed by it hereunder with due care. (g) The Indenture Trustee shall not be liable for any actions taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights conferred upon the Indenture Trustee by this Indenture. (h) If the Indenture Trustee is also acting as Paying Agent, Authentication Agent and Transfer Agent and Registrar, the rights and protections afforded to the Indenture Trustee pursuant to this Article VI shall ---------- also be afforded to such Paying Agent, Authentication Agent and Transfer Agent and Registrar. (i) Anything in this Agreement to the contrary notwithstanding, in no event shall the Indenture Trustee be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Indenture Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action; provided, however, that upon written notice to the Indenture Trustee by any Transaction Party, the Indenture Trustee shall use commercially reasonable efforts to cooperate with such Transaction Party for the purpose of minimizing or eliminating such losses or damages. 59 Section 6.04 Not Responsible for Recitals or Issuance of Notes. ------------------------------------------------- The recitals contained herein and in the Notes shall be taken as the statements of the Issuer, and the Indenture Trustee assumes no responsibility for their correctness. The Indenture Trustee makes no representation as to the validity or sufficiency of this Indenture, the other Transaction Documents, the Pledged Assets, the Notes or any related document. The Indenture Trustee shall not be accountable for the use or application by the Issuer of the proceeds from the Notes. Section 6.05 May Hold Notes. -------------- The Indenture Trustee and any Affiliates, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Issuer, the Transferor, the Seller, any member of the Parent Affiliated Group, any Series Enhancer, any underwriter or any of the other parties to the Transaction Documents with the same rights it would have if it were not the Indenture Trustee or an Affiliate of the Indenture Trustee; provided, that if any of the foregoing actions cause the Indenture Trustee to -------- cease meeting the criteria for a trustee set forth in Section 6.11, the ------------- Indenture Trustee shall resign in accordance with the provision of such Section ------- 6.11. ---- Section 6.06 Money Held in Trust. ------------------- Money held by the Indenture Trustee in trust hereunder need not be segregated from other funds held by the Indenture Trustee in trust hereunder except to the extent required herein or required by law. The Indenture Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing by the Indenture Trustee and the Issuer. Section 6.07 Compensation, Reimbursement and Indemnification. ----------------------------------------------- Pursuant to the Receivables Purchase Agreement, the Issuer shall direct the Servicer to pay to the Indenture Trustee from time to time reasonable compensation for its services. The Indenture Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall cause the Servicer to reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including reasonable costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and reasonable expenses, disbursements and advances of the Indenture Trustee's agents, counsel, accountants and experts. The Issuer shall cause the Servicer to indemnify the Indenture Trustee against any and all loss, liability or expense reasonably incurred by the Indenture Trustee (including the reasonable fees of counsel) in connection with the administration of this trust and the performance of its duties hereunder and under any other Transaction Document. The Indenture Trustee shall notify the Issuer and the Servicer promptly of any claim for which it may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and the Servicer shall not relieve the Issuer of its obligations hereunder unless such loss, liability or expense could have been avoided with such prompt notification and then only to the extent of such loss, expense or liability which could have been 60 so avoided. Neither the Issuer nor the Servicer need reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee's own willful misconduct, negligence or bad faith. When the Indenture Trustee incurs expenses after the occurrence of an Event of Default specified in Section 5.01(b) with respect to the Issuer, --------------- the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. Section 6.08 Replacement of Indenture Trustee. -------------------------------- No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee may resign at any time by giving 30 days' ------------ written notice to the Issuer. The Majority Investors may remove the Indenture Trustee for cause by so notifying the Indenture Trustee. The Issuer shall remove the Indenture Trustee if: (a) the Indenture Trustee fails to comply with Section 6.11; ------------ (b) the Indenture Trustee is adjudged a bankrupt or insolvent; or (c) the Indenture Trustee otherwise becomes legally unable to act. If the Indenture Trustee resigns or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer shall promptly appoint a successor Indenture Trustee (who satisfies the requirements of Section 6.11) subject to the consent of the Majority Investors. ------------- A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee, the Issuer and the Servicer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to each Series Enhancer and all Noteholders. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Majority Investors may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. If the Indenture Trustee fails to comply with Section 6.11, any ------------ Noteholder may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee. 61 Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.08, the Issuer's obligations under Section 6.07 shall ------------ ------------ continue for the benefit of the retiring Indenture Trustee. Section 6.09 Successor Indenture Trustee by Merger. ------------------------------------- If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Indenture Trustee, provided that such corporation or banking association is -------- otherwise qualified and eligible under Section 6.11. The Indenture Trustee shall ------------ provide the Rating Agencies and each Series Enhancer with prompt written notice of any such transaction. Section 6.10 Appointment of Co-Indenture Trustee or Separate -------------------------------------------------------- Indenture Trustee. ----------------- (a) Notwithstanding any other provisions of this Indenture, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Pledged Assets may at the time be located, the Indenture Trustee shall have the power and may execute and deliver at any time all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Pledged Assets, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Pledged Assets or any part thereof and, subject to the other provisions of this Section 6.10, such powers, duties, obligations, ------------ rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11, and no notice to ------------- Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08 but notice shall be given to each Series Enhancer. ------------ (b) Each separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed on the Indenture Trustee shall be conferred or imposed on, and exercised or performed by, the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Pledged Assets or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and 62 (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon ---------- its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 6.11 Eligibility; Disqualification. ----------------------------- The Indenture Trustee shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition and having long-term unsecured debt with a rating of at least Aa3 by Moody's and AA- by S&P and subject to supervision or examination by federal or state authority, and shall satisfy the requirements for a trustee set forth in paragraph (a)(4)(i) of Rule 3a-7 under the Investment Company Act. If at any time the Indenture Trustee ceases to be eligible in accordance with the provisions of this Section 6.11, the Indenture Trustee shall ------------ resign immediately in the manner and with the effect specified in Section 6.08. ------------ Section 6.12 Representations and Covenants of the Indenture Trustee. ------------------------------------------------------ The Indenture Trustee represents, warrants and covenants that: (a) The Indenture Trustee is duly organized and validly existing under the laws of the jurisdiction of its organization; (b) The Indenture Trustee has full power and authority to deliver and perform this Indenture and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture and other Transaction Documents to which it is a party; and 63 (c) Each of this Indenture and other Transaction Documents to which it is a party has been duly executed and delivered by the Indenture Trustee and constitutes its legal, valid and binding obligation in accordance with its terms. Section 6.13 Custody of Pledged Assets and Other Collateral. ---------------------------------------------- The Indenture Trustee shall hold such of the Pledged Assets (and any other collateral that may be granted to the Indenture Trustee) as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York. The Indenture Trustee shall hold such of the Pledged Assets as constitute investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person other than the Indenture Trustee to comply with entitlement orders originated by such other person, (f) such securities accounts and the property credited thereto shall not be subject to any Lien, security interest, right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the internal laws of the State of New York. Terms used in the preceding sentence that are defined in the UCC and not otherwise defined herein shall have the meaning set forth in the UCC. Except as permitted by this Section 6.13, the Indenture Trustee shall not hold Pledged Assets through an ------------ agent or a nominee. ARTICLE VII NOTEHOLDERS' LIST AND REPORTS BY INDENTURE TRUSTEE Section 7.01 Issuer to Furnish Indenture Trustee Names and Addresses -------------------------------------------------------- of Noteholders. -------------- The Issuer shall furnish or cause the Transfer Agent and Registrar to furnish to the Indenture Trustee (a) upon each transfer of a Note, a list of the names, addresses and taxpayer identification numbers of the Noteholders as they appear on the Note Register as of such Record Date, in such form as the Indenture Trustee may reasonably require, and (b) at such other times as the Indenture Trustee may request in writing, within 10 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, however, that if the Indenture Trustee is the Transfer Agent and -------- ------- Registrar, the Indenture Trustee shall furnish to the Issuer such list in the same manner prescribed in clause (b) above. ---------- Section 7.02 Preservation of Information. --------------------------- If the Indenture Trustee is not the Transfer Agent and Registrar, the Indenture Trustee shall preserve the names, addresses and taxpayer identification numbers of the 64 Noteholders contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.01. The Indenture Trustee may destroy any list ------------- furnished to it as provided in Section 7.01 upon receipt of a new list so ------------- furnished. ARTICLE VIII ALLOCATION AND APPLICATION OF COLLECTIONS Section 8.01 Collection of Money. ------------------- Except as otherwise expressly provided herein and in each related Indenture Supplement, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall hold all such money and property received by it in trust for the Noteholders and shall apply it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under the Receivables Purchase Agreement or any other Transaction Document, the Indenture Trustee may, and upon the request of the Majority Investors shall, take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate proceedings. Any such action shall be without prejudice to any right to claim an Event of Default under this Indenture and to proceed thereafter as provided in Article V hereof. --------- Section 8.02 Rights of Noteholders. --------------------- The Notes shall represent limited recourse obligations of the Issuer secured by the Pledged Assets, including the benefits of any Series Enhancement issued with respect to any Series of Notes and the right to receive Collections and other amounts at the times and in the amounts specified in this Article VIII or in the applicable Indenture Supplement to be deposited in ------------ Collection Account and any Series Accounts (if so specified in the related Indenture Supplement). The Notes do not represent obligations of, or interests in, the Originator, the Seller, the Transferor, the Servicer or the Indenture Trustee. The Notes are limited in right of payment to Collections on the Pledged Assets and other assets of the Issuer allocable to the Notes as provided herein and in the applicable Indenture Supplement. Section 8.03 Establishment of Accounts. ------------------------- (a) Establishment of Collection Account. The Collection Account ----------------------------------- shall be established and maintained in accordance with the provisions of the Receivables Purchase Agreement. An Indenture Supplement may establish sub-accounts to the Collection Account as specified in such Indenture Supplement to effect allocations to a Series in accordance with such Indenture Supplement. Funds on deposit in any subaccount of the Collection Account shall not be commingled with (i) funds on deposit in any other subaccount of the Collection Account or (ii) funds on deposit in the Collection Account which have not been allocated to any subaccount of the Collection Account. 65 (b) Establishment of Distribution Account. The Paying Agent, for ------------------------------------- the benefit of the Noteholders, shall cause to be established and maintained with the Paying Agent, a non-interest bearing segregated trust account that is a Qualified Account (the "Distribution Account") bearing a designation clearly --------------------- indicating that the funds deposited therein are held in trust for the benefit of Noteholders. The Paying Agent shall possess all right, title and interest in all funds on deposit from time to time in the Distribution Account and in all proceeds thereof. The Distribution Account shall be under the sole dominion and control of the Paying Agent for the benefit of Noteholders. If the Distribution Account ceases at any time to be a Qualified Account, the Paying Agent shall within 10 Business Days (or such longer period, not to exceed 30 calendar days) establish a new Distribution Account which is a Qualified Account, transfer any funds on deposit in the existing Distribution Account to such new Distribution Account and from the date such new Distribution Account is established, it shall be the "Distribution Account." (c) Establishment of Series Accounts. If so provided in the -------------------------------- related Indenture Supplement, the Issuer, for the benefit of the Noteholders and other Person as may be identified in such Indenture Supplement, shall establish and maintain with the Indenture Trustee or its nominee in the name of the Indenture Trustee one or more Series Accounts, which Series Accounts also shall be Qualified Accounts (unless such requirement is waived in the related Indenture Supplement). Each such Series Account shall bear a designation clearly indicating that the funds deposited therein are held for the benefit of Noteholders of such Series. (d) The Indenture Trustee hereby confirms that (i) each of the Collection Account and each Series Account is, or at inception will be established as, a "securities account" as such term is defined in Section 8-501(a) of the UCC, (ii) the Indenture Trustee is a "securities intermediary" (as such term is defined in Section 8-102(a)(14) of the UCC) with respect to such accounts, and (iii) the Indenture Trustee for the benefit of the Noteholders is the sole "entitlement holder" (as such term is defined in Section 8-102(a)(7) of the UCC) with respect to such accounts and no other Person shall have the right to give "entitlement orders" (as such term is defined in Section 8-102(a)(8)) with respect to such accounts. The Indenture Trustee hereby further agrees that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Collection Account or any Series Account shall be treated by it as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. Notwithstanding anything to the contrary, New York State shall be deemed to be the location of the Indenture Trustee (in its capacity as the securities intermediary for the foregoing accounts) for purposes of Section 8-110 of the UCC, and the Collection Account and each Series Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York. Section 8.04 Collections and Allocations. --------------------------- (a) The Issuer shall cause the Servicer to deposit Collections into the Collection Account as promptly as possible after the receipt in a Lockbox Account of such Collections, but in no event later than the second Business Day following the receipt in a Lockbox Account of such Collections. 66 (b) The Issuer agrees that if any Collections are received by the Issuer in an account other than the Collection Account, such monies, instruments, cash and other proceeds will not be commingled by the Issuer with any of its other funds or property, if any, but will be held separate and apart therefrom and will be held in trust by the Issuer for, and immediately remitted to, the Indenture Trustee, with any necessary endorsement. (c) On each Deposit Date, the Indenture Trustee, in accordance with the Daily Receivables Activity Report provided by the Servicer, shall allocate all Collections and other funds then on deposit in the Collection Account (other than funds which are required to be returned pursuant to Section ------- 3.12(b) of the Receivables Purchase Agreement) to the following items and in the ------ following order of priority: (i) First, funds shall be paid to the Indenture Trustee to ----- reimburse it for any fees, expenses and indemnities not otherwise paid by the Servicer, provided, that unless an Event -------- of Default has occurred, the aggregate amounts payable pursuant to this clause first shall not exceed $100,000 in any ----- twelve-month period. (ii) Second, to the extent that the amounts on deposit in ------ the Expense Subaccount for any Series are less than the Required Amount for such Series, funds shall be transferred from the Collection Account to each such Expense Subaccount until the amounts on deposit therein equal the applicable Required Amount for each such Series. If (A) an Asset Deficiency exists or (B) the aggregate amount of funds in the Collection Account on such Deposit Date is less than the aggregate amounts to be distributed pursuant to this clause (i), then, in either such ---------- case, all funds in the Collection Account shall be distributed ratably to each Series based on the Series Floating Allocation Percentages for each Outstanding Series of Notes. The Indenture Supplement for each Series shall specify how and when amounts deposited in the Expense Subaccount or otherwise allocated for such Series will be applied. (iii) Third, if no Series is in an Amortization Period, the ----- Indenture Trustee shall allocate all funds on deposit in the Collection Account to each Series ratably based on the Series Floating Allocation Percentages of each such Series. The Indenture Supplement shall specify how and when amounts allocated to such Series will be applied. (iv) Fourth, if one or more Series is in an Amortization ------ Period, funds shall be transferred from the Collection Account to the Principal Subaccount for each such amortizing Series, ratably based on the respective Series Fixed Allocation Percentages for each such amortizing Series and the remaining funds shall be allocated to each Series still in a Revolving Period based on their respective Series Floating Allocation Percentages; provided, however, that if on such Deposit Date an Asset Deficiency has occurred and is continuing and the aggregate amount of funds available to be distributed pursuant to this clause fourth is less than the absolute amount of such ------------- Asset Deficiency, then such funds 67 shall be transferred to the Principal Subaccounts for all Outstanding Series of Notes based based ratably on the Target Receivables Amounts for each Series calculated as of the last day of the Revolving Period for such Series or as of the date of such Asset Deficiency, whichever is earlier. The Indenture Supplement shall specify how and when amounts deposited in the related Principal Subaccount will be applied. (v) Fifth, any funds not allocated pursuant to the above ----- clauses first through fourth shall, to the extent necessary, be ------ paid to the Indenture Trustee to reimburse it for any fees, expenses and indemnities not otherwise paid by the Servicer or paid pursuant to clause first above. ----- (vi) Sixth, any remaining funds shall be released to the ----- Issuer. (d) Each Indenture Supplement will specify when and in what manner amounts allocated to a Series or otherwise on deposit in the Expense Subaccount or the Principal Subaccount or any other Series Account will be released to the Issuer. The Issuer agrees that, if on any Deposit Date on which such funds are released to the Issuer, the Indenture Trustee may reimburse itself for any amounts payable pursuant to clause fifth above before releasing ----- such funds to the Issuer; provided that if an Asset Deficiency exists at such -------- time, any funds that would otherwise be released to the Issuer under the terms of any Indenture Supplement shall instead be treated as Collections to be distributed in accordance with the foregoing provisions. (e) On each Deposit Date, except as otherwise provided in an Indenture Supplement, the Indenture Trustee shall pay to the Issuer the remaining funds, if any, on deposit in the Collection Account on such Deposit Date after giving effect to transfers to be made pursuant to Section 8.04(c). --------------- Section 8.05 Release of Pledged Assets. ------------------------- (a) Subject to the payment of amounts owing to it pursuant to Section 6.07, the Indenture Trustee may, and when required by the provisions of ------------ this Indenture or the other Transaction Documents shall, execute instruments to release property from the Lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture or the Transaction Documents. No party relying on an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee's ------------- authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. (b) The Indenture Trustee shall, at such time as there are no Notes outstanding and all amounts due the Indenture Trustee pursuant to Sections -------- 2.04 and 6.07 have been paid, release and transfer, without recourse, ---- ---- representation or warranty, all of the Pledged Assets that secured the Notes (other than any cash held for the payment of the Notes pursuant to Section 4.02) ------------ to the Issuer. 68 Section 8.06 Officer's Certificate. --------------------- The Issuer shall provide the Indenture Trustee with at least 7 days' notice when requesting the Indenture Trustee to take any action pursuant to Section 8.05(a), which notice shall be accompanied by copies of any --------------- instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Officer's Certificate stating that such action is authorized hereunder and under the Transaction Documents and will not materially and adversely impair the security for the Notes or the rights of the Noteholders under this Indenture. The Indenture Trustee may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. Section 8.07 Money for Note Payments to Be Held in Trust. ------------------------------------------- All payments of amounts due and payable with respect to the Notes that are to be made from amounts withdrawn from the Collection Account shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the Collection Account shall be paid over to or at the direction of the Issuer except as provided in Section 8.04(d) --------------- or in the related Indenture Supplement. On or before each Payment Date, in accordance with the instructions of the Servicer, the Indenture Trustee shall deposit or cause to be deposited in the Distribution Account for each outstanding Series, out of funds available therefor, an aggregate sum sufficient to pay the amounts then becoming due under the Notes of such outstanding Series, such sum to be held in trust for the benefit of the Persons entitled thereto. ARTICLE IX DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Distributions shall be made to, and reports shall be provided to, Noteholders as set forth in the applicable Indenture Supplement. The identity of the Noteholders with respect to distributions and reports shall be determined according to the immediately preceding Record Date. ARTICLE x SUPPLEMENTAL INDENTURES Section 10.01 Supplemental Indentures Without Consent of Noteholders. ------------------------------------------------------ (a) Without the consent of the Holders of any Notes but with prior notice to the Rating Agencies and each Series Enhancer and upon satisfaction of the Rating Agency Condition with respect to the Notes of all Series, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar, at any time and from 69 time to time, may enter into an indenture or indentures supplemental hereto for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the Lien of this Indenture, or better to assure, convey and confirm to the Indenture Trustee any property subject, or required to be subjected, to the Lien of this Indenture, or to subject to the Lien of this Indenture additional property; (ii) to add to the covenants of the Issuer, for the benefit of the Holders of the Notes, or to surrender any right or power herein conferred upon the Issuer; (iii) to convey, transfer, assign, mortgage or pledge any property to or with the consent of the Indenture Trustee; (iv) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; (v) to evidence and provide for the acceptance of the appointment hereunder by a successor indenture trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the Pledged Assets hereunder by more than one trustee, pursuant to the requirements of Article VI; ---------- (vi) to provide for the issuance of one or more new Series of Notes, in accordance with the provisions of Section 2.10; ------------ or (vii) to provide for the termination of any Series Enhancement in accordance with the provisions of the related Indenture Supplement; provided, however, that such action shall -------- ------- not adversely affect in any material respect the interests of any Noteholder, as evidenced by an Officer's Certificate of an Authorized Officer delivered to the Indenture Trustee (at the Issuer's expense). The Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar are hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. (b) The Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar also, without the consent of any Noteholders of any outstanding Series but with prior notice to the Rating Agencies and each Series Enhancer and upon satisfaction of the Rating Agency Condition and the written consent of each Series Enhancer with respect to the Notes of all outstanding Series, may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Notes under this Indenture; provided, however, that the Issuer shall -------- ------- 70 have delivered to the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar an Officer's Certificate, dated the date of any such action, stating that the Issuer reasonably believes that such action will not have a Material Adverse Effect. Additionally, notwithstanding the preceding sentence, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar also, without the consent of any Noteholders of any outstanding Series, may enter into an indenture or indentures supplemental hereto to add, modify or eliminate such provisions as may be necessary or advisable in order to enable the Issuer (i) to qualify as, and to permit an election to be made to cause the Issuer to be treated as, a "financial asset securitization investment trust" as described in the provisions of Section 860L of the Code, (ii) to avoid the imposition of state or local income or franchise taxes imposed on the Issuer's property or its income and (iii) to add, modify or eliminate such provisions as may be necessary and desirable to implement any revisions to the Uniform Commercial Code as in force in the applicable jurisdiction; provided, however, that the Issuer, the -------- ------- Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar shall not enter into any such indenture or supplement unless (w) the Issuer delivers to the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar and each Series Enhancer an Officer's Certificate dated the date of such supplemental indenture, stating that the Issuer reasonably believes that such supplemental indenture will not have a Material Adverse Effect, (x) each Rating Agency has notified the Issuer, the Servicer, the Indenture Trustee and each Series Enhancer in writing that the Rating Agency Condition with respect to each outstanding Series has been satisfied, (y) such amendment does not (without the consent of the Indenture Trustee) affect the rights, duties or obligations of the Indenture Trustee hereunder and (z) such amendment does not (without the consent of the Paying Agent, the Authentication Agent or the Transfer Agent and Registrar, as the case may be) affect the rights, duties or obligations of the Paying Agent, the Authentication Agent or the Transfer Agent and Registrar, as the case may be hereunder. Section 10.02 Supplemental Indentures with Consent of Noteholders. --------------------------------------------------- The Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar also, with prior notice to the Rating Agencies and with the consent of the Majority Investors, by Act of such Holders delivered to the Issuer and the Indenture Trustee, may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Noteholders of all Series under this Indenture. If an indenture or indentures supplemental hereto affects only the Noteholders of a particular Series of Notes, then the consent of the Holders of a majority of the Series Outstanding Amount of such Series shall be required to such supplemental indenture. Notwithstanding the foregoing, no supplemental indenture shall, without the consent of Holders of 100% of the Series Outstanding Amount of the Outstanding Notes affected thereby: (a) except as may be expressly permitted by the Indenture Supplement relating to any Series of Notes, change the due date of any payment of principal of or interest on any such Note, or reduce the principal amount thereof, the interest rate specified thereon or the redemption price with respect thereto or change any place of payment where, or the coin or currency in which, any such Note or any interest thereon is payable; 71 (b) impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor to the payment of any such amount due on the Notes on or after the respective due dates thereof, as provided in Article V (or, in the case of --------- redemption, on or after the Redemption Date); (c) reduce the percentage that constitutes a majority of the Series Outstanding Amount of the Notes of any Series, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences as provided for in this Indenture; (d) reduce the percentage of the Outstanding Amount of the Notes which is required to direct the Indenture Trustee to sell or liquidate the Pledged Assets if the proceeds of such sale would be insufficient to pay the principal amount and accrued but unpaid interest on the Outstanding Notes; (e) decrease the percentage of the aggregate principal amount of the Notes required to amend the sections of this Indenture that specify the applicable percentage of the aggregate principal amount of the Notes of such Series necessary to amend the Indenture or any Transaction Documents that require such consent; (f) modify or alter the provisions of this Indenture regarding the voting of Notes held by the Issuer, any other obligor on the Notes, the Seller, the Servicer or any Affiliate of any of the foregoing Persons; or (g) permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Pledged Assets for any Notes or, except as otherwise permitted or contemplated herein, terminate the Lien of this Indenture on any such Pledged Assets at any time subject hereto or deprive the Holder of any Note of the security provided by the Lien of this Indenture. It shall not be necessary for any Act of Noteholders under this Section 10.02 to approve the particular form of any proposed supplemental ------------ indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution by the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar of any supplemental indenture pursuant to this Section 10.02, the ------------- Paying Agent shall mail to the Holders of the Notes to which such supplemental indenture relates written notice setting forth in general terms the substance of such supplement indenture; provided, however, that any failure of the Paying -------- ------- Agent to mail such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. Section 10.03 Execution of Supplemental Indentures. ------------------------------------ In executing, or permitting the additional trusts created by any supplemental indenture permitted by this Article X or the modification thereby --------- of the trusts created by this 72 Indenture, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar shall be entitled to receive, and subject to Section 6.01, shall be fully protected in relying on, an Opinion of Counsel ------------- stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and that all conditions precedent, if any, have been satisfied. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. The Paying Agent, the Authentication Agent and the Transfer Agent and Registrar, as the case may be, may, but shall not be obligated to, enter into any such supplemental indenture that affects their respective rights, duties, liabilities or immunities under this Indenture or otherwise. Section 10.04 Effect of Supplemental Indenture. -------------------------------- Upon the execution of any supplemental indenture under this Article X, this Indenture shall be modified in accordance therewith, and such --------- supplemental indenture shall form a part of this Indenture for all purposes, and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 10.05 Reference in Notes to Supplemental Indentures. --------------------------------------------- Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article X may, and if required by the --------- Authentication Agent shall, bear a notation in form approved by the Indenture Trustee and the Authentication Agent as to any matter provided for in such supplemental indenture. If the Issuer shall so determine, new Notes modified so as to conform, in the opinion of the Indenture Trustee and the Authentication Agent and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Authentication Agent in exchange for the Outstanding Notes. ARTICLE XI DEFEASANCE Section 11.01 Defeasance. ---------- Notwithstanding anything to the contrary in this Indenture or any Indenture Supplement: (a) The Issuer may at its option be discharged from its obligations hereunder with respect to any Series or all outstanding Series (each, a "Defeased Series") on the date the applicable conditions set forth in ---------------- Section 11.01(c) are satisfied (a "Defeasance"); provided, however, that the ---------------- ---------- -------- ------- following rights, obligations, powers, duties and immunities shall survive with respect to each Defeased Series until otherwise terminated or discharged hereunder: (i) the rights of the Holders of Notes of the Defeased Series to receive payments in respect of principal of and interest on such Notes when such payments are due; (ii) the Issuer's obligations with respect to such Notes under Sections 2.05 and 2.06; (iii) the rights, powers, trusts, duties, and immunities ------------- ---- 73 of the Indenture Trustee, the Paying Agent and the Transfer Agent and Registrar hereunder; and (iv) this Section 11.01 and Section 12.14. ------------- ------------- (b) Subject to Section 11.01(c), no Collections shall be ---------------- allocated to any Defeased Series. (c) The following shall be the conditions precedent to any Defeasance under Section 11.01(a): --------------- (i) the Issuer irrevocably shall have deposited or caused to be deposited with the Indenture Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Indenture Trustee and any Series Enhancer, as trust funds in trust for making the payments described below, (A) Dollars in an amount equal to, or (B) Eligible Investments which through the scheduled payment of principal and interest in respect thereof will provide, not later than the due date of payment thereon, money in an amount equal to, or (C) a combination thereof, in each case sufficient to pay and discharge, and which shall be applied by the Indenture Trustee to pay and discharge, all remaining scheduled interest and principal payments on all Outstanding Notes of each Defeased Series and all other amounts owing in respect of such Defeased Series (including all amounts owing under any related Enhancement Agreement to any Series Enhancer) on the dates scheduled for such payments in this Indenture and the applicable Indenture Supplements; (ii) a statement from a firm of nationally recognized independent public accountants (who also may render other services to the Issuer) to the effect that such deposit is sufficient to pay the amounts specified in clause (i) above; ---------- (iii) prior to its first exercise of its right pursuant to this Section 11.01 with respect to a Defeased Series to ------------- substitute money or Eligible Investments for Receivables, the Issuer shall have delivered to the Indenture Trustee an Opinion of Counsel to the effect that such deposit and termination of obligations will not result in the Issuer being required to register as an "investment company" within the meaning of the Investment Company Act; (iv) the Issuer shall have delivered to the Indenture Trustee and each Series Enhancer an Officer's Certificate of the Issuer stating that the Issuer reasonably believes that such deposit and termination of obligations will not, based on the facts known to such officer at the time of such certification, then cause an Event of Default or Amortization Event with respect to any Series or any event that, with the giving of notice or the lapse of time, would result in the occurrence of a Event of Default or Amortization Event with respect to any Series; 74 (v) the Rating Agency Condition shall have been satisfied and the Issuer shall have delivered copies to the Servicer, the Indenture Trustee and each Series Enhancer of such written notification from each Rating Agency; and (vi) the Issuer shall have delivered to the Indenture Trustee and each Series Enhancer a Tax Opinion. ARTICLE XII MISCELLANEOUS Section 12.01 Compliance Certificates and Opinions, etc. ------------------------------------------ (a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture or any other Transaction Document, the Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, (ii) if reasonably requested by the Indenture Trustee, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, which require satisfaction of any legal requirement have been complied with and (iii) an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section 12.01, ------------- except that, in the case of any such application or request as to which the furnishing of specific documents is required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. (b) (i) Prior to the deposit of any Pledged Assets or other property or securities with the Indenture Trustee that is to be made the basis for the release of any property 75 or securities subject to the Lien of this Indenture, the Issuer shall, in addition to any obligation imposed in Section 12.01(a) or elsewhere in this ----------------- Indenture, furnish to the Indenture Trustee an Officer's Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within 90 days of such deposit) to the Issuer of the Pledged Assets or other property or securities to be so deposited. (ii) Whenever the Issuer is required to furnish to the Indenture Trustee an Officer's Certificate certifying or stating the opinion of any signer thereof as to the matters described in clause (i) above, the Issuer also shall deliver ---------- to the Indenture Trustee an Independent Certificate as to the same matters, if the fair value to the Issuer of the securities to be so deposited and of all other such securities made the basis of any such withdrawal or release since the commencement of the then-current fiscal year of the Issuer, as set forth in the certificates delivered pursuant to clause (i) above and ---------- this clause (ii), is 10% or more of the Outstanding Amount of ---------- the Notes, but such a certificate need not be furnished with respect to any securities so deposited if the fair value thereof to the Issuer as set forth in the related Officer's Certificate is less than 10% of the Outstanding Amount of the Notes. (iii) Other than as provided in the Granting Clause, whenever any property or securities are to be released from the Lien of this Indenture, the Issuer also shall furnish to the Indenture Trustee an Officer's Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within 90 days of such release) of the property or securities proposed to be released and stating that in the opinion of such person the proposed release will not impair the security under this Indenture in contravention of the provisions hereof. (iv) Whenever the Issuer is required to furnish to the Indenture Trustee an Officer's Certificate certifying or stating the opinion of any signer thereof as to the matters described in clause (iii) above, the Issuer also shall furnish ------------ to the Indenture Trustee an Independent Certificate as to the same matters if the fair value of the property or securities and of all other property, other than as provided in the Granting Clause, or securities released from the Lien of this Indenture since the commencement of the then current calendar year, as set forth in the certificates required by clause (iii) ------------ above and this clause (iv), equals 10% or more of the ----------- Outstanding Amount of the Notes, but such certificate need not be furnished in the case of any release of property or securities if the fair value thereof as set forth in the related Officer's Certificate is less than 10% of the then Outstanding Amount of the Notes. (v) Notwithstanding any provision of this Section 12.01, ------------- the Issuer may (A) collect, liquidate, sell or otherwise dispose of Receivables as and to the extent permitted or required by the Transaction Documents and (B) make cash payments out of the Series Accounts as and to the extent permitted or required by 76 the Transaction Documents, and the provisions of the Granting Clause shall apply. Section 12.02 Form of Documents Delivered to Indenture Trustee. ------------------------------------------------ In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer or the Issuer, stating that the information with respect to such factual matters is in the possession of the Servicer or the Issuer, unless such Authorized Officer or counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. In any case in which any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. ---------- Section 12.03 Acts of Noteholders. ------------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders shall be given or taken in accordance with the terms of this Indenture by Noteholders holding Notes as of the most recent Record Date and may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by an agent duly appointed in 77 writing and satisfying any requisite percentages as to the minimum number or Dollar value of outstanding principal amount represented by such Noteholders; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, and, to the extent hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders --- signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 12.03. ------------- (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Notes shall bind the Holder (and any transferee thereof) of every Note issued upon the registration thereof in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. Section 12.04 Notices to Issuer, Indenture Trustee, Paying Agent, ------------------------------------------------------- Authentication Agent and Transfer Agent and Registrar. ----------------------------------------------------- All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at, sent by facsimile to, sent by courier at or mailed by certified or registered mail, return receipt requested, to (a) in the case of the Issuer, to 3125 Chad Drive, Eugene, Oregon 97408, Attention: Manager with copies by facsimile to (541) 242-7577 and to the Treasurer's Department of the Parent at (415) 501-1342, (b) in the case of the Indenture Trustee, to the Corporate Trust Office, (c) in the case of the Paying Agent, the Authentication Agent or the Transfer Agent and Registrar, to the Corporate Trust Office and (d) in the case of the Rating Agency for a particular Series, the address, if any, specified in the Indenture Supplement relating to such Series; 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 12.05 Notices to Noteholders; Waiver. ------------------------------ In any case in which this Indenture provides for notice to Noteholders or a Series Enhancer of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed by registered or certified mail or first class postage prepaid or national overnight courier service to each Noteholder or Series Enhancer affected by such event, at the Noteholder's address as it appears on the Note Register or at the Series Enhancer's address for notices set forth in the relevant agreement relating to Series Enhancement, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. If notice to Noteholders or a Series Enhancer is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Person shall affect the sufficiency 78 of such notice with respect to other Persons, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. In any case in which this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Indenture Trustee (with a copy to the Paying Agent), but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. If, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee or the Paying Agent, as the case may be, shall be deemed to be a sufficient giving of such notice. Section 12.06 Alternate Payment and Notice Provisions. --------------------------------------- Notwithstanding any provision of this Indenture or any of the Notes to the contrary, the Issuer, with the consent of the Paying Agent, may enter into any agreement with any Holder of a Note providing for a method of payment, or notice by the Indenture Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer shall furnish to the Indenture Trustee or/and the Paying Agent a copy of each such agreement and the Paying Agent or the Indenture Trustee, as the case may be, shall cause payments to be made and notices to be given in accordance with such agreements. Section 12.07 Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 12.08 Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 12.09 Separability. ------------ If any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.10 Benefits of Indenture. --------------------- Nothing in this Indenture or in the Notes, express or implied, shall give to any Person other than the parties hereto and their successors hereunder, any Series Enhancer and the Noteholders, any benefit. 79 Section 12.11 Legal Holidays. -------------- If the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. Section 12.12 GOVERNING LAW. ------------- THE INDENTURE AND EACH NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING ss.5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. Section 12.13 Counterparts. ------------ This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 12.14 No Petition; Limited Recourse to Issuer. --------------------------------------- (a) The Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar, by entering into this Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Issuer, the Transferor, the Seller or the Originator, or join in any institution against the Issuer, the Transferor, the Seller or the Originator, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Indenture or any of the Transaction Documents until the expiration of one year and one day after payment in full of the latest maturing Note issued by the Issuer under this Indenture. (b) Notwithstanding anything herein to the contrary, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar hereby agree that the Notes and other obligations of the Issuer hereunder and under any Indenture Supplement are limited recourse obligations of the Issuer and shall be payable solely out of the Pledged Assets at such time as, and to the extent of funds actually received by, or available to, the Issuer, and, to the extent funds are not available to pay such Notes and other obligations, the claims relating thereto shall accrue but shall be non-recourse against the Issuer and shall not constitute claims under Section 101 of the Bankruptcy Code. (c) This Section 12.14 shall survive termination of the ------------- Indenture. 80 Section 12.15 Provision of Information to Rating Agencies. ------------------------------------------- At the request of a Rating Agency, the Indenture Trustee will provide such Rating Agency with any reports and other written information it has received from the Servicer for distribution to Noteholders. 81 IN WITNESS WHEREOF, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar have caused this Indenture to be duly executed by their respective officers thereunto duly authorized and attested, all as of the day and year first above written. LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: _________________________________ Name: Joseph M. Maurer Title: Treasurer CITIBANK, N.A., not in its individual capacity but solely as Indenture Trustee, Paying Agent Authentication Agent and Transfer Agent and Registrar By: _________________________________ Name: Title: Signature Page to Master Indenture 82 EX-10 4 a10qex103.txt EXHIBIT 10.3 SERIES 2001-A INDENTURE SUPPLEMENT EXHIBIT 10.3 EXECUTION COPY -------------------------------------------------------------------------------- INDENTURE SUPPLEMENT -------------------------------------------------------------------------------- LEVI STRAUSS RECEIVABLES FUNDING, LLC as Issuer CITIBANK, N.A. as Indenture Trustee, Paying Agent, Authentication Agent and Transfer Agent and Registrar SERIES 2001-A INDENTURE SUPPLEMENT Dated as of July 31, 2001 -------------------------------------------------------------------------------- ARTICLE I CREATION OF THE SERIES 2001-A NOTES Section 1.01 Designation............................................................................1 ARTICLE II DEFINITIONS Section 2.01 Definitions............................................................................2 ARTICLE III SERVICING FEE Section 3.01 Servicing Fee..........................................................................8 ARTICLE IV RIGHTS OF SERIES 2001-A NOTEHOLDERS AND ALLOCATION AND APPLICATION OF POOL COLLECTIONS Section 4.01 Pool Collections and Allocations.......................................................9 Section 4.02 Determination of Monthly Interest.....................................................10 Section 4.03 Determination of Principal Distribution...............................................10 Section 4.04 Application of Collections on Deposit in the Series 2001-A Expense Subaccount and Principal Subaccount..................................................................11 Section 4.05 [Reserved]............................................................................11 Section 4.06 Series 2001-A Expense Subaccount......................................................11 Section 4.07 Series 2001-A Principal Subaccount....................................................12 Section 4.08 Determination of LIBOR................................................................13 Section 4.09 Investment Instructions...............................................................13 ARTICLE V DELIVERY OF SERIES 2001-A NOTE DISTRIBUTIONS; REPORTS TO SERIES 2001-A NOTEHOLDERS Section 5.01 Delivery and Payment for the Series 2001-A Notes; Denominations.......................13 Section 5.02 Registration; Registration of Transfer and Exchange; Transfer Restrictions............14 -i- Section 5.03 Global Notes..........................................................................18 Section 5.04 Regulation S Global Notes.............................................................18 Section 5.05 Special Transfer Provisions...........................................................20 Section 5.06 CUSIP Numbers.........................................................................21 Section 5.07 Distributions.........................................................................22 Section 5.08 Reports and Statements to Series 2001-A Noteholders...................................22 ARTICLE VI AMORTIZATION EVENTS Section 6.01 Series 2001-A Amortization Events.....................................................23 ARTICLE VII OPTIONAL REDEMPTION OF SERIES 2001-A NOTES Section 7.01 Optional Redemption of Series 2001-A Notes............................................25 ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.01 Ratification of Agreement.............................................................25 Section 8.02 Counterparts..........................................................................26 Section 8.03 Governing Law.........................................................................26 Section 8.04 No Petition; Limited Recourse.........................................................26 -ii-
EXHIBITS EXHIBIT A-1 FORM OF RULE 144A GLOBAL NOTE EXHIBIT A-2 FORM OF TEMPORARY REGULATION S GLOBAL NOTE EXHIBIT A-3 FORM OF PERMANENT REGULATION S GLOBAL NOTE EXHIBIT B [RESERVED] EXHIBIT C FORM OF MONTHLY STATEMENT EXHIBIT D [RESERVED] EXHIBIT E-1 FORM OF EUROCLEAR AND CLEARSTREAM BANKING CERTIFICATE EXHIBIT E-2 FORM OF CERTIFICATE TO BE GIVEN BY HOLDER OF BENEFICIAL INTEREST IN A TEMPORARY REGULATION S GLOBAL NOTE -iii- SERIES 2001-A INDENTURE SUPPLEMENT, dated as of July 31, 2001 (as amended, modified, restated or supplemented from time to time, the "Indenture Supplement"), by and among LEVI STRAUSS RECEIVABLES FUNDING, LLC, a -------------------- limited liability company organized under the laws of the State of Delaware, as Issuer (together with its permitted successors and assigns, the "Issuer"), LEVI ------ STRAUSS FINANCIAL CENTER CORPORATION, a California corporation, in its capacity as servicer (the "Servicer") and Citibank, N.A., a national banking association -------- ("Citibank"), as Indenture Trustee (together with its permitted successors and assigns, the "Indenture Trustee"), and in its separate capacities as paying ----------------- agent, authentication agent and transfer agent and registrar. Pursuant to Section 2.10 of the Master Indenture, dated as of ------------ July 31, 2001 (as amended, modified, restated or supplemented from time to time, the "Indenture" and together with the Indenture Supplement, the "Agreement"), by --------- --------- and between the Issuer and the Indenture Trustee, the Issuer may issue one or more Series of Notes the Principal Terms of which shall be set forth in an indenture supplement to the Indenture. In accordance with the terms of the Indenture, the Issuer hereby creates a Series of Notes and specifies the Principal Terms of such Series of Notes in this Indenture Supplement. GRANTING CLAUSES The Issuer hereby Grants to the Indenture Trustee, for the benefit of the Series 2001-A Noteholders, all of the Issuer's right, title and interest, whether now owned or hereafter acquired, in, to and under: (i) the Series 2001-A Expense Subaccount; (ii) the Series 2001-A Principal Subaccount, (iii) all accounts, money, chattel paper, investment property, instruments, documents, deposit accounts, certificates of deposit, letters of credit, advices of credit, general intangibles and goods consisting of, arising from or relating to any of the foregoing and (iv) all proceeds of the foregoing. ARTICLE I CREATION OF THE SERIES 2001-A NOTES Section 1.01 Designation. ----------- (a) There is hereby created a Series of Notes to be issued pursuant to the Indenture and this Indenture Supplement to be known as the "Levi Strauss ------------ Receivables Funding Secured Term Notes, Series 2001-A" or the "Series 2001-A --------------------------------------------------------- ------------- Notes." ----- (b) In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Indenture Supplement shall be controlling. -1- ARTICLE II Definitions Section 2.01 Definitions. ----------- (a) Whenever used in this Indenture Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Additional Interest" shall have the meaning set forth in ------------------- Section 4.02(b). -------------- "Adjusted Applicable Payment Terms" shall mean, as of any date --------------------------------- of determination, the sum of (i) the weighted average of the Applicable Payment Terms (after giving effect to any extensions of such terms permitted under clause (i) of the definition of Eligible Receivable) for all Receivables ----------- outstanding as of the last day of the most recent Monthly Period plus (ii) 60. "Adjusted Servicing Fee Rate" shall mean, as of any date of --------------------------- determination, the Servicing Fee Rate times a fraction, the numerator of which equals the ending Aggregate Receivables Balance for the related Monthly Period and the denominator of which equals the aggregate principal amount of all Notes Outstanding as of the end of the related Monthly Period. "Amortization Event" shall have the meaning set forth in ------------------ Section 6.01. ------------ "Amortization Monthly Principal" shall have the meaning set ------------------------------ forth in Section 4.03. ------------ "Amortization Period" shall mean the period commencing at the ------------------- earlier to occur of (a) the close of business on August 14, 2004 and (b) the close of business on the Business Day immediately preceding the day on which an Amortization Event has been declared or deemed to have automatically occurred pursuant to Section 6.01, and ending on the date on which the Series Outstanding ------------ Amount shall have been paid in full, together with all accrued interest thereon. "Applicable Reserve Ratio" shall mean, as of any date of ------------------------ determination, the greater of (i) the Minimum Reserve Ratio and (ii) the sum of the Loss Reserve Ratio and the Dilution Reserve Ratio. "Applicable Stress Factor" shall mean, as of any date of ------------------------ determination, 2.5. "Average Days Outstanding" shall mean, as of the end of any ------------------------ Monthly Period, the average number of days Receivables have been outstanding as of the end of such Monthly Period, calculated in accordance with the following formula: ADO = 91 x (ARB / AOB), where ADO = Average Days Outstanding; -2- ARB = the Aggregate Receivables Balance as of the end of such Monthly Period; and AOB = the aggregate original Unpaid Balances of all Receivables generated during the three consecutive Monthly Periods then ending. "Average Dilution Ratio" shall mean, as of any date of ----------------------- determination, the average of the Dilution Ratios occurring during the twelve most recent Monthly Periods preceding the date of calculation. "Custodian" shall mean the entity maintaining possession of --------- the Global Notes for the Clearing Agency. "Default Ratio" shall mean, for any Monthly Period, the ------------- quotient, expressed as a percentage, of (a) the sum of the aggregate Unpaid Balance of all Receivables less than 91 days past due that have become Defaulted Receivables during such Monthly Period plus the aggregate Unpaid Balances of all Receivables which are unpaid in full or in part for at least 91 days but not more than 120 days after their original due date (which Unpaid Balances shall be calculated without giving effect to any reduction caused by credit memos not associated with such Receivables divided by (b) the aggregate Unpaid Balance of the Receivables generated during the fourth Monthly Period preceding such Monthly Period (i.e., so that the denominator of the ratio for the month of March will be the Receivables generated in November). "Dilution Horizon Factor" shall mean, for any Record Date, a ----------------------- fraction the numerator of which equals the sum of (i) the aggregate principal amount of Receivables originated during the most recent Monthly Period and (ii) fourteen-thirtieths (14/30) times the aggregate principal amount of Receivables originated during the preceding Monthly Period and the denominator of which equals the Net Eligible Receivables Balance as of the end of the most recent Monthly Period. "Dilution Ratio" shall mean, for any Monthly Period, the -------------- quotient, expressed as a percentage, of (a) the aggregate amount of reductions to the Unpaid Balances of the Receivables due to Dilutive Credits occurring during such Monthly Period divided by (b) the aggregate Unpaid Balance of the Receivables generated during the immediately preceding Monthly Period. "Dilution Reserve Ratio" shall mean, as of any date of ----------------------- determination, a percentage calculated in accordance with the following formula: DRR = (SF x ADR) + [(HDR-ADR) x (HDR/ADR)]] x DHF, where DRR = the Dilution Reserve Ratio; SF = the Applicable Stress Factor; ADR = the Average Dilution Ratio; -3- HDR = the highest Dilution Ratio occurring during the twelve most recent Monthly Periods preceding the date of calculation; and DHF = the Dilution Horizon Factor for the Monthly Period preceding the date of calculation. "Distribution Compliance Period" shall have the meaning set -------------------------------- forth in Rule 902 of Regulation S. "DWAC" shall mean Deposit and Withdrawal At Custodian Service. ---- "Exemptions" shall mean Prohibited Transaction Class Exemption ---------- ("PTCE") 96-23, regarding transactions effected by "in-house asset managers"; PTCE 90-1, regarding investments by insurance company pooled separate accounts; PTCE 95-60, regarding investments by insurance company general accounts; PTCE 91-38 regarding investments by bank collective investment funds; PTCE 84-14, regarding transactions effected by "qualified professional asset managers"; and PTCE 75-1, regarding purchases between a Plan and certain individuals that are registered broker-dealers. "Final Stated Maturity Date" shall mean the Payment Date ----------------------------- occurring in November, 2005. "Initial Purchaser" shall mean Banc One Capital Markets, Inc. ----------------- "Initial Series Outstanding Amount" shall mean, with respect --------------------------------- to the Series 2001-A Notes, $110,000,000. "Interest Period" shall mean, with respect to any Payment --------------- Date, the period beginning on and including the Payment Date immediately preceding such Payment Date (or, in the case of the first Payment Date, beginning on and including the Series 2001-A Closing Date) and ending on and excluding such Payment Date. "Interest Shortfall" shall have the meaning set forth in ------------------ Section 4.02(b). --------------- "LIBOR" shall mean, for any Interest Period, as of any LIBOR ----- Determination Date, the London interbank offered rate for deposits in United States dollars for a one-month period determined by the Paying Agent for each Interest Period in accordance with the provisions of Section 4.08. ------------ "LIBOR Determination Date" shall mean the second London -------------------------- Business Day prior to the commencement of the second and each subsequent Interest Period. "London Business Day" shall mean any Business Day on which ------------------- dealings in deposits in U.S. dollars are transacted in the London interbank market and banking institutions in London are not authorized or obligated by law or regulation to close. "Loss Horizon Factor" shall mean, as of the end of any Monthly ------------------- Period, (i) the product of (x) the aggregate Unpaid Balance of the Receivables generated over the 3 Monthly -4- Periods then ending times (y) a fraction, the numerator of which equals the Adjusted Applicable Payment Terms and the denominator of which equals 90 divided by (ii) the Net Eligible Receivables Balance as of the end of such Monthly Period. "Loss Reserve Ratio" shall mean, as of any date of -------------------- determination, a percentage calculated in accordance with the following formula: LRR = (LHF x ARR) x SF, where LRR = the Loss Reserve Ratio; LHF = the Loss Horizon Factor; ARR = the highest three-month rolling average of the Default Ratios occurring during the twelve most recent calendar months; and SF = the Applicable Stress Factor. "Minimum Reserve Ratio" shall mean, as of any date of ----------------------- determination, the sum of (x) 18% and (y) the product of the Average Dilution Ratio times the Dilution Horizon Factor. "Monthly Interest" shall have the meaning set forth in Section ---------------- ------- 4.02(a). ------- "Monthly Period" shall mean the period from and including the -------------- first day of a calendar month to and including the last day of such calendar month. "Monthly Servicing Fee" shall have the meaning set forth in --------------------- Section 3.01. ------------ "Non-U.S. Certificate" shall have the meaning set forth in -------------------- Section 5.04(b). -------------- "Note Interest Rate" shall mean, for each Interest Period ------------------ (other than the first Interest Period), a rate of 0.32% per annum in excess of LIBOR as determined on the related LIBOR Determination Date. The Note Interest Rate for the first Interest Period will equal 4.095% per annum. "Offering Memorandum" shall mean the Offering Memorandum -------------------- relating to the Series 2001-A Notes dated July 20, 2001. "Payment Date" shall mean August 15, 2001 and the fifteenth ------------ day of each calendar month thereafter, or if such fifteenth day is not a Business Day, the next succeeding Business Day. "Permanent Regulation S Global Notes" shall have the meaning ----------------------------------- set forth in Section 5.04(a). -------------- "QIB" shall have the meaning set forth in Section 5.02(b). --- -------------- "Rating Agency" shall mean each of Standard & Poor's Ratings ------------- Services and Moody's Investors Service, Inc. -5- "Redemption Price" shall mean, with respect to any Payment ---------------- Date, after giving effect to any deposits and distributions otherwise to be made on such Payment Date, the sum of (i) the Series Outstanding Amount or portion thereof to be redeemed on such Payment Date plus (ii) Monthly Interest for such Payment Date and any Monthly Interest previously due but not distributed to the Series 2001-A Noteholders. "Reference Banks" shall mean four major banks in the London --------------- interbank market selected by the Paying Agent. "Regulation S" shall mean Regulation S under the Securities ------------ Act. "Regulation S Certificate" shall have the meaning set forth in ------------------------ Section 5.02(e). -------------- "Regulation S Global Notes" shall mean each of the Temporary ------------------------- Regulation S Global Notes and the Permanent Regulation S Global Notes. "Release Date" shall have the meaning set forth in Section ------------ ------- 5.02(e). ------ "Required Amount" shall mean, as of any date of determination, --------------- the sum of (a) (i) the Monthly Interest to be distributed on the next Payment Date plus (ii) any Interest Shortfall previously accrued and not reimbursed plus (iii) any Additional Interest previously accrued and not reimbursed plus (b) the sum of (i) the Monthly Servicing Fee to be distributed on such Payment Date plus (ii) any Monthly Servicing Fee previously accrued and not paid. "Revolving Period" shall mean the period beginning on the ---------------- Series 2001-A Closing Date and ending upon the commencement of the Amortization Period. "Rule 144A" shall mean Rule 144A under the Securities Act. --------- "Rule 144A Global Notes" shall have the meaning set forth in ---------------------- Section 5.03. ------------ "Securities Act" shall mean the Securities Act of 1933, as -------------- amended. "Series Outstanding Amount" shall mean, as of any date of ------------------------- determination, an amount equal to the Initial Series Outstanding Amount minus the amount of Amortization Monthly Principal previously paid to Series 2001-A Noteholders. "Series 2001-A" shall mean the Series of Notes the terms of ------------- which are specified in this Indenture Supplement. "Series 2001-A Adjusted Principal Amount" shall mean, as of --------------------------------------- any date of determination, (a) the Series Outstanding Amount as of such date minus (b) the amounts on deposit in the Series 2001-A Principal Subaccount. "Series 2001-A Allocated Receivables Amount" shall mean, as of ------------------------------------------ any date of determination, the Series Floating Allocation Percentage for Series 2001-A times the Net Eligible Receivables Balance as of such date. -6- "Series 2001-A Asset Amount Deficiency" shall occur if and to ------------------------------------- the extent the Series 2001-A Allocated Receivables Amount is less than the Series 2001-A Target Receivables Amount as of such date. "Series 2001-A Carrying Cost Reserve" shall mean as of any ----------------------------------- date of calculation an amount equal to (A) the product of (i) the Yield Reserve Ratio times (ii) the Series Outstanding Amount divided by (B) one minus the Applicable Reserve Ratio. "Series 2001-A Closing Date" shall mean July 31, 2001. -------------------------- "Series 2001-A Collections" shall mean, on any Deposit Date, ------------------------- all Collections allocable to the Series 2001-A Notes deposited in the Collection Account on such Deposit Date pursuant to Section 8.04(c) of the Indenture. -------------- "Series 2001-A Expense Subaccount" shall have the meaning set -------------------------------- forth in Section 4.06(a). --------------- "Series 2001-A Noteholder" shall mean the Person in whose name ------------------------ a Series 2001-A Note is registered in the Note Register. "Series 2001-A Notes" shall mean any one of the Notes executed ------------------- by the Issuer and authenticated by the Authentication Agent, substantially in the form of Exhibit A-1 and A-2. ------------------- "Series 2001-A Principal Subaccount" shall have the meaning ---------------------------------- set forth in Section 4.07(a). --------------- "Series 2001-A Required Reserves" shall mean, as of any date ------------------------------- of determination, an amount equal to the product of (i) the Series Outstanding Amount multiplied by (ii) a fraction equal to (A) the Applicable Reserve Ratio as of such date divided by (B) one minus the Applicable Reserve Ratio; provided, however, that during the Amortization Period for Series 2001-A, the Series 2001-A Required Reserves shall equal the Series 2001-A Required Reserves in effect on the date the Amortization Period commenced. "Series 2001-A Target Receivables Amount" shall mean, as of --------------------------------------- any date of determination, the sum of (a) the Series 2001-A Adjusted Principal Amount as of such date plus (b) the Series 2001-A Required Reserves plus (c) the Series 2001-A Carrying Cost Reserve. "Servicing Fee" shall have the meaning set forth in the ------------- Receivables Purchase Agreement. "Servicing Fee Rate" shall have the meaning set forth in the ------------------ Receivables Purchase Agreement. "Telerate Page 3750" shall mean the display page currently so ------------------ designated on the Bridge Telerate Market Report (or such other page as may replace that page in that service for the purpose of displaying comparable rates or prices). -7- "Temporary Regulation S Global Note" shall have the meaning ---------------------------------- set forth in Section 5.03. ------------ "Yield Reserve Ratio" shall mean, as of any date of ------------------- determination a percentage calculated in accordance with the following formula: YRR = [ASFR + (1.5 x NIR)] x [2 x ADO], -------------------------------- 360 where YRR = the Yield Reserve Ratio; ASFR = the Adjusted Servicing Fee Rate; NIR = the Note Interest Rate for the Interest Period in which the Yield Reserve Ratio is being determined; and ADO = the Average Days Outstanding as of the end of the Monthly Period preceding the first day of the Interest Period in which the Yield Reserve Ratio is being determined. (b) Each capitalized term defined herein shall relate to the Series 2001-A Notes and no other Series of Notes issued by the Issuer, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture or, if not defined therein, in the Receivables Purchase Agreement. (c) The words "hereof," "herein" and "hereunder" and words of ------ ------ --------- similar import when used in this Indenture Supplement shall refer to this Indenture Supplement as a whole and not to any particular provision of this Indenture Supplement; references to any Article, subsection, Section or Exhibit are references to Articles, subsections, Sections and Exhibits in or to this Indenture Supplement unless otherwise specified; and the term "including" means --------- "including without limitation." ---------------------------- ARTICLE III SERVICING FEE Section 3.01 Servicing Fee ------------- The Receivables Purchase Agreement sets forth the full compensation that the Servicer is entitled to receive for its servicing activities. The share of the Servicing Fee allocable to the Series 2001-A Noteholders with respect to any Payment Date to be paid out of the Series 2001-A Expense Subaccount (the "Monthly Servicing Fee") shall be equal to one-twelfth --------------------- of the product of (a) 0.50% (the "Servicing Fee Rate") multiplied by (b) the ------------------- ending aggregate Unpaid Balance of the Receivables for the related Monthly Period multiplied by (c) the Series Floating Allocation Percentage for Series 2001-A. The remainder of the Servicing Fee shall be paid by the noteholders of other Series (as provided in the Indenture Supplement related to such other -8- Series) or the Issuer and in no event shall the Indenture Trustee or the Series 2001-A Noteholders be liable for the share of the Servicing Fee to be paid by the Noteholders of such other Series or the Issuer. To the extent that the Monthly Servicing Fee is not paid in full pursuant to the preceding provisions of this Section 3.01 and Section 4.04, it shall be paid by the Issuer. The ------------- ------------- Monthly Servicing Fee shall be payable pursuant to, and subject to the priority of payments set forth in, Section 4.04. ------------ ARTICLE IV RIGHTS OF SERIES 2001-A NOTEHOLDERS AND ALLOCATION AND APPLICATION OF POOL COLLECTIONS Section 4.01 Pool Collections and Allocations. -------------------------------- (a) Allocation of Pool Collections. Funds on deposit in the ------------------------------ Collection Account in accordance with Section 8.04 of the Indenture shall be ------------ allocated and distributed to Series 2001-A as set forth in the Indenture and this Article IV. ---------- (b) Deposits into the Series 2001-A Expense Subaccount. ------------------------------------------------------- Prior to the close of business on each Deposit Date, if the amount of funds on deposit in the Series 2001-A Expense Subaccount on such Deposit Date is less than the Required Amount for such Deposit Date, the Indenture Trustee, at the direction of the Servicer, shall transfer from the Collection Account to the Series 2001-A Expense Subaccount an amount equal to the lesser of (A) the amount of such deficiency or (B) the amount of Collections on deposit in the Collection Account which are allocable to Series 2001-A under Section 8.04(c)(ii) of the -------------------- Indenture on such Deposit Date. (c) Withdrawals from the Series 2001-A Expense Subaccount. ------------------------------------------------------- If the amount of funds on deposit in the Series 2001-A Expense Subaccount on such Deposit Date exceeds the Required Amount for such Deposit Date, the Indenture Trustee, at the direction of the Servicer, shall withdraw from the Series 2001-A Expense Subaccount an amount equal to such excess and such funds shall be treated as Series 2001-A Collections for distribution in accordance with the remaining provisions of this Section 4.01. ------------ (d) Deposits into and Withdrawals from the Series 2001-A -------------------------------------------------------- Principal Subaccount During the Revolving Period. On each Deposit Date during --------------------------------------------------- the Revolving Period on which a Series 2001-A Asset Amount Deficiency has occurred and is continuing, the Indenture Trustee, at the direction of the Servicer, shall deposit into the Series 2001-A Principal Subaccount an amount equal to the lesser of (x) the amount of such Series 2001-A Asset Amount Deficiency and (y) the amount of Series 2001-A Collections available after any required deposits to the Series 2001-A Expense Subaccount. On each Deposit Date during the Revolving Period during which such Series 2001-A Asset Amount Deficiency no longer exists, the Indenture Trustee, at the direction of the Servicer, may withdraw any funds on deposit in the Series 2001-A Principal Subaccount for further application in accordance with the provisions of this Section 4.01 so long as, after giving effect to such withdrawal and the ------------- application of funds, a Series 2001-A Asset Amount Deficiency would not occur and be continuing. -9- (e) Deposits into the Series 2001-A Principal Subaccount -------------------------------------------------------- During the Amortization Period. On each Deposit Date during the Amortization -------------------------------- Period, the Indenture Trustee, at the direction of the Servicer, shall deposit into the Series 2001-A Principal Subaccount all Series 2001-A Collections available after any required deposits to the Series 2001-A Expense Subaccount; provided, however, that the aggregate amount deposited into the Series 2001-A Principal Subaccount pursuant to this clause shall not exceed the Series Outstanding Amount on the immediately preceding Payment Date. (f) Remaining Funds to Issuer. All remaining Series 2001-A ------------------------- Collections and other amounts drawn from the Series 2001-A Expense Subaccount pursuant to paragraph (c) above not distributed pursuant to the foregoing -------------- provisions shall be released to the Issuer; provided, that if on such date an Asset Amount Deficiency is occurring with respect to any other Series of Notes, the Issuer shall direct the Servicer not to release such funds and the Indenture Trustee, at the direction of the Servicer, shall transfer such Series 2001-A Collections and other amounts drawn from the Series 2001-A Expense Subaccount pursuant to paragraph (c) above to the applicable Series Account with respect to ------------- such amortizing Series of Notes; provided, further, that if more than one other Series of Notes is entitled to receive funds pursuant to this Section 4.01(f), ---------------- then the Servicer shall transfer such remaining Series 2001-A Collections pro rata to the applicable Series Account of each such other Series of Notes in accordance with Section 8.04(c)(iii) of the Indenture. -------------------- Section 4.02 Determination of Monthly Interest. --------------------------------- (a) The amount of interest ("Monthly Interest")distributable ---------------- from the Series 2001-A Expense Subaccount with respect to the Series 2001-A Notes on any Payment Date shall be equal to the product of (i) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, multiplied by (ii) the Note Interest Rate in effect with respect to the related Interest Period and multiplied by (iii) the Series Outstanding Amount as of the close of business on the last day of the related Interest Period. (b) On the Determination Date preceding each Payment Date, the Servicer shall determine the excess (the "Interest Shortfall"), if any, of ------------------- (x) the Monthly Interest for such Payment Date over (y) the aggregate amount of funds allocated and available to pay such Monthly Interest on such Payment Date. If the Interest Shortfall with respect to any Payment Date is greater than zero, then on each subsequent Payment Date until such Interest Shortfall is fully paid, an additional amount ("Additional Interest") equal to the product of (i) -------------------- (A) a fraction, the numerator of which is the actual number of days in the Interest Period ending on such Payment Date and the denominator of which is 360, multiplied by (B) the sum of (x) the Note Interest Rate and (y) 2.0% per annum and (ii) such Interest Shortfall shall be payable as provided herein with respect to the Series 2001-A Notes. Notwithstanding anything herein to the contrary, Additional Interest shall be payable or distributed only to the extent permitted by applicable law. Section 4.03 Determination of Principal Distribution. The amount of ----------------------------------------- principal distributable from the Series 2001-A Principal Subaccount on each Payment Date (the "Amortization Monthly Principal"), beginning with the Payment ------------------------------ Date in the month following the month in which the Amortization Period begins, shall equal the lesser of (i) the amount on -10- deposit in the Series 2001-A Principal Subaccount that was deposited therein during the preceding Monthly Period (including amounts deposited in the Series 2001-A Principal Subaccount pursuant to Section 4.01(d) for distribution on --------------- such Payment Date) and (ii) the Series Outstanding Amount. Section 4.04 Application of Collections on Deposit in the Series --------------------------------------------------------- 2001-A Expense Subaccount and Principal Subaccount. On each Payment Date or ------------------------------------------------------ Deposit Date, as applicable, the Servicer shall instruct the Indenture Trustee in writing to apply amounts on deposit in the Series 2001-A Expense Subaccount and/or the Series 2001-A Principal Subaccount as follows: (a) On each Payment Date, the Indenture Trustee, at the direction of the Servicer, shall withdraw the following amounts on deposit in the Series 2001-A Expense Subaccount of the Collection Account to be distributed in the following order of priority: (i) An amount equal to the sum of (A) Monthly Interest for such Payment Date plus (B) any Interest Shortfall previously accrued and not reimbursed plus (C) any Additional Interest previously accrued and not reimbursed shall be distributed to the Distribution Account for payment to Series 2001-A Noteholders on such Payment Date pursuant to Section 5.07; and ------------ (ii) An amount equal to the sum of (A) the Monthly Servicing Fee for such Payment Date plus (B) any Monthly Servicing Fee previously accrued and not paid pursuant to this Section 4.04(a)(ii) shall be distributed to the ------------------ Servicer. (b) On each Payment Date during the Amortization Period, the Indenture Trustee, at the direction of the Servicer, shall withdraw from the Series 2001-A Principal Subaccount an amount equal to the Amortization Monthly Principal for such Payment Date to be distributed to the Distribution Account for payment to the Series 2001-A Noteholders on such Payment Date pursuant to Section 5.07. ------------ Section 4.05 [Reserved]. Section 4.06 Series 2001-A Expense Subaccount. -------------------------------- (a) The Issuer, for the benefit of the Series 2001-A Noteholders, shall establish and maintain with the Indenture Trustee or its nominee in the name of the Indenture Trustee, the Series 2001-A Expense Subaccount, which shall be a subaccount of the Collection Account (the "Series ------ 2001-A Expense Subaccount"). The Indenture Trustee shall possess all right, --------------------------- title and interest in all monies, instruments, investment property and other property credited from time to time to the Series 2001-A Expense Subaccount (and any subaccount thereof) and in all proceeds, earnings, income, revenue, dividends and distributions thereof for the benefit of the Series 2001-A Noteholders. The Series 2001-A Expense Subaccount shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2001-A Noteholders. Pursuant to the authority granted to the Servicer in Article ------- III of the Receivables Purchase Agreement, the Servicer shall have the power, --- revocable by the Indenture Trustee if a Servicer Default has occurred, to instruct the Indenture Trustee to make withdrawals and -11- payments from the Series 2001-A Expense Subaccount for the purposes of making the payments required under Section 4.04. ------------ (b) Funds on deposit in the Series 2001-A Expense Subaccount shall be invested in accordance with Section 4.02 of the Receivables Purchase ------------ Agreement and held in accordance with Section 6.13 of the Indenture. The ------------- Indenture Trustee shall bear no responsibility or liability for any losses resulting from investment or reinvestment of any funds in accordance with such Sections 4.02 of the Receivables Purchase Agreement nor for the selection of -------------- Eligible Investments, except as otherwise provided in Section 6.01(f) of the --------------- Indenture. Section 4.07 Series 2001-A Principal Subaccount. ---------------------------------- (a) The Issuer, for the benefit of the Noteholders, shall establish and maintain with the Indenture Trustee or its nominee in the name of the Indenture Trustee, the Series 2001-A Principal Subaccount, which shall be a subaccount of the Collection Account (the "Series 2001-A Principal Subaccount"). ---------------------------------- The Indenture Trustee shall possess all right, title and interest in all monies, instruments, investment property and other property credited from time to time to the Series 2001-A Principal Subaccount (and any subaccount thereof) and in all proceeds, earnings, income, revenue, dividends and distributions thereof for the benefit of the Series 2001-A Noteholders. The Series 2001-A Principal Subaccount shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Noteholders. Pursuant to the authority granted to the Servicer in Article III of the Receivables Purchase Agreement, the Servicer ----------- shall have the power, revocable by the Indenture Trustee if a Servicer Default has occurred, to instruct the Indenture Trustee to make withdrawals and payments from the Series 2001-A Principal Subaccount for the purposes of making the payments required under Section 4.04. ------------ (b) Funds on deposit in the Series 2001-A Principal Subaccount shall be invested in accordance with Section 4.02 of the Receivables Purchase ------------ Agreement and held in accordance with Section 6.13 of the Indenture. The ------------- Indenture Trustee shall bear no responsibility or liability for any losses resulting from investment or reinvestment of any funds in accordance with such Sections 4.02 of the Receivables Purchase Agreement nor for the selection of -------------- Eligible Investments, except as otherwise provided in Section 6.01(f) of the ---------------- Indenture. (c) The Indenture Trustee shall withdraw and transfer funds on deposit in the Series 2001-A Principal Subaccount on each Business Day during the Revolving Period to, or at the written direction of, the Servicer if no Series 2001-A Asset Amount Deficiency has occurred and is continuing and no event that with the passage of time or the giving of notice could become an Amortization Event, including a Series 2001-A Asset Amount Deficiency, would result from such withdrawal. The delivery of a Daily Receivables Activity Report by the Servicer requesting release of funds to the Issuer shall be deemed a certification by the Servicer that the foregoing conditions have been satisfied, and the Indenture Trustee, absent actual knowledge by the Trust Officer receiving such report that it is inaccurate, shall be entitled to rely on such certification without further inquiry. Any such transfer to the Issuer shall be made free and clear of the lien of the Indenture and without compliance with Section 12.01 of the Indenture. ------------- -12- Section 4.08 Determination of LIBOR. ---------------------- On each LIBOR Determination Date, the Paying Agent shall determine LIBOR on the basis of the rate for deposits in United States dollars for a one-month period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such rate does not appear on Telerate Page 3750, the rate for that LIBOR Determination Date shall be determined on the basis of the rates quoted by the Reference Banks to the Paying Agent as the rates at which deposits in United States dollars are offered by the Reference Banks to the Paying Agent at approximately 11:00 a.m., London time, on that day to prime banks in the London interbank market for a one-month period. The Paying Agent shall request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate for that LIBOR Determination Date shall be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that LIBOR Determination Date will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Paying Agent, at approximately 11:00 a.m., New York City time, on that day for loans in United States dollars to leading European banks for such relevant one-month period. Section 4.09 Investment Instructions. Any investment instructions ------------------------ required to be given to the Indenture Trustee pursuant to the terms hereof must be given to the Indenture Trustee no later than 1:00 p.m. (New York City time) on the date such investment is to be made. If the Indenture Trustee receives such investment instruction later than such time, the Indenture Trustee shall invest such funds in accordance with the most recent investment instruction previously received. If the Indenture Trustee is unable to make an investment required in an investment instruction received by the Indenture Trustee after 1:00 p.m. (New York City time) on such day, such investment shall be made by the Indenture Trustee on the next succeeding Business Day. In no event shall the Indenture Trustee be liable for any investment not made pursuant to investment instructions received after 1:00 p.m. (New York City time) on the day such investment is requested to be made. Each investment instruction delivered hereunder shall continue in full force and effect until the earlier of (i) the delivery of a new, valid, instruction and (ii) the date on which the right of the Person delivering such instruction to so instruct the Indenture Trustee shall be revoked hereunder. ARTICLE V DELIVERY OF SERIES 2001-A NOTE DISTRIBUTIONS; REPORTS TO SERIES 2001-A NOTEHOLDERS Section 5.01 Delivery and Payment for the Series 2001-A Notes; -------------------------------------------------------- Denominations. ------------- The Issuer shall execute and the Authentication Agent shall authenticate the Series 2001-A Notes in accordance with Section 2.03 of the ------------ Indenture. The Indenture Trustee shall deliver the Series 2001-A Notes to or upon the order of the Issuer when so authenticated. The Series 2001-A Notes shall be issuable in the minimum denomination of $250,000 and in integral multiples of $1,000 in excess thereof. -13- Section 5.02 Registration; Registration of Transfer and Exchange; -------------------------------------------------------- Transfer Restrictions. --------------------- (a) The Series 2001-A Notes have not been registered under the Securities Act or any state securities law. None of the Issuer, the Registrar or the Indenture Trustee is obligated to register the Series 2001-A Notes under the Securities Act or any other securities or "Blue Sky" laws or to take any other action not otherwise required under the Agreement to permit the transfer of any Series 2001-A Note without registration. (b) No transfer of any Series 2001-A Note or any interest therein (including, without limitation, by pledge or hypothecation) shall be made except in compliance with the restrictions on transfer set forth in this Section 5.02 (including the applicable legend to be set forth on the face of ------------ each Series 2001-A Note as provided in Exhibits A-1, A-2 and A-3, as applicable) ------------------------- and in Section 5.04 and Section 5.06 in a transaction exempt from the ------------- ------------- registration requirements of the Securities Act and applicable state securities or "Blue Sky" laws (i) to a person (A) who the transferor reasonably believes is a "qualified institutional buyer" within the meaning thereof in Rule 144A (a "QIB") in the form of a beneficial interest in the Rule 144A Global Notes, and --- (B) that is aware that the resale or other transfer is being made in reliance on Rule 144A or (ii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in the form of beneficial interests in the applicable Regulation S Global Note. (c) No transfer of a Series 2001-A Note may be made to a Plan or to any person who is directly or indirectly purchasing a Series 2001-A Note or interest therein on behalf of, as named fiduciary of, as trustee of, or with assets of, a Plan unless such purchase and holding of such Series 2001-A Note or interest therein by the Plan will not constitute a prohibited transaction under Section 406 of ERISA and Section 4975 of the Code, if necessary by reason of the applicability of one of the Exemptions. Each Plan, or person who is directly or indirectly purchasing a Series 2001-A Note or interest therein on behalf of, as named fiduciary of, as trustee of, or with assets of, a Plan shall be deemed to have represented and warranted that such purchase and holding will not constitute a prohibited transaction. (d) Each Beneficial Owner of a Series 2001-A Note, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with the Issuer and the Initial Purchaser as follows: (i) It understands that the Series 2001-A Notes will be offered and may be resold by the Initial Purchaser (A) in the United States to QIBs pursuant to Rule 144A in the form of beneficial interests in the Rule 144A Global Notes or (B) outside the United States pursuant to Regulation S, initially in the form of beneficial interests in the Temporary Regulation S Global Notes. As set forth in Section 5.04(a), --------------- beneficial interests in a Temporary Regulation S Global Note may be exchanged for beneficial interests in a Permanent Regulation S Global Note. (ii) It understands that the Series 2001-A Notes have not been and will not be registered under the Securities Act or any state or other applicable securities law and that the Series 2001-A Notes, or any interest or -14- participation therein, may not be offered, sold, pledged or otherwise transferred unless registered pursuant to, or exempt from registration under, the Securities Act and any other applicable securities law. (iii) It acknowledges that none of the Issuer or the Initial Purchaser or any person representing the Issuer or the Initial Purchaser has made any representation to it with respect to the Issuer or the offering or sale of any Series 2001-A Notes, other than the information contained in the Offering Memorandum, which has been delivered to it and upon which it is relying in making its investment decision with respect to the Series 2001-A Notes. It has had access to such financial and other information concerning the Issuer and the Series 2001-A Notes as it has deemed necessary in connection with its decision to purchase the Series 2001-A Notes. (iv) It acknowledges that the Series 2001-A Notes will bear a legend to the following effect unless the Issuer determines otherwise, consistent with applicable law: "THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE OR ANY INTEREST OR PARTICIPATION HEREIN, MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE ISSUER, (2) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT. EACH NOTE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS NOTE, UNLESS SUCH PERSON ACQUIRED THIS NOTE IN A TRANSFER DESCRIBED IN CLAUSE (3) ABOVE, IS DEEMED TO ---------- REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. PRIOR TO PURCHASING ANY NOTES, PURCHASERS SHOULD CONSULT COUNSEL WITH RESPECT TO THE AVAILABILITY AND CONDITIONS OF EXEMPTION FROM THE RESTRICTION ON RESALE OR TRANSFER. THE ISSUER HAS NOT AGREED TO REGISTER THE NOTES UNDER THE -15- SECURITIES ACT, TO QUALIFY THE NOTES UNDER THE SECURITIES LAWS OF ANY STATE OR TO PROVIDE REGISTRATION RIGHTS TO ANY PURCHASER. AS SET FORTH HEREIN, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF." (v) If it is acquiring any Series 2001-A Note, or any interest or participation therein, as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to such account and that it has full power to make the acknowledgements, representations and agreements contained herein on behalf of each such account. (vi) It (A)(1) is a QIB, (2) is aware that the sale to it is being made in reliance on Rule 144A and if it is acquiring such Series 2001-A Notes or any interest or participation therein for the account of another QIB, such other QIB is aware that the sale is being made in reliance on Rule 144A and (3) is acquiring such Series 2001-A Notes or any interest or participation therein for its own account or for the account of a QIB, or (B) is not a U.S. person and is purchasing such Series 2001-A Notes or any interest or participation therein in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S. (vii) It is purchasing the Series 2001-A Notes for its own account, or for one or more investor accounts for which it is acting as fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act, subject to any requirements of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such Series 2001-A Notes, or any interest or participation therein, as described in the Offering Memorandum and as provided in the Agreement. (viii) It agrees that if in the future it should offer, sell or otherwise transfer such Series 2001-A Note or any interest or participation therein, it will do so only (A) to the Issuer, (B) pursuant to Rule 144A to a person who it reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, purchasing for its own account or for the account of a QIB, whom it has informed that such offer, sale or other transfer is being made in reliance on Rule 144A or (C) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S. (ix) If it is acquiring such Series 2001-A Note or any interest or participation therein in an "offshore transaction" (as defined in Regulation S), it acknowledges that the Series 2001-A Notes initially will be represented by the Temporary Regulation S Global Notes and that transfers thereof or any interest or participation therein are restricted as described in the Offering Memorandum and as provided in the Agreement. If it is a QIB, it acknowledges that the Series 2001-A Notes offered in reliance on Rule 144A will be represented by the Rule 144A Global Notes and that transfers thereof or any -16- interest or participation therein are restricted as described in the Offering Memorandum and as provided in the Agreement. (x) It understands that the Temporary Regulation S Global Note will bear a legend to the following effect unless the Issuer determines otherwise, consistent with applicable law: "THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE." (xi) It acknowledges that the Issuer, the Initial Purchaser and others will rely on the truth and accuracy of the foregoing acknowledgments, representations and agreements, and agrees that if any of the foregoing acknowledgments, representations and agreements deemed to have been made by it are no longer accurate, it shall promptly notify the Issuer and the Initial Purchaser. (xii) With respect to any foreign purchaser claiming an exemption from United States income or withholding tax, that it has delivered to the Paying Agent a true and complete Form W-8BEN or W-8ECI indicating such exemption. (xiii) It acknowledges that transfers of the Series 2001-A Notes or any interest or participation therein shall otherwise be subject in all respects to the restrictions applicable thereto contained in the Agreement. Any transfer, resale, pledge or other transfer of the Series 2001-A Notes contrary to the restrictions set forth above and in the Indenture shall be deemed void ab initio by the Transfer Agent and Registrar. As used in this Section 5.02, the terms "United States" and "U.S. persons" have the meaning ------------ given them in Regulation S. (e) Notwithstanding anything to the contrary contained herein, each Series 2001-A Note and the Agreement may, be amended or supplemented to modify the restrictions on and procedures for resale and other transfers of the Series 2001-A Notes to reflect any change in applicable law or regulation (or the interpretation thereof) or in practices relating to the resale or -17- transfer of restricted securities generally. Each Noteholder shall by its acceptance of a Series 2001-A Note have agreed to any such amendment or supplement. (f) Holders of a beneficial interest in Series 2001-A Notes sold in reliance on Regulation S as Temporary Regulation S Global Notes are prohibited from receiving distributions or from exchanging beneficial interests in such Temporary Regulation S Global Notes for a beneficial interest in a Permanent Regulation S Global Note until the later of (i) the expiration of the Distribution Compliance Period (the "Release Date") and (ii) the furnishing of a ------------ certificate, substantially in the form of Exhibit E-2 attached hereto, ------------ certifying that the beneficial owner of the Temporary Regulation S Global Note is not a United States Person (a "Regulation S Certificate") as provided in -------------------------- Section 5.04. ------------ Section 5.03 Global Notes. The Series 2001-A Notes, upon original ------------ issuance, will be issued (i) in fully registered global form without interest coupons to QIBs in transactions exempt from the registration requirements of the Securities Act in reliance on Rule 144A, as a single note in fully registered form, without interest coupons (the "Rule 144A Global Note"), authenticated and --------------------- delivered in the form of Exhibit A-1, and/or (ii) as a single note in "offshore ----------- transactions" (within the meaning of Regulation S), in fully registered form, without interest coupons (the "Temporary Regulation S Global Note"), --------------------------------------- authenticated and delivered in the form of Exhibit A-2. All such Notes shall be ----------- delivered to The Depository Trust Company, the initial Clearing Agency by or on behalf of the Issuer and initially shall be registered on the Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Beneficial Owner will receive a Definitive Note representing such Beneficial Owner's interest in such Note, except as provided in Section 2.13 of the ------------- Indenture. Section 5.04 Regulation S Global Notes. ------------------------- (a) Series 2001-A Notes issued in reliance on Regulation S initially will be in the form of a Temporary Regulation S Global Note. Any interest in a Series 2001-A Note evidenced by a Temporary Regulation S Global Note is exchangeable for an interest in a Series 2001-A Note in fully registered, global form, without interest coupons, authenticated and delivered in substantially the form attached hereto as Exhibit A-3 (the "Permanent Regulation S Global Note") ----------- ----------------------------------- upon the later of (i) the Release Date and (ii) the furnishing of a Regulation S Certificate. (b) (i) On or prior to the Release Date, each Beneficial Owner of a Temporary Regulation S Global Note shall deliver to Euroclear or Clearstream Banking (as applicable) a Regulation S Certificate; provided, however, that any Beneficial Owner of a Temporary Regulation S Global Note on the Release Date or on any payment date that has previously delivered a Regulation S Certificate hereunder shall not be required to deliver any subsequent Regulation S Certificate (unless the certificate previously delivered is no longer true as of such subsequent date, in which case such Beneficial Owner shall promptly notify Euroclear or Clearstream Banking, as applicable, thereof and shall deliver an updated Regulation S Certificate). Euroclear and/or Clearstream Banking, as applicable, shall deliver to the Paying Agent a certificate substantially in the form of Exhibit E-1 (a "Non-U.S. Certificate") attached hereto promptly upon the ----------- -------------------- receipt of each such Regulation S Certificate, and no such Beneficial Owner (or transferee from such Beneficial Owner) shall be entitled to receive an interest in a -18- Permanent Regulation S Global Note or any payment of principal of or interest on or any other payment with respect to its beneficial interest in a Temporary Regulation S Global Note prior to the Paying Agent receiving such Non-U.S. Certificate from Euroclear or Clearstream Banking with respect to the portion of the Temporary Regulation S Global Note owned by such Beneficial Owner (and, with respect to an interest in the Permanent Regulation S Global Note, prior to the Release Date). (c) Any payments of principal of, interest on or any other payment on a Temporary Regulation S Global Note received by Euroclear or Clearstream Banking with respect to any portion of such Regulation S Global Note owned by a Beneficial Owner that has not delivered the Regulation S Certificate required by this Section 5.04 shall be held by Euroclear and Clearstream Banking solely as ------------ agents for the Paying Agent. Euroclear and Clearstream Banking shall remit such payments to the applicable Beneficial Owner (or to a Euroclear or Clearstream Banking member on behalf of such Beneficial Owner) only after Euroclear or Clearstream Banking has received the requisite Regulation S Certificate. Until the Paying Agent has received a Non-U.S. Certificate from Euroclear or Clearstream Banking, as applicable, stating that it has received the requisite Regulation S Certificate with respect to the beneficial ownership of any portion of a Temporary Regulation S Global Note, the Paying Agent may revoke the right of Euroclear or Clearstream Banking, as applicable, to hold any payments made with respect to such portion of such Temporary Regulation S Global Note. If the Paying Agent exercises its right of revocation pursuant to the immediately preceding sentence, Euroclear or Clearstream Banking, as applicable, shall return such payments to the Paying Agent and the Paying Agent shall hold such payments in the Distribution Account until Euroclear or Clearstream Banking, as applicable, has provided the necessary Non-U.S. Certificates to the Paying Agent (at which time the Paying Agent shall forward such payments to Euroclear or Clearstream Banking, as applicable, to be remitted to the Beneficial Owner that is entitled thereto on the records of Euroclear or Clearstream Banking (or on the records of their respective members)). (d) Each Beneficial Owner with respect to a Temporary Regulation S Global Note shall exchange its interest therein for an interest in a Permanent Regulation S Global Note on or after the Release Date upon furnishing to Euroclear or Clearstream Banking (as applicable) the Regulation S Certificate and upon receipt by the Paying Agent of the Non-U.S. Certificate thereof from Euroclear or Clearstream Banking, as applicable, in each case pursuant to the terms of this Section 5.04. On and after the Release Date, upon receipt by the ------------ Paying Agent of any Non-U.S. Certificate from Euroclear or Clearstream Banking described in the immediately preceding sentence (i) with respect to the first such certification, the Issuer shall execute and, upon receipt of an order to authenticate, the Authentication Agent shall authenticate and deliver to the Custodian the applicable Permanent Regulation S Global Note and (ii) with respect to the first and all subsequent certifications, the Custodian shall exchange on behalf of the applicable Beneficial Owners the portion of the applicable Temporary Regulation S Global Note covered by such certification for a comparable portion of the applicable Permanent Regulation S Global Note. Upon any exchange of a portion of a Temporary Regulation S Global Note for a comparable portion of a Permanent Regulation S Global Note, the Custodian shall endorse on the schedules affixed to each of such Regulation S Global Notes (or on continuations of such schedules affixed to each of such Regulation S Global Notes and made parts thereof) appropriate notations evidencing the date of transfer and (x) with respect to the Temporary Regulation S -19- Global Note, a decrease in the principal amount thereof equal to the amount covered by the applicable certification and (y) with respect to the Permanent Regulation S Global Note, an increase in the principal amount thereof equal to the principal amount of the decrease in the Temporary Regulation S Global Note pursuant to clause (x) above. --------- Section 5.05 Special Transfer Provisions. --------------------------- (a) If a holder of a beneficial interest in the Rule 144A Global Note wishes at any time to exchange its interest in the Rule 144A Global Note for an interest in the Regulation S Global Note, or to transfer its interest in the Rule 144A Global Note to a person who wishes to take delivery thereof in the form of an interest in the Regulation S Global Note, such holder may, subject to the rules and procedures of the Clearing Agency and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in the Regulation S Global Note. Upon receipt by Transfer Agent and Registrar of (1) instructions given in accordance with the Clearing Agency's procedures from or on behalf of a Beneficial Owner of the Rule 144A Global Note, directing the Transfer Agent and Registrar (via DWAC) to credit or cause to be credited a beneficial interest in the Regulation S Global Note in an amount equal to the beneficial interest in the Rule 144A Global Note to be exchanged or transferred, (2) a written order in accordance with the Clearing Agency's procedures containing information regarding the Euroclear or Clearstream Banking account to be credited with such increase and the name of such account and (3) a certificate given by such holder stating that the exchange or transfer of such interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, the Transfer Agent and Registrar shall promptly deliver appropriate instructions to the Clearing Agency (via DWAC), its nominee or the Custodian, as the case may be, to reduce or reflect on its records a reduction of the Rule 144A Global Note by the aggregate principal amount of the beneficial interest in the Rule 144A Global Note to be so exchanged or transferred from the relevant participant, and the Transfer Agent and Registrar shall promptly deliver appropriate instructions (via DWAC) to the Clearing Agency, its nominee, or the Custodian, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Global Note by the aggregate principal amount of the beneficial interest in the Rule 144A Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who may be Euroclear Bank S.A., N.V., as operator of Euroclear or Clearstream Banking or another agent member of Euroclear or Clearstream Banking, or both, as the case may be, acting for and on behalf of them) a beneficial interest in such Regulation S Global Note equal to the reduction in the principal amount of the Rule 144A Global Note. Notwithstanding anything to the contrary, the Transfer Agent and Registrar may conclusively rely upon the completed schedule set forth in the certificate evidencing the Notes. (b) If a holder of a beneficial interest in the Regulation S Global Note wishes at any time to exchange its interest in the Regulation S Global Note for an interest in the Rule 144A Global Note, or to transfer its interest in the Regulation S Global Note to a person who wishes to take delivery thereof in the form of an interest in the Rule 144A Global Note, such holder may, subject to the rules and procedures of Euroclear or Clearstream Banking and the Clearing Agency, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent -20- beneficial interest in the Rule 144A Global Note. Upon receipt by the Transfer Agent and Registrar of (1) instructions given in accordance with the procedures of Euroclear or Clearstream Banking and the Clearing Agency, as the case may be, from or on behalf of a Beneficial Owner of the Regulation S Global Note directing the Transfer Agent and Registrar to credit or cause to be credited a beneficial interest in the Rule 144A Global Note in an amount equal to the beneficial interest in the Regulation S Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of Euroclear or Clearstream Banking and the Clearing Agency, as the case may be, containing information regarding the account with the Clearing Agency to be credited with such increase and the name of such account and (3) prior to the expiration of the Distribution Compliance Period, a certificate given by such Beneficial Owner stating that the person transferring such interest in such Regulation S Global Note reasonably believes that the person acquiring such interest in the Rule 144A Global Note is a QIB and is obtaining such beneficial interest for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction, the Transfer Agent and Registrar shall promptly deliver (via DWAC) appropriate instructions to the Clearing Agency, its nominee or the Custodian, as the case may be, to reduce or reflect on its records a reduction of the Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be exchanged or transferred, and the Transfer Agent and Registrar shall promptly deliver (via DWAC) appropriate instructions to the Clearing Agency, its nominee, or the Custodian, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of the Rule 144A Global Note by the aggregate principal amount of the beneficial interest in the Regulation S Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Rule 144A Global Note equal to the reduction in the principal amount of the Regulation S Global Note. After the expiration of the Distribution Compliance Period, the certification requirement set forth in clause (3) of the second sentence of this Section 5.05 shall no --------- ------------- longer apply to such exchanges and transfers. Notwithstanding anything to the contrary, the Transfer Agent and Registrar may conclusively rely upon the completed schedule set forth in the certificate evidencing the Notes. (c) Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (d) Until the later of the Release Date and the provision of the certifications required by Section 5.04, beneficial interests in a Regulation S ------------ Global Note may only be held through Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or Clearstream Banking or another agent member of Euroclear and Clearstream Banking acting for and on behalf of them. During the Distribution Compliance Period, interests in the Regulation S Global Note may be exchanged for interests in the Rule 144A Global Note only in accordance with the certification requirements described in Section 5.05(b) ---------------- above. Section 5.06 CUSIP Numbers. The Issuer in issuing the Series 2001-A ------------- Notes may use "CUSIP" numbers and, if so, the Paying Agent may use "CUSIP" numbers in notices of -21- redemption as a convenience to Series 2001-A Noteholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Series 2001-A Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Series 2001-A Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer shall promptly notify the Paying Agent of any change in the "CUSIP" numbers. Section 5.07 Distributions. ------------- (a) On each Payment Date, the Paying Agent, in accordance with the Monthly Receivables Activity Report provided by the Servicer, shall distribute to each Series 2001-A Noteholder of record on the related Record Date such Series 2001-A Noteholder's pro rata share (determined in accordance with the relative outstanding principal amount on such Series 2001-A Noteholders' Series 2001-A Notes) of amounts on deposit in the Distribution Account as are payable to the Series 2001-A Noteholders pursuant to Section 4.04. ------------ (b) Distributions to Series 2001-A Noteholders hereunder shall be made by (i) check mailed to each Series 2001-A Noteholder (at such Series 2001-A Noteholder's address as it appears in the Note Register), except that with respect to any Series 2001-A Notes registered in the name of the nominee of a Clearing Agency, such distribution shall be made in immediately available funds and (ii) except with respect to payments made on the Final Stated Maturity Date, without presentation or surrender of any Series 2001-A Note or the making of any notation thereon. Section 5.08 Reports and Statements to Series 2001-A Noteholders. --------------------------------------------------- (a) On each Payment Date, the Paying Agent shall forward to each Series 2001-A Noteholder a statement substantially in the form of Exhibit C prepared by --------- the Servicer and delivered to the Paying Agent. The Paying Agent shall have no liability for the Servicer's failure to provide such statement to it. The Paying Agent may make such statement (and, at its option, any additional files containing the same information in an alternative format) available to the applicable Noteholders via www.sf.citidirect.com. Parties that are unable to use www.sf.citidirect.com are entitled to have a paper copy mailed to them via first class mail by calling the Trustee at (212) 657-2709 and indicating such. The Paying Agent shall have the right to change the way such statements are distributed in order to make such distribution more convenient and/or more accessible to the above parties and the Paying Agent shall provide timely and adequate notification to all above parties regarding any such changes. (b) On or before January 31 of each calendar year, beginning with calendar year 2002, the Paying Agent shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Series 2001-A Noteholder, a statement prepared by the Servicer containing the information required to be contained in the statement to Series 2001-A Noteholders, as set forth in paragraph (a) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 2001-A Noteholder, together with such other information provided by the Issuer, as is required to be provided by an issuer of indebtedness under the Code. Such obligation of the Paying Agent shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Paying -22- Agent pursuant to any requirements of the Code as from time to time in effect. The Paying Agent shall have no liability for the Servicer's or Issuer's failure to provide such statement or information to it. The Paying Agent may make such statement (and, at its option, any additional files containing the same information in an alternative format) available to the applicable Noteholders via www.sf.citidirect.com. Parties that are unable to use www.sf.citidirect.com are entitled to have a paper copy mailed to them via first class mail by calling the Trustee at (212) 657-2709 and indicating such. The Paying Agent shall have the right to change the way such statements are distributed in order to make such distribution more convenient and/or more accessible to the above parties and the Paying Agent shall provide timely and adequate notification to all above parties regarding any such changes. ARTICLE VI AMORTIZATION EVENTS Section 6.01 Series 2001-A Amortization Events. If any of the ------------------------------------ following events shall have occurred and be continuing: (a) failure on the part of the Servicer to direct payments to be made in respect of interest on the Series 2001-A Notes on any Payment Date, or failure on the part of the Issuer to pay accrued interest on the Series 2001-A Notes in full on any Payment Date, which failure remains unremedied for three Business Days; (b) failure on the part of the Servicer to direct any other payments to be made by the Issuer to or for the benefit of the Series 2001-A Noteholders, or failure on the part of the Issuer to pay such amounts, which failure remains unremedied for five Business Days; (c) failure on the part of the Issuer to maintain its separate legal existence or duly to perform or observe any covenant set forth in Sections -------- 3.03(d), (e), (f), (g) or (j) or 3.02(b) or (h) of the Indenture, which failure ---------------------- --- ------- --- continues unremedied for a period of ten Business Days; (d) failure on the part of the Issuer duly to perform or observe any other covenants or agreements of the Issuer set forth in the Indenture or this Indenture Supplement and not otherwise described above, which failure has a Material Adverse Effect with respect to the Issuer or a material adverse effect on the interests of the Series 2001-A Noteholders and which continues unremedied for a period of 30 days, in each case, after the date on which written notice of such failure, requiring the same to be remedied, has been given to the Issuer by the Indenture Trustee, or to the Issuer and the Indenture Trustee by the Holders of not less than a majority of the Series Outstanding Amount; (e) any representation or warranty made by the Issuer in the Receivables Purchase Agreement, this Indenture Supplement or the Indenture proves to have been incorrect in any material respect when made or when delivered, and continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Issuer by the Indenture Trustee, or to the Issuer and the Indenture Trustee by the Holders of not less than a majority of the Series -23- Outstanding Amount, and as a result of which the interests of the Series 2001-A Noteholders are materially and adversely affected; (f) an Event of Bankruptcy with respect to the Originator, the Seller, the Transferor or the Servicer; (g) a Servicer Default; (h) a Purchase Termination Event under the Receivables Purchase Agreement; (i) a Series 2001-A Asset Amount Deficiency which occurs and continues for any five consecutive Business Days; (j) any of the Indenture, this Indenture Supplement, the Receivables Sale Agreements, the Consent and Release Agreement or the Master Amendment and Consent cease, for any reason, to be valid and in full force and effect, other than in accordance with its terms; (k) failure to vest and maintain in the Issuer an ownership interest in the Purchased Assets, free and clear of all Liens (other than Permitted Liens); (l) failure to vest and maintain in the Indenture Trustee a perfected first priority security interest in the Pledged Assets; (m) either (i) the Internal Revenue Service files notice of a Lien pursuant to Section 6323 of the Code with respect to any of the Purchased Assets or (ii) the PBGC files, or indicates its intention to file a notice of a Lien pursuant to Section 4068 of ERISA with respect to any of the Purchased Assets and, in either such case, such Lien has not been released within 30 days; or (n) any Event of Default not described above; then, in any such event, the Holders of not less than a majority of the Series Outstanding Amount by notice then given in writing to the Issuer, the Servicer, the Rating Agencies and the Indenture Trustee may declare that an Amortization Event (an "Amortization Event") has occurred as of the date of such notice so as ------------------ to cause the Amortization Period to commence; provided, that, (x) in the case of -------- any event described in clauses (f), (m) or (n), an Amortization Event shall be ----------------------- deemed to have occurred immediately upon the occurrence of such event and the Amortization Period shall thereupon commence without any notice or other action on the part of the Indenture Trustee or the Series 2001-A Noteholders and (y) in the case of any event described in clause (i) which has continued unremedied for a total of ten consecutive Business Days, an Amortization Event shall be deemed to have occurred and the Amortization Period shall thereupon commence without any notice or other action on the part of the Indenture Trustee or the Series 2001-A Noteholders; unless the Series 2001-A Asset Amount Deficiency no longer exists and the occurrence of such event has been waived by Series 2001-A Noteholders holding Notes evidencing at least 66 2/3% of the Series Outstanding Amount. -24- ARTICLE VII OPTIONAL REDEMPTION OF SERIES 2001-A NOTES Section 7.01 Optional Redemption of Series 2001-A Notes. ------------------------------------------ (a) On any Business Day during the Amortization Period and occurring on or after the date on which the Series Outstanding Amount is reduced to an amount equal to or less than 10% of the Initial Series Outstanding Amount, the Issuer shall have the option to redeem the Series 2001-A Notes, at a redemption price equal to (i) if such day is a Payment Date, the Redemption Price for such Payment Date or (ii) if such day is not a Payment Date, the Redemption Price for the immediately succeeding Payment Date. (b) If, on any Business Day, the average aggregate outstanding principal balance of the Series 2001-A Notes for the preceding 90-day period has exceeded the average Net Eligible Receivables Balance for such period by more than $25,000,000, the Issuer shall have the option to redeem the Series 2001-A Notes in part up to the amount of such excess at a redemption price equal to (i) if such day is a Payment Date, the Redemption Price for such Payment Date or (ii) if such day is not a Payment Date, the Redemption Price for the immediately succeeding Payment Date; provided, that each such redemption of Notes must be in -------- a principal amount of $25,000,000 or an integral multiple thereof. (c) The Issuer shall give the Servicer and the Indenture Trustee at least 30 days prior written notice of the date on which the Issuer intends to exercise any optional redemption pursuant to this Section 7.01. Not later than ------------ 1:00 p.m., New York City time, on such day the Issuer shall deposit into (i) the Series 2001-A Principal Subaccount in immediately available funds the excess of the principal portion of the Redemption Price over the amount, if any, on deposit in the Series 2001-A Principal Subaccount and (ii) the Series 2001-A Expense Subaccount in immediately available funds the excess of the interest portion of the Redemption Price over the amount, if any, of the Monthly Interest on deposit in the Series 2001-A Expense Subaccount. Such redemption option is subject to payment in full of the Redemption Price. Following such deposits into the Series 2001-A Principal Subaccount and the Series 2001-A Expense Subaccount, the Redemption Price shall be distributed in accordance with Section 4.04. Upon ------------ payment and distribution of the Redemption Price and the reduction in the Series Outstanding Amount to zero, the Series 2001-A Noteholders shall have no further interest in the Pledged Assets. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.01 Ratification of Agreement. As supplemented by this --------------------------- Indenture Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument. -25- Section 8.02 Counterparts. This Indenture Supplement may be executed ------------ in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Section 8.03 Governing Law. THIS INDENTURE SUPPLEMENT SHALL BE -------------- GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING ss.5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. Section 8.04 No Petition; Limited Recourse. ----------------------------- (a) Each party hereto hereby covenants and agrees that it will not at any time institute against the Issuer, the Transferor, the Seller or the Originator, or join in any institution against the Issuer, the Transferor, the Seller or the Originator, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Indenture or any of the Transaction Documents until the expiration of one year and one day after payment in full of the latest maturing Note issued by the Issuer under the Indenture and this Indenture Supplement. (b) Notwithstanding anything herein to the contrary, each party hereto hereby agrees that the Notes and other payment obligations of the Issuer hereunder are limited recourse obligations of the Issuer and shall be payable solely out of the Series 2001-A Noteholders' allocable share of the Pledged Assets at such time as and to the extent of any such funds actually received by, or available to, the Issuer in accordance with Article IV hereof and, to the ---------- extent funds are not available to pay such Notes and other obligations, the claims relating thereto shall accrue but shall be non-recourse against the Issuer and shall not constitute claims under Section 101 of the Bankruptcy Code. (c) This Section 8.04 shall survive termination of the Indenture and ------------ this Indenture Supplement. -26- IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: ___________________________________ Name: Joseph M. Maurer Title: Treasurer CITIBANK, N.A., not in its individual capacity but solely as Indenture Trustee, Paying Agent, Authentication Agent and Transfer Agent and Registrar By: ___________________________________ Name: Title: RULE 144A GLOBAL NOTE THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE OR ANY INTEREST OR PARTICIPATION HEREIN, MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE ISSUER, (2) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT. EACH NOTE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS NOTE, UNLESS SUCH PERSON ACQUIRED THIS NOTE IN A TRANSFER DESCRIBED IN CLAUSE (3) ABOVE, IS DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. PRIOR TO PURCHASING ANY NOTES, PURCHASERS SHOULD CONSULT COUNSEL WITH RESPECT TO THE AVAILABILITY AND CONDITIONS OF EXEMPTION FROM THE RESTRICTION ON RESALE OR TRANSFER. THE ISSUER HAS NOT AGREED TO REGISTER THE NOTES UNDER THE SECURITIES ACT, TO QUALIFY THE NOTES UNDER THE SECURITIES LAWS OF ANY STATE OR TO PROVIDE REGISTRATION RIGHTS TO ANY PURCHASER. AS SET FORTH HEREIN, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. REGISTERED up to $110,000,000(1) No. ________ SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP NO. 52736WAA9 UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF, AND EACH HOLDER OF A BENEFICIAL INTEREST IN THIS NOTE, COVENANTS AND AGREES THAT IT WILL NOT AT ANY TIME INSTITUTE AGAINST THE ISSUER, THE TRANSFEROR, THE SELLER OR THE ORIGINATOR OR JOIN IN ANY INSTITUTION AGAINST THE ISSUER, THE TRANSFEROR, THE SELLER OR THE ORIGINATOR, OF, ANY BANKRUPTCY PROCEEDINGS UNDER ANY UNITED STATES FEDERAL OR STATE BANKRUPTCY OR SIMILAR LAW IN CONNECTION WITH ANY OBLIGATIONS RELATING TO THE NOTES OR THE INDENTURE. THE HOLDER OF THIS NOTE, BY ACCEPTANCE OF THIS NOTE, AND EACH HOLDER OF A BENEFICIAL INTEREST IN THIS NOTE, BY THE ACQUISITION OF A BENEFICIAL INTEREST THEREIN, AGREE TO TREAT THE NOTES AS INDEBTEDNESS OF LEVI STRAUSS RECEIVABLES FUNDING, LLC FOR APPLICABLE FEDERAL, STATE, AND LOCAL INCOME AND FRANCHISE TAX LAW AND FOR PURPOSES OF ANY OTHER TAX IMPOSED ON OR MEASURED BY INCOME. ------------------------------------ (1) Denominations of $250,000 and in integral multiples of $1,000 in excess thereof. LEVI STRAUSS RECEIVABLES FUNDING SECURED TERM NOTES, SERIES 2001-A Levi Strauss Receivables Funding, LLC, a Delaware limited liability company (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, subject to the following provisions, a principal sum of ONE HUNDRED TEN MILLION AND ZERO HUNDREDTHS DOLLARS ($110,000,000.00) payable in an amount equal to the aggregate amount, if any, payable from the Collection Account in respect of principal on the Notes pursuant to Section 4.04 of the Supplement. The entire unpaid principal amount of this Note shall be due and payable at the earlier of the Final Stated Maturity Date and the Date of an optional redemption under Section 7.01 of the Supplement. The principal amount of this Rule 144A Global Note and the Regulation S Global Notes shall not exceed $110,000,000. The Issuer will pay interest on the Notes with respect to each Interest Period in accordance with Sections 4.02 and 4.04 of the Supplement. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Authentication Agent whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer. LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: Name: ________________________________ Title: ______________________________ Date: July 31, 2001 AUTHENTICATION AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. CITIBANK, N.A., not in its individual capacity but solely as Authentication Agent By: ------------------------------------------- Name: Title: Date: July 31, 2001 [REVERSE OF NOTE] This Note is one of a duly authorized issue of Levi Strauss Receivables Funding Secured Notes, Series 2001-A (the "Notes") issued and to be issued under the Master Indenture dated as of July 31, 2001 (as supplemented by the Series 2001-A Supplement dated as of July 31, 2001 (as such Series 2001-A Supplement may be amended, restated, supplemented or otherwise modified from time to time, the "Supplement") and as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Indenture") among the Issuer and Citibank, N.A., a national banking association, as Indenture Trustee (the "Indenture Trustee", which term includes any successor trustee as permitted under the Indenture), as Paying Agent, Authentication Agent and Registrar. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture or the Supplement as the case may be. The Notes are and will be equally and ratably entitled to the benefits of the Indenture without preference, priority or distinction, all in accordance with the terms and provisions of the Indenture. Payments of interest on and principal of this Note due and payable on any Payment Date to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the registered Holder of this Note (or one or more predecessor Notes) on whose Note Register as of the close of business on each Record Date (the "Registered Holder"), except that with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will be made by wire transfer in immediately available funds to the account designated by such nominee. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more predecessor Notes) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer thereof or in exchange hereof or in lieu hereof, whether or not noted hereon. As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer, in form satisfactory to the Transfer Agent and Registrar, duly executed by, the Holder hereof or his attorney-in-fact duly authorized in writing, and such other documents as the Transfer Agent and Registrar may reasonably require, and thereupon one or more new Notes of the same Series of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the Issuer or the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. On any redemption, purchase, exchange or cancellation of any of the Notes represented by this Rule 144A Global Note, details of such redemption, purchase, exchange or cancellation shall be entered by the Paying Agent in Schedule A hereto recording any such redemption, purchase, exchange or cancellation. Upon any such redemption, purchase, exchange or cancellation, the principal amount of this Rule 144A Global Note and the Notes represented by this Rule 144A Global Note shall be reduced or increased, as appropriate, by the principal amount so redeemed, purchased, exchanged or cancelled. Each Noteholder or Beneficial Owner, by acceptance of a Note or, in the case of a Beneficial Owner, a beneficial interest in a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee in its individual capacity, any holder of a beneficial interest in the Indenture Trustee or of any successor or assign of the Indenture Trustee in its individual capacity, except as any such Person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar and any agent of the foregoing shall treat the Person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar nor any such agent of the foregoing shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Notes under the Indenture at any time by the Issuer and the Indenture Trustee with the consent of the Majority Investors. Any such amendment or modification by the Holder of this Note (or any one of more predecessor Notes) shall be conclusive and binding upon the Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such amendment or modification is made upon this Note. The Indenture also permits, subject to the conditions set forth in the Indenture, the Indenture Trustee to amend or waive certain terms an conditions set forth in the Indenture without the consent of Holders of the Notes issued thereunder or without the consent of holders of Series of Notes not affected thereby. The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. AS PROVIDED IN THE INDENTURE, THE INDENTURE AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of an interest on this Note at the times, place, and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Transaction Documents, neither any owner of a beneficial interest in the Issuer, nor any of its partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on, or performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in this Note or the Indenture. The Holder of this Note by the acceptance hereof agrees that, except as expressly provided in the Transaction Documents, the Holder shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. ASSIGNMENT Social Security or taxpayer I.D. or other identifying number of assignee ---------------- FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ----------------------------------- (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. 2 Dated: ------------------------ ----------------------------------------- Signature Guaranteed: -------------------------- 2 NOTE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatsoever. SCHEDULE A SCHEDULE OF EXCHANGES BETWEEN THE REGULATION S GLOBAL NOTE AND THIS RULE 144A GLOBAL NOTE, OR REDEMPTIONS OR PURCHASES AND CANCELLATIONS The initial principal amount of this Rule 144A Global Note is $110,000,000. The following increases or decreases in principal amount of this Rule 144A Global Note, or redemptions, purchases or cancellations of this Rule 144A Global Note have been made: Date of exchange, or Increase or decrease in Remaining principal amount Notation made by or redemption or purchase or principal amount of this of this Rule 144A Global on behalf of the cancellation Rule 144A Global Note due Note following such exchange, Issuer to exchanges between the or redemption or purchase Regulation S Global Note or cancellation and this Rule 144A Global Note -------------------------- -------------------------- ------------------------------ -------------------- -------------------------- -------------------------- ------------------------------ -------------------- -------------------------- -------------------------- ------------------------------ --------------------
TEMPORARY REGULATION S GLOBAL NOTE THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE. THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE OR ANY INTEREST OR PARTICIPATION HEREIN, MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE ISSUER, (2) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT. EACH NOTE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS NOTE, UNLESS SUCH PERSON ACQUIRED THIS NOTE IN A TRANSFER DESCRIBED IN CLAUSE (3) ABOVE, IS DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. PRIOR TO PURCHASING ANY NOTES, PURCHASERS SHOULD CONSULT COUNSEL WITH RESPECT TO THE AVAILABILITY AND CONDITIONS OF EXEMPTION FROM THE RESTRICTION ON RESALE OR TRANSFER. THE ISSUER HAS NOT AGREED TO REGISTER THE NOTES UNDER THE SECURITIES ACT, TO QUALIFY THE NOTES UNDER THE SECURITIES LAWS OF ANY STATE OR TO PROVIDE REGISTRATION RIGHTS TO ANY PURCHASER. AS SET FORTH HEREIN, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. REGISTERED up to $110,000,000(1) No.________ SEE REVERSE FOR CERTAIN DEFINITIONS Common Code: 013304670 ISIN: USU52810AA36 UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF, AND EACH HOLDER OF A BENEFICIAL INTEREST IN THIS NOTE, COVENANTS AND AGREES THAT IT WILL NOT AT ANY TIME INSTITUTE AGAINST THE ISSUER, THE TRANSFEROR, THE SELLER OR THE ORIGINATOR OR JOIN IN ANY INSTITUTION AGAINST THE ISSUER, THE TRANSFEROR, THE SELLER OR THE ORIGINATOR, OF, ANY BANKRUPTCY PROCEEDINGS UNDER ANY UNITED STATES FEDERAL OR STATE BANKRUPTCY OR SIMILAR LAW IN CONNECTION WITH ANY OBLIGATIONS RELATING TO THE NOTES OR THE INDENTURE. THE HOLDER OF THIS NOTE, BY ACCEPTANCE OF THIS NOTE, AND EACH HOLDER OF A BENEFICIAL INTEREST IN THIS NOTE, BY THE ACQUISITION OF A BENEFICIAL INTEREST THEREIN, AGREE TO TREAT THE NOTES AS INDEBTEDNESS OF LEVI STRAUSS RECEIVABLES FUNDING, LLC FOR APPLICABLE FEDERAL, STATE, AND LOCAL INCOME AND FRANCHISE TAX LAW AND FOR PURPOSES OF ANY OTHER TAX IMPOSED ON OR MEASURED BY INCOME. -------- 1 Denominations of $250,000 and in integral multiples of $1,000 in excess thereof. LEVI STRAUSS RECEIVABLES FUNDING SECURED TERM NOTES, SERIES 2001-A Levi Strauss Receivables Funding, LLC, a Delaware limited liability company (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, subject to the following provisions, a principal sum of ONE HUNDRED TEN MILLION AND ZERO HUNDREDTHS DOLLARS ($110,000,000.00) payable in an amount equal to the aggregate amount, if any, payable from the Collection Account in respect of principal on the Notes pursuant to Section 4.04 of the Supplement. The entire unpaid principal amount of this Note shall be due and payable at the earlier of the Final Stated Maturity Date and the Date of an optional redemption under Section 7.01 of the Supplement. The principal amount of this Temporary Regulation S Global Note and the Rule 144A Global Note shall not exceed $110,000,000. The Issuer will pay interest on the Notes with respect to each Interest Period in accordance with Sections 4.02 and 4.04 of the Supplement. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Authentication Agent whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer. LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: Name: __________________________________ Title: ________________________________ Date: July 31, 2001 AUTHENTICATION AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. CITIBANK, N.A., not in its individual capacity but solely as Authentication Agent By: ------------------------------------------- Name: Title: Date: July 31, 2001 [REVERSE OF NOTE] This Note is one of a duly authorized issue of Levi Strauss Receivables Funding Secured Notes, Series 2001-A (the "Notes") issued and to be issued under the Master Indenture dated as of July 31, 2001 (as supplemented by the Series 2001-A Supplement dated as of July 31, 2001 (as such Series 2001-A Supplement may be amended, restated, supplemented or otherwise modified from time to time, the "Supplement") and as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Indenture") among the Issuer and Citibank, N.A., a national banking association, as Indenture Trustee (the "Indenture Trustee", which term includes any successor trustee as permitted under the Indenture), as Paying Agent, Authentication Agent and Registrar. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture or the Supplement as the case may be. The Notes are and will be equally and ratably entitled to the benefits of the Indenture without preference, priority or distinction, all in accordance with the terms and provisions of the Indenture. Payments of interest on and principal of this Note due and payable on any Payment Date to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the registered Holder of this Note (or one or more predecessor Notes) on whose Note Register as of the close of business on each Record Date (the "Registered Holder"), except that with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will be made by wire transfer in immediately available funds to the account designated by such nominee. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more predecessor Notes) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer thereof or in exchange hereof or in lieu hereof, whether or not noted hereon. As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer, in form satisfactory to the Transfer Agent and Registrar, duly executed by, the Holder hereof or his attorney-in-fact duly authorized in writing, and such other documents as the Transfer Agent and Registrar may reasonably require, and thereupon one or more new Notes of the same Series of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the Issuer or the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. On any redemption, purchase, exchange or cancellation of any of the Notes represented by this Temporary Regulation S Global Note, details of such redemption, purchase, exchange or cancellation shall be entered by the Paying Agent in Schedule A hereto recording any such redemption, purchase, exchange or cancellation. Upon any such redemption, purchase, exchange or cancellation, the principal amount of this Temporary Regulation S Global Note and the Notes represented by this Temporary Regulation S Global Note shall be reduced or increased, as appropriate, by the principal amount so redeemed, purchased, exchanged or cancelled. On or after the Release Date, this Temporary Regulation S Global Note may be exchanged, in whole or in part (free of charge), for the Permanent Regulation S Global Note in the form set out in Exhibit A-3 of the Supplement upon certification of non-U.S. beneficial ownership substantially in the form set out in Exhibit E-2 of the Supplement. The Permanent Regulation S Global Note shall be so issued and delivered in exchange for only that portion of this Temporary Regulation S Global Note in respect of which there shall have been presented to the Paying Agent by Euroclear or Clearstream Banking, as applicable, a certificate substantially in the form set out in Exhibit E-1 to the Supplement. The Permanent Regulation S Global Note shall be delivered only outside the United States. Each Noteholder or Beneficial Owner, by acceptance of a Note or, in the case of a Beneficial Owner, a beneficial interest in a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee in its individual capacity, any holder of a beneficial interest in the Indenture Trustee or of any successor or assign of the Indenture Trustee in its individual capacity, except as any such Person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar and any agent of the foregoing shall treat the Person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Issuer, the Indenture Trustee, the Paying Agent, the Authentication Agent, the Transfer Agent and Registrar nor any such agent of the foregoing shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Notes under the Indenture at any time by the Issuer and the Indenture Trustee with the consent of the Majority Investors. Any such amendment or modification by the Holder of this Note (or any one of more predecessor Notes) shall be conclusive and binding upon the Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such amendment or modification is made upon this Note. The Indenture also permits, subject to the conditions set forth in the Indenture, the Indenture Trustee to amend or waive certain terms an conditions set forth in the Indenture without the consent of Holders of the Notes issued thereunder or without the consent of holders of Series of Notes not affected thereby. The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. AS PROVIDED IN THE INDENTURE, THE INDENTURE AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of an interest on this Note at the times, place, and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Transaction Documents, neither any owner of a beneficial interest in the Issuer, nor any of its partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on, or performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in this Note or the Indenture. The Holder of this Note by the acceptance hereof agrees that, except as expressly provided in the Transaction Documents, the Holder shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. ASSIGNMENT Social Security or taxpayer I.D. or other identifying number of assignee ---------------- FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ----------------------------------- (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. 2 Dated: ----------------------------- --------------------------------------- Signature Guaranteed: -------------------------- 2 NOTE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatsoever. SCHEDULE A SCHEDULE OF EXCHANGES BETWEEN THIS TEMPORARY REGULATION S GLOBAL NOTE AND THE RULE 144A GLOBAL NOTE, OR REDEMPTIONS OR PURCHASES AND CANCELLATIONS The initial principal amount of this Temporary Regulation S Global Note is $0.00 The following increases or decreases in principal amount of this Temporary Regulation S Global Note, or redemptions, purchases or cancellations of this Temporary Regulation S Global Note have been made: Date of exchange, or Increase or decrease in Remaining principal amount of Notation made by or redemption or purchase or principal amount of this this Temporary Regulation S on behalf of the cancellation Temporary Regulation S Global Note following such Issuer Global Note due to exchange, or redemption or exchanges between this purchase or cancellation Temporary Regulation S Global Note and the Rule 144A Global Note ------------------------- ------------------------- ---------------------------- ------------------------ ------------------------- ------------------------- ---------------------------- ------------------------ ------------------------- ------------------------- ---------------------------- ------------------------
EX-10 5 a10qex104.txt EXHIBIT 10.4 RECEIVABLES PURCHASE AGREEMENT EXHIBIT 10.4 EXECUTION COPY ================================================================================ RECEIVABLES PURCHASE AGREEMENT Dated as of July 31, 2001 by and among LEVI STRAUSS RECEIVABLES FUNDING, LLC as Issuer, LEVI STRAUSS FUNDING, LLC as Transferor LEVI STRAUSS FINANCIAL CENTER CORPORATION as Seller and Servicer and LEVI STRAUSS SECURITIZATION CORP. as SPC Member ================================================================================ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.01 Definitions..........................................................................................1 Section 1.02 Other Definitional Provisions........................................................................6 ARTICLE II CONVEYANCE OF ASSETS Section 2.01 Sale and Purchase....................................................................................7 Section 2.02 Purchases............................................................................................8 Section 2.03 Conditions Precedent to Purchases....................................................................8 Section 2.04 Calculation of the Purchase Price....................................................................8 Section 2.05 Purchase Price Payments..............................................................................9 Section 2.06 The Subordinated Note................................................................................9 Section 2.07 Conditions Precedent to Subordinated Loans..........................................................10 Section 2.08 Adjustments.........................................................................................10 Section 2.09 Payments and Computations, Etc......................................................................11 Section 2.10 No Assumption.......................................................................................11 Section 2.11 No Recourse.........................................................................................12 Section 2.12 True Sales; Back-Up Security Interest...............................................................12 Section 2.13 Servicing and Further Transfer of Purchased Assets..................................................13 Section 2.14 Financing Statements; Further Assurances............................................................13 Section 2.15 Marking of Records..................................................................................14 Section 2.16 Representations and Warranties of the Seller and Transferor.........................................14 Section 2.17 Affirmative Covenants of the Seller and the Transferor..............................................20 Section 2.18 Negative Covenants of the Seller and the Transferor.................................................23 Section 2.19 Representations and Warranties of the Issuer........................................................26 Section 2.20 Separate Existence of the Issuer....................................................................26 Section 2.21 Transferor's Right to Dissolve or Terminate.........................................................27 -ii- ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.01 Acceptance of Appointment and Other Matters Relating to the Servicer................................28 Section 3.02 Duties of the Servicer and the Issuer...............................................................29 Section 3.03 Servicing Compensation..............................................................................31 Section 3.04 Representations and Warranties of the Servicer......................................................31 Section 3.05 Affirmative Covenants of Servicer...................................................................34 Section 3.06 Negative Covenants of Servicer......................................................................36 Section 3.07 Records of the Servicer and Reports to be Prepared by the Servicer..................................37 Section 3.08 Annual Certificate of Servicer......................................................................38 Section 3.09 Annual Servicing Report of Independent Public Accountants; Copies of Reports Available.................................................................38 Section 3.10 Adjustments; Modifications..........................................................................38 Section 3.11 Calculations........................................................................................39 Section 3.12 Application of Collections..........................................................................39 ARTICLE IV ACCOUNTS AND COLLECTIONS Section 4.01 Lockboxes; Rights after Replacement of Servicer....................................................40 Section 4.02 Establishment of Collection Account.................................................................40 Section 4.03 Collections and Allocations.........................................................................41 ARTICLE V OTHER MATTERS RELATING TO THE SELLER AND THE TRANSFEROR Section 5.01 Liability of the Seller and the Transferor..........................................................41 Section 5.02 Indemnification by the Seller.......................................................................42 ARTICLE VI OTHER MATTERS RELATING TO THE SERVICER Section 6.01 Liability of the Servicer...........................................................................44 Section 6.02 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer.......................44 -iii- Section 6.03 Limitation on Liability of the Servicer and Others..................................................45 Section 6.04 Indemnification by the Servicer.....................................................................46 Section 6.05 Resignation of the Servicer.........................................................................46 ARTICLE VII PURCHASE TERMINATION EVENTS Section 7.01 Purchase Termination Events.........................................................................47 Section 7.02 Purchase Termination................................................................................48 ARTICLE VIII SERVICER DEFAULTS Section 8.01 Servicer Defaults...................................................................................48 Section 8.02 Performance by Indenture Trustee....................................................................50 Section 8.03 Appointment of Successor Servicer...................................................................50 Section 8.04 Notification to Holders.............................................................................52 ARTICLE IX TERMINATION Section 9.01 Termination.........................................................................................52 ARTICLE X MISCELLANEOUS PROVISIONS Section 10.01 Amendment..........................................................................................52 Section 10.02 Governing Law......................................................................................53 Section 10.03 Notices; Payments..................................................................................53 Section 10.04 Severability of Provisions.........................................................................53 Section 10.05 Further Assurances.................................................................................53 Section 10.06 Nonpetition Covenant...............................................................................54 Section 10.07 No Waiver; Cumulative Remedies.....................................................................54 Section 10.08 Counterparts.......................................................................................54 Section 10.09 Third-Party Beneficiaries..........................................................................54 Section 10.10 Merger and Integration.............................................................................54 Section 10.11 Headings...........................................................................................55 -iv- Section 10.12 Costs, Expenses and Taxes..........................................................................55 Section 10.13 Submission to Jurisdiction.........................................................................55 Section 10.14 Waiver of Jury Trial...............................................................................56 Section 10.15 Acknowledgment and Consent.........................................................................56 Section 10.16 No Partnership or Joint Venture....................................................................57 Section 10.17 Binding Effect; Assignability; Survival of Provisions..............................................57 Section 10.18 Recourse to the Seller or Transferor...............................................................57 Section 10.19 Limited Recourse to the Issuer.....................................................................58 -v-
SCHEDULES SCHEDULE 2.16(m) List of Offices SCHEDULE 2.16(o) List of Lockbox Banks SCHEDULE 2.16(q) List of Legal Names EXHIBITS EXHIBIT A Form of Annual Servicer's Certificate EXHIBIT B Forms of Lockbox Agreements EXHIBIT C List of Servicing Officers EXHIBIT D Form of Daily Receivables Activity Report EXHIBIT E Form of Subordinated Note EXHIBIT F Credit and Collection Policy -vi- THIS RECEIVABLES PURCHASE AGREEMENT (this "Agreement") dated --------- as of July 31, 2001 is made by and among LEVI STRAUSS RECEIVABLES FUNDING, LLC, a Delaware limited liability company, as issuer (the "Issuer"), LEVI STRAUSS ------ FUNDING, LLC, a Delaware limited liability company, as transferor (the "Transferor"), LEVI STRAUSS FINANCIAL CENTER CORPORATION, a California ---------- corporation, in its separate capacities as seller (the "Seller") and as servicer ------ (the "Servicer"), and Levi Strauss Securitization Corp., a Delaware corporation, -------- as special purpose member of the Issuer (the "SPC Member"). ---------- In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties and their successors and assigns: ARTICLE I DEFINITIONS Section 1.01 Definitions. Capitalized terms used in this Agreement ------- but not defined herein shall have the meanings assigned to them in the Indenture. Whenever used in this Agreement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. "Adjusted Loss Reserve" as of any date equals the product of --------------------- (i) the Net Eligible Receivables Balance times (ii) the "Loss Reserve Ratio" for ------------------ the Series 2001-A Notes times (iii) sixty percent (60%). "Adjustment" shall have the meaning set forth in Section ---------- ------- 2.08(c). ------- "Agreement" shall mean this Receivables Purchase Agreement and --------- all amendments hereof and supplements hereto. "Allocated Receivables Amount" shall mean, on any date of ------------------------------ determination with respect to any Series, the Series Allocation Percentage then in effect times the Net Eligible Receivables Balance. "Authorized Officer" shall have the meaning set forth in the ------------------ Indenture, and, with respect to the Seller or the Transferor, shall mean any president, vice president, treasurer, assistant treasurer, secretary, assistant secretary, chief financial officer, controller or any other officer of such Person charged with responsibility for the administration of this Agreement. "Average Days Outstanding" shall have the meaning set forth in ------------------------ the Series 2001-A Indenture Supplement. "Bank of America" shall mean Bank of America, N.A. --------------- "Base Rate" shall mean for any day, a fluctuating rate per --------- annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "reference rate." Such -------------- 1 rate is set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the Base Rate resulting from a change in the reference rate established by Bank of America shall become effective on the Business Day on which such change in the reference rate is announced by Bank of America. "Collection Account" shall have the meaning set forth in ------------------ Section 4.02. ------------ "Collections" shall have the meaning assigned to such term in ----------- the Indenture; provided, however, that any proceeds of Receivables that gave ----------------- rise to Noncomplying Asset Adjustments that have been paid as provided in Section 2.08(c) hereof and any Related Security with respect to such Receivable -------------- shall not constitute Collections and shall be promptly returned to the Seller as provided in Section 2.08(c) hereof. -------------- "Credit and Collection Policy" shall mean the Originator's, ---------------------------- the Servicer's, the Seller's and the Transferor's credit and collection policies and practices relating to the Receivables and the Contracts existing on the date hereof and summarized in Exhibit F hereto, as modified from time to time in --------- accordance with this Agreement. "Daily Receivables Activity Report" shall have the meaning set --------------------------------- forth in Section 3.07(d). --------------- "Dilution Adjustment" shall have the meaning set forth in ------------------- Section 2.08(b). -------------- "Dilutive Credit" shall mean, with respect to any Receivable, --------------- any reduction to the Unpaid Balance thereof on account of discount, expense, rebates, refunds, billing error expense, credits, set-off, counterclaim, defense, advertising allowances and other adjustments or allowances in respect of Receivables made by the Originator or the Servicer (excluding any adjustments on account of an Obligor's insolvency or inability to pay). "Eligible Servicer" shall mean the Originator or, if the ----------------- Originator is not acting as Servicer, an entity that, at the time of its appointment as Servicer, (a) is acceptable to the Indenture Trustee and the Rating Agencies, (b) is legally qualified and has the capacity to service the Receivables, (c) in the determination of the Majority Investors, has demonstrated the ability to service professionally and competently a portfolio of similar accounts in accordance with high standards of skill and care, and (d) is qualified to use the software that is then being used to service the Receivables or obtains the right to use or has its own software that is adequate to perform its duties under this Agreement. "Enhancement Agreement" shall mean any agreement, instrument --------------------- or document governing the terms of any Series Enhancement or pursuant to which any Series Enhancement is issued or outstanding. "ERISA" shall mean the Employee Retirement Income Security Act ----- of 1974 and the rules and regulations thereunder, each as amended from time to time. 2 "ERISA Event" means (a)(i) the occurrence of a reportable ----------- event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of paragraph (1) of Section 4043(b) of ERISA (without regard to paragraph (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA occurs with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operation at a facility of the Seller or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the partial or complete withdrawal by the Seller or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA which would reasonably be expected to result in liability to the Seller or any of its Subsidiaries of more than $10,000,000; (f) the imposition of a Lien under Section 302(f) of ERISA with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA, which would reasonably be expected to constitute grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Federal Funds Rate" shall mean, for any day, the rate per ------------------ annum (rounded upward to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transaction with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Bank of America on such day on such transaction as determined by Bank of America. "Final Payout Date" shall mean the earlier of the date after ----------------- the satisfaction and discharge of the Indenture pursuant to Article IV thereof ---------- on which either (i) all of the Notes have been paid in full or (ii) the Unpaid Balance of all outstanding Receivables included in the Purchased Assets have been paid or written off as uncollectible. "Funded Current Liability Percentage" means "funded current ----------------------------------- liability percentage" within the meaning of Section 412(1)(8)(B) of the Code. "Government Receivable" means, at any time, a Receivable the --------------------- Obligor of which is a federal, state or local government or governmental subdivision or agency. "Indemnified Losses" shall have the meaning set forth in ------------------ Section 5.02. ------------ "Indemnified Party" shall have the meaning set forth in ----------------- Section 5.02. ------------ 3 "Lockbox" shall mean any post office box to which the Obligors ------- remit Collections. "Lockbox Agreement" shall mean each lockbox agreement attached ----------------- as Exhibit B and any other lockbox agreement pursuant to which the Servicer --------- establishes a Lockbox Account in the name of the Indenture Trustee. "Lockbox Bank" shall mean any institution at which a Lockbox ------------ or Lockbox Account is maintained. "LSFCC" shall mean Levi Strauss Financial Center Corporation, ----- a California corporation. "Monthly Receivables Activity Report" shall have the meaning ----------------------------------- provided in Section 3.07(c). --------------- "Multiemployer Plan" means a multiemployer plan (as defined in ------------------ Section 4001(a)(3) of ERISA) to which the Originator or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Noncomplying Receivable" shall have the meaning set forth in ----------------------- Section 2.08(a). --------------- "Noncomplying Receivables Adjustment" shall have the meaning ----------------------------------- set forth in Section 2.08(a). --------------- "Officer's Certificate" shall mean, unless otherwise specified --------------------- in this Agreement, a certificate delivered as provided herein, signed: (a) by the President, any Vice President, Treasurer or any Assistant Treasurer or the chief financial officer of the Seller, the Transferor or the Servicer, as the case may be, or (b) by the President, any Vice President or the financial controller of any Successor Servicer (or by an officer holding an office with equivalent or more senior responsibilities or, in the case of the Servicer or Successor Servicer, a Servicing Officer, and, in the case of the Transferor, any executive of the Transferor designated in writing by a Vice President or more senior officer of the Transferor for this purpose). "Opinion of Counsel" shall mean a written opinion of counsel, ------------------ who may be counsel for, or an employee of, the Person providing the opinion and who shall be reasonably acceptable to the Issuer and the Indenture Trustee. "PBGC" shall mean the Pension Benefit Guaranty Corporation or ---- any successor thereto. "Plan" shall mean each employee benefit plan (as defined in ---- Section 3(3) of ERISA) currently sponsored, maintained or contributed to by the Originator and any ERISA Affiliate or with respect to which the Originator or any ERISA Affiliate has any liability. 4 "Purchase" shall mean each purchase of Receivables and Related -------- Assets by the Issuer from the Seller and/or the Transferor hereunder. "Purchase Price" shall have the meaning set forth in --------------- Section 2.04(b). --------------- "Purchase Price Percentage" shall have the meaning set forth ------------------------- in Section 2.04(b). --------------- "Purchase Termination Date" shall mean the date specified by ------------------------- the Indenture Trustee at the direction of the Majority Investors following the occurrence of a Purchase Termination Event; provided, however, that if an Event ----------------- of Bankruptcy has occurred with respect to either the Seller or the Issuer, or a Purchase Termination Event described in Section 7.01(f) shall have occurred, then, in any such event, the Purchase Termination Date shall be deemed to have occurred automatically without any such notice. "Purchase Termination Event" shall have the meaning set forth -------------------------- in Section 7.01. ------------ "Purchased Assets" shall have the meaning set forth in Section ---------------- ------- 2.01(a). ------- "Related Assets" shall have the meaning set forth in Section -------------- ------- 2.01(a). ------- "Seller" shall mean LSFCC, in its capacity as the Seller under ------ this Agreement, and any successor to LSFCC permitted under Section 6.02. ------------ "Service Transfer" shall have the meaning specified in Section ---------------- ------- 8.01. ---- "Servicer" shall mean LSFCC, in its capacity as the Servicer -------- under this Agreement, and any successor thereto in such capacity appointed pursuant to Article IX of this Agreement. ---------- "Servicer Default" shall have the meaning specified in Section ---------------- ------- 8.01. ----- "Servicing Fee Rate" shall mean 0.50%. ------------------ "Servicing Officer" shall mean any officer of the Servicer or ----------------- an attorney-in-fact of the Servicer who in either case is involved in, or responsible for, the administration and servicing of the Receivables and whose name appears on a list of servicing officers furnished to the Issuer and the Indenture Trustee by the Servicer, as such list may from time to time be amended. The initial list of Servicing Officers is set forth in Exhibit C. --------- "Subordinated Loan" shall have the meaning set forth in ----------------- Section 2.06. ------------ "Subordinated Note" shall mean the Subordinated Note dated the ----------------- Closing Date made by Issuer and payable to the order of the Seller substantially in the form of Exhibit E, as such note may be amended, supplemented, otherwise --------- modified or replaced from time to time. "Subordinated Note Cap" shall have the meaning set forth in --------------------- Section 2.06. ------------ "Sub-Servicer" shall have the meaning set forth in Section ------------ 3.01(b). ------- 5 "Surviving Entity" shall have the meaning set forth in Section ---------------- ------- 2.18(c). ------- "Termination Notice" shall have the meaning set forth in ------------------ Section 8.01. ------------ "Unmatured Purchase Termination Event" shall mean any event ------------------------------------ that, with the giving of notice or lapse of time, or both, would become a Purchase Termination Event. "Unmatured Servicer Default" shall mean any event that, with -------------------------- the giving of notice or lapse of time, or both, would become a Servicer Default. Section 1.02 Other Definitional Provisions. ----------------------------- (a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) Other Terms. All accounting terms not specifically defined herein ----------- shall be construed in accordance with GAAP or with United States generally accepted regulatory accounting principles, as applicable. To the extent that the definitions of accounting terms in this Agreement are inconsistent with the meanings of such terms under GAAP or regulatory accounting principles, the definitions contained in this Agreement shall control. All terms used in Article 9 of the UCC and not specifically defined herein are used herein as defined in such Article 9. (c) Computation of Time Periods. Unless otherwise stated in this ------------------------------ Agreement with respect to computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and each of the words "to" and "until" means "to but excluding". (d) References to Amounts. Unless otherwise specified, references to any --------------------- amount as on deposit or outstanding on any particular date shall mean such amount at the close of business on such day. (e) Reference. The word "hereof", "herein" and "hereunder" and words of --------- similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and references to "Section", "subsection", "Appendix", "Schedule" and "Exhibit" in this Agreement ------- ---------- -------- -------- ------- are references to Sections, subsections, Appendices, Schedules and Exhibits in or to this Agreement unless otherwise specified in this Agreement. 6 ARTICLE II CONVEYANCE OF ASSETS Section 2.01 Sale and Purchase. ----------------- (a) Agreement. Upon the terms and subject to the condition --------- hereof, Issuer agrees to buy, and each of the Seller and the Transferor agrees to transfer, assign, set over and otherwise convey to the Issuer, all of the Seller's and the Transferor's right, title and interest in and to the following: (i) all Receivables now existing and hereafter arising from time to time; (ii) all Related Security with respect to such Receivables; (iii) all Collections; (iv) all rights of the Seller and the Transferor (directly or as assignee) under the Receivables Purchase and Sale Agreement and all rights of the Transferor under the Receivables Sale Agreement; and (v) all proceeds of and earnings on any of the foregoing. The items listed above in clauses (ii), (iii), (iv) and (v), whenever and wherever arising, are collectively referred to herein as the "Related Assets." The Receivables and the Related Assets are collectively -------------- referred to herein as the "Purchased Assets." It is expressly understood that ---------------- each Receivable conveyed to the Issuer hereunder, together with all other Purchased Assets then existing or thereafter created and arising with respect thereto, will thereafter be the property of the Issuer (or its assignees), without the necessity of any further action by the Issuer (other than satisfaction of the conditions set forth herein). (b) Rights of the Issuer. Each of the Seller and the Transferor -------------------- hereby authorizes the Issuer and its assignees and designees to take any and all steps in its name and on its behalf that the Issuer, the Servicer and/or their respective designees determine are reasonably necessary or appropriate to collect all amounts due under any and all Purchased Assets, including without limitation endorsing the name of the Seller or the Transferor on checks and other instruments representing Collections and enforcing such Purchased Assets. The Issuer shall have no obligation to account for, to replace, to substitute or to return any Purchased Asset to the Transferor or, except as provided in Section 2.08(c), to the Seller. The Issuer shall have the unrestricted right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Purchased Assets and all of the Issuer's right, title and interest in, to and under this Agreement on whatever terms the Issuer determines. As between the Seller, the Transferor and the Issuer, the Issuer shall have the sole right to retain any gains or profits created by buying, selling or holding the Purchased Assets. (c) Responsibilities of the Seller and the Transferor. Each of ------------------------------------------------- the Seller and the Transferor agrees to deliver directly to the Servicer (for the Issuer's account), within one (1) 7 Business Day after receipt thereof, any Collections that it receives, in the form so received, and agrees that all such Collections shall be deemed to be received in trust for the Issuer and its assignees and shall be maintained and segregated separate and apart from all other funds and moneys of the Transferor and the Seller until delivery of such Collections to the Servicer. Each of the Seller and the Transferor hereby grants to the Issuer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in its name all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by it or transmitted or received by the Issuer (whether or not from the Seller or the Transferor) in connection with any Purchased Asset (which power of attorney may be exercised by the Issuer's successors and assigns in accordance with Section ------- 10.15). Each of the Seller and the Transferor shall perform, or cause to be ----- performed, all of its obligations hereunder and under the Contracts related to the Purchased Assets to which it is a party to the same extent as if such Purchased Assets had not been sold hereunder, and the exercise by the Issuer or its designee or assignee of the Issuer's rights hereunder or in connection herewith shall not relieve the Seller or the Transferor from any of their respective obligations under any such Contracts related to the Purchased Assets. Notwithstanding the foregoing, each of the Seller and the Transferor acknowledges that the Issuer or its designees are entitled to perform such obligations to the extent permitted under the Transaction Documents. Section 2.02 Purchases. On the Closing Date, the purchase --------- all of the Transferor's right, title and interest in and to all Receivables outstanding as of the close of business on the immediately preceding Business Day, together with all other Purchased Assets related thereto. The Transferor shall thereafter cease immediately to purchase any further Receivables or other Purchased Assets from the Seller under the Receivables Sale Agreement or otherwise, and the Transferor shall not sell any further Receivables or other Purchased Assets hereunder. On the Closing Date and on each Business Day thereafter until the Purchase Termination Date, the Issuer shall purchase all of the Seller's right, title and interest in and to all Receivables existing as of the close of business on the immediately preceding Business Day and all Purchased Assets related thereto that were not previously purchased by the Issuer hereunder. Notwithstanding the foregoing, if (i) an Insolvency Proceeding is pending with respect to the Seller prior to the Purchase Termination Date, the Seller shall not sell and the Issuer shall not buy any Purchased Assets hereunder unless and until such Insolvency Proceeding is dismissed or otherwise terminated, and (ii) if either the Internal Revenue Service or the PBGC has filed a notice of Lien with respect to any Purchased Assets the Seller shall not sell and the Issuer shall not buy any Purchased Assets hereunder unless and until such Lien has been released. Section 2.03 Conditions Precedent to Purchases. No Purchase --------------------------------- of Purchased Assets shall be made hereunder on any date on which the Issuer does not have sufficient funds available to pay the Purchase Price in cash (including cash made available to the Issuer under the Subordinated Loan). Section 2.04 Calculation of the Purchase Price. --------------------------------- (a) On each Business Day from and including the Closing Date to but excluding the Purchase Termination Date, the Seller shall deliver, or cause the Servicer to deliver, to the Issuer an accounting with respect to (i) the Purchases of Purchased Assets to be made on such Business Day and (ii) the Purchase Price to be paid on account of the foregoing as 8 calculated in accordance with this Section 2.04. Such accounting, so long as ------------ LSFCC or an Affiliate of LSFCC acts as Servicer, will be included in the Daily Receivables Activity Report generated by the Servicer. (b) With respect to the Purchase of any Purchased Assets by the Issuer pursuant to this Article II, (i) on the Closing Date, the Issuer shall pay to the Transferor a purchase price equal to 97.7% times the Unpaid Balance of all Receivables to be Purchased from the Seller and the Transferor on the Closing Date, $190,000,000 of which shall be funded through a capital contribution made by NF Industries, Inc. and the SPC Member to the Issuer and (ii) on each day after the Closing Date the Issuer shall pay to the Seller a purchase price equal to 97.7% (the "Purchase Price Percentage") times the Unpaid ------------------------- Balance of the Receivables to be Purchased from the Seller on such day (each such purchase price, the "Purchase Price"). To the extent that the Purchase -------------- Price otherwise to be paid on the Closing Date shall exceed the sum of the capital contribution described above plus the net proceeds from the sale of the Series of Notes then being issued, the parties hereto acknowledge that such Purchase Price shall be funded through, or otherwise by, a capital contribution made by NF Industries, Inc. and the SPC Member to the Issuer in the amount of such excess, the precise amount of which will be determined by the close of business on the Closing Date. Conversely, to the extent that the sum of such capital contributions plus net proceeds exceeds the Purchase Price owed on the Closing Date, the amount overpaid shall be credited to the Issuer's members as a return of capital. The Purchase Price Percentage may be recalculated no more frequently than monthly using a discount rate and expected collection period based on the Issuer's weighted cost of funds and Average Days Outstanding for the prior month and assuming a reasonable return on Issuer's equity and adjusted to reflect such factors as the Seller and the Issuer mutually agree will result in a Purchase Price determined to be the fair market value of such Purchased Assets. No change in the Purchase Price Percentage will affect the Purchase Price paid or owed for Receivables sold prior to the effective date of such change. Section 2.05 Purchase Price Payments. On the terms and ------------------------- subject to the conditions of this Agreement, the Issuer shall pay to the Transferor on the Closing Date the Purchase Price for the Purchased Assets sold on such date, by paying such Purchase Price to the Transferor in cash. On the terms and subject to the conditions of this Agreement, the Issuer shall pay to the Seller, on the Closing Date and on each other Business Day on which any Purchased Assets are purchased from the Seller by the Issuer pursuant to this Article II, the Purchase Price for such Purchased Assets by paying such Purchase ---------- Price to the Seller in cash (including funds borrowed under the Subordinated Note as provided in the Subordinated Note and in Sections 2.06 and 2.07 of this ------------- ---- Agreement). Section 2.06 The Subordinated Note. On the Closing Date, the --------------------- Issuer shall deliver to the Seller the Subordinated Note in the form set forth as Exhibit E. Pursuant to the terms of, and subject to the limitations set forth --------- in, the Subordinated Note, the Issuer will request from the Seller an advance (each, a "Subordinated Loan") on or prior to the Purchase Termination Date for ------------------ the purpose of purchasing Purchased Assets from the Seller hereunder. Pursuant to the terms of the Subordinated Note, the Issuer shall not request or receive any advance thereunder on any date if after giving effect to such advance, the sum of the Subordinated Loans then outstanding and the aggregate Outstanding Amount of all Notes would exceed the Net Eligible Receivables Balance minus the Adjusted Loss Reserve, (such maximum 9 amount required to be advanced at any time, the "Subordinated Note Cap"). The ---------------------- Subordinated Loans shall be evidenced by, and shall be payable in accordance with the terms and provisions of, the Subordinated Note. Notwithstanding any other provision of this Agreement, the Issuer shall not use funds borrowed under the Subordinated Note for any purpose other than paying the Purchase Price for the Purchased Assets. Section 2.07 Conditions Precedent to Subordinated Loans. The ------------------------------------------- Issuer shall not request any Subordinated Loan under the Subordinated Note and the Seller shall have no obligation to make a Subordinated Loan under this Agreement unless the following conditions precedent have been satisfied on the date of such Subordinated Loan: (a) the Subordinated Note shall have been duly executed and delivered by the Issuer and shall be in full force and effect; (b) no Event of Bankruptcy shall have occurred and be continuing with respect to the Issuer; and (c) after giving effect to such Subordinated Loan, the aggregate outstanding principal amount of the Subordinated Note shall not exceed the Subordinated Note Cap. Section 2.08 Adjustments. ----------- (a) With respect to any Receivable, if on any day the Issuer (or the Indenture Trustee on its behalf), the Servicer, the Seller or the transferor determines that (i) any Receivable that (A) was not identified by the Seller for inclusion in the Daily Receivables Activity Report as other than an Eligible Receivable on the Business Day such Receivable was sold hereunder or (B) was otherwise treated as or represented to be an Eligible Receivable in any Daily Receivables Activity Report, was not in fact an Eligible Receivable on such date or (ii) any of the representations or warranties set forth in Section ------- 2.16(d) or 2.16(k) was not true when made with respect to such Receivable or the ------- ------- Related Assets with respect to such Receivable (each such Receivable described in clause (i) or clause (ii), a "Noncomplying Receivable"), then the Seller ----------------------- shall pay the aggregate Unpaid Balance of such Receivables (such payment, the "Noncomplying Receivables Adjustment") to the Issuer in accordance with Section ----------------------------------- ------- 2.08(c). ------- (b) If on any day the Unpaid Balance of any Receivable (i) is reduced as a result of any cash discount or any adjustment by the Seller, the Transferor or any Affiliate (other than the Issuer), (ii) is subject to reduction on account of any offsetting account payable of the Seller or the Transferor or any Affiliate (other than the Issuer) to an Obligor or is reduced or cancelled as a result of a set-off in respect of any claim by, or defense or credit of, the related Obligor against the Seller, the Transferor or any Affiliate (other than the Issuer) (whether such claim, defense or credit arises out of the same or a related or an unrelated transaction) or (iii) is reduced on account of the obligation of the Originator to pay to the related Obligor any rebate or refund (each of the reductions and cancellations described above in clauses (i) through (iii), a "Dilution Adjustment"), then the Seller shall pay -------------------- such Dilution Adjustment to the Issuer in accordance with Section 2.08(c). -------------- (c) On each Business Day, the Seller shall pay to the Issuer in accordance with Section 2.09, an amount (an "Adjustment") equal to the sum of ------------ ---------- --- (A) the aggregate Dilution 10 Adjustment, if any, for each day from and including the immediately preceding Business Day plus (B) the Noncomplying Receivables Adjustment, if any, for each ---- day from and including the immediately preceding Business Day. Such Adjustments shall be paid (i) during the Revolving Period, either (x) in cash, (y) as an offset of such Adjustment against the Purchase Price otherwise payable hereunder for the Purchased Assets being purchased on the next Business Day or (z) as an adjustment to the outstanding amount of the Subordinated Note and (ii) following the Purchase Termination Date, in cash. The Receivables that gave rise to any Dilution Adjustment or any Noncomplying Receivables Adjustment shall remain the property of the Issuer. From and after the day on which any Noncomplying Receivables Adjustment is made, any collections received by the Issuer that are identified as proceeds of the Receivables that gave rise to such Noncomplying Receivables Adjustment and any Related Security with respect to such Receivable shall be promptly returned to the Seller. (d) In addition to the foregoing Section 2.08(c), if on any --------------- day a required consent is not obtained to an assignment of a Government Receivable, then the Seller shall repurchase such Government Receivable by paying the Unpaid Balance of such Receivable to the Issuer and the Issuer shall convey such Receivable to Seller without any representations or warranties other than that there are no Liens with respect to such Receivable arising by or through the Issuer. Upon payment of the foregoing amount with respect to a Receivable, such Receivable thereafter shall no longer be deemed to be a "Receivable" for purposes of this Agreement. ---------- Section 2.09 Payments and Computations, Etc. All amounts to ------------------------------ be paid by the Seller to the Issuer hereunder shall be paid in accordance with the terms hereof no later than [1:00 p.m.] (New York time) on the day when due in United States dollars in immediately available funds to an account specified in writing from time to time by the Issuer or its designee. Payments received by the Issuer after such time shall be deemed to have been received on the next Business Day. If any payment becomes due on a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day. The Seller shall pay to the Issuer, on demand, interest on all amounts not paid when due hereunder at a rate equal to the Base Rate plus 2% per annum; provided, however, -------- ------- that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed (including the first day but excluding the last day). All payments made under this Agreement shall be made without set-off or counterclaim. Section 2.10 No Assumption. The sales and Purchases of -------------- Purchased Assets do not constitute and are not intended to result in a creation or an assumption by the Issuer or its successors and assigns of any obligation of the Seller or the Transferor or any other Person in connection with the Purchased Assets (other than such obligations as may arise from the ownership of the Receivables) or under the related Contracts or any other agreement or instrument relating thereto, including without limitation any obligation to any Obligors. None of the Servicer, the Issuer or the Issuer's assignees shall have any obligation or liability to any Obligor or other customer or client of the Originator, the Seller or the Transferor, except such obligations as may arise from the ownership of the Receivables. No such obligation or liability to any Obligor or other customer or client of the Originator, the Seller or the Transferor (including, without limitation, any obligation under any Contract) is intended to be assumed by 11 the Servicer or its successors and assigns hereunder and any such assumption is expressly disclaimed. Section 2.11 No Recourse. Except as specifically provided in ----------- this Agreement, the sale and conveyance of the Purchased Assets under this Agreement shall be without recourse to the Seller and the Transferor or any predecessor- in-interest to either of them; provided, however, that each of the -------- ------- Seller and the Transferor shall be liable to the Issuer and its successors and assigns for all representations, warranties, covenants and indemnities made by it pursuant to the terms of this Agreement (it being understood that no such obligations of the Seller or the Transferor will arise solely on account of the inability of an Obligor to pay a Receivable). Section 2.12 True Sales; Back-Up Security Interest. Each of ---------------------------------------- the Seller and the Transferor and the Issuer intends the transfers of Purchased Assets hereunder to be true sales by each of the Seller and the Transferor to the Issuer that are absolute and irrevocable and to provide the Issuer with the full benefits of ownership of the Purchased Assets, and none of the parties hereto intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, loans from the Issuer to the Seller or the Transferor which are secured by the Purchased Assets. The parties agree that the foregoing sales constitute sales of "accounts" as described in the UCC, and that this Agreement shall create a security interest in favor of the Issuer as the purchaser of the Receivables. Notwithstanding such intent, if the arrangements with respect to the Receivables hereunder are deemed for any purpose to constitute a loan and not a purchase and sale of such Receivables, it is the intention of the parties hereto that this Agreement shall still constitute a security agreement under applicable law, and each of the Seller and the Transferor hereby grants to the Issuer a first priority perfected security interest in all of their respective right, title and interest, whether now owned or hereafter acquired, in, to and under the Purchased Assets, and all money, accounts, general intangibles, chattel paper, instruments, documents, goods, investment property, deposit accounts, certificates of deposit, letters of credit, and advices of credit consisting of, arising from or related to the Purchased Assets, and all proceeds thereof, to secure their respective obligations hereunder, including their obligations to remit to the Issuer, for application in accordance the Indenture, all Collections of the Receivables and other proceeds of the Purchased Assets. Other than the security interest granted to the Issuer pursuant to this Agreement or such other security interests as have been released pursuant to the Consent and Release Agreement, neither the Seller nor the Transferor has pledged, granted, sold, conveyed or otherwise assigned any interests or security interests in the Purchased Assets, and no security agreement, financing statement or equivalent security or lien instrument listing the Seller or Transferor as debtor covering all or any part of the Purchased Assets is on file or of record in any jurisdiction, except (i) such as may have been filed, recorded or made in favor of the Issuer or the Indenture Trustee in connection with the Transaction Documents or (ii) such financing statements as have been released pursuant to the Consent and Release Agreement. This Agreement constitutes a valid and continuing security interest (as defined in the UCC) in the Purchased Assets in favor of the Issuer and its assigns, which security interest is prior to all other Liens (other than Permitted Liens) and is enforceable as such as against creditors of and purchasers from the Transferor, the Seller and the Originator in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. Each of the Transferor and the Seller owns good 12 and marketable title to the Purchased Assets which it purports to sell hereunder, free and clear of any Lien, claim or encumbrance of any Person other than Permitted Liens. All of the Receivables constitute accounts as such term is defined in the UCC and all of the Purchased Assets constitute either accounts or general intangibles (as each such term is defined in the UCC) except that proceeds of the Purchased Assets may also take the form of instruments. Each of the Transferor and the Seller has taken all action reasonably necessary to perfect the security interest granted in this Agreement. The Servicer has filed, on behalf of the Transferor and the Seller, all appropriate financing statements in the proper filing offices in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Purchased Assets granted hereunder. Neither the Transferor nor the Seller has authorized the filing of and is not aware of any financing statements against either of them that includes a description of collateral covering the Purchased Assets other than (i) such financing statements as may have been filed, recorded or made in favor of the Issuer or the Indenture Trustee in connection with the Transaction Documents or (ii) such financing statements as have been released pursuant to the Consent and Release Agreement. Neither the Transferor nor the Seller is aware of any judgment or tax lien filings against either of them. The representations and warranties set forth in this Section 2.12 shall survive the ------------ execution and delivery of this Agreement, shall be deemed re-made on each date on which any Purchased Assets are sold hereunder and may not be waived by any party hereto except pursuant to a written agreement executed in accordance with Section 10.01 and as to which the Rating Agency Condition has been satisfied. ------------- Section 2.13 Servicing and Further Transfer of Purchased ------------------------------------------------ Assets. Consistent with the Issuer's ownership of all Purchased Assets, as among the Seller, the Transferor and the Issuer, the Issuer shall have the sole right to service, administer and collect all Purchased Assets, to assign such right and to delegate such right to others. Each of the Seller and the Transferor hereby acknowledges and agrees that the Issuer has assigned and delegated the servicing, administration and collection of the Purchased Assets to the Servicer pursuant to Article III of this Agreement. In consideration of the Issuer's ----------- purchase of the Purchased Assets and as more fully set forth in Section 10.15, -------------- each of the Seller and the Transferor hereby acknowledges and agrees that the Issuer intends to assign for the benefit of the Issuer and its successors and assigns the rights and interests granted by the Seller and/or the Transferor to the Issuer hereunder, and agrees to cooperate fully with the Issuer and its successors and assigns in the exercise of such rights. Section 2.14 Financing Statements; Further Assurances. ---------------------------------------- (a) In connection with the Purchase described above, the Seller agrees at its expense, to record and file financing statements (and continuation statements when applicable) with respect to the Purchased Assets conveyed by it or by the Transferor meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary or desirable to perfect and maintain the perfection of the transfer and assignment of its interest in the Purchased Assets to the Issuer, and to deliver a file stamped copy of each such financing statement or other evidence of such filing to the Issuer as soon as practicable after the Closing Date. (b) Each of the Seller and the Transferor further agrees to promptly execute and deliver (or cause the Servicer or the related Sub-Servicer to execute and deliver) all further 13 instruments and documents, and take all further action, that the Issuer or the Indenture Trustee may reasonably request in order to (i) perfect, protect or more fully evidence the Purchases of the Purchased Assets hereunder, (ii) to enable the Issuer and its successors and assigns to exercise or enforce any of its rights hereunder or under any other Transaction Document to which it is a party or (iii) to enable the Indenture Trustee to exercise or enforce any of its rights under the Indenture. (c) Each of the Seller and the Transferor hereby authorizes the Issuer and its successors and assignees to execute and file one or more financing or continuation statements and amendments thereto and assignments thereof with respect to all or any of the Purchased Assets, in each case whether now existing or hereafter purchased or generated. If (i) either the Seller or the Transferor fails to perform any of its agreements or obligations under this Agreement and does not remedy such failure within the applicable cure period, if any, and (ii) the Issuer or its successors or assignees in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect the interests of the Issuer or its successors or assignees under this Agreement, then the Issuer or its successors or assignees May (but shall not be required to) perform or cause performance of such agreement or obligation, and the reasonable expenses of the Issuer or its assignees incurred in connection with such performance shall be payable by the Seller as provided in Section 5.02. The Servicer shall, on the Seller's and the ------------ Transferor's behalf, be responsible for the recording and filing of financing statements, and delivering such other instruments and documents as may be required to be recorded or delivered pursuant to this Section 2.14, and to ------------ ensure the taking of such other action as may be required hereunder or under the Indenture to maintain the perfection and priority of the Issuer's security interest in the Purchased Assets and of the Indenture Trustee's security interest in the Pledged Assets. Section 2.15 Marking of Records. In connection with the ------------------- transfer described herein, (i) each of the Seller and the Transferor agrees to indicate clearly and unambiguously in its computer files, books and records on or prior to the Closing Date that the Receivables and other Purchased Assets have been conveyed to the Issuer pursuant to this Agreement by so marking such computer files, books and records, and (ii) the Servicer agrees to indicate clearly and unambiguously in its computer files, books and records on or prior to the Closing Date that the Receivables and other Purchased Assets have been conveyed to the Issuer pursuant to this Agreement by so marking such computer files, books and records, including the master data processing records evidencing the Purchased Assets. Section 2.16 Representations and Warranties of the Seller and ------------------------------------------------ Transferor. In order to induce the Issuer to enter into this Agreement and to ---------- make Purchases hereunder, each of the Seller and the Transferor hereby makes the representations and warranties set forth in this Section 2.16, in each case as of the date hereof, as of the Closing Date and, in the case of the Seller, as of the date of each transfer by the Seller of the Purchased Assets hereunder and as of any other date specified in such representation or warranty. (a) Organization and Good Standing. It is a limited liability ------------------------------ company or corporation duly organized and validly existing in good standing under the laws of its state of organization as noted on the first page hereof and has full power and authority to conduct its 14 business as such business is presently conducted. It had at all relevant times, and now has, all necessary power, authority and legal right to own and sell the Purchased Assets. (b) Due Qualification. It is duly qualified to do business, is ----------------- in good standing as a foreign limited liability company or corporation, and has obtained all necessary licenses and approvals in all jurisdictions in which the conduct of its business requires such qualification, licenses or approvals and in which the failure so to qualify or to obtain such licenses and approvals or to preserve and maintain such qualification, licenses or approvals could reasonably be expected to give rise to a Material Adverse Effect. (c) Power and Authority: Due Authorization. It (i) has all -------------------------------------- necessary power and authority (A) to execute and deliver this Agreement, the Contracts and the other Transaction Documents to which it is a party, (B) to perform its obligations under this Agreement, the Contracts and the other Transaction Documents to which it is a party and (C) to sell and assign the Purchased Assets transferred hereunder on the terms and subject to the conditions herein and therein provided and (ii) has duly authorized by all necessary action such sale and assignment and the execution, delivery and performance of, and the consummation of the transactions provided for in, this Agreement, the Contracts and the other Transaction Documents to which it is a party. (d) Valid Sale; Binding Obligations. This Agreement constitutes ------------------------------- a valid sale, transfer, set-over and conveyance to the Issuer of all of its right, title and interest in, to and under the Purchased Assets, which is perfected and of first priority (subject to Permitted Liens) under the UCC and other applicable law, enforceable against its creditors and purchasers from it, free and clear of any Lien (other than Permitted Liens); and this Agreement constitutes, and each other Transaction Document to which it is a party when duly executed and delivered will constitute, a legal, valid and binding obligation of such Person, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and --------------------------- performance by it of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents to be signed by it, and the fulfillment of the terms hereof and thereof, will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under (A) its certificate of incorporation, certificate of formation, limited liability company agreement or by-laws (or other similar internal instrument) or (B) any material indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument to which it is a party or by which it is bound, (ii) result in the creation or imposition of any Lien on any of the Purchased Assets pursuant to the terms of any such material indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument other than this Agreement and the other Transaction Documents or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule or regulation applicable to it or of any federal, state, local or foreign regulatory body, administrative agency or other governmental instrumentality having jurisdiction over it, which 15 conflict or violation described in this clause (iii), individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No transaction contemplated hereby requires compliance with any bulk sales or similar law, rule or regulation. (f) Litigation and Other Proceedings. (i) There is no action, -------------------------------- suit, proceeding or investigation pending, or to the best of its knowledge, threatened, against it before any court, arbitrator, regulatory body, administrative agency or other tribunal or governmental instrumentality and (ii) it is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other Government Authority that, in the case of either of the foregoing clauses (i) or (ii), (A) asserts the invalidity of this Agreement or any other Transaction Document, (B) seeks to prevent the sale of any Purchased Asset to the Issuer or the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (C) seeks any determination or ruling that, in its reasonable judgment, would materially and adversely affect the performance by it of its obligations under this Agreement or any other Transaction Document to which it is a party or the validity or enforceability of this Agreement or any other Transaction Document to which it is a party or (D) individually or in the aggregate for all such actions, suits, proceedings and investigations could reasonably be expected to have a Material Adverse Effect. (g) Governmental Approvals. Except where the failure to obtain ---------------------- or make such authorization, consent, order, approval or action could not reasonably be expected to have a Material Adverse Effect, (i) all authorizations, consents, orders and approvals of, or other actions by, any Governmental Authority that are required to be obtained by it in connection with the conveyance of the Purchased Assets or the due execution, delivery and performance by it of this Agreement or any other Transaction Document to which it is a party and the consummation of the transactions contemplated by this Agreement or any other Transaction Document to which it is a party have been obtained or made and are in full force and effect and (ii) all filings with any Governmental Authority that are required to be obtained in connection with such conveyances and the execution and delivery by it of this Agreement have been made. (h) Margin Regulations. It is not engaged, principally or as one ------------------ of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meanings of Regulations T, U and X of the Board of Governors of the Federal Reserve System). It has not taken and will not take any action to cause the use of proceeds of the sales hereunder to violate said Regulations T, U or X. (i) Taxes. It has filed (or there have been filed on its behalf ----- as a member of a consolidated group) all tax returns and reports required by law to have been filed by it and has paid all taxes, assessments and governmental charges thereby shown to be owing by it, other than any such taxes, assessments or charges (i) that are being diligently contested in good faith by appropriate proceedings, for which adequate reserves in accordance with GAAP have been set aside on its books and that have not given rise to any Liens (other than Permitted Liens) or (ii) the amount of which, either singly or in the aggregate, would not have a Material Adverse Effect. (j) Solvency. After giving effect to each conveyance of -------- Purchased Assets by it hereunder, it is solvent and able to pay its debts as they come due and has adequate capital to conduct its business as presently conducted. 16 (k) Quality of Title/Valid Transfers. -------------------------------- (i) Immediately before each Purchase to be made by the Issuer hereunder, each Purchased Asset to be sold to the Issuer by the Seller or the Transferor shall be owned by such party free and clear of any Lien (other than any Permitted Lien), and each of the Seller and the Transferor shall have made all filings and shall have taken all other action under applicable law in each relevant jurisdiction in order to protect and perfect the ownership or security interest of the Issuer and its successors and assignees in such Purchased Assets against all creditors of, and purchasers from, the Seller and the Transferor (subject to Permitted Liens). (ii) With respect to each Receivable transferred hereunder on such date, the Issuer shall acquire a valid and perfected ownership or security interest in such Receivable and any identifiable proceeds thereof, free and clear of any Lien (other than any Permitted Liens). (iii) As of the date of transfer of a Purchased Asset to the Issuer, no effective financing statement or other instrument similar in effect that covers all or part of such Purchased Asset or any interest therein is on file in any recording office except such as may be filed (A) in favor of the Seller pursuant to the Receivables Purchase and Sale Agreement, (B) in favor of the Transferor pursuant to the Receivables Sale Agreement, (C) in favor of the Issuer pursuant to this Agreement or otherwise filed by or at the direction of the Issuer, (D) in favor of the Indenture Trustee under the Indenture and (E) subject to the terms of the Consent and Release Agreement. (iv) The Purchase Price owed to it constitutes reasonably equivalent value for the Purchased Assets conveyed by it in consideration therefor on such date, and no purchase of an interest in such Purchased Assets by Issuer constitutes a fraudulent transfer or fraudulent conveyance under the United States Bankruptcy Code or applicable state bankruptcy or insolvency laws or subject to subordination under similar laws or principles or for any other reason. (l) Accuracy of Information. All written information furnished ------------------------ by the Seller or the Transferor to the Issuer or its successors and assigns pursuant to or in connection with any Transaction Documents or any transaction contemplated herein or therein with respect to the Purchased Assets transferred hereunder on such date is true and correct in all material respects on such date. (m) Offices. Its principal place of business and chief executive ------- office is located, and the offices where the Servicer keeps all Records related to the Purchased Assets (and all original documents relating thereto) are located, at the addresses specified in Schedule 2.16(m). --------------- (n) Eligible Receivables. Each Receivable included in the --------------------- Purchased Assets transferred hereunder, unless otherwise identified to the Servicer by the Seller to be excluded from the Aggregate Receivables Balance in the related Daily Receivables Activity Report, is an Eligible Receivable on such date. 17 (o) Payment Instructions to Obligors. All Obligors have been ----------------------------------- instructed by the Servicer to remit all payments on the Purchased Assets directly to one of the Lockboxes or Lockbox Accounts and (ii) all Lockbox Banks have been instructed by the Servicer to deposit all Collections remitted to a Lockbox directly to the related Lockbox Account and neither the Seller nor the Transferor has given any contrary instructions. The names and addresses of all Lockbox Banks, together with the account numbers of the Lockbox Accounts at such Lockbox Banks into which the Collections are put, are accurately set forth in Schedule 2.16(o). The Seller has good title to the Lockbox Accounts free and --------------- clear of any Lien, claim or encumbrance of any Person other than Permitted Liens. (p) Investment Company Act. Neither the Seller nor the ------------------------ Transferor is, or is controlled by, an "investment company" registered or required to be registered under the Investment Company Act. (q) Legal Names. Except as otherwise set forth in Schedule ----------- -------- 2.16(q), neither the Seller nor the Transferor has, within the past five (5) ------- years, (i) been known by any legal name other than its corporate name as of the date hereof, (ii) been the subject of any merger or other corporate reorganization that resulted in a change of name, identity or corporate structure or (iii) used any trade names other than its actual corporate name. (r) Compliance with Applicable Laws. Each of the Seller and the ------------------------------- Transferor is in compliance with the requirements of all applicable laws, rules, regulations and orders of all Governmental Authorities (federal, state, local or foreign), a violation of any of which, individually or in the aggregate for all such violations, is reasonably likely to have a Material Adverse Effect. (s) Business and Indebtedness of Transferor. The Transferor has --------------------------------------- no Indebtedness except as contemplated by this Agreement, by the Credit Agreement and certain intercompany debt not prohibited under the terms of the Credit Agreement. The Transferor has not engaged in any business other than the Purchase of Receivables and other Purchased Assets under the Receivables Sale Agreement, the transfer of Receivables and other Purchased Assets under this Agreement, and its guarantee of the Originator's obligations under the Credit Agreement. (t) Credit and Collection Policy. The copy of the current Credit ---------------------------- and Collection Policy attached as Exhibit F to this Agreement is a true and --------- complete copy. As of the date each Receivable is transferred hereunder, each of the Servicer, the Originator, the Seller and the Transferor has complied in all applicable material respects with the Credit and Collection Policy with respect to such Receivable transferred on such date and the related Contract. (u) ERISA Compliance. ---------------- (i) Except as would not have a Material Adverse Effect, each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to the best knowledge of each of the Seller and the Transferor, 18 nothing has occurred which would cause the loss of such qualification. The Seller and each ERISA Affiliate have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (ii) There are no pending or, to the best knowledge of each of the Seller or the Transferor, threatened, claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (iii) (a) No ERISA Event that requires notice to be given to the PBGC has occurred or is reasonably expected to occur; (b) no Plan has a Funded Current Liability Percentage of less than 90% as of the most recent valuation date; (c) neither the Seller nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); and (d) neither the Seller nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan. (v) Enforceability of Contracts. Each Contract with respect to --------------------------- each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Unpaid Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (w) Accounting. The manner in which the Seller and the ---------- Transferor account for the transactions contemplated by this Agreement does not materially affect the determination that the sale of the Purchased Assets thereunder to the Issuer is a "true sale." (x) Compliance with Representations. On and as of the date of ------------------------------- each Purchase, the Seller hereby represents and warrants that all of the other representations and warranties of it set forth in this Article II are true and ---------- correct on and as of each such date (and after giving effect to all Receivables in existence on each such date) as though made on and as of each such date. The representations and warranties set forth in this Section ------ 2.16 shall survive the transfers and assignments of the Receivables and other ---- Purchased Assets to the Issuer and the issuance of the Notes under the Indenture. Upon discovery by the Seller, the Transferor, the Servicer or the Issuer of a breach of any of the representations and warranties set forth in this Section 2.16, the party discovering such breach shall give notice to the ------------ other parties within 3 19 Business Days following such discovery, provided that the failure to give notice within 3 Business Days shall not preclude subsequent notice. Section 2.17 Affirmative Covenants of the Seller and the ------------------------------------------------ Transferor. Except as otherwise provided with respect to the Transferor in ---------- Section 2.21, from the Closing Date until the termination of this Agreement in ------------ accordance with Section 9.01, each of the Seller and the Transferor hereby ------------- agrees that it will perform the covenants and agreements set forth in this Section 2.17. ------------ (a) Compliance with Laws, Etc. It will comply in all material ------------------------- respects with all applicable laws, rules, regulations, judgments, decrees and orders (including without limitation those relating to the Receivables), in each case to the extent that any such failure to comply, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Notwithstanding the foregoing, neither the Seller nor the Transferor has any contractual duty to comply with the Federal Assignment of Claims Act to the extent that Eligible Receivables owed by the United States federal government or any subdivision thereof, or any agency, department or instrumentality thereof, exceeds 2.5% of the Aggregate Receivables Balance. (b) Preservation of Existence. It (i) will preserve and maintain ------------------------- its existence, rights, franchises and privileges and good standing in the jurisdiction of its organization and (ii) will qualify and remain qualified in good standing in each other jurisdiction in which the failure to preserve and maintain such qualification as a foreign corporation could reasonably be expected to have a Material Adverse Effect. (c) Location of Records and Offices. It will keep its principal ------------------------------- place of business and chief executive office and the offices where it keeps all Records (and all original documents relating thereto) at the addresses specified in Schedule 2.16(m) or, upon not less than 30 days' prior written notice given ---------------- by the Seller to the Issuer, at such other locations in jurisdictions in the United States of America where all action required by Section 2.14 has been ------------ taken and completed. (d) Separate Existence of the Issuer. Each of the Seller and the -------------------------------- Transferor acknowledges that the Indenture Trustee and the Noteholders are entering into the transactions contemplated by the Transaction Documents in reliance upon the Issuer's identity as a legal entity that is separate from the Seller, the Transferor, the Originator and any other members of the Parent Affiliated Group. Therefore, from and after the date of execution and delivery of this Agreement, each of the Seller and the Transferor will take all reasonable steps including, without limitation, all steps that Issuer or any assignee of Issuer may from time to time reasonably request to maintain Issuer's identity as a separate legal entity and to make it manifest to third parties that Issuer is an entity with assets and liabilities distinct from those of the Seller, the Transferor, the Originator and any other members of the Parent Affiliated Group. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, each of the Seller and the Transferor (i) will not hold itself out to third parties as liable for the debts of Issuer nor purport to own the Receivables and other assets acquired by Issuer, (ii) will take all other actions necessary on its part to ensure that Issuer is at all times in compliance with the covenants set forth in Section ------- 2.20 of this Agreement and Sections 3.07 of the Indenture and ---- ------------- 20 (iii) will cause all tax liabilities arising in connection with the transactions contemplated herein or otherwise to be allocated between Seller or Transferor on the one hand and the Issuer on the other, to be allocated on an arm's-length basis and in a manner consistent with the procedures set forth in U.S. Treasury Regulations ss.ss.1.1502-33(d) and 1.1552-1. (e) Turnover of Collections. Each of the Seller and the -------------------------- Transferor has designated the Servicer as the party solely responsible for receiving Collections on the Receivables and Related Assets to be sold hereunder, and will not undertake any collection activities on its own behalf. If the Seller, the Transferor or any of their respective agents or representatives at any time receives any cash, checks or other instruments constituting Collections, such recipient will segregate and hold such payments in trust for, and in a manner acceptable to, the Servicer and will, promptly upon receipt (and in any event within one (1) Business Day following receipt) remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to a Lockbox Account. (f) Performance of Obligations. Each of the Seller and the -------------------------- Transferor will timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Transaction Documents to which it is a party. (g) Filing of Tax Returns and Payment of Taxes and Other ------------------------------------------------------------ Liabilities. Each of the Seller and the Transferor will file (or will cause to ----------- be filed on its behalf as a member of a consolidated group) all tax returns and reports required by law to be filed by it and will pay all taxes, assessments and governmental charges shown to be owing by it, except for any such taxes, assessments or charges (i) that are being diligently contested in good faith by appropriate proceedings, for which adequate reserves in accordance with GAAP have been set aside on its books and that not have given rise to any Liens (other than Permitted Liens) or (ii) the amount of which, either singly or in the aggregate, would not have a Material Adverse Effect. (h) Payment Instruction to Obligors. Neither the Seller nor the ------------------------------- Transferor will give any instructions to any Obligors contrary to those given to such Obligors by the Servicer with respect to submission of payments on the Purchased Assets or receivables and related assets that are not included in the Purchased Assets. (i) Identification of Eligible Receivables. The Seller will (or --------------------------------------- will cause the Servicer to) (i) establish and maintain necessary procedures for determining, no less frequently than each date on which a Daily Receivables Activity Report is required to be delivered pursuant to Section 3.07(d), whether -------------- each Receivable qualifies as an Eligible Receivable, and for identifying on any such date all Receivables to be sold to the Issuer on that date that are not Eligible Receivables and (ii) provide to the Servicer in a timely manner information that shows whether, and to what extent, the Receivables described in such Daily Receivables Activity Report are Eligible Receivables. (j) Receivables Reviews. Upon reasonable prior notice, each of ------------------- the Seller and the Transferor will permit the Issuer or its assignees (or other Persons designated by the Issuer from time to time) or their agents or representatives (including without limitation certified public accountants or other auditors), at the expense of the Seller and during regular business hours, (i) to examine and make copies of and abstracts from, and to conduct accounting reviews 21 of, all Records in the possession or under the control of the Seller or the Transferor, including without limitation the related Contracts, invoices and other documents related thereto and (ii) to visit the offices of the Seller and/or the Transferor for the purpose of examining any materials described in the preceding clause (i) and to discuss matters relating to the Receivables or the other Purchased Assets or the performance by the Seller or the Transferor of their respective obligations under any Transaction Document to which either is a party with any officers of the Seller or the Transferor having knowledge of such matters or with the Seller's and the Transferor's certified public accountants or other auditors; provided, however, that all such reviews will occur no more -------- ------- frequently than once per year unless (i) LSFCC is the Servicer and a Servicer Default has occurred and is continuing or (ii) the Issuer or its successor or assignee has given advance written notice to the Seller that it believes the composition and/or performance of the Purchased Assets have deteriorated in a manner materially adverse to the interests of the Issuer or its assignees. (k) Compliance with Credit and Collection Policy. Each of the -------------------------------------------- Seller and the Transferor will comply in all material respects with the Credit and Collection Policy with respect to each Receivable and the Contract related to such Receivable. (l) Accounting for Certain Assets. To the extent permitted by ------------------------------- applicable law and GAAP, each of the Seller and the Transferor will (i) prepare all financial statements that account for the transactions contemplated hereby as a sale of the Purchased Assets by it to the Issuer and, in all other respects, will account for and treat the transactions contemplated hereby (including but not limited to accounting and (to the extent taxes are not consolidated) for tax reporting purposes) as a sale of the Purchased Assets by it to the Issuer and (ii) maintain and prepare its financial statements and records in accordance with GAAP (unless otherwise permitted hereunder) applied in accordance with the representation contained in Section 2.16(w). --------------- (m) Reporting Requirements. From the Closing Date until the ---------------------- termination of this Agreement in accordance with Section 9.3, the Seller agrees ----------- that it will furnish to the Issuer or its assignees: (i) Annual Financial Statements. As soon as available and --------------------------- in any event within 120 days after the end of each fiscal year of the Originator copies of (i) the audited consolidated balance sheet of the Originator and its consolidated Affiliates as at the end of such fiscal year and the related statements of earnings and cash flows and stockholders' equity of the Originator and its consolidated Affiliates for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year and prepared in accordance with GAAP applied consistently throughout the periods reflected therein, certified by independent certified public accountants of nationally recognized standing in the United States (it being understood and agreed that copies of such statements need not be physically delivered to the extent that they are publicly available through filing with the Securities and Exchange Commission); (ii) Material Adverse Effect. Promptly and in any event ----------------------- within 5 Business Days after any Authorized Officer has actual knowledge thereof, written notice that describes in reasonable detail any event or occurrence that, individually or in the aggregate for all such events or occurrences, has had, or that such Authorized Officer in 22 its reasonable good faith judgment determines could reasonably be expected to have, a Material Adverse Effect; (iii) Proceedings. Promptly and in any event within 5 ----------- Business Days after an Authorized Officer has knowledge thereof, written notice of (i) any litigation, investigation or proceeding of the type described in Section 2.16(f) not previously disclosed to the -------------- Issuer, (ii) any material adverse development that has occurred with respect to any such previously disclosed litigation, investigation or proceeding or (iii) any Unmatured Purchase Termination Event; (iv) ERISA Event. Promptly (but in no event more than 10 ----------- Business Days after any event listed below) upon any Authorized Officer becoming aware of the occurrence of any of the following events affecting the Seller or any ERISA Affiliate: (x) an ERISA Event; (y) a decrease in the Funded Current Liability Percentage for any Plan at the end of any fiscal quarter to less than 90%; or (z) any significant change in the status of any time disclosed pursuant to Section 2.16(u) hereto, notice of such event and a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Seller or any ERISA Affiliate with respect to such event. (v) Purchase Termination Event. Promptly and in any event --------------------------- within 5 Business Days after an Authorized Officer has knowledge thereof, written notice of any Purchase Termination Event, Servicer Default, Amortization Event or Event of Default or any event which, with the giving of notice or passage of time or both, would constitute such an event. (vi) Other. Promptly, from time to time, such other ----- information, documents, records or reports with respect to the Purchased Assets or the condition or operations, financial or otherwise, of the Seller or the Transferor as Issuer or its assignees may from time to time reasonably request in order to protect the interests of Issuer or such assignees under or as contemplated by this Agreement and the other Transaction Documents. Section 2.18 Negative Covenants of the Seller and the ------------------------------------------------ Transferor. Except as otherwise provided with respect to the Transferor in ---------- Section 2.21, from the Closing Date until the termination of this Agreement in ------------ accordance with Section 9.01, each of the Seller and the Transferor agrees that ------------ it will perform the covenants and agreements set forth in this Section 2.18. ------------ (a) Indebtedness. The Transferor will not create, incur or ------------ permit to exist any Indebtedness or other liabilities or give any guarantee or indemnity in respect of any Indebtedness, except for (i) liabilities created or incurred by the Transferor pursuant to the Transaction Documents to which it is a party or contemplated by such Transaction Documents, (ii) other reasonable and customary operating expenses; (iii) such Indebtedness, guarantees or indemnities as are contemplated by the Credit Agreement and (iv) certain intercompany debt not prohibited under the terms of such Credit Agreement. 23 (b) Sales, Liens, Etc. Neither the Seller nor the Transferor ----------------- will sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien (other than Permitted Liens) of anyone claiming by or through it on or with respect to, any Purchased Asset or any interest therein, any Lockbox or Lockbox Account, other than sales of Purchased Assets pursuant to this Agreement and neither will suffer to exist any Lien (other than any Permitted Lien) on inventory the sale of which may give rise to a Receivable unless the holder of such Lien has agreed not to claim any Lien or interest with respect to any Purchased Asset. (c) No Mergers, Etc. The Transferor will not consolidate with or --------------- merge with or into any other Person or convey, transfer or sell all or substantially all of its properties and assets to any Person except as otherwise provided in Section 2.21. The Seller will not consolidate with or merge with or ------------ into any other Person or convey, transfer or sell all or substantially all of its properties and assets to any Person, unless: (i) (A) the Seller is the surviving entity thereof or, if the Seller is not the surviving entity thereof, (x) the Person formed by such consolidation or into which the Seller is merged or the entity that acquires by conveyance, transfer or sale all or substantially all of the properties and assets of the Seller (any such Person, the "Surviving Entity") is an entity organized and existing under the laws ---------------- of the United States of America or any state thereof, (y) such Surviving Entity expressly assumes, by an agreement supplemental hereto in form and substance satisfactory to the Issuer and its assignees, performance of every covenant and obligation of the Seller hereunder and under the other Transaction Documents to which the Seller is a party and (z) such Surviving Entity delivers to the Issuer and its assignees an opinion of counsel that such Surviving Entity is duly organized and validly existing under the laws of its organization, has duly executed and delivered such supplemental agreement, and such supplemental agreement is a valid and binding obligation of such Surviving Entity, enforceable against such Surviving Entity in accordance with its terms (subject to customary exceptions relating to bankruptcy and equitable principles) and covering such other matters as the Issuer or its assignees may reasonably request; (ii) all actions necessary to maintain the perfection of the security interests or ownership interests of the Issuer in the Purchased Assets in connection with such consolidation, merger, conveyance or transfer have been taken, as evidenced by an opinion of counsel reasonably satisfactory to Issuer and its assignees; (iii) so long as the Seller is th Servicer, no Servicer Default or Purchase Termination Event or event which with the passage of time or the giving of notice or both would become a Servicer Default or a Purchase Termination Event is then occurring or would result from such merger, consolidation, conveyance or transfer; (iv) if such Surviving Entity is the Originator, counsel for the Seller shall issue an opinion reasonably satisfactory to the Issuer and its assignees reaffirming the opinions as to non-consolidation and the status of the Purchase as a "true sale" by the Seller to the Issuer of the Receivables issued in connection with the original issuance of Notes under the Indenture; and 24 (v) each Rating Agency then rating any outstanding Series of Notes has delivered to the Issuer and the Seller written confirmation that such consolidation, merger, conveyance, transfer or sale will not result in a downgrade or withdrawal of such Rating Agency's then current rating of any Series of Notes. (d) Limitations on Agreements. Neither the Seller nor the --------------------------- Transferor will permit the validity or effectiveness of any Transaction Document to which it is a party or the rights and obligations created thereby or pursuant thereto to be amended, terminated, postponed or discharged, or permit any amendment to any Transaction Document to which it is a party without the consent of the Issuer and the Indenture Trustee, or permit any Person whose obligations form part of the Purchased Assets to be released from such obligations, except in the ordinary course of business or in accordance with the terms of such Transaction Document. (e) Change in Name. Neither the Seller nor the Transferor will -------------- change its corporate name or the name under or by which it does business or the jurisdiction in which it is incorporated unless it has given the Issuer and its successors at least 30 days' prior written notice thereof and unless, prior to any such change, the Seller has taken and completed all action required by Section 2.14. ------------ (f) Charter Amendments. The Transferor will not amend any other ------------------ provision of its limited liability company agreement or by-laws (or other similar internal instrument, if any), unless the Issuer shall have received not less than 5 Business Days' prior written notice thereof, together with an Officer's Certificate that such amendment will have no Material Adverse Effect. (g) No Other Business or Agreements. The Transferor shall not ------------------------------- engage in any business other than as contemplated by this Agreement, the other Transaction Documents and the Credit Agreement and all activities incidental thereto, or enter into or be a party to any agreement or instrument other than any Transaction Document, the Credit Agreement or documents and agreements incidental thereto. (h) Guarantees, Loans, Advances and other Liabilities. Except as ------------------------------------------------- contemplated by this Agreement or the other Transaction Documents and as required under the Credit Agreement, the Transferor will not incur any Indebtedness or make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. (i) Change in Lockbox Accounts; Payment Instruction to Obligors. ----------------------------------------------------------- Except through the Servicer as contemplated by Section 3.05(f), neither the --------------- Seller nor the Transferor will make any changes to the Lockbox Accounts or establish any new Lockbox Accounts or give instructions to Obligors or other Persons contrary to those given by the Servicer regarding payments to be made to the Issuer or payments to be made to any Lockbox Account, unless (i) the Indenture Trustee has received copies of a Lockbox Agreement with each new Lockbox 25 Bank duly executed by the Seller, the Issuer, the Indenture Trustee and such Lockbox Bank and (ii) in the case of any termination, the Issuer or its successors and assigns have received evidence to their satisfaction that the Obligors that were making payments into a terminated Lockbox Account have been instructed in writing to make payments into another Lockbox Account then in use. (j) Extension or Amendment of Purchased Assets. Neither the ----------------------------------------------- Seller nor the Transferor will extend, amend or otherwise modify the terms of any Receivable included in the Purchased Assets, or amend, modify or waive any material term or condition related thereto, except through the Servicer in accordance with Section 3.10. ------------ (k) Change in Credit and Collection Policy. Neither the Seller ---------------------------------------- nor the Transferor will make any material change in the Credit and Collection Policy that would be reasonably likely to adversely affect the collection of any material portion of the Receivables or other Purchased Assets or to decrease in any material respect the credit quality of any newly created Receivables or other Purchased Assets. Section 2.19 Representations and Warranties of the Issuer. -------------------------------------------- The Issuer hereby represents and warrants, on and as of the date hereof and on and as of the Closing Date, that (a) this Agreement has been duly authorized, executed and delivered by the Issuer and constitutes the Issuer's valid, binding and legally enforceable obligation, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law and (b) the execution, delivery and performance of this Agreement by Issuer does not violate any federal, state, local or foreign law applicable to the Issuer or any agreement to which the Issuer is a party. Section 2.20 Separate Existence of the Issuer. Each of the ----------------------------------- Issuer and the SPC Member hereby acknowledges that the parties to the Transaction Documents are entering into the transactions contemplated by the Transaction Documents in reliance on the Issuer's identity as a legal entity separate from the Originator, the Seller, the Transferor and the other members of the Parent Affiliated Group. From and after the date hereof until one year and one day after the Final Payout Date, the Issuer (and, with respect to clause (vi) below, the SPC Member) shall take such actions as shall be required in order that: (i) The Issuer will conduct its business in office space allocated to it and for which it pays an appropriate rent and overhead allocation; (ii) The Issuer will maintain records and books of account separate from those of each of its Affiliates and telephone numbers and stationery that are separate and distinct from those of each of its Affiliates; (iii) The Issuer's assets will be maintained in a manner that facilitates their identification and segregation from those of any of its Affiliates; (iv) The Issuer will strictly observe all formalities relating to its separate existence in its dealings with the public and with each of its Affiliates, and funds 26 or other assets of the Issuer will not be commingled with those of any of its Affiliates, except as may be permitted by the Transaction Documents. The Issuer will at all times, in its dealings with the public and with each of its Affiliates, hold itself out and conduct itself as a legal entity separate and distinct from each of its Affiliates. The Issuer will not maintain joint bank accounts or other depository accounts to which any of its Affiliates (other than the Servicer) has independent access; (v) The duly admitted members of the Issuer and duly appointed managers or officers of the Issuer will at all times have sole authority to control decisions and actions with respect to the daily business affairs of the Issuer; (vi) Not less than two directors of the SPC Member will be Independent Directors. The Issuer will observe those provisions in its limited liability company agreement that provide that the Issuer will not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Issuer unless the board of directors of the SPC Member (including the Independent Directors) and all managers of the Issuer unanimously approve the taking of such action in writing prior to the taking of such action; (vii) The Issuer will compensate each of its employees, consultants and agents from the Issuer's own funds for services provided to the Issuer; (viii) The Issuer will not hold itself out to be responsible for the debts of any of its Affiliates; and (ix) The Issuer will take all actions necessary on its part to be taken in order to ensure that the facts and assumptions relating to the Issuer set forth in the opinion of Bingham Dana LLP of even date herewith relating to substantive consolidation matters with respect to the Seller, the Transferor, the Originator and the Issuer will be true and correct at all times. Section 2.21 Transferor's Right to Dissolve or Terminate. ------------------------------------------------ Notwithstanding the preceding provisions of this Article II, from and after the ---------- date on which all of the Receivables sold by the Transferor hereunder have been collected and/or ceased to be Eligible Receivables, the Transferor shall be allowed, by reason of merger, consolidation, dissolution or liquidation, to terminate its existence and cease to maintain its rights and privileges as a Delaware limited liability company and shall cease to be a party hereto. The Seller hereby agrees that, upon any such dissolution or termination, it shall remain responsible for observing any further covenants on the part of the Transferor to be observed from and after such date. Notwithstanding the foregoing, the Transferor shall not consolidate with or merge with or into any other Person or convey, transfer or sell all or substantially all of its assets to any other Person, unless the Person formed by such consolidation or into which the Transferor is merged or the entity that acquires by conveyance, transfer or sale all or substantially all of the properties and assets of the Seller expressly assumes, by an agreement supplemental hereto in form and substance satisfactory to the Issuer and its assignees, all obligations of the Transferor under Sections 2.17(d), 2.17(e), 2.17(h) and 2.18(b), together with ---------------------------------- ------- any affirmative covenants of the Transferor which expressly survive the termination of this Agreement. 27 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.01 Acceptance of Appointment and Other Matters ------------------------------------------------ Relating to the Servicer. ------------------------ (a) The servicing, administration and collection of the Receivables and the other Purchased Assets shall be conducted by the Person designated as the Servicer hereunder from time to time in accordance with this Section 3.01. Until the Indenture Trustee gives a Termination Notice to Levi ------------- Strauss Financial Center Corporation pursuant to Section 8.01, Levi Strauss ------------ Financial Center Corporation is hereby designated, and Levi Strauss Financial Center Corporation, hereby agrees to act, as the Servicer under this Agreement and the other Transaction Documents with respect to the Receivables and the other Purchased Assets, and each of the Transferor and the Issuer consents to Levi Strauss Financial Center Corporation, acting as the Servicer. (b) In the ordinary course of business, the Servicer, with prior written notice to the Indenture Trustee, may at any time delegate part or all of its duties hereunder with respect to the Receivables and the other Purchased Assets to any of its Affiliates that agree to conduct such duties in accordance with the Credit and Collection Policy and this Agreement. Each such Affiliate to whom any such duties are delegated in accordance with this Section 3.01(b) is ---------------- referred to herein as a "Sub-Servicer." Notwithstanding any such delegation by ------------ the Servicer, the Servicer shall remain liable for the performance of all duties and obligations of the Servicer pursuant to the terms of this Agreement and the other Transaction Documents, and such delegation shall not relieve the Servicer of its liability and responsibility with respect to such duties. The fees and expenses of any such Sub-Servicers shall be as agreed between the Servicer and such Sub-Servicers from time to time, and none of the Issuer, the Indenture Trustee or the holders of any Notes issued by the Issuer under the Indenture shall have any responsibility therefor. Upon any termination of a Servicer pursuant to Section 8.01, all Sub-Servicers designated pursuant to this Section ------------ ------- 3.01(b) by such Servicer also shall be automatically terminated without the ------ payment of any termination fees from the Issuer, the Indenture Trustee or the holders of any Notes. (c) The designation of the Servicer (and each Sub-Servicer) under this Agreement (and, in the case of any Sub-Servicer, under the agreement or other document pursuant to which the Servicer makes a delegation of servicing duties to such Sub-Servicer) shall automatically cease and terminate on the Final Payout Date. (d) Notwithstanding any term to the contrary in this Agreement or in any of the other Transaction Documents, each of the parties hereto acknowledges and agrees that the Servicer may perform any or all of its duties and obligations hereunder through the use of Levi Strauss & Co. or any "Applicable Party" (as defined in the Parent Undertaking), as Sub-Servicers hereunder, each such delegation being expressly agreed to by the parties hereto. 28 Section 3.02 Duties of the Servicer and the Issuer. ------------------------------------- (a) Each of the Seller, the Transferor, the Issuer and the Indenture Trustee hereby appoints the Servicer from time to time designated pursuant to Section 3.01(a) as Servicer hereunder to take all actions authorized -------------- below or elsewhere in this Agreement and to enforce its respective rights and interests in and under the Receivables and the other Purchased Assets. (b) As Servicer hereunder, the Servicer shall service and administer the Receivables and the other Purchased Assets, shall collect and deposit into the Collection Account payments due under the Receivables and shall charge-off as uncollectible Receivables, all in accordance with its customary and usual servicing procedures and the Credit and Collection Policy. As Servicer hereunder, the Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things it may deem necessary or appropriate in connection with such servicing and administration. The Issuer, the Seller, the Transferor and the Indenture Trustee shall furnish the Servicer with any documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. The Servicer shall exercise the same care and apply the same policies with respect to the collection, administration and servicing of the Receivables and other Purchased Assets that it would exercise and apply if it owned such Receivables and other Purchased Assets, all in substantial compliance with applicable law and in accordance with the Credit and Collection Policy. The Servicer shall take or cause to be taken all such actions as it deems necessary or appropriate to collect each Receivable and other Purchased Asset (and shall cause each Sub-Servicer, if any, to take or cause to be taken all such actions as the Servicer deems necessary or appropriate to collect each Receivable and other Purchased Asset for which such Sub-Servicer is responsible in its capacity as Sub-Servicer) from time to time, all in accordance with applicable law and in accordance with the Credit and Collection Policy. (c) Without limiting the generality of the foregoing and subject to Section 3.02(e) and Section 8.01, each of the Seller, the Transferor, the ---------------- ------------ Issuer and the Indenture Trustee hereby authorizes and empowers the Servicer or its designee as follows, except to the extent any such power and authority is revoked or limited by the Indenture Trustee on account of the occurrence of an Unmatured Servicer Default or a Servicer Default or otherwise pursuant to Section 8.01: ------------ (i) to give instructions to the Indenture Trustee for withdrawals and payments from the Collection Account and to take any other action necessary or appropriate to service the Pledged Assets as set forth in the Indenture; (ii) to the extent permitted under and in compliance with the Credit and Collection Policy, extend the maturity of any past due Receivable as it deems appropriate to maximize Collections thereof; provided that such extension or adjustment shall not alter the status of such Receivable as a Defaulted Receivable; (iii) to execute and deliver any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and the other Purchased Assets on the Issuer's behalf; 29 (iv) to adjust the Unpaid Balance of any Receivable as necessary to reflect any Dilutive Credits; (v) after the delinquency of any Receivable or any default in connection with any other Purchased Asset and to the extent permitted under and in compliance with the Credit and Collection Policy and with all applicable laws, rules, regulations, judgments, orders and decrees of courts and other Governmental Authorities and all other tribunals, to commence or settle collection proceedings with respect to such Receivable or other Purchased Asset and otherwise to enforce the rights and interests of the Issuer in, to and under such Receivable or other Purchased Asset (as applicable), (which enforcement may include, to the extent consistent with the Credit and Collections Policy and in accordance with ordinary business practice, sales of Defaulted Receivables to a third-party) unless the Indenture Trustee otherwise revokes such authority in writing; (vi) to make all filings and take all and other actions necessary for the Issuer to maintain a first priority perfected security and/or ownership interest in the Receivables (subject to Permitted Liens); and (vii) to determine on each day whether each Receivable being conveyed to the Issuer on such day is an Eligible Receivable and to identify on such day all Receivables sold to the Issuer on such date that are not Eligible Receivables; provided, however, that: (A) following the appointment of a Servicer other than Levi Strauss Financial Center Corporation, or when a Servicer Default has occurred and is continuing, the Indenture Trustee on behalf of the Issuer shall have the absolute and unlimited right to direct the Servicer to commence or settle any legal action to enforce collection of, or otherwise exercise rights with respect to, any Receivable transferred to the Issuer or to foreclose upon or repossess or otherwise exercise rights with respect to, any other Purchased Assets transferred to the Issuer; and (B) the Servicer shall not, under any circumstances, be entitled to make the Issuer or any assignee thereof a party to any litigation without the prior written consent of the Issuer or such assignee, as applicable. (d) The Servicer shall pay out of its own funds, without reimbursement, all expenses incurred in connection with its servicing activities hereunder, including expenses related to enforcement of the Receivables, fees and disbursements of its outside counsel and independent accountants and all other fees and expenses, including the costs of filing UCC continuation statements. (e) In addition to its other obligations provided for hereunder, the Servicer shall hold and maintain all Records in trust, for the benefit of the Issuer, the Indenture Trustee and the holders of the Notes, which Records shall be held separate and apart from the other property of the Servicer and maintained in files marked to show that such Records are property of the Issuer and have been pledged to the Indenture Trustee pursuant to the Indenture. 30 Section 3.03 Servicing Compensation. The Issuer hereby agrees ---------------------- to pay to the Servicer, as full compensation for its servicing activities hereunder and under the other Transaction Documents and as reimbursement for any expense incurred by it in connection therewith, a servicing fee (the "Servicing --------- Fee") with respect to each Monthly Period, payable in arrears on the related --- Payment Date, in an amount equal to one-twelfth of the product of the Servicing Fee Rate multiplied by the ending Aggregate Receivables Balance for the related Monthly Period subject to adjustment at the direction of the Indenture Trustee (upon satisfaction of the Rating Agency Condition) to provide additional servicing compensation to any Successor Servicer if necessary to reflect then-current market rates for servicing of comparable receivables at any time that Levi Strauss Financial Center Corporation is replaced as Servicer hereunder. The share of the Servicing Fee allocable to the holders of the Notes issued from time to time by the Issuer under the Indenture with respect to any Monthly Period shall be set forth in the Indenture. The Servicing Fee shall be payable solely out of Collections available for such purpose pursuant to, and subject to the priority of payments set forth in, the Indenture. Notwithstanding the preceding sentence, the portion of the Servicing Fee with respect to any Monthly Period not payable out of the Collections allocated to the holders of the Notes shall be payable out of the Collections allocable to the Issuer on the related Payment Date as set forth in the Indenture or by the Issuer, and in no event shall the holders of the Notes be liable for the share of the Servicing Fee with respect to any Payment Period to be payable out of the Collections allocable to the Issuer or by the Issuer. In consideration of the Servicing Fee, the Servicer shall pay the fees and expenses of, and agrees to indemnify, the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar in accordance with the terms of Section 6.04 hereof, it ------------- being understood, however, that the Servicer's obligations under Section 6.04 ------------ shall not be limited by the amount of the Servicing Fee. Such payment obligations shall survive the termination of this Agreement, the resignation or removal of the Indenture Trustee and the resignation or removal of the Servicer. Section 3.04 Representations and Warranties of the Servicer. ------------------------------------------------ Levi Strauss Financial Center Corporation, as initial Servicer, hereby makes, and any Successor Servicer by its appointment hereunder shall make with respect to itself, on the Closing Date (and on the date of any such appointment), on the date of each issuance of Notes by the Issuer and on the date of any increases in Outstanding Amount of any Series of Notes, the following representations, warranties and covenants, on which the Issuer and its assignees shall be deemed to have relied: (a) Organization and Good Standing. The Servicer is a ------------------------------------ corporation duly organized and validly existing in good standing under the laws of the State of its incorporation and has full power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. The Servicer is duly qualified to do ----------------- business, is in good standing as a foreign corporation, and has obtained all necessary licenses and approvals in all jurisdictions in which the conduct of its business requires such qualification, licenses or approvals and in which the failure so to qualify or to obtain such licenses and approvals or to preserve and maintain such qualification, licenses or approvals could reasonably be expected to give rise to a Material Adverse Effect with respect to the Servicer. 31 (c) Power and Authority; Due Authorization. The Servicer (i) has -------------------------------------- all necessary corporate power and authority (A) to execute and deliver this Agreement and the other Transaction Documents to which it is a party and (B) to perform its obligations under this Agreement and the other Transaction Documents to which it is a party and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of, and the consummation of the transactions provided for in, this Agreement and the other Transaction Documents to which it is a party. (d) Binding Obligations. This Agreement constitutes, and each ------------------- other Transaction Document to which the Servicer is a party when duly executed and delivered will constitute, a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and ---------------------------- performance of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents to which the Servicer is a party, and the fulfillment of the terms hereof and thereof, will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under (A) the certificate of incorporation or the by-laws of the Servicer or (B) any material indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument to which the Servicer is a party or by which it or any of its respective properties is bound, (ii) result in the creation or imposition of any Lien on any of the Purchased Assets pursuant to the terms of any such material indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument, other than this Agreement and the other Transaction Documents to which the Servicer is a party or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule or regulation applicable to the Servicer or of any federal, state, local or foreign regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer, which conflict or violation described in this clause (iii), individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect with respect to the Servicer. (f) Litigation and Other Proceedings. (i) There is no action, ----------------------------------- suit, proceeding or investigation pending, or to the best knowledge of the Servicer, threatened, against the Servicer before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality and (ii) the Servicer is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other Governmental Authority that, in the case of either of the foregoing clauses (i) and (ii), (A) asserts the invalidity of this Agreement or any other Transaction Document to which the Servicer is a party, (B) seeks any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement or any other Transaction Document to which the Servicer is a party or the validity or enforceability of this Agreement or any other Transaction Document to which the Servicer is a party or (C) 32 individually or in the aggregate for all such actions, suits, proceedings and investigations could reasonably be expected to have a Material Adverse Effect with respect to the Servicer. (g) Governmental Approvals. Except where the failure to obtain ---------------------- or make such authorization, consent, order, approval or action could not reasonably be expected to have a Material Adverse Effect with respect to the Servicer, all authorizations, consents, orders and approvals of, or other actions by, any Governmental Authority that are required to be obtained by the Servicer in connection with the due execution, delivery and performance by the Servicer of this Agreement or any other Transaction Document to which it is a party and the consummation of the transactions contemplated by this Agreement have been obtained or made and are in full force and effect. (h) Taxes. The Servicer has filed (or there have been filed on ----- its behalf as a member of a consolidated group) all tax returns and reports required by law to have been filed by it and has paid all taxes, assessments and governmental charges thereby shown to be owing by it, except for any such taxes, assessments or charges (i) that are being diligently contested in good faith by appropriate proceedings, for which adequate reserves in accordance with GAAP have been set aside on its books and that have not given rise to any Liens (other than Permitted Liens) or (ii) the amount of which, either singly or in the aggregate, would not have a Material Adverse Effect with respect to the Servicer. (i) Accuracy of Information. All written information furnished ----------------------- by the Servicer to the Originator or the Issuer pursuant to or in connection with any Transaction Document or any transaction contemplated herein or therein with respect to the Servicer is true and correct in all material respects on such date. (j) Offices. The principal place of business and chief ------- executive office of the Servicer is located at the address specified in Schedule -------- 2.16(m). ------- (k) Compliance with Applicable Laws. The Servicer is in --------------------------------- compliance with the requirements of all applicable laws, rules, regulations and orders of all Governmental Authorities (federal, state, local or foreign), a violation of any of which, individually or in the aggregate for all such violations, could reasonably be expected to have a Material Adverse Effect with respect to the Servicer. (l) Lockbox Banks. The names and addresses of all Lockbox Banks, ------------- together with the account numbers of the Lockbox Accounts at such Lockbox Banks into which the Collections are paid, are accurately set forth in Schedule -------- 3.04(l). Each Lockbox and each Lockbox Account is subject to a Lockbox Agreement ------ duly executed and delivered by the parties thereto. Each Lockbox Account constitutes a "deposit account" within the meaning of the UCC. Pursuant to each Lockbox Agreement, each Lockbox Bank has agreed to comply with instructions originated by the Indenture Trustee directing disposition of the funds in the Lockbox Accounts without further consent by any of the Transaction Parties and such Lockbox Agreement is sufficient for the Indenture Trustee to have a perfected security interest in such Lockbox Accounts. None of the Lockbox Accounts are in the name of any person other than Issuer or the Indenture Trustee, and none of the Transaction Parties has consented to the banks maintaining any such Lockbox Accounts to comply with instructions of any person other than 33 the Indenture Trustee. The representations and warranties set forth in this Section 3.04(l) shall survive the execution and delivery of this Agreement and ---------------- may not be waived by any party hereto except pursuant to an amendment executed in accordance with Section 10.01 and as to which the Rating ------------- Agency Condition has been satisfied. (m) Eligible Receivables. Each Receivable included in the ---------------------- Aggregate Receivables Balance reported in any Daily Receivables Activity Report is an Eligible Receivable on such date. (n) Payment Instructions to Obligors. The Servicer has ------------------------------------- instructed (i) all Obligors to remit all payments on the Purchased Assets directly to one of the Lockboxes or Lockbox Accounts and (ii) all Lockbox Banks to deposit all Collections remitted to a Lockbox directly to the related Lockbox Account. The names and addresses of all Lockbox Banks, together with the account numbers of the Lockbox Accounts at such Lockbox Banks into which the Collections are put, are accurately set forth in Schedule 2.16(o). ---------------- Section 3.05 Affirmative Covenants of Servicer. As long as it --------------------------------- is the Servicer hereunder, the Servicer hereby agrees that it will perform the covenants and agreements set forth in this Section 3.05. Notwithstanding the ------------ foregoing, the Servicer has no contractual duty to comply with the Federal Assignment of Claims Act to the extent that Eligible Receivables owed by the United States federal government or any subdivision thereof, or any agency, department or instrumentality thereof, exceeds 2.5% of the Aggregate Receivables Balance. (a) Compliance with Laws, Etc. The Servicer will comply in all ------------------------- material respects with all applicable laws, rules, regulations, judgments, decrees and orders (including without limitation those relating to the Receivables), in each case to the extent that the failure to comply, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect with respect to the Servicer. (b) Preservation of Corporate Existence. The Servicer (i) will ----------------------------------- preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, other than any change in corporate status by reason of a merger or consolidation permitted by Section 6.02 and (ii) ------------ will qualify and remain qualified in good standing as a foreign corporation in each jurisdiction in which the failure to preserve and maintain such qualification as a foreign corporation could reasonably be expected to have a Material Adverse Effect with respect to the Servicer. (c) Keeping of Records and Books of Account. The Servicer will --------------------------------------- maintain and implement administrative and operating procedures (including without limitation an ability to recreate records evidencing the Purchased Assets in the event of the destruction of the originals thereof), and will keep and maintain all documents, books, records and other information that are necessary or advisable, in the reasonable determination of the Originator, the Seller, the Issuer or the Indenture Trustee, for the collection of all amounts due under any or all Purchased Assets. Upon the reasonable request of the Issuer or the Indenture Trustee made at any time after the occurrence and continuance of a Servicer Default, the Servicer will deliver copies of all Records in its possession or under its control to the Issuer or its designee. The Servicer 34 will maintain at all times accurate and complete books, records and accounts relating to the Purchased Assets and all Collections thereon in which timely entries will be made. (d) Location of Records and Offices. The Servicer will keep its ------------------------------- principal place of business and chief executive office at the address specified in Section 2.16(m) or, upon not less than 30 days' prior written notice given by --------------- the Servicer to the Issuer and the Indenture Trustee, at other locations in jurisdictions in the United States of America. (e) Separate Existence of the Issuer. The Servicer hereby ------------------------------------ acknowledges that the parties to the Transaction Documents are entering into the transactions contemplated by the Transaction Documents in reliance upon the Issuer's identity as a legal entity separate from the Servicer. As long as it is the Servicer hereunder, the Servicer will take such actions as shall be required in order that: (i) The Issuer's operating expenses will not be paid by the Servicer, except that certain organizational expenses of the Issuer and expenses relating to creation and initial implementation of the Transaction Documents have been or will be paid by Levi Strauss Financial Center Corporation; (ii) Any financial statements of the Servicer that are consolidated to include the Issuer will contain appropriate footnotes clearly stating that (A) all of the Issuer's assets are owned by the Issuer and (B) the Issuer is a separate corporate entity with its own separate creditors that will be entitled to be satisfied out of the Issuer's assets prior to any value in the Issuer becoming available to the Issuer's equity holders; (iii) Any transaction between the Issuer on the one hand and the Servicer on the other hand will be fair and equitable, will be the type of transaction that would be entered into by a prudent Person in the position of the Issuer with the Servicer, and will be on terms that are at least as favorable as may be obtained from a Person that is not a member of the Parent Affiliated Group; and (iv) The Servicer will not be, or will not hold itself out to be, responsible for the debts of the Issuer. (f) Payment Instruction to Obligors. The Servicer will instruct ------------------------------- all Obligors to submit all payments on the Purchased Assets either (A) to one of the Lockboxes maintained at the Lockbox Banks for deposit in a Lockbox Account or (B) directly to one of the Lockbox Accounts. The Servicer will direct all Obligors with respect to any receivables and related assets that are not included in the Purchased Assets to deposit all collections in respect of such receivables and related assets to an account that is not a Lockbox or Lockbox Account and will take such other steps as the Issuer may reasonably request to ensure that all collections on such receivables and related assets will be segregated from Collections on Purchased Assets. (g) Segregation of Collections. The Servicer will use reasonable -------------------------- efforts to minimize the deposit of any funds other than Collections into any of the Lockbox Accounts and, to the extent that any such funds nevertheless are deposited into any of such Lockbox Accounts, will promptly identify any such funds. 35 (h) Computer Software, Hardware and Services. The Seller, in its ---------------------------------------- capacity as the initial Servicer, will use commercially reasonable efforts to provide the Issuer and any Successor Servicer with such licenses, sublicenses and/or assignments of contracts as the Issuer or the Successor Servicer requires with regard to all services and computer hardware or software that relate to the servicing of the Receivables or the other Purchased Assets (to the extent such licenses and contracts are assignable). (i) Turnover of Collections. If the Servicer or any of its ------------------------- agents or representatives at any time receives any cash, checks or other instruments constituting Collections, such recipient will segregate and hold such payments in trust for, and in a manner acceptable to, the Issuer and will, promptly upon receipt (and in any event within one (1) Business Day following receipt) remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to a Lockbox Account or the Collection Account. (j) Filing of Tax Returns and Payment of Taxes and Other ------------------------------------------------------------ Liabilities. The Servicer will file (or will cause to be filed on its behalf as ----------- a member of a consolidated group) all tax returns and reports required by law to be filed by it and will pay all taxes, assessments and governmental charges shown to be owing by it, except for any such taxes, assessments or charges (i) that are being diligently contested in good faith by appropriate proceedings, for which adequate reserves in accordance with GAAP shall have been set aside on its books and that shall not have given rise to any Liens (other than Permitted Liens) or (ii) the amount of which, either singly or in the aggregate, shall not have a Material Adverse Effect with respect to the Servicer. Section 3.06 Negative Covenants of Servicer. As long as it is ------------------------------ the Servicer hereunder, the Servicer hereby covenants that the Servicer shall not: (a) Change in Credit and Collection Policy. (i) Make any change -------------------------------------- in the Credit and Collection Policy that would be reasonably likely to adversely affect the collection of any material portion of the Receivables or other Purchased Assets or to decrease in any material respect the overall credit quality of any newly created Receivables or other Purchased Assets or (ii) make any material change in the character of its business or engage in any business unrelated to such business as currently conducted that, in either case, individually or in the aggregate with all other such changes, would be reasonably likely to have a material adverse effect on the performance of the Purchased Assets; (b) Change in Name. Change its corporate name or the name under -------------- or by which it does business unless the Servicer has given each of the Seller, the Issuer and the Indenture Trustee at least 30 days' prior written notice thereof; (c) Change in Payment Instruction to Obligors. Make any change ----------------------------------------- in the instructions to Obligors or other Persons regarding payments to be made to it or payments to be made to any Lockbox Account, which payments relate to the Purchased Assets, unless the Servicer has given the Issuer and its successors and assigns prior written notice thereof, and then only in compliance with Section 3.05(f), or add or terminate any bank as a Lockbox Bank from those --------------- listed in Schedule 2.16(o) unless (i) the Indenture Trustee has received copies ---------------- of a Lockbox Agreement with each new Lockbox Bank duly executed by the parties thereto and (ii) in the case of any termination, the Issuer or its successors and assigns have received evidence to their 36 satisfaction that the Obligors that were making payments into a terminated Lockbox Account have been instructed in writing to make payments into another Lockbox Account then in use; (d) Establishment of Lockbox Accounts. Enter into a Lockbox ------------------------------------ Agreement (other than as set forth in Exhibit B) without the prior written consent of the Issuer and the Indenture Trustee; or (e) Instructions to Indenture Trustee. Instruct the Indenture --------------------------------- Trustee to release any Collections to the Issuer pursuant to Section 8.04 of the ------------ Indenture or pursuant to any related Indenture Supplement on any day on which an Asset Deficiency exists and would be continuing after such release. Section 3.07 Records of the Servicer and Reports to be ------------------------------------------------ Prepared by the Servicer. ------------------------ (a) The Servicer shall maintain at all times accurate and complete books, records and accounts relating to the Receivables, the other Purchased Assets and the Contracts and all Collections thereon, in which timely entries shall be made. The Servicer shall maintain and implement administrative and operating procedures (including without limitation an ability to recreate Records evidencing Receivables and the other Purchased Assets in the event of the destruction of the originals thereof), and shall keep and maintain all documents, books, records and other information that the Servicer deems reasonably necessary for the identification of Eligible Receivables and for the collection of all Receivables and other Purchased Assets. Upon the reasonable request of the Indenture Trustee or the Issuer after the occurrence and continuance of an Unmatured Servicer Default or a Servicer Default or other termination under Section 8.01, the Servicer will deliver copies of all books ------------ and records maintained pursuant to this Section 3.07(a) to the Indenture ---------------- Trustee. (b) During regular business hours upon reasonable prior notice, the Servicer shall permit the Originator, the Issuer, the Indenture Trustee (or such other Person whom the Indenture Trustee or the Issuer may designate from time to time), or their agents or representatives (including without limitation certified public accountants or other auditors), in each case, only after executing and delivering to the Servicer a confidentiality agreement in form and substance reasonably satisfactory to the Servicer, at the expense of the Servicer and to the extent reasonably necessary to protect the interests of the holders of the Notes, (i) to examine and make copies of and abstracts from, and to conduct accounting reviews of, all Records and other documentation regarding the Receivables and the Lockbox Accounts which are in the possession or under the control of the Servicer, including without limitation the related Contracts, invoices and other documents related thereto, and (ii) to visit the offices and properties of the Servicer for the purpose of examining the materials described in clause (i) above, and to discuss matters relating to the Receivables or the other Purchased Assets or the performance by the Servicer of its obligations under any Transaction Document to which it is a party with any Authorized Officer of the Servicer having knowledge of such matters and with its certified public accountants or other auditors. The Indenture Trustee may conduct, or cause its agents or representatives to conduct, reviews of the types described in this Section 3.07(b) whenever the Indenture Trustee reasonably deems any such --------------- review appropriate, and the Indenture Trustee shall 37 conduct, or cause its agents or representatives to conduct, such a review if requested by the Issuer. (c) No later than 3 Business Days prior to the Payment Date with respect to any Outstanding Series, the Servicer shall prepare and deliver to the Issuer, the Indenture Trustee and each Rating Agency a report with respect to the Monthly Period then most recently ended and such Outstanding Series of Notes, substantially in the form provided in the related Supplement or in such other form as is reasonably acceptable to the Issuer (each such report, a "Monthly Receivables Activity Report"). Such Monthly Receivables Activity Report ----------------------------------- shall include a certification that, to the best of the Servicer's knowledge, no Unmatured Servicer Default or Servicer Default has occurred and is continuing. (d) No later than 3:00 p.m. New York time on each Deposit Date, the Servicer shall prepare and deliver to the Issuer and the Indenture Trustee a report, substantially on the form attached hereto as Exhibit D (each such report, a "Daily Receivables Activity Report"), setting forth, among other ------------------------------------ things, the calculations of the Allocated Receivables Amounts and Target Receivables Amounts for all Series as of the close of business on the preceding Business Day and the allocations of Collections among all Outstanding Series to be made on such Deposit Date. Section 3.08 Annual Certificate of Servicer. The Servicer --------------------------------- shall deliver to the Issuer, the Indenture Trustee and each Rating Agency on or before June 30 of each calendar year, beginning with June 30, 2002, an Officer's Certificate substantially in the form of Exhibit A. Section 3.09 Annual Servicing Report of Independent Public ------------------------------------------------ Accountants; Copies of Reports Available. On or before June 30 of each calendar ----------------------------------------- year, beginning with June 30, 2002, the Servicer shall cause a firm of nationally recognized independent public accountants (who also may render other services to the Servicer, the Issuer, the Originator, the Seller or the Transferor) to furnish a report (addressed to the Issuer and the Indenture Trustee) to the Issuer and the Indenture Trustee to the effect that they have applied certain procedures agreed upon with the Servicer and have examined certain documents and records relating to the servicing of the Receivables and other Purchased Assets under this Agreement and that, on the basis of such agreed-upon procedures, nothing has come to the attention of such accountants that caused them to believe that the servicing (including the allocation of Collections) has not been conducted in material compliance with the terms and conditions as set forth in Articles III and IV of this Agreement, other than -------------------- such exceptions as shall be set forth in such statement. Such report shall set forth the agreed-upon procedures performed. Section 3.10 Adjustments; Modifications. -------------------------- (a) If on any day the Unpaid Balance of any Receivable is reduced by the Servicer as a result of any Dilutive Credits, then the Servicer shall cause such Dilution Adjustments to be applied in accordance with Section ------- 2.08(c) and, if such Dilutive Credit results from the acts or omissions of the ------- Originator, to ensure that such Dilution Adjustment is credited against the amounts otherwise owed by the Seller to the Originator in accordance with the terms and provisions of the Receivables Purchase and Sale Agreement. 38 (b) So long as no Unmatured Servicer Default or Servicer Default shall have occurred and be continuing, the Servicer may adjust, and may permit each Sub-Servicer appointed by it pursuant to Section 3.01(b) to adjust, the ---------------- outstanding unpaid balance of any Receivable in accordance with the Credit and Collection Policy and the terms of this Agreement, provided that (i) such -------- adjustment would not cause or result in an Eligible Receivable becoming ineligible and (ii) either the Servicer or the Originator pays any related Dilution Adjustment pursuant to Section 3.10(a) above (including by offsetting -------------- such Adjustment against the "Purchase Price" or Subordinated Note pursuant to --------------- Section 2.08(c)) of the Receivables Sale Agreement. The Servicer shall, or shall --------------- cause the applicable Sub-Servicer to, write off Receivables from time to time in accordance with the terms of this Agreement and the terms of the Credit and Collection Policy, and such a write-off shall not give rise to any obligation to make a Dilution Adjustment. (c) If (i) the Servicer makes a deposit into the Collection Account in respect of a Collection of a Receivable and such Collection was received by the Servicer in the form of a check that is not honored for any reason or (ii) the Servicer makes an error with respect to the amount of any Collection and deposits an amount that is less than or more than the actual amount of such Collection, the Servicer shall appropriately adjust the amount subsequently deposited into the Collection Account to reflect such dishonored check or error. Any Receivable in respect of which a dishonored check is received shall be deemed not to have been paid. Notwithstanding the first two sentences of this paragraph, adjustments made pursuant to this Section 3.10(c) --------------- shall not require any change in any report previously delivered pursuant to Section 3.07(c) or (d). --------------------- (d) The Servicer shall not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any material term or condition related thereto, except as provided in this Section 3.10. ------------ Section 3.11 Calculations. Without limiting the generality ------------ of the foregoing provisions of this Article III, the Servicer shall perform all ----------- calculations necessary in order to determine payments to be made to holders of Notes and deposits to be made to reserves and other Series Accounts in accordance with the Indenture and any Indenture Supplement and shall provide written instructions to the Indenture Trustee with respect to the foregoing upon which the Indenture Trustee may conclusively rely in making allocations and distributions under the Indenture and any Indenture Supplement. Section 3.12 Application of Collections. (a) In accordance ---------------------------- with the Credit and Collection Policy, the Servicer shall apply all monies received by or on behalf of any Obligor in accordance with the directions of such Obligor. The Servicer shall contact the Obligor if necessary to obtain such directions, or if such directions cannot be obtained, the Servicer shall apply Collections of such Obligor in the order that such Receivables were originated, with the oldest Receivable being paid first. (b) If at any time the Servicer shall determine that any amount on deposit in the Collection Account does not constitute Collections or the proceeds thereof, the Servicer shall instruct the Indenture Trustee to withdraw such amounts from the Collection Account and to pay such amounts to the Person that the Servicer determines is the Person entitled thereto, as provided in Section 8.04 of the Indenture. ------------ 39 ARTICLE IV ACCOUNTS AND COLLECTIONS Section 4.01 Lockboxes; Rights after Replacement of Servicer. ------------------------------------------------ (a) Each of the Seller and the Transferor hereby transfers to the Issuer the ownership of, and the exclusive dominion and control over, each of the Lockboxes and Lockbox Accounts owned by either of them and each of the Seller and the Transferor hereby agrees to take any further action that the Issuer or its assignees may reasonably request in order to effect or complete such transfer. Each of the Seller and the Transferor hereby acknowledges and agrees that it has no claim to or interest in any of the Lockbox Accounts (except for the rights of withdrawal otherwise provided in this Agreement with respect to the Seller in its capacity as Servicer). (b) At any time following a Servicer Default and the replacement of the Servicer as a result thereof: (i) The Issuer or its assignees may direct the Obligors of Receivables, or any of them, to pay all amounts payable under any Receivable directly to the Issuer or its assignees; (ii) At the request of the Issuer or its assignees and at the Seller's expense, the Seller shall give notice of such ownership to each said Obligor and direct that payments be made directly to the Issuer or its assignees; (iii) At the request of the Issuer or its assignees and at the Seller's expense, the Seller shall (A) assemble all of the Records, to the extent such Records are in its possession, or instruct any escrow agents holding any such documents, instruments and other records on its behalf to make the same available and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner reasonably acceptable to the Issuer or its assignees and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Issuer or its assignees; and (iv) Each of the Seller and the Transferor hereby authorizes the Issuer or its assignees to take any and all steps in its name and on its behalf that are necessary or desirable, in the reasonable determination of the Issuer or its assignees, to collect all amounts due under any and all Purchased Assets, including without limitation endorsing its name on checks and other instruments representing Collections and enforcing the Purchased Assets. Section 4.02 Establishment of Collection Account. The ----------------------------------------- Servicer, for the benefit of the Indenture Trustee and the holders of the Notes, shall establish and maintain with the Indenture Trustee a Qualified Account (including any subaccount thereof) in the name of the Indenture Trustee, bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Issuer and the holders of the Notes (the "Collection Account"). ------------------ 40 The Collection Account shall be under the sole dominion and control of the Indenture Trustee. Except as expressly provided in this Agreement or the Indenture, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Account for any amount owed to it by the Issuer, the Originator, the Seller, the Transferor, the Indenture Trustee or any holder of the Notes. If the Collection Account at any time ceases to be an Qualified Account then, within 10 Business Days of the Issuer's or Servicer's knowledge thereof, the Issuer or the Servicer shall establish a new Collection Account meeting the conditions specified above, transfer any monies, documents, instruments, investment property, certificates of deposit and other property to such new Collection Account and from the date such new Collection Account is established, it shall be the Collection Account. Pursuant to the authority granted to the Servicer in Section 3.02, the Servicer shall have the power, revocable by the ------------ Indenture Trustee at the direction of the Majority Noteholders, to instruct the Indenture Trustee to make withdrawals and payments from the Collection Account for the purposes of carrying out the Servicer's duties hereunder. At the written direction of the Servicer, funds on deposit in the Collection Account shall be invested in Eligible Investments selected by the Servicer. All such Eligible Investments shall be held by the Indenture Trustee for the benefit of the Issuer and the holders of the Notes. Investments of funds representing Collections collected during any Monthly Period shall be invested in Eligible Investments that will mature so that such funds will be available no later than the close of business on the day preceding the monthly Payment Date following such Monthly Period, in amounts sufficient to the extent of such funds to make the required distributions on such Payment Date. On each Payment Date, all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be paid to the Servicer as additional servicing compensation. The Servicer shall bear no responsibility or liability for any losses resulting from investment or reinvestment of any funds in accordance with this Section 4.02 or for the ------------ selection of Eligible Investments in accordance with the provisions of this Agreement. Section 4.03 Collections and Allocations. The Servicer shall --------------------------- instruct the Indenture Trustee in writing to apply all funds on deposit in the Collection Account as described in the Indenture and each Supplement. Except as otherwise provided below, the Servicer shall transfer all Collections and other Purchased Assets consisting of cash or cash equivalents from the Lockbox Accounts into the Collection Account as promptly as possible after the date of receipt of such Collections, but in no event later than 2 Business Days following the date of receipt. ARTICLE V OTHER MATTERS RELATING TO THE SELLER AND THE TRANSFEROR Section 5.01 Liability of the Seller and the Transferor. Each ------------------------------------------ of the Seller and the Transferor shall be liable for all obligations, covenants, representations and warranties arising under or related to this Agreement including, in the case of the Seller, all obligations, covenants, representations and warranties made by it in its capacity as Servicer. 41 Section 5.02 Indemnification by the Seller. Without limiting ----------------------------- the foregoing and any other rights that any Indemnified Party may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Issuer, the Indenture Trustee and each of the successors, permitted transferees and assigns of the foregoing, and all officers, directors, shareholders, controlling Persons, employees and agents of any of the foregoing (each of the foregoing Persons, an "Indemnified Party"), from and against any and all damages, losses, ----------------- claims (whether on account of settlements or otherwise, and whether or not the applicable Indemnified Party is a party to any action or proceeding that gives rise to any Indemnified Losses), actions, suits, demands, judgments, liabilities (including penalties), obligations or disbursements of any kind or nature and related costs and expenses (including reasonable attorneys' fees and disbursements) awarded against or incurred by any of them arising out of or as a result of any of the following (all of the foregoing, collectively, "Indemnified ----------- Losses"): ------ (a) (i) any representation or warranty made or deemed made by the Seller, the Transferor (or any of their respective Authorized Officers) (whether or not made or delivered to the Indemnified Party) under any of the Transaction Documents, (ii) any information provided by it for inclusion in the Daily Receivables Activity Report or (iii) any other information or report delivered by the Seller or the Transferor with respect to the Seller, the Transferor or the Purchased Assets having been untrue or incorrect in any respect when made or deemed made; (b) the failure by the Seller or the Transferor to comply with any law, rule or regulation applicable to it with respect to any Purchased Asset or failure of any Purchased Asset to comply with such law, rule or regulation as of the date of the sale of such Purchased Asset hereunder; (c) the failure to vest and maintain vested in the Issuer a first priority perfected ownership or security interest in the Purchased Assets, free and clear of any Lien (other than any Permitted Lien), whether existing at the time of the sale of such Purchased Asset or at any time thereafter; (d) any failure of the Seller or the Transferor to perform its duties or obligations in accordance with the provisions of the Transaction Documents to which it is a party or any Contract; (e) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the Uniform Commercial Code of any applicable jurisdiction or other applicable laws with respect to the transfer of any Purchased Asset to the Issuer, whether at the time of any sale or at any subsequent time; (f) the failure by the Seller or the Transferor to pay any tax or governmental fee or charge (other than franchise taxes and taxes on or measured by the net income of any Indemnified Party), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses (including the reasonable fees and expenses of counsel in defending against the same) that arise by reason of the purchase or ownership of the Purchased Assets; 42 (g) any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable; (h) any reduction in the Unpaid Balance of any Receivable included in the Purchased Assets as a result of (i) any cash discount or any adjustment by the Seller, the Transferor or any Affiliate (other than the Issuer), (ii) any offsetting account payable of the Seller, the Transferor or any Affiliate (other than the Issuer) to an Obligor, (iii) a set-off in respect of any claim by, or defense or credit of, the related Obligor against the Seller, the Transferor or any Affiliate (other than the Issuer) (whether such claim, defense or credit arises out of the same or a related or an unrelated transaction) or (iv) the obligation of the Seller, the Transferor or any Affiliate (other than the Issuer) to pay to the related Obligor any rebate or refund; (i) any dispute, claim, offset or defense (other than any applicable statute of limitations relating to the enforcement and collection rights and discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services; (j) the commingling of Collections of Receivables at any time with other funds; (k) any failure of the Seller or the Transferor to have legal and equitable title to, and ownership of any Receivable and the other Purchased Assets to be sold by it to the Issuer, free and clear of any Lien (other than Permitted Liens); or any failure of Transferor to have given reasonably equivalent value to the Seller under the Receivables Sale Agreement in consideration of the transfer by the Seller of any Receivable, or any failure of Seller to give or have given reasonably equivalent value to the Originator under the Receivables Purchase and Sale Agreement in consideration of the transfer by the Originator of any Receivable to the Seller, or any attempt by any Person to void any such transfer under statutory provisions or common law or equitable action; (l) any investigation, litigation or proceeding related to any use of the proceeds of any purchase made hereunder; (m) any investigation or defense of, or participation in, any Legal proceeding relating to the execution, delivery, enforcement, performance or administration of the Transaction Documents or any other document related thereto (whether or not such Indemnified Party is a party thereto); and (n) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding. 43 Notwithstanding anything to the contrary in this Agreement, any representations, warranties and covenants made by the Seller or the Transferor in this Agreement or the other Transaction Documents that are qualified by or limited to events or circumstances that have, or are reasonably likely to have, given rise to a Material Adverse Effect (or words of like import) shall (solely for purposes of the indemnification obligations set forth in this Section 5.02) ------------ be deemed not to be so qualified or limited. If, by its terms, the indemnification provided by this Section ------- 5.02 should be applicable to any loss, claim, damage or liability of an ---- Indemnified Party but, for any reason, such indemnification is unavailable to such Indemnified Party or is insufficient to hold such Indemnified Party harmless, then the Seller shall contribute to the amount paid by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand, and the Seller on the other hand, but also the relative fault (if any) of such Indemnified Party and the Seller and any other relevant equitable considerations. Notwithstanding the foregoing, and without prejudice to the rights that the Issuer may have pursuant to the other provisions of this Agreement or the provisions of any of the other Transaction Documents, in no event shall any Indemnified Party be indemnified for any Indemnified Losses (i) resulting from the gross negligence or willful misconduct on the part of such Indemnified Party (or the gross negligence or willful misconduct on the part of any of such Indemnified Party's officers, directors, employees or agents), (ii) to the extent the same includes Indemnified Losses in respect of Purchased Assets and reimbursement therefor that would constitute credit recourse to the Seller, the Transferor or the Originator for the amount of any Receivable or other Purchased Asset not paid by the related Obligor; (iii) to the extent the same constitute Dilutive Credits or other items requiring Adjustments and such Adjustments have been paid or satisfied under Section 2.08(c); or (iv) to the -------------- extent that the remedy for such Indemnified Losses are otherwise provided for specifically in this Agreement. ARTICLE VI OTHER MATTERS RELATING TO THE SERVICER Section 6.01 Liability of the Servicer. The Servicer shall be ------------------------- liable under this Article VII only to the extent of the obligations specifically undertaken by the Servicer in its capacity as Servicer. Section 6.02 Merger or Consolidation of, or Assumption of the ------------------------------------------------ Obligations of, the Servicer. The Servicer shall not consolidate with or merge ---------------------------- into any other Person or convey, transfer or sell its properties and assets substantially as an entirety to any Person, unless: (a) (i) the corporation formed by such consolidation or into which the Servicer is merged or the Person that acquires by conveyance, transfer or sale the properties and assets of the Servicer substantially as an entirety is, if the Servicer is not the surviving entity, a corporation organized and existing under the laws of the United States of America or any state or the District of Columbia, and, if the Servicer is not the 44 surviving entity, such corporation expressly assumes, by an agreement supplemental hereto, executed and delivered to the Issuer and the Indenture Trustee, in form satisfactory to the Issuer, the performance of every covenant and obligation of the Servicer hereunder; (ii) the Servicer has delivered to the Issuer and the Indenture Trustee an Officer's Certificate stating that such consolidation, merger, conveyance, transfer or sale complies with this Section 6.02 and that all conditions precedent herein provided for ------------ relating to such transaction have been complied with; (iii) the Servicer has given the Issuer, the Originator and the Indenture Trustee notice of such consolidation, merger or transfer of assets; (iv) immediately after giving effect to such transaction, no representation or warranty made pursuant to Section 3.04 has been ------------ breached in any material respect; (v) no Unmatured Servicer Default or Servicer Default has occurred and is continuing or would result from the contemplated transaction; and (vi) each Rating Agency then rating any outstanding Series of Notes has delivered to the Issuer and the Transferor written confirmation that such consolidation, merger, conveyance, transfer or sale will not result in a downgrade or withdrawal of such Rating Agency's then current rating of any Series of Notes. (b) the corporation formed by such consolidation or into which the Servicer is merged or the Person that acquires by conveyance or transfer the assets of the Servicer substantially as an entirety is an Eligible Servicer. Section 6.03 Limitation on Liability of the Servicer and ------------------------------------------------ Others. Except as provided in Section 6.04, neither the Servicer nor any of the ------ ------------ directors, officers, employees or agents of the Servicer in its capacity as Servicer shall be under any liability to the Seller, the Transferor, the Issuer, the Indenture Trustee, the holders of the Notes or any other Person for any action taken or for refraining from the taking of any action in good faith in its capacity as Servicer pursuant to this Agreement; provided, however, that -------- ------- this provision shall not protect the Servicer or any such Person against any liability that otherwise would be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person (other than the Servicer) with respect to any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties as Servicer in accordance with this Agreement and that in its reasonable judgment may involve it in any expense or liability. Subject to the terms of the Transaction Documents, the Servicer may, in its sole discretion, undertake any such legal action that it may deem necessary or desirable for the benefit of the holders of the Notes with respect to this Agreement and the rights and duties of the parties hereto and the interests of the holders of the Notes issued by the Issuer under the Indenture. 45 Section 6.04 Indemnification by the Servicer. The Servicer --------------------------------- shall indemnify and hold harmless each of the Seller, the Transferor, the Issuer, the Indenture Trustee and its directors, officers, employees and agents from and against any and all loss, liability, claim, expense, actions, suits, demands, damage or injury suffered or sustained by reason of (i) any representation or warranty made by the Servicer under any of the Transaction Documents, any Monthly Receivables Activity Report, Daily Receivables Activity Report, or any other information or report delivered by the Servicer with respect to the Servicer or the Purchased Assets having been untrue or incorrect in any material respect when made or deemed to have been made, (ii) any acts or omissions of the Servicer pursuant to this Agreement (other than such as may arise from the negligence or willful misconduct of the indemnified party or its directors, officers, employees and agents), including any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any action, proceeding or claim, that in each case arises from or relates to a breach by the Servicer of its representations, warranties, covenants or agreements hereunder or (iii) any failure of the Servicer to comply with any material applicable law, rule or regulation applicable to it and which relates to the servicing or administration of the Purchased Assets. The Servicer shall further indemnify the Indenture Trustee, the Paying Agent, the Authentication Agent and the Transfer Agent and Registrar against all losses, liabilities, claims, expenses, actions, suits, demands, or other reasonable out-of-pocket losses incurred by any of them in connection with performing their respective obligations under the Transaction Documents, (other than such as may arise from the gross negligence or willful misconduct of such Person or its directors, officers, employees and agents). Indemnification pursuant to this Section 6.04 shall not be payable from the Purchased Assets. ------------- The Servicer's obligations under this Section 6.04 shall survive the termination ------------ of this Agreement, the resignation or removal of the Indenture Trustee and the resignation or removal of the Servicer. Section 6.05 Resignation of the Servicer. The Servicer shall --------------------------- not resign from the obligations and duties hereby imposed on it except (a) upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action that the Servicer could take to make the performance of its duties hereunder permissible under applicable law or (b) upon the assumption, by an agreement supplemental hereto, executed and delivered to the Issuer and the Indenture Trustee, in form satisfactory to the Issuer and the Majority Investors and with the consent of the Majority Investors of the obligations and duties of the Servicer hereunder by an Eligible Servicer. Any determination permitting the resignation of the Servicer shall be evidenced as to clause (a) above by an Opinion of Counsel to such effect delivered to the Issuer and the Indenture Trustee. No resignation shall become effective until a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section ------- 8.02. If, as of the date of the determination that the Servicer may no longer ---- act as Servicer under clause (a) above and the Issuer is unable to appoint a Successor Servicer, the Indenture Trustee shall serve as Successor Servicer. Notwithstanding the foregoing, if, at any time following the Indenture Trustee's receipt of the Servicer's resignation as servicer, the Indenture Trustee is unwilling or legally unable to act as servicer, it may petition a court of competent jurisdiction to appoint any Eligible Servicer as the Successor Servicer; provided, however that in the event that notwithstanding such -------- petition, such court has not appointed any Eligible Servicer as Successor Servicer as of the date when the Servicer's resignation as servicer becomes effective, the Indenture Trustee shall act as Successor 46 Servicer for so long as it is legally able to do so or until such court appoints an Eligible Servicer as Successor Servicer. ARTICLE VII PURCHASE TERMINATION EVENTS Section 7.01 Purchase Termination Events. The following ----------=-------------------- events shall be "Purchase Termination Events": --------------------------- (a) The occurrence of an Event of Default or an Amortization Event or the commencement of the Amortization Period with respect to all Outstanding Series of Notes; (b) The Seller shall fail to pay (i) an Adjustment or repurchase Receivables affected by an Adjustment within 5 Business Days, (ii) any payment in respect of interest then due within 3 Business Days or (iii) any other amount within 5 Business Days of the due date for such amount; or (c) (i) Any representation or warranty made by the Seller or the Transferor under any of the Transaction Documents, (ii) any information provided by it for inclusion in the Daily Receivables Activity Report or (iii) any other information or report delivered by the Seller or the Transferor with respect to this Agreement or the Purchased Assets, shall prove to have been untrue or incorrect in any material respect when made or deemed to have been made, such failure could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the interest of the Issuer or its assigns in the Purchased Assets and such failure remains unremedied for 30 days; or (d) Either the Seller or the Transferor shall fail to perform or observe, as and when required, (i) any term, covenant or agreement contained in this Agreement or any of the other Transaction Documents to which it is a party, and such failure shall remain unremedied for: in the case of the covenant to segregate Collections pursuant to Section 2.17(e), the covenant to file --------------- financing or continuation statements pursuant to Section 2.14 or the negative ------------ covenants set forth in Section 2.18, 10 days, or (ii) any other term, covenant ------------- or agreement contained in this Agreement or any of the other Transaction Documents to which it is a party, which failure could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the interest of the Issuer or its assigns in the Purchased Assets, 30 days; or (e) An Event of Bankruptcy shall have occurred with respect to the Seller or the Transferor; or (f) Either (i) the Internal Revenue Service shall file notice of a Lien pursuant to Section 6323 of the Code with respect to any of the Purchased Assets or (ii) the PBGC shall, or shall indicate its intention to, file notice of a Lien pursuant to Section 4068 of ERISA with respect to any of the Purchased Assets, and, in either such case, such Lien shall not have been released within 30 days; or 47 (g) A Servicer Default shall have occurred and be continuing and the Indenture Trustee shall not have appointed a Successor Servicer within 60 days of such Servicer Default; or (h) This Agreement shall cease to be in full force and effect for any reason other than in accordance with its terms. If a Purchase Termination Event occurs, the Seller shall promptly give notice to the Issuer and the Indenture Trustee of such Purchase Termination Event. Section 7.02 Purchase Termination. (a) On the Purchase ---------------------- Termination Date, the Seller shall cease transferring Purchased Assets to the Issuer. Notwithstanding any cessation of the transfer to the Issuer of Purchased Assets, any Purchased Assets transferred to the Issuer prior to the Purchase Termination Date and any Collections in respect of such Purchased Assets, whenever accrued in respect of such Purchased Assets, shall continue to be property of the Issuer available for pledge by the Issuer under the Indenture. (b) Upon the occurrence of a Purchase Termination Event, the Issuer and its assignees shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the Uniform Commercial Code of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing, the occurrence of a Purchase Termination Event shall not deny to the Issuer or its assignees any remedy in addition to termination of its obligation to make Purchases hereunder to which the Issuer or its assignees may be otherwise appropriately entitled, whether by statute or applicable law, at law or in equity. ARTICLE VIII SERVICER DEFAULTS Section 8.01 Servicer Defaults. If any one of the following ----------------- events (a "Servicer Default") shall occur and be continuing: ---------------- (a) any failure on the part of the Servicer to deliver (i) the Monthly Receivables Activity Reports required under Section 3.07(c) within 5 --------------- Business Days after such Monthly Receivables Activity Report is due or (ii) the Daily Receivables Activity Report required under Section 3.07(d) within 3 ---------------- Business Days after such Daily Receivables Activity Report is due; (b) any failure on the part of the Servicer, to make any payment, transfer or deposit, or to give instructions or to give notice to the Issuer or the Indenture Trustee to make such payment, transfer or deposit within (i) in the case of payments of interest, 3 Business Days and (ii) otherwise, 5 Business Days of the due date for such payment, transfer or deposit or such instruction or notice is required to be made or given, as the case may be, under the terms of this Agreement; 48 (c) (i) failure on the part of the Servicer duly to observe and perform in any material respect any covenants or agreements of the Servicer set forth in this Agreement and such failure continues unremedied for a period of 30 days after the date on which written notice of such failure was delivered to the Servicer; (d) any representation, warranty or certification made by the Servicer in this Agreement or in any other Transaction Document or in any certificate delivered pursuant to this Agreement proves to have been incorrect in any material respect when made, which failure has a Material Adverse Effect on the rights of the holders of any Series of Notes; (e) an Event of Bankruptcy occurs with respect to the Servicer; or (f) a "Termination Event" under the Receivables Sale Agreement ----------------- shall have occurred and be continuing with respect to the Seller or a "Termination Event" under the Receivables Purchase and Sale Agreement shall have ----------------- occurred and be continuing with respect to the Originator; then, in the event of any such Servicer Default, so long as the Servicer Default shall not have been remedied the Indenture Trustee may, or at the direction of the Majority Investors, the Indenture Trustee shall, by written notice then given to the Servicer (and to the Indenture Trustee if given by the Majority Investors) (a "Termination Notice"), terminate all or any part of the rights and ------------------ obligations of the Servicer as Servicer under this Agreement. After receipt by the Servicer of a Termination Notice, and on the date that a Successor Servicer is appointed by the Indenture Trustee pursuant to Section 8.03, all authority and power of the Servicer under this ------------ Agreement (or, in the case of a partial transfer, such authority and power and a proportional portion of the Servicing Fee as is described in the Termination Notice) shall pass to and be vested in the Successor Servicer (a "Service ------- Transfer"); and the Indenture Trustee is hereby authorized and empowered, upon -------- the failure of the Servicer to cooperate, to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer. The Servicer agrees to cooperate with the Indenture Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including the transfer to such Successor Servicer of authority of the Servicer to service the Receivables provided for under this Agreement, including (to the extent transferred) all authority over all Collections that on the date of transfer are held by the Servicer for deposit, or which have been deposited by the Servicer in the Collection Account, or which thereafter are received with respect to the Receivables, and in assisting the Successor Servicer. The Servicer shall within 20 Business Days of such Termination Notice transfer its electronic records relating to the Receivables to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence, computer programs, software (to the extent such computer programs and software are assignable) and documents necessary for the continued servicing of the Receivables in the manner and at such times as the Successor Servicer shall reasonably request. In addition, the Servicer shall provide the Successor Servicer with reasonable access to the Servicer's personnel responsible for the servicing of Receivables. To the extent that compliance with this 49 Section 8.01 requires the Servicer to disclose to the Successor Servicer ------------- information of any kind that the Servicer deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer deems reasonably necessary to protect its interests. The Servicer being terminated (or replaced in part) shall bear all out-of-pocket costs of the appointment of a Successor Servicer hereunder, including but not limited to those of the Indenture Trustee reasonably allocable to specific employees and overhead, legal fees and expenses, accounting and financial consulting fees and expenses, and costs of amending the Transaction Documents, if necessary. Section 8.02 Performance by Indenture Trustee. If (i) the ----------------------------------- Seller, the Transferor or the Servicer fails to perform any of its agreements or obligations under any Transaction Document to which it is a party and does not remedy such failure within the applicable cure period, if any, and (ii) the Indenture Trustee in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect the interests of the holders of the Notes issued by the Indenture Trustee under the Indenture, then the Indenture Trustee or its designee may, but shall have no obligation to, perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Indenture Trustee or its designee incurred in connection therewith shall be payable by the Servicer as provided in Section ------- 6.04 (if the Servicer has failed to perform its obligations) or by the Seller as ---- provided in Section 5.02 (if the Seller or the Transferor has failed to perform ------------ its obligations). If the Seller, the Transferor or the Servicer fails to file at any time any financing statement or continuation statement or amendment thereto or assignment thereof that it is required to file pursuant to this Agreement or any of the other Transaction Documents to which it is a party, the Indenture Trustee or its assigns shall have the right to file, and each of the Seller, the Transferor and the Servicer hereby authorize the Indenture Trustee or its assigns to file, at the expense of the Seller, such financing or continuation statements and amendments thereto and assignments thereof with respect to all or any of the Receivables or the other Purchased Assets now existing or hereafter arising. Section 8.03 Appointment of Successor Servicer. --------------------------------- (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 8.01, the Servicer shall continue to perform all ------------- servicing functions under this Agreement until the date specified in the Termination Notice or otherwise specified by the Indenture Trustee or until a Successor Servicer has accepted its appointment hereunder as described below. The Issuer shall select, as promptly as possible after the giving of a Termination Notice, and the Indenture Trustee shall appoint, an Eligible Servicer as a successor servicer (the "Successor Servicer"), and such Successor ------------------ Servicer shall accept its appointment by a written assumption in a form acceptable to the Issuer. If a Successor Servicer has not been appointed or has not accepted its appointment at the time specified in a Termination Notice for the Servicer's resignation, the Indenture Trustee without further action automatically shall be appointed the Successor Servicer. Notwithstanding the foregoing, if, at any time following the Indenture Trustee's receipt of the Servicer's resignation as servicer, the Indenture Trustee is unwilling or legally unable to act as servicer, it may petition a court of competent jurisdiction to appoint any Eligible Servicer as the Successor Servicer; provided, however that in the event that notwithstanding such petition, such court has not appointed any Eligible Servicer as Successor Servicer as of the date when the Servicer's resignation as servicer becomes effective, the 50 Indenture Trustee shall act as Successor Servicer for so long as it is legally able to do so or until such court appoints an Eligible Servicer as Successor Servicer. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. Notwithstanding the foregoing, or anything in this Section 8.03 to the contrary, the Successor Servicer shall have ------------ no responsibility or obligation (i) for any representation or warranty of the predecessor Servicer or any other Successor Servicer hereunder or (ii) for any act or omission of either a predecessor or any other Successor Servicer. The Indenture Trustee may conduct any activity required of it as Servicer hereunder through an Affiliate or through an agent. Neither the Indenture Trustee nor any other Successor Servicer shall be deemed to be in default hereunder due to any act or omission of a predecessor Servicer, including but not limited to failure to timely deliver to the Indenture Trustee any instructions pursuant to Section ------- 4.03, any funds required to be deposited with or transferred to the Indenture ---- Trustee, or any breach of its duty to cooperate with a Service Transfer. (c) All authority and power granted to the Servicer under this Agreement shall automatically cease and terminate upon termination of this Agreement pursuant to Section 9.01, and shall pass to and be vested in the ------------- Issuer, and the Issuer is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Seller and the Issuer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing of the Receivables and the other Purchased Assets. The Servicer shall transfer its electronic records relating to the Receivables and the other Purchased Assets to the Issuer and the Seller or their respective designees in such electronic form as they may reasonably request and shall transfer all other records, correspondence and documents to the Issuer or the Seller, as applicable, in the manner and at such times as it shall reasonably request. (d) Power of Attorney. Each of the Seller and the Transferor ----------------- hereby irrevocably appoints the Issuer to act as its attorney-in-fact, with full authority in the place and stead of the Transferor and in its name or otherwise, from time to time after the occurrence and during the continuance of an Unmatured Servicer Default or a Servicer Default or other termination of the Servicer under Section 8.01 or a Purchase Termination Event, to take at the ------------ direction of the Issuer any action and to execute any instrument or document that the Issuer may deem necessary to accomplish the purposes of this Agreement including without limitation: (i) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Receivable or any other Purchased Asset; (ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (i) above; 51 (iii) to file any claims or take any action or institute any proceedings that the Issuer in its reasonable determination deems necessary or appropriate for the collection of any of the Receivables or any other Purchased Asset or otherwise to enforce the rights of the Issuer and the holders of the Notes issued by the Issuer under the Indenture with respect to any of the Receivables or any other Purchased Asset; (iv) to perform affirmative obligations of the Seller or the Transferor under any Transaction Document; and (v) to enforce the rights and remedies of the Seller or the Transferor under any Transaction Document. Each of the Seller and the Transferor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section 8.03(d) is --------------- irrevocable and coupled with an interest. Each of the Seller and the Transferor further acknowledges that the Issuer has, pursuant to the Indenture, assigned to the Indenture Trustee all of the above-referenced powers and that the Indenture Trustee shall, except as otherwise provided in the Indenture, be entitled to exercise the powers herein granted to the Issuer. Section 8.04 Notification to Holders. Within 5 Business Days ----------------------- after the Servicer becomes aware of any Servicer Default, the Servicer shall give notice thereof to the Issuer and the Indenture Trustee. Upon any termination or appointment of a Successor Servicer pursuant to this Article IX, ---------- the Indenture Trustee shall give prompt notice thereof to the holders of the Notes, the Seller and the Issuer. ARTICLE IX TERMINATION Section 9.01 Termination. This Agreement and the respective ----------- obligations and responsibilities of the Transferor, the Seller, Servicer, the Issuer and the Indenture Trustee created hereby shall terminate on the Final Payout Date, except with respect to the duties described in Section 5.02, ------------- Section 6.04, Section 10.06 and the last two sentences of Section 3.03, all of ------------ ------------- ------------ which shall survive such termination, and except with respect to such other obligations of the Transferor which terminate earlier in accordance with Section ------- 2.21. ---- ARTICLE X MISCELLANEOUS PROVISIONS Section 10.01 Amendment. --------- (a) The provisions of this Agreement may be amended, modified or waived from time to time by the parties hereto, by a written instrument signed by each of them. Notwithstanding the preceding sentence, this Agreement shall be amended by the parties hereto at the direction of the Seller without the consent of any of the holders of the Notes issued by the 52 Issuer under the Indenture to add, modify or eliminate such provisions as may be necessary or advisable in order (i) to enable all or a portion of the Purchased Assets to qualify as, and to permit an election to be made to cause the Issuer to be treated as, a "financial asset securitization investment trust" as described in the provisions of Section 860L of the Code, and (ii) to avoid the imposition of state or local income or franchise taxes imposed on the Issuer's property or its income, provided that (i) the Seller delivers to the Issuer an -------- Officer's Certificate to the effect that the proposed amendments meet the requirements set forth in this Section 10.01(a) and (ii) such amendment does not ---------------- affect the rights, duties or obligations of the Issuer hereunder. (b) Notwithstanding the foregoing clause (a), no amendment to --------- this Agreement shall be effective unless the Issuer shall have first received written confirmation from each Rating Agency then rating any outstanding Series of Notes that such amendment will not result in a downgrade of such Rating Agency's then current rating of any Series of Notes. In addition to the foregoing, promptly after the execution of any such amendment or consent, the Issuer shall furnish notification of the substance of such amendment or consent to the Indenture Trustee. Section 10.02 Governing Law. THIS AGREEMENT SHALL BE GOVERNED ------------- BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING ss. 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO ITS CONFLICT OF LAW PRINCIPLES. Section 10.03 Notices; Payments. All demands, notices, ------------------- instructions, directions and communications under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered at, mailed by certified mail, return receipt requested, or sent by facsimile transmission (i) in the case of the Originator, to the address provided in the Receivables Purchase and Sale Agreement, (ii) in the case of the Seller, to the address provided in the Receivables Sale Agreement, (iii) in the case of the Transferor, 1155 Battery Street, San Francisco, California 94111, Attention: Treasurer, Telecopy: (415) 501-1342, (iv) in the case of the Seller or the Servicer, 3125 Chad Drive, Eugene, Oregon 97408, Attention: Director, Telecopy: (541) 242-7577, (v) in the case of the Issuer, 3125 Chad Drive, Eugene Oregon 97408, Attention: Manager, Telecopy: (541) 242-7577 and (vi) in the case of the Indenture Trustee, the Corporate Trust Office, or, as to each party, at such other address or facsimile number as shall be designated by such party in a written notice to each other party. Section 10.04 Severability of Provisions. If any one or more -------------------------- of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such provisions shall be deemed severable from the remaining provisions of this Agreement and shall in no way affect the validity or enforceability of the remaining provisions or of the rights of the parties to the Transaction Documents. Section 10.05 Further Assurances. The parties hereto 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 Issuer or any other party hereto more fully to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements 53 relating to the Receivables and the other Purchased Assets for filing under the provisions of the UCC or other applicable law of any applicable jurisdiction. Section 10.06 Nonpetition Covenant. (a) Notwithstanding any --------------------- prior termination of this Agreement, the Originator, the Indenture Trustee, the Servicer, the Seller, the Transferor and any assignee of the Issuer shall not, prior to the date that is one year and one day after the termination of this Agreement with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Issuer. (b) Notwithstanding any prior termination of this Agreement, the Originator, the Servicer, the Indenture Trustee, the Issuer and any assignee of the Issuer shall not, prior to the date that is one year and one day after the termination of this Agreement with respect to the Transferor, acquiesce, petition or otherwise invoke or cause the Transferor to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Transferor under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Transferor or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Transferor. Section 10.07 No Waiver; Cumulative Remedies. No failure to -------------------------------- exercise, and no delay in exercising, any right, remedy, power or privilege on the part of any party under this Agreement or any third party beneficiary of this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement, preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided under this Agreement are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 10.08 Counterparts. This Agreement may be executed in ------------ two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 10.09 Third-Party Beneficiaries. This Agreement will ------------------------- inure to the benefit of and be binding upon the parties hereto, the holders of the Notes and their respective successors and permitted assigns and each such Person may rely on the Seller's and the Transferor's representations and warranties made herein as if made directly to them. Except as otherwise expressly provided in this Agreement, no other Person will have any right or obligation hereunder. Section 10.10 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. 54 This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 10.11 Headings. The headings herein are for purposes -------- of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 10.12 Costs, Expenses and Taxes. In addition to the ------------------------- obligations of the Seller under Article V, the Seller agrees to pay on demand: --------- (a) all reasonable costs and expenses incurred by the Issuer and its assignees in connection with the negotiation, preparation, execution and delivery of, the administration (including periodic auditing), the preservation of any rights under, or the enforcement of, or any breach of, this Agreement (including any amendment, supplement or modification hereto), including without limitation (i) the reasonable fees, expenses and disbursements of counsel to any such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under this Agreement and (ii) all reasonable out-of-pocket expenses (including reasonable fees and expenses of independent accountants) incurred in connection with any review of the Seller's and the Transferor's books and records prior to the execution and delivery hereof; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or any amendment, supplement or modification thereto, and agrees to indemnify each Indemnified Party against any liabilities with respect to, or resulting from, any delay in paying or omission to pay such taxes and fees. Section 10.13 Submission to Jurisdiction. EACH PARTY HERETO -------------------------- HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT; (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; AND (C) IRREVOCABLY APPOINTS CORPORATION SERVICE COMPANY (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, ------------- NEW YORK 12207-2543, UNITED STATES OF AMERICA, AS ITS AGENT TO RECEIVE ON BEHALF OF IT SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS THAT MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND EACH PARTY HERETO HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. EACH PARTY HERETO AGREES TO ENTER INTO ANY AGREEMENT RELATING TO SUCH APPOINTMENT THAT THE PROCESS AGENT MAY CUSTOMARILY REQUIRE AND 55 TO PAY THE PROCESS AGENT'S CUSTOMARY FEES UPON DEMAND. AS AN ALTERNATIVE METHOD OF SERVICE, EACH PARTY HERETO ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PARTY AT ITS ADDRESS SPECIFIED PURSUANT TO SECTION 10.03. ------------- NOTHING IN THIS SECTION 10.13 SHALL AFFECT THE RIGHT OF EITHER PARTY HERETO TO -------------- SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF EITHER PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST THE OTHER PARTY HERETO OR ANY OF ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION. Section 10.14 Waiver of Jury Trial. EACH PARTY HERETO WAIVES -------------------- ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF EITHER OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Section 10.15 Acknowledgment and Consent. -------------------------- (a) Each of the Seller and the Transferor acknowledges that, the Issuer has pledged all of its right, title and interest in the Purchased Assets to the Indenture Trustee pursuant to the Indenture. Each of the Seller and the Transferor acknowledges and agrees to such pledge by the Issuer and consents to the assignment by the Issuer of all or any portion of its right, title and interest in, to and under the Purchased Assets, this Agreement and the other Transaction Documents and all of the Issuer's rights, remedies, powers and privileges and all claims of the Issuer against the Seller or the Transferor under or with respect to this Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Agreement or otherwise available at law or in equity), including without limitation (whether or not any of an Unmatured Servicer Default, a Servicer Default, or a Purchase Termination Event has occurred and is continuing) (i) the right of the Issuer at any time to enforce this Agreement against the Seller or the Transferor and the obligations of the Seller and the Transferor hereunder and (ii) the right at any time to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement, any other Transaction Document or the obligations in respect of the Seller or the Transferor thereunder, all of which rights, remedies, powers, privileges and claims may be exercised and/or enforced by the Issuer's successors and assigns to the same extent as the Issuer may do. (b) Each of the Seller and the Transferor hereby agrees to execute all agreements, instruments and documents and to take all other actions that the Issuer or its assignees determines are necessary or appropriate to evidence its consent described in Section 10.15(a). Each of the Seller and the ---------------- Transferor hereby acknowledges and agrees that the Issuer may assign to the Issuer's successors and assigns such powers of attorney and other rights and 56 interests granted by the Seller or the Transferor to the Issuer hereunder and agrees to cooperate fully with the Issuer and the Indenture Trustee in the exercise of such rights. Section 10.16 No Partnership or Joint Venture. Nothing -------------------------------------- contained in this Agreement shall be deemed or construed by the parties hereto or by any third Person to create the relationship of principal and agent or of partnership or of joint venture. Section 10.17 Binding Effect; Assignability; Survival of ------------------------------------------------ Provisions. ---------- (a) This Agreement shall be binding upon, and inure to the benefit of, the Issuer, the Seller, the Transferor, the Servicer and their respective successors and assigns. Each of the Seller, the Transferor and the Servicer further (i) acknowledges that as of the date hereof the Issuer has pledged to the Indenture Trustee all of its right, title and interest in this Agreement and in the Purchased Assets purchased hereunder to the Indenture Trustee and (ii) agrees that the Indenture Trustee, as assignee of the Issuer, shall have the right to enforce the terms and provisions hereof (including, without limitation, the right, at any time, to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement or the obligations in respect of the Seller, the Transferor or the Servicer hereunder to the same extent as the Issuer may do) directly against each such Person to the same extent as if the Indenture Trustee were a party hereto, but agrees that the Indenture Trustee and its Affiliates will have no obligation to perform any of the obligations of the Issuer hereunder. Each of the Seller, the Transferor and the Servicer also agrees that upon its receipt of a notice of assignment by the Issuer or an assignee of the Issuer, each of the Seller, Transferor and the Servicer shall send the assignee identified in such notice a copy of all notices required or desired to be given by such party to the Issuer hereunder. (b) Except as otherwise expressly permitted in this Agreement and except for the grants of collateral contemplated under the Credit Agreement, neither the Seller, the Issuer or nor the Servicer may assign any of its rights hereunder or any interest herein without the prior written consent of the Issuer and its assignees. (c) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated pursuant hereto. Such termination shall not occur prior to the Final Payout Date. (d) The rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Section 2.16 and the ------------ indemnification and payment provisions of Section 5.02, 6.04 and 10.12 and the ------------------ ----- provisions of Section 10.06, Section 10.18 and Section 10.19 shall be continuing ---------------------------- ------------- and shall survive any termination of this Agreement. Section 10.18 Recourse to the Seller or Transferor. Except -------------------------------------- to the extent expressly provided otherwise in the Transaction Documents, the obligations of the Seller and the Transferor under the Transaction Documents to which it is a party are solely the corporate or limited liability company obligations of such party, and no recourse shall be had for payment of any fee payable by or other obligation of or claim against such party that arises out of any Transaction Document against any director, officer or employee of such party. The provisions of this Section 10.18 shall survive the termination of ------------- this Agreement. 57 Section 10.19 Limited Recourse to the Issuer. ------------------------------ (a) Except to the extent expressly provided otherwise in the Transaction Documents, the obligations of the Issuer under the Transaction Documents to which it is a party are solely the obligations of the Issuer, and no recourse shall be had for payment of any fee payable by or other obligation of or claim against the Issuer that arises out of any Transaction Document to which the Issuer is a party against any director, officer or employee of the Issuer. (b) Notwithstanding anything herein to the contrary, the obligations of the Issuer under the Transaction Documents to which it is a party are limited recourse obligations of the Issuer and shall be payable solely out of the Purchased Assets at such time as, and to the extent of funds actually received by, or available to, the Issuer and, to the extent funds are not available to pay such obligations, the claims relating thereto shall accrue but shall be non-recourse against the Issuer and shall not constitute claims under Section 101 of the Bankruptcy Code. (c) The provisions of this Section 10.19 shall survive the ------------- termination of this Agreement. 58 IN WITNESS WHEREOF, the Issuer, the Seller, the Transferor, the Servicer and the Indenture Trustee have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS FUNDING, LLC, as Transferor By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS FINANCIAL CENTER CORPORATION, as Seller and as Servicer By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS SECURITIZATION CORP., as SPC Member By: _________________________________ Name: Joseph M. Maurer Title: Treasurer SCHEDULE 2.16(m) to RECEIVABLES PURCHASE AGREEMENT Dated as of July 31, 2001 List of Offices 1155 Battery Street San Francisco, California 94111 3125 Chad Drive Eugene, Oregon 97408 SCHEDULE 2.16(o) to RECEIVABLES PURCHASE AGREEMENT Dated as of July 31, 2001 List of Lockbox Banks ------------------------------- -------------------------------------- ------------------------- 1850 Gateway Blvd. 1233618321 Bank of America NA Concord, CA 94520 ------------------------------- -------------------------------------- ------------------------- Bank of America NA 231 South LaSalle Street 81880-11375 14th Floor Chicago, IL 60697 ------------------------------- -------------------------------------- ------------------------- Bank of America NA 901 Main Street 3750250246 TX1-492-10-01 Dallas, TX 75202-2911 -------------------------------- -------------------------------------- ------------------------ Bank One Bank One Plaza 5707560 (f/k/a The First National Chicago, IL 60670 Bank of Chicago) -------------------------------- -------------------------------------- ------------------------
SCHEDULE 2.16(q) to RECEIVABLES PURCHASE AGREEMENT Dated as of July 31, 2001 List of Legal Names Levi Strauss Financial Center Corporation (f/k/a Levi Strauss Credit Corp.) EX-10 6 a10qex105.txt EXHIBIT 10.5 PARENT UNDERTAKING EXHIBIT 10.5 EXECUTION COPY PARENT UNDERTAKING PARENT UNDERTAKING (this "Agreement"), dated as of July 31, --------- 2001, made by Levi Strauss & Co., a Delaware corporation (the "Parent"), in ------ favor of Levi Strauss Receivables Funding, LLC (the "Issuer"). ------ PRELIMINARY STATEMENTS 1. The Parent is (a) the direct owner of all of the issued and outstanding shares of common stock of Levi Strauss Financial Center Corporation, a California corporation (the "Seller") and (b) the indirect owner of all of the issued and outstanding membership interests of Levi Strauss Funding LLC, a Delaware limited liability company (the "Transferor"). ---------- 2. The Parent and the Seller have entered into that certain Third Amended and Fully Restated Receivables Purchase and Sale Agreement dated as of January 28, 2000 (as amended, restated, supplemented or otherwise modified from time to time, the "Receivables Purchase and Sale Agreement") pursuant to ---------------------------------------- which the Parent transfers certain accounts receivable and related assets to the Seller. The Parent, the Seller, Levi Strauss Funding Corp., a Delaware corporation ("Funding") and the Transferor have entered into that certain ------- Receivables Purchase and Sale Agreement dated as of January 28, 2000 (as amended, restated, supplemented or otherwise modified from time to time, the "Receivables Sale Agreement") pursuant to which the Parent, the Seller and -------------------------- Funding transfer certain accounts receivable and related assets to the Transferor. The Parent, Seller, Funding and Transferor have entered into that certain Master Amendment and Consent to the Receivables Purchase and Sale Agreement and the Receivables Sale Agreement dated as of July 31, 2001 (as amended, restated, supplemented or otherwise modified from time to time, the "Master Amendment") to consent to the Transferor's assignment of certain ---------------- accounts receivable and related assets to the Issuer and make conforming changes to such agreements. The Issuer, the Transferor and Levi Strauss Financial Center Corporation, in its dual capacities as the Seller and as servicer (the "Servicer") have entered into that certain Receivables Purchase Agreement dated -------- as of July 31, 2001 (as amended, restated, supplemented or otherwise modified from time to time, the "Receivables Purchase Agreement") pursuant to which the ------------------------------ Seller and the Transferor will transfer certain accounts receivable and related assets to the Issuer and the Servicer will agree to service such assets. Collectively, the Receivables Purchase and Sale Agreement and the Receivables Sale Agreement, as amended by the Master Amendment, are referred to as the "Parent Transfer Agreements". Collectively, the Parent Transfer Agreements and -------------------------- the Receivables Purchase Agreement are referred to as the "Transfer Agreements". ------------------- 3. Capitalized terms used herein and not herein defined are used herein as defined in the Receivables Purchase Agreement and, if not defined therein, in that certain Master Indenture dated as of July 31, 2001 (the "Master ------ Indenture") among the Issuer and Citibank, N.A., as the indenture trustee (the --------- "Indenture Trustee") and "Paying Agent," "Authentication Agent" and "Transfer ------------------ Agent and Registrar." 4. It is a condition precedent to the effectiveness of the Receivables Purchase Agreement that the Parent shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises, and the substantial direct and indirect benefits to the Parent from the financing arrangements contemplated by the Transaction Documents and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parent hereby agrees as follows: SECTION 1. Unconditional Undertaking. The Parent hereby --------------------------- unconditionally and irrevocably (a) undertakes and agrees with and for the benefit of the Issuer and its successors and assigns (collectively the "Indemnified Parties"), to cause the due and punctual performance and observance ------------------- by each of the Transferor, the Seller (in both its individual capacity and in its separate capacity as Servicer) and any of the Seller's successors and assigns acting as Servicer (each such person, an "Applicable Party") of all of ----------------- the terms, covenants, conditions, agreements and undertakings on the part of any such Applicable Party, as applicable, to be performed or observed under any of the Transfer Agreements and the other Transaction Documents and the other documents delivered in connection therewith in accordance with the terms thereof, including, without limitation, the punctual payment when due of all obligations of each such Applicable Party now or hereafter existing under any of the Transfer Agreements and the Transaction Documents and the other documents delivered in connection therewith, including (without limitation) any Adjustments, deemed Collections, interest, obligations to pay Indemnified Losses, fees, costs, expenses or otherwise (such terms, covenants, conditions, agreements, undertakings and other obligations being the "Obligations") and (b) ----------- undertakes and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Indemnified Parties, or any of them, in enforcing any rights under this Agreement. In the event that any Applicable Party shall fail in any manner whatsoever to perform or observe any of its Obligations when the same shall be required to be performed or observed, then the Parent shall itself duly and punctually perform or observe, or cause to be duly and punctually performed and observed, such Obligation, and it shall not be a condition to the accrual of the obligation of the Parent hereunder to perform or observe any Obligation (or to cause the same to be performed or observed) that any Indemnified Party shall have first made any request of or demand upon or given any notice to any Applicable Party, or have instituted any action or proceeding against any such Applicable Party or its successors or assigns in respect thereof. For purposes of clarity only, the Obligations which the Parent undertakes and agrees to cause the performance of hereunder are solely those Obligations of the Applicable Parties under the Transfer Agreements and the Transaction Documents and nothing herein shall impose on the Parent any obligation under clause (a) of this Section 1 in excess of or greater in scope than such Obligations of the Applicable Parties SECTION 2. Obligations Absolute. The Parent undertakes and -------------------- agrees that the Obligations will be paid and performed strictly in accordance with the terms of the Transaction Documents and each other document delivered in connection therewith, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Indemnified Party with respect thereto. The obligations of the Parent under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Parent to enforce this Agreement, irrespective of whether any action is brought against any Applicable Party or whether any such Person is joined in any such action 2 or actions. The liability of the Parent under this Agreement shall be irrevocable, absolute and unconditional irrespective of, and the Parent hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any or all of the following: (i) any lack of validity or enforceability of any Transaction Document or any other document relating thereof; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations under the Transaction Documents or any other document relating thereto, or any other amendment or waiver of or any consent to departure from any Transaction Document or any other document relating thereto; (iii) any taking, exchange, release or nonperfection of or failure to transfer title to any asset or collateral, or any taking, release, amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of any asset or collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any asset or collateral for all or any of the Obligations or any other obligations of any Applicable Party under the Transaction Documents or any other document relating thereto; (v) any change, restructuring or termination of the corporate structure or existence of the Parent, or any Applicable Party; (vi) any failure of any Indemnified Party to disclose to the Parent any information relating to the financial condition, operations, properties or prospects of any Applicable Party now or in the future known to such Indemnified Party (the Parent hereby waiving any duty on the part of such Indemnified Party to disclose such information); (vii) any impossibility or impracticality of performance, illegality, force majeure, any act of any government, or any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by an Indemnified Party that might constitute a defense available to, or a discharge of, any Applicable Party or a guarantor of the Obligations; or (viii) any other circumstance, event or happening whatsoever, whether foreseen or unforeseen and whether similar or dissimilar to anything referred to above in this Section 2; --------- provided, however, notwithstanding the foregoing, the Parent reserves the right to assert defenses which the Transferor, the Seller or any other Applicable Party may have to the performance or observance of the terms, covenants, conditions, agreements and undertakings under the Transfer Agreements and the other Transaction Documents. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time (x) any payment in connection with any of the Obligations is rescinded or must otherwise be returned by any Indemnified Party, or (y) any performance or observance of any Obligation is rescinded or otherwise invalidated, upon the insolvency, bankruptcy or reorganization of any 3 Applicable Party, all as though payment had not been made or as though such Obligation had not been performed or observed. SECTION 3. Waivers and Acknowledgments. --------------------------- (a) The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any other document related thereto, and any requirement that any Indemnified Party protest, secure, perfect or insure any lien or any property subject thereto or exhaust any right or take any action against any Applicable Party or any other Person or any asset or collateral. (b) The Parent hereby waives any right to revoke this Agreement, and acknowledges that this Agreement is continuing in nature and applies to all Obligations, whether existing now or in the future. SECTION 4. Subrogation. The Parent shall not exercise or ----------- assert any rights that it may now have or hereafter acquire against any Applicable Party that arise from the existence, payment, performance or enforcement of the Parent's obligations under this Agreement or any other Transaction Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Indemnified Party against any Applicable Party or any asset or collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Applicable Party, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim, remedy or right, unless and until all amounts in connection with the Obligations and all amounts payable under this Agreement shall have been paid in full and all other amounts payable by each Applicable Party to the Indemnified Parties under the Transaction Documents shall have been paid in full. If any amount shall be paid to the Parent in violation of the preceding sentence at any time prior to the later of (i) the payment in full of the Obligations and all other amounts payable under this Agreement and all amounts payable to the Indemnified Parties under the Transaction Documents and (ii) the Final Payout Date, such amount shall be held in trust for the benefit of the Indemnified Parties and shall forthwith be paid to the Issuer or its successors and assigns to be credited and applied to the Obligations, whether matured or unmatured, in accordance with the terms of the Transaction Documents or to be held by the Issuer or its successors and assigns as collateral security for any Obligations payable under this Agreement thereafter arising. Nothing in this Section 4 shall be construed as affecting or --------- prohibiting any intercompany transactions between the Parent and any Applicable Party, such as the incurrence of debt by any Applicable Party to the Parent for the purchase of goods on credit, the repayment of any intercompany loan or the performance of the transactions contemplated by the Receivables Purchase and Sale Agreement or the Receivables Sale Agreement, unless and until the Purchase Termination Date shall have occurred. SECTION 5. Representations and Warranties. The Parent hereby ------------------------------ represents and warrants as follows: (a) The Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority to conduct its 4 business as such business is currently conducted. The Parent had all relevant times, and now has, all necessary power, authority and legal right to enter into the transactions contemplated by the Transfer Agreements. All of the issued and outstanding shares of common stock of the Seller and all of the issued and outstanding membership interests of the Transferor, are owned, directly or indirectly, by the Parent, free and clear of any Lien except for Liens granted to secure the Indebtedness under the Credit Agreement. (b) The Parent is duly qualified to do business, is in good standing as a foreign corporation, and has obtained all necessary licenses and approvals in all jurisdiction in which the conduct of its business requires such qualification, licenses or approvals and in which the failure to so qualify or to obtain such licenses and approvals or to preserve and maintain such qualification, licenses or approvals could reasonably be expected to give rise to a Material Adverse Effect. (c) The execution, delivery and performance by the Parent of this Agreement and the Parent Transfer Agreements, the transactions contemplated hereby and thereby, are within the Parent's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Parent's Certificate of Incorporation or other constitutive documents, (ii) any law applicable to the Parent or any of its Affiliates, (iii) any contractual restriction binding on or affecting the Parent or the Parent's properties or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Parent or the Parent's properties, and do not result in or require the creation of any Lien (other than pursuant hereto and to the Transaction Documents) upon or with respect to any of the Parent's properties except to the extent that any of the foregoing would not have a Material Adverse Effect on any Transaction Party. This Agreement and each of the Parent Transfer Agreements has been duly executed and delivered by the Parent. (d) No authorization or approval (including, without limitation, any exchange control agreement) or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery and performance by the Parent of this Agreement or any Parent Transfer Agreement. (e) Each of this Agreement and the Parent Transfer Agreements are the legal, valid and binding obligation of the Parent, enforceable against the Parent in accordance with its terms. (f) The consolidated balance sheet of the Parent and its subsidiaries as of May 27, 2001, and the related consolidated statement of income and cash flows of the Parent and its subsidiaries for the fiscal quarter then ended, fairly present the consolidated financial condition of the Parent and its subsidiaries as at such date and the consolidated results of the operations of the Parent and its subsidiaries for the period ended on such date, all in accordance with GAAP, and, as of the date hereof, since the fiscal quarter ended May 27, 2001, there has been no material adverse change in such condition or operations, except as disclosed in writing prior to the date hereto to the Issuer and its successors and assigns. (g) There is no pending or threatened action, suit or proceeding affecting the Parent or any of its subsidiaries, or its property or the property of any of its subsidiaries, before 5 any court, governmental agency or arbitrator that materially adversely affect the ability of the Parent to perform its obligations under this Agreement or any Parent Transfer Agreement, or that purports to affect the legality, validity or enforceability of this Agreement or any Parent Transfer Agreement. (h) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (i) The obligations of the Parent under this Agreement do rank and will rank at least pari passu in priority of payment and in all other respects with all other unsecured Indebtedness of the Parent. (j) There is no federal, state or local tax, levy, impost, deduction, charge or withholding incurred by virtue of the execution or delivery of this Agreement or the Parent Transfer Agreements. (k) The purchase price paid by the Seller under the Receivables Purchase and Sale Agreement and the purchase price paid by the Transferor under the Receivables Sale Agreement each constitutes reasonably equivalent value in consideration for the transfer thereunder to the Seller or the Transferor, as applicable of the Receivables and Related Security transferred thereunder and no such transfer has been made and shall not hereafter have been made for or on account of an antecedent Indebtedness owed by the Parent to either the Seller or the Transferor and no such transfer is or may be voidable under any section of the Bankruptcy Code. (l) As of the date hereof, the Parent (i) is not "insolvent" (as such term is defined in ss.101(32)(A) of the Bankruptcy Code), (ii) is Solvent (it being understood that, notwithstanding the foregoing representations in this clause (l), the Parent's financial statements described under clause (f) --------- --------- above disclose a negative net worth and no representation is made herein that Parent has a positive net worth in accordance with GAAP). For purposes of this paragraph, "Solvent" shall mean, with respect to the Parent on the date of determination, that on such date (A) the fair value of the property of the Parent is greater than the total amount of liabilities, including without limitation, contingent liabilities of the Parent, (b) the present, fair, salable value of the assets of the Parent is not less than the amount that will be required to pay the probable liability of the Parent in its debts as they become absolute and matured, (c) the Parent does not intend to, and does not believe that it will, incur debts or liabilities beyond the Parent's ability to pay such debts and liabilities as they mature, and (d) the Parent is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which its property would constitute unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at that time, represents the amount that can reasonably be expected to become as actual or matured liability. (m) (i) Except as would not have a Material Adverse Effect on the Parent, each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the 6 IRS and to the best knowledge of the Parent, nothing has occurred which would cause the loss of such qualification. The Parent and each ERISA Affiliate have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (ii) There are no pending or, to the best knowledge of the Parent, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably result in a Material Adverse Effect on the Parent. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect on the Parent. (iii) (A) No ERISA Event that requires notice to be given to the PBGC has occurred or is reasonably expected to occur; (B) no Plan has a Funded Current Liability Percentage of less than 90% as of the most recent valuation date; (C) neither the Parent nor any ERISA Affiliate has incurred or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); and (D) neither the Parent nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan. (n) The Parent is neither (i) an "investment company" within the meaning of the Investment Company Act of 1940, as amended from time to time, or any successor statute, nor (ii) a "holding company," or a "subsidiary company" or an "affiliate" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended from time to time, or any successor statute. (o) No proceeds of any purchase under the Receivables Purchase and Sale Agreements will be used by the Parent to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (p) None of the Parent's inventory, the sale of which would give rise to a Receivable, is subject to any Lien other than (i) Permitted Liens and (ii) the Lien of Bank of America, N.A., as administrative agent under the Credit Agreement, to the extent set forth in that certain Consent and Release Agreement dated as of July 31, 2001 between the Transferor, the Seller, the Parent, the Issuer, the Indenture Trustee and Bank of America, N.A., as administrative agent. (q) The Parent has advised its independent certified public accountants that the Issuer, together with its successors and assigns, has been authorized to review and discuss with such accountants, upon the written request of the Issuer or its successors and assigns, as it may reasonably request to protect its interests under the Receivables Purchase Agreement, any and all financial statements and other information of any kind that such accountants may have which directly relate to the Receivables, Related Security and Collections with respect thereto, 7 and the Parent has directed such accountants to comply with any reasonable request of the Issuer and its successors and assigns for such information. It is expressly understood that, except for representations and warranties expressly made as of the date hereof, the foregoing representations and warranties shall be deemed re-made on each date that the Parent sells Receivables to the Seller under the Receivables Purchase and Sale Agreement. SECTION 6. Covenants. The Parent covenants and agrees that, --------- until the latest of (i) the Final Payout Date, (ii) the date on which no Obligations or other amounts shall be payable under this Agreement, and (iii) no amounts shall be payable to the Indemnified Parties under any Transaction Document, the Parent will, unless the Issuer and its successors and assigns shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects ------------------------- with all applicable laws, rules, regulations, judgments, decrees and orders (including, without limitation, those relating to the Receivables) with respect to it, its business and properties in each case to the extent that any such failure to comply, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Preservation of Corporate Existence. Other than as permitted ----------------------------------- pursuant to clause (f) below, (i) preserve and maintain its corporate existence, --------- rights, franchises and privileges in the jurisdiction of its incorporation, and (ii) qualify and remain qualified in good standing as a foreign corporation in each jurisdiction in which the failure to preserve and maintain such qualification as a foreign corporation could reasonably be expected to have a Material Adverse Effect. (c) Reporting Requirements. Furnish to the Issuer and its ---------------------- successors and assigns: (i) as soon as available, and in any event within ninety (90) days after the end of each fiscal year of the Parent, copies of the audited consolidated financial statements of the Parent and its Subsidiaries, certified in a manner reasonably acceptable to the Issuer and its successors and assigns by a nationally recognized independent public accounting firm acceptable to the Issuer and its successors and assigns (it being agreed that any such audited financial statements, if accompanied by the Parent's annual audit report and otherwise in compliance with Section 5.03(b) of the Credit Agreement, shall be -------------- deemed to be reasonably acceptable hereunder), and (B) within forty- five (45) days after the end of the first, second and third quarterly accounting periods in each fiscal year of the Parent, copies of the unaudited consolidated financial statements of the Parent and its Subsidiaries, including an unaudited consolidated balance sheet of the Parent and its Subsidiaries as of the end of such quarterly accounting period, all in reasonable detail; provided, however, that at any time -------- ------- that the financial statements described in this Section 6(c)(i) are --------------- otherwise available to the Issuer and its successors and assigns, the Parent shall have no obligation to provide such financial statements to the Issuer and its successors and assigns pursuant to this Agreement; 8 (ii) as soon as possible and in any event within two (2) Business Days after the Parent has Actual Knowledge of the occurrence of each Purchase Termination Event, Unmatured Purchase Termination Event, Servicer Default, Unmatured Servicer Default, Amortization Event, Unmatured Amortization Event, Event of Default or event that with the passage of time or the giving of notice, or both, would become an Event of Default, a statement of the treasurer (or equivalent officer) of the Parent setting forth details of such event and the action that the Parent has taken and proposes to take with respect thereto; (iii) promptly upon the Parent's first having Actual Knowledge of the occurrence thereof, notice of any of the following events affecting the Parent or any ERISA Affiliate (but in no event more than 10 Business Days after such event), and the Parent shall also furnish to the Issuer and its successors and assigns a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Parent or any ERISA Affiliate with respect to such event: (A) an ERISA Event; (B) a decrease in the Funded Current Liability Percentage for any Plan at the end of any fiscal quarter to less than 90%; or (C) any occurrence that is required to be disclosed by the Parent to the lenders under Section 4.01(n) of the Credit -------------- Agreement; and (iv) such other information, documents, records, or reports respecting the condition or operations, financial or otherwise, of the Parent or any of its subsidiaries as the Issuer or its successors and assigns may from time to time reasonably request. (d) Affiliate Ownership. (i) Continue to own, directly or -------------------- indirectly, all of the issued and outstanding shares of the capital stock of the Seller and (ii) continue to own, directly or indirectly all of the issued and outstanding membership interests of the Transferor; provided, however, that -------- ------- notwithstanding any term to the contrary contained herein, the Parent and each of its Affiliates shall be entitled to pledge its shares and membership interests of the Seller and Transferor, respectively, in accordance with the terms of the Credit Agreement. (e) Separate Existence of the Issuer. The Parent hereby -------------------------------------- acknowledges that the Indenture Trustee and the Noteholders are entering into the transactions contemplated by the Transaction Documents in reliance upon the Issuer's identity as a legal entity that is separate from the Transferor, the Seller, the Parent and the other members of the Parent Affiliated Group. Therefore, from and after the date of execution and delivery of this Agreement, Parent will take all reasonable steps including, without limitation, all steps that Issuer or any assignee of Issuer may from time to time reasonably request to maintain Issuer's identity as a separate legal entity and to make it manifest to third-parties that Issuer is an entity with assets and liabilities distinct from those of Transferor, the Parent and any other members of the Parent Affiliated Group. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Parent (i) will not hold itself out to third-parties as liable for the debts of the Issuer nor purport to own the Receivables and other assets acquired by the Issuer, (ii) will take all other actions necessary on its part to ensure that Issuer is at all times in compliance with the covenants 9 set forth in Section 3.07 of the Indenture and Section 2.20 of the Receivables ------------ ------------ Purchase Agreement and (iii) will cause any and all tax liabilities arising in connection with the transactions contemplated herein or otherwise to be allocated between Parent or other members of the Parent Affiliated Group on the one hand and the Issuer on the other on an arm's-length basis in proportion to their respective items of income and deduction and other tax attributes based on the "separate return tax liability" method and the "immediate payment" method. In addition to the foregoing, the Parent will cause any financial statements Consolidated with those of the Issuer to state that the Issuer's business consists of the direct and indirect purchase of Receivables from the Parent and the Applicable Parties and that the Issuer is a separate corporate entity with its own separate creditors who, in any liquidation of the Parent or any Applicable Party, will be entitled to be satisfied out of the Issuer's assets prior to any value in any Applicable Party becoming available to the Issuer's equity holders. (f) Merger, Consolidation, Etc. Consolidate with or merge with -------------------------- or into any other Person or convey, transfer or sell all or substantially all of its properties and assets to any Person, unless: (i) the Parent is the surviving entity thereof or, if Parent is not the surviving entity thereof, (x) the Person formed by such consolidation or into which Parent is merged or the entity that acquires by conveyance, transfer or sale all or substantially all of the properties and assets of Parent (any such Person, the "Surviving --------- Entity") is an entity organized and existing under the laws of the ------ United States of America or any state thereof and (y) such Surviving Entity expressly assumes, by an agreement supplemental hereto in form and substance satisfactory to the Issuer and its assignees, performance of every covenant and obligation of Parent hereunder and under the other Transaction Documents to which Parent is a party and (z) such Surviving Entity delivers to the Issuer and its assignees an opinion of counsel that such Surviving Entity is duly organized and validly existing under the laws of its organization, has duly executed and delivered such supplemental agreement, and such supplemental agreement is a valid and binding obligation of such Surviving Entity, enforceable against such Surviving Entity in accordance with its terms (subject to customary exceptions relating to bankruptcy and equitable principles) and covering such other matters as the Issuer or its assignees may reasonably request; (ii) all actions necessary to maintain the perfection of the security interests or ownership interests of the Issuer in the Purchased Assets in connection with such consolidation, merger, conveyance or transfer as may be reasonably requested by the Issuer and its assignees have been taken, as evidenced by an opinion of counsel reasonably satisfactory to Issuer and its assignees; and (iii) no Purchase Termination Event, Unmatured Purchase Termination Event, Servicer Default, Unmatured Servicer Default, Amortization Event, Unmatured Amortization Event, Event of Default or event that with the passage of time or the giving of notice, or both, would become an Event of Default, would result from such merger, consolidation, conveyance or transfer. 10 (g) Separate Existence of the Transaction Parties. The Parent ---------------------------------------------- hereby acknowledges that the Indenture Trustee and the Noteholders are entering into the transactions contemplated by the Transaction Documents in reliance not only upon the Issuer's identity as a legal entity that is separate from the Transferor, the Seller, the Parent and the other members of the Parent Affiliated Group, but also on the understanding that the members of the Parent Affiliated Group associated with the Issuer will seek to maintain their separate existence from each other in order to ensure that the Purchased Assets sold by any Transaction Party are sold in a true sale such that the Issuer's right, title and interest in and to such Purchased Assets is free from the claim of any creditors of the Originator, the Seller and/or the Transferor, as described in that certain legal opinion (the "Bankruptcy Opinion") from Bingham, Dana LLP ------------------ dated July 31, 2001 with respect to certain bankruptcy issues. Parent hereby represents and warrants that, as of the date hereof, the factual assumptions set forth in the Bankruptcy Opinion are true and accurate in all material respects and further covenants that, from and after the date of execution and delivery of this Agreement, Parent will take all reasonable steps including, without limitation, all steps that Issuer or any assignee of Issuer may from time to time reasonably request, to operate, and to cause each of its Subsidiaries and Affiliates to operate, in a manner consistent with the assumptions set forth in the Bankruptcy Opinion. Without limiting the foregoing, Parent shall, so long as the Transaction Documents remain in effect, cause each of itself, the Seller, the Transferor, NF Industries, Inc, the SPC Member and the Issuer (each an "Entity"): (1) to continue to be, duly incorporated or formed, in legal ------ existence and in good standing under the laws of its state of incorporation or formation; (2) to observe all requisite corporate or limited liability company formalities and procedures, where relevant and applicable thereto, including the retention of minutes of meetings and other proceedings of its stockholder(s) and Board of Directors or members and Board of Managers, as the case may be; (3) to maintain separate and accurate accounts, books, records and financial statements; (4) not to commingle its bank accounts, money and other assets with that of another Entity or, where relevant, of any of its equity holders, except that the members of the Parent Affiliated Group may maintain concentration accounts and other accounts with financial institutions in respect of which they will maintain accurate records of all inter-company debits and credits and from which funds will be transferred to the separate bank accounts of the members of the Parent Affiliated Group as their needs require; (5) to act solely in its own name, through its own officials or representatives where relevant, and not hold itself as a "division" or "part" of another Entity; (6) to conduct its business and daily operations independently, free from the dictates of another Entity, except to the extent that any Entity, holding the equity of another Entity, acts solely in that capacity or in the capacity as a managing member of any Entity which is a limited liability company, sensitive to any fiduciary duties to the other Entity and, where and when relevant, its creditors; (7) to allocate fairly any overhead for shared office space or business facilities or equipment shared with another Entity; (8) not to make any loans, gifts or fraudulent conveyances to any other Entity, except that any Entity, unless otherwise prohibited by the Transaction Documents, may make loans to one another and may make capital contributions and/or declare dividends and/or returns of equity and which will be properly evidenced in their respective corporate or limited liability company records and which will otherwise comply with all necessary corporate or other organizational formalities regarding such contributions, dividends or other returns of equity and (9) so long as the Transaction Documents remain in effect (except, in the case of the Transferor, to the extent contemplated therein), cause or seek the dissolution or winding up, in whole or in part, of any other Entity. 11 (h) Limitation on Transactions with the Issuer. Enter into, or ------------------------------------------ be a party to any transaction with the Issuer, except for: (i) the transactions contemplated by this Agreement, the Transfer Agreements and the other Transaction Documents (including any intercompany notes contemplated thereunder); (ii) to the extent not otherwise prohibited under the Receivables Purchase Agreement, other transactions in the nature of employment contracts and directors' fees, upon fair and reasonable terms materially no less favorable to the Issuer than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate; and (iii) transactions between the Issuer and the Parent, which transactions consist of ordinary course of business transactions between a parent corporation and its Subsidiary. SECTION 7. Payments Free and Clear of Taxes, Etc. (a) Any and ------------------------------------- all payments made by the Parent hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Indemnified Party, taxes imposed on its income and franchise taxes imposed on it by the jurisdiction under the laws of which such Indemnified Party is organized (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Parent shall be required by law to deduct any ----- Taxes from or in respect of any sum payable hereunder to any Indemnified Party, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 7) such Indemnified Party receives an amount equal to --------- the sum it would have received had no such deductions been made, (ii) the Parent shall make such deductions and (iii) the Parent shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Parent agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). ----------- (c) Without prejudice to the survival of any other agreement of the Parent hereunder, the agreements and obligations of the Parent contained in this Section 7 shall survive any termination of the Receivables Purchase -------- Agreement. SECTION 8. Consent to Jurisdiction. THE PARENT HEREBY ------------------------ IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT; (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY 12 EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; AND (C) IRREVOCABLY APPOINTS CORPORATION SERVICE COMPANY (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 80 STATE -------------- STREET, ALBANY, NEW YORK 12207-2543, UNITED STATES OF AMERICA, AS ITS AGENT TO RECEIVE ON BEHALF OF IT SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS THAT MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE PARENT HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. THE PARENT AGREES TO ENTER INTO ANY AGREEMENT RELATING TO SUCH APPOINTMENT THAT THE PROCESS AGENT MAY CUSTOMARILY REQUIRE AND TO PAY THE PROCESS AGENT'S CUSTOMARY FEES UPON DEMAND. AS AN ALTERNATIVE METHOD OF SERVICE, THE PARENT ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE PARENT AT THE ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF. NOTHING IN THIS SECTION 8 SHALL AFFECT THE RIGHT OF EITHER THE PARENT OR ANY BENEFICIARY OF THIS --------- AGREEMENT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF EITHER THE PARENT OR ANY BENEFICIARY OF THIS AGREEMENT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 9. Amendments, Etc. No amendment or waiver of any ---------------- provision of this Agreement or consent to any departure by the Parent herefrom shall be effective unless in a writing signed by the Issuer and its successors and assigns (and, in the case of any amendment, also signed by the Parent), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. Address for Notices. All notices and other ----------------------- communications hereunder shall be in writing (which shall include facsimile or electronic mail communication) and faxed, delivered or sent electronically, if to the Parent, at its address set forth below its name on the signature page hereto, and if to any Indemnified Party, at its address set forth in the Receivables Purchase Agreement, or if sent electronically to the Parent, the Issuer or the Indenture Trustee, to such e-mail addresses as such parties provide for such purpose, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Notices and communications by facsimile shall be effective when sent, and notices and communications sent by other means shall be effective when received. SECTION 11. No Waiver; Remedies. No failure on the part of any ------------------- Indemnified Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 13 SECTION 12. Continuing Agreement; Assignments under Receivables ---------------------------------------------------- Purchase Agreement. This Agreement is a continuing agreement and shall (i) ------------------- remain in full force and effect until the latest of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement (y) the payment in full of all amounts payable to the Indemnified Parties under each Transaction Document and (z) the Final Payout Date, (ii) be binding upon the Parent, its successors and permitted assigns, and (iii) inure to the benefit of, and be enforceable by, the Indemnified Parties and each of their respective successors, transferees and assigns. SECTION 13. Acknowledgement and Consent. --------------------------- (a) The Parent acknowledges that, the Issuer has pledged all of its right, title and interest in the Purchased Assets to the Indenture Trustee pursuant to the Indenture. The Parent acknowledges and agrees to such pledge by the Issuer and consents to the assignment by the Issuer of all or any portion of its right, title and interest in, to and under this Agreement and the other Transaction Documents and all of the Issuer's rights, remedies, powers and privileges and all claims of the Issuer against the Parent under or with respect to this Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Agreement or otherwise available at law or in equity), including without limitation (whether or not any Purchase Termination Event, Unmatured Purchase Termination Event, Servicer Default, Unmatured Servicer Default, Amortization Event, Unmatured Amortization Event, Event of Default or event that with the passage of time or the giving of notice, or both, would become an Event of Default, has occurred and is continuing) (i) the right of the Issuer at any time to enforce this Agreement against the Parent and the obligations of the Parent hereunder and (ii) the right at any time to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement, any other Transaction Document or the obligations in respect of the Parent thereunder, all of which rights, remedies, powers, privileges and claims may be exercised and/or enforced by the Issuer's successors and assigns to the same extent as the Issuer may do. (b) The Parent hereby agrees to execute all agreements, instruments and documents and to take all other actions that the Issuer or its assignees reasonably determines are necessary or appropriate to evidence its consent described in Section 13(a). The Parent hereby acknowledges and agrees ------------ that the Issuer may assign to the Issuer's successors and assigns such rights and interests granted by the Parent to the Issuer hereunder and agrees to cooperate fully with the Issuer and the Indenture Trustee in the exercise of such rights. SECTION 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, ------------- AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). SECTION 15. Waiver of Jury Trial. Each of the Parent and the -------------------- Indemnified Parties (in accepting this Agreement) irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Transaction Documents, the Purchased Interests or the actions of the 14 Issuer, its successors and assigns or any other Indemnified Party in the negotiation, administration or enforcement thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the Parent has cause this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. LEVI STRAUSS & CO. By_______________________________ Name: Title: Address: 1155 Battery Street San Francisco, California 94120 Attention: Treasurer's Department LS/4 Telephone: (415) 501-6955 Telecopy: (415) 501-1342 EX-10 7 a10qex106.txt EXHIBIT 10.6 CONSENT AND RELEASE AGREEMENT EXHIBIT 10.6 EXECUTION COPY ------------------------------------------------------------------------------ CONSENT AND RELEASE AGREEMENT dated July 31, 2001 among LEVI STRAUSS FUNDING, LLC as Transferor, ------------- LEVI STRAUSS FINANCIAL CENTER CORPORATION, as Seller and Servicer, ---------------------- LEVI STRAUSS & CO., as Borrower and Originator, -------------------------- LEVI STRAUSS RECEIVABLES FUNDING, LLC as Issuer, --------- CITIBANK, N.A., as Indenture Trustee, -------------------- and BANK OF AMERICA, N.A., as Agent -------- --------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms................................................................ ............2 SECTION 1.02. References to Terms Defined in the Purchaser Documents and the Bank Loan Documents...................................................................6 ARTICLE II INTERCREDITOR PROVISIONS SECTION 2.01. Priorities of Purchased Property..........................................................6 SECTION 2.02. Respective Interests in Purchased Property and Collateral.................................7 SECTION 2.03. Distribution of Proceeds..................................................................8 SECTION 2.04. Lockbox Accounts; Application of Collections..............................................8 SECTION 2.05. Enforcement Actions.......................................................................9 SECTION 2.06. Access to and Use of Collateral..........................................................10 SECTION 2.07. Agency for Perfection and Control........................................................10 SECTION 2.08. UCC Notices..............................................................................11 SECTION 2.09. Independent Credit Investigations........................................................11 SECTION 2.10. Limitation on Liability of Parties to Each Other.........................................11 SECTION 2.11. Marshalling of Assets....................................................................11 SECTION 2.12. Effect upon Bank Loan Documents and Purchaser Documents..................................11 SECTION 2.13. Further Assurances.......................................................................12 ARTICLE III MISCELLANEOUS SECTION 3.01. Notices..................................................................................12 SECTION 3.02. Agreement Absolute.......................................................................13 SECTION 3.03. Successors and Assigns...................................................................13 SECTION 3.04. Third-Party Beneficiaries................................................................13 SECTION 3.05. Amendments, Etc..........................................................................13 SECTION 3.06. Section Titles...........................................................................13 SECTION 3.07. Severability.............................................................................13 SECTION 3.08. Execution in Counterparts................................................................13 SECTION 3.09. Governing Law............................................................................14 SECTION 3.10. Submission to Jurisdiction...............................................................14 SECTION 3.11. Consent to Service of Process............................................................14 SECTION 3.12. Waiver of Jury Trial.....................................................................14
CONSENT AND RELEASE AGREEMENT This CONSENT AND RELEASE AGREEMENT dated as of July 31, 2001, is entered into by and among LEVI STRAUSS FUNDING, LLC (the "Transferor"), LEVI ---------- STRAUSS FINANCIAL CENTER CORPORATION, ("LS Financial" or the "Seller"), LEVI ------------ ------ STRAUSS & CO., ("LS&Co." or the "Originator"), LEVI STRAUSS RECEIVABLES FUNDING, ----- ---------- LLC (the "Issuer"), CITIBANK, N.A., not individually but as Indenture Trustee ------ (the "Indenture Trustee") and BANK OF AMERICA, N.A. ("Bank of America") in its ------------------ --------------- capacity as administrative agent and collateral agent (the "Agent") for the ----- financial institutions (the "Lenders") party to the Credit Agreement referred to ------- below. PRELIMINARY STATEMENTS 1. The Originator has agreed to sell, transfer and assign to the Seller and the Seller has agreed to purchase from the Originator, all of the right, title and interest of the Originator in and to certain receivables, including the Purchased Receivables (as hereinafter defined) pursuant to a Third Amended and Fully Restated Receivables Purchase and Sale Agreement dated as of January 28, 2000 (as heretofore and hereafter amended, supplemented or otherwise modified from time to time, the "Receivables Purchase and Sale Agreement") ------------------------------------------ between the Originator and the Seller, and the Seller has further agreed to sell, transfer and assign to the Transferor, and the Transferor has agreed to purchase from the Seller, all of the right, title and interest of the Seller in and to certain receivables, including the Purchased Receivables, pursuant to a Receivables Purchase and Sale Agreement dated as of January 28, 2000, among the Originator, the Seller, Levi Strauss Funding Corp. and the Transferor (as heretofore and hereafter amended, supplemented or otherwise modified from time to time, the "Receivables Sale Agreement"). -------------------------- 2. The Issuer, the Transferor, the Seller (including in its capacity as servicer (the "Servicer"), and Levi Strauss Securitization Corp., as -------- SPC Member, are parties to a Receivables Purchase Agreement dated as of July 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "Receivables Purchase Agreement"), pursuant to which each of the Seller and the ------------------------------ Transferor has agreed to sell to the Issuer all its respective right, title and interest in and to the Purchased Receivables and the Servicer has agreed to service the Purchased Receivables on behalf of the Issuer and the Issuer's assignees, including the Indenture Trustee. The Receivables Purchase and Sale Agreement and the Receivables Sale Agreement are sometimes hereinafter referred to collectively as the "Receivables Sale Agreements" and the Receivables Sale ----------------------------- Agreements and the Receivables Purchase Agreement are sometimes hereinafter referred to collectively as the "Purchase Agreements"). From and after the date ------------------- of the initial purchase under the Receivables Purchase Agreement, the Receivables Sale Agreement shall terminate, the Transferor shall cease to purchase Receivables from the Seller and the Seller shall sell to the Issuer directly all of the Purchased Receivables. 3. The Issuer is party to a certain Indenture (the "Indenture") --------- dated as of July 31, 2001 whereby it has pledged to the Indenture Trustee all of its right, title and interest in and to, among other things, the Purchased Receivables. 4. LS&Co., the Lenders and the Agent are parties to that certain credit agreement (as amended, supplemented, modified, restated, replaced or refinanced from time to time, with the same or a different group of lenders, issuing banks or bank agents, the "Credit Agreement") dated as of February 1, ----------------- 2001 among the Originator, as borrower, the initial lenders, initial issuing banks and swing line lenders party thereto, Bank of America, as administrative agent and collateral agent, Bank of America Securities LLC and Salomon Smith Barney Inc., as co-lead arrangers and joint book managers, Citicorp USA, Inc., as syndication agent, and The Bank of Nova Scotia, as documentation agent. 5. Each of the Seller and the Transferor are guarantors of LS&Co.'s obligations under the Credit Agreement. 6. To secure their respective obligations to the Agent and the Lenders under the Credit Agreement and the guaranties executed in connection therewith, each of the Originator, the Seller and the Transferor have granted to the Agent, for the benefit of the Lenders, a security interest in certain collateral, including but not limited to the Receivables (as hereinafter defined) and proceeds thereof. 7. It is a condition precedent to the making of the initial purchase under the Receivables Purchase Agreement and to the issuance of the Notes pursuant to the Indenture that the parties hereto enter into this Agreement. 8. The parties hereto have agreed to enter into this Agreement to set forth provisions regarding the allocation of priorities in, and the enforcement of remedies with respect to, the Purchased Property (as hereinafter defined) and with respect to the Collateral (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the ------------- following capitalized terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). The term "Agreement" shall mean this Consent and Release Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Bank Claim" means all "Obligations" (as such term is defined in ---------- the Credit Agreement) of the Loan Parties under the Bank Loan Documents. "Bank Collateral" means all property and interests in property --------------- now owned or hereafter acquired by Originator or any subsidiary of Originator (other than Issuer) in or upon which a security interest, lien or mortgage is granted by Originator or such subsidiary to the Agent under any of the Bank Loan Documents. 2 "Bank Collateral Documents" means all "Collateral Documents" (as ------------------------- such term is defined in the Credit Agreement). "Bank Loan Documents" has the meaning specified for the term ------------------- "Loan Documents" in the Credit Agreement. "Borrower" has the meaning specified in the Credit Agreement. -------- "Business Day" means any day excluding Saturday, Sunday and any ------------ day which is a legal holiday under the laws of the State of California, Oregon or the State of New York or is a day on which banking institutions located in any of such states are closed. "Claim" means the Bank Claim or the Purchaser Claim, as ----- applicable. "Collateral" means all Bank Collateral which does not ---------- constitute Purchased Property. "Collection Account" has the meaning specified in the ------------------ Indenture. "Collections" means, with respect to any Receivable, all cash ----------- collections and other proceeds of such Receivable, including without limitation, all proceeds of Related Security (including late charges, fees and interest arising thereon, and all recoveries with respect thereto that have been written off as uncollectible). "Companies" means, collectively, the Originator, the Seller and --------- the Transferor, and "Company" means any one of such Companies. ------- "Company Claim" means all of the indebtedness, obligations and ------------- other liabilities of the Issuer to the Transferor or the Seller, including, but not limited to, obligations evidenced by any Subordinated Note, and all costs of collection or enforcement thereof. "Contract" means any agreement or invoice pursuant to, or -------- under which, an Obligor shall be obligated to make payments with respect to any Receivable. "Enforcement Period" means, collectively or individually, (i) ------------------- any period from and after an acceleration of the Notes during which the Indenture Trustee is exercising any remedies under the Indenture to sell or foreclose on the Purchased Property or (ii) any period from and after a default under the Bank Loan Documents during which the Bank Agent is exercising any remedies under the Bank Loan Documents against or with respect to the Collateral. "Indenture Supplement" means each supplement to the Indenture -------------------- evidencing the terms applicable to a particular Series of Notes. "Lenders" means the financial institutions party to the Credit ------- Agreement, including any such institutions in their capacity as lenders, swing-line lenders, issuing banks, co-lead arrangers, joint book managers, syndication agent or documentation agent. 3 "Loan Parties" means, collectively, the Borrower, the Seller and ------------ the Transferor and each other subsidiary of the Borrower which has guaranteed the Bank Claim or executed a Bank Collateral Document. "Lockbox Account" means any lockbox account, concentration ---------------- account, depository account or similar account (including any associated demand deposit account) established by the Originator, the Seller, the Servicer, the Transferor or the Issuer and into which any Collections are deposited. "Noteholders" has the meaning specified in the Indenture. ----------- "Notes" has the meaning specified in the Indenture. ----- "Obligor" means, with respect to any Receivable, the Person or ------- Persons obligated to make payments in respect thereof. "Person" means an individual, corporation, trust (including a ------ business trust), joint-stock company, limited liability company, unincorporated organization, association, partnership, joint venture, governmental authority or any other entity. "Purchase Termination Date" means the date on which the Issuer ------------------------- ceases to purchase, and the Seller ceases to sell, Receivables under the Receivables Purchase Agreement. "Purchased Property" means (i) the Purchased Receivables, (ii) ------------------- the Related Security related to such Purchased Receivables, (iii) Collections of such Purchased Receivables, (iv) all rights of the Transferor (directly or as assignee) under the Receivables Sale Agreements, (v) all rights of the Seller under the Receivables Purchase and Sale Agreement, (vi) the Lockbox Accounts, the Collection Account and each other account established pursuant to the Indenture for the benefit of the Issuer or any Noteholders and (vii) all proceeds of the foregoing. "Purchased Receivables" means all Receivables now owned or --------------------- hereafter existing and arising through the Purchase Termination Date which are sold or purported to be sold, contributed or otherwise transferred to the Issuer under and pursuant to the terms of the Receivables Purchase Agreement. It is expressly understood that the term Purchased Receivables shall not include Receivables arising after the Purchase Termination Date. "Purchaser Claim" means all obligations of any Company ---------------- (including in its capacity as Servicer or otherwise) to, or which have been assigned to or entered into in favor of, the Indenture Trustee or any Noteholder arising under any Purchaser Document and all obligations of any Obligor arising under any Purchased Receivable, including, but not limited to, all sums or increases now or hereafter advanced or made to or for the benefit of the Issuer thereunder, any interest thereon, any repayment obligations, indemnity payments, fees or expenses due thereunder, and any costs of collection or enforcement. "Purchaser Claim Termination Date" means any date on which (i) -------------------------------- the Purchaser Claim has been paid and satisfied in full in cash or (ii) the Indenture shall have been completely terminated, and the Indenture Trustee shall have released its lien on the Purchased Property in accordance with the Indenture. 4 "Purchaser Documents" means the Receivables Purchase Agreement, ------------------- the Subordinated Note, the Indenture, and each Indenture Supplement. "Receivable" means, the indebtedness of an Obligor arising under ---------- a Contract with the Originator from the sale of merchandise or services by or on behalf of the Originator, whether constituting an account, chattel paper, instrument or general intangible and shall include the right of payment of any interest, finance charges, returned check or late charges and other obligations of such Obligor with respect thereto. "Records" shall mean all Contracts, purchase orders, invoices, ------- customer lists, credit files and other agreements, documents, books, records and other media for the storage of information (including without limitation tapes, disks, punch cards, computer software and databases and related property) with respect to the Receivables, the Related Security and/or the related Obligors; provided, that Records shall not include any software licenses to the extent -------- that the assignment thereof to the Issuer would breach the terms of such licenses. "Related Security" shall mean, with respect to each Receivable: ---------------- (i) all security interests or Liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable; (ii) all guaranties, letters of credit, insurance, warranties, indemnities and other agreements or arrangements of whatever character from time to time supporting or securing the payment obligation of the Obligor with respect to such Receivable whether pursuant to the Contract related to such Receivable or otherwise; (iii) all of the Originator's, the Seller's, the Transferor's and the Issuer's interest in the specific items of goods (including Returned Goods), if any, the sale, financing, lease or licensing of which gave rise to such Receivable; (iv) all Records related to such Receivable; (v) all service contracts and other contracts and agreements associated with such Receivable; and (vi) all proceeds of any of the foregoing. "Repurchased Receivables" means any Purchased Receivables which ----------------------- are re-assigned from the Issuer to the Seller, the Transferor or the Originator under and in accordance with the terms of the Receivables Purchase Agreement. "Returned Goods" means all right, title and interest of any -------------- Originator, the Seller or the Transferor, as applicable, in and to returned, repossessed or foreclosed goods and/or merchandise the sale of which gave rise to a Purchased Receivable. 5 "Returned Goods Lien" has the meaning specified in Section -------------------- 2.01(a). "Series" has the meaning specified in the Indenture. ------ "Subordinated Note" has the meaning specified in the Receivables ----------------- Purchase Agreement. "UCC" means the Uniform Commercial Code as from time to time in --- effect in the applicable jurisdictions. "Unsold Receivables" means any Receivables other than Purchased ------------------ Receivables. SECTION 1.02. References to Terms Defined in the Purchaser ------------------------------------------------- Documents and the Bank Loan Documents. Whenever in Section 1.01 a term is -------------------------------------- defined by reference to the meaning specified in any of the Purchaser Documents or Bank Loan Documents, then, unless otherwise specified herein, such term shall have the meaning specified in such Purchaser Documents or Bank Loan Documents, as the case may be, as in existence on the date hereof, without giving effect to any amendments of such term as may hereafter be agreed to by the parties to such documents, unless such amendments have been consented to in writing by all of the parties hereto. ARTICLE II INTERCREDITOR PROVISIONS SECTION 2.01. Priorities of Purchased Property. (a) Notwith- --------------------------------- standing any provision of the UCC, any applicable law or decision or any of the Bank Loan Documents or Purchaser Documents, the Agent hereby agrees that, upon the sale or other transfer of an interest in each Purchased Receivable to the Issuer, any lien, claim, encumbrance, security interest or other interest acquired by the Agent or any Lender in such Purchased Receivable and proceeds thereof (other than the proceeds payable to the Transferor or the Seller by the Issuer in consideration for such sale or transfer) and any other Purchased Property relating thereto shall automatically and without further action cease and be released, and the Agent and the Lenders shall have no lien, claim, encumbrance, security interest or other interest or right therein; provided, however, that nothing in this Section 2.01 shall be deemed to constitute a release by the Agent of: (i) its lien on and security interest in the proceeds received by any Company from the sale or other transfer of the Purchased Receivables (including, without limitation, cash payments made by the Issuer and any Subordinated Note issued by the Issuer in favor of, or endorsed to, any Company, each in connection with such sales); (ii) any lien on, security interest in or assignment of any Company Claim; (iii) any lien, claim, encumbrance, security interest or other Interest or right the Agent has in any Unsold Receivables and the proceeds thereof, including 6 without limitation, Collections of Unsold Receivables which are at any time deposited in any Lockbox Accounts or the Collection Account; (iv) any lien, claim, encumbrance, security interest or other interest or right the Agent may have in any Subordinated Note or in any capital or equity interests of the Issuer which are owned by any Company or other affiliate or in any other right of any Company or any affiliate other than the Issuer to receive any residual value in the Purchased Property from and after the time that all of the Notes have been paid in full and the lien of the Indenture has been terminated; (v) any lien, claim, encumbrance, security interest or other interest or right the Agent may have in any property of a Company (including any capital or equity interests of any Company) which does not constitute Purchased Property; and (vi) any lien, claim, encumbrance, security interest or other interest or right the Agent may have in any interest of a Company in Returned Goods (collectively, a "Returned Goods -------------- Lien")or in any Repurchased Receivables. ---- (b) For purposes of the foregoing, it is expressly understood that (i) the security interest of the Agent in Returned Goods or Repurchased Receivables shall not attach while such items are property of the Issuer; (ii) from and after the payment of all adjustments owed by any Company under the Receivables Purchase Agreement in respect of such Repurchased Receivables or in respect of the Receivables relating to such Returned Goods (including by way of adjustments to the Subordinated Note), the Issuer shall have no further interests in such Repurchased Receivables and/or Returned Goods and such Repurchased Receivables and/or Returned Goods shall automatically be deemed to have been transferred from the Issuer to the Seller without the need for further action on the part of such parties; and (iii) upon any such transfer to any Company, the security interest of the Agent shall reattach to such Repurchased Receivables and/or Returned Goods. It is further expressly understood and agreed that the interest in goods included in clause (iii) of the definition of Related Security extends only to rights in respect of the specific items the sale, financing, lease or licensing of which has given rise to a Receivable and does not include an interest in goods owned by any Company the subsequent sale, financing, lease or licensing of which may create a Receivable. (c) The Agent hereby acknowledges that the Subordinated Note is subordinated to the payment of the Notes and agrees that its rights against the Issuer as obligor under the Subordinated Note are subject to the terms thereof. SECTION 2.02. Respective Interests in Purchased Property and -------------------------------------------------- Collateral. Each of the Indenture Trustee and the Issuer agrees that it does ---------- not have and shall not have any property interest, security interest in, lien upon or interest in any Collateral. Except for all rights of access to and use of Records and except as otherwise provided in Section 2.01(a), the Agent agrees that it does not have and shall not have any security interest in, lien upon or interest in the Purchased Property. 7 SECTION 2.03. Distribution of Proceeds. At all times, all -------------------------- proceeds of Collateral and Purchased Property (including proceeds received in the Collection Account) shall be distributed in accordance with the following procedure: (a) All collections an d other proceeds of the Collateral shall be paid or delivered to the Borrower (or its designee) or as otherwise required by applicable law. (b) All Collections and other proceeds of the Purchased Property shall be paid or delivered to the Indenture Trustee for application in accordance with the terms of the Indenture until the Purchaser Claim Termination Date, at which time any remaining Collections and proceeds shall be paid to the Issuer (or its designee) in accordance with the terms of the Indenture or as otherwise required by applicable law. SECTION 2.04. Lockbox Accounts; Application of Collections. ------------------------------------------------- (a) The Indenture Trustee and the Issuer each hereby acknowledge (i) that the Companies will deliver to the Agent the Subordinated Note issued by the Issuer, as security for the Bank Claim and (ii) that the Borrower (or its designee) shall be entitled to Collections of Unsold Receivables which may be deposited in the Lockbox Accounts or the Collection Account. From and after the date on which the Issuer ceases to purchase Receivables from the Seller, the Servicer shall promptly notify the Indenture Trustee and the Agent of any Collections of Unsold Receivables which are deposited in any Lockbox Account or the Collection Account and shall promptly identify such funds to the Indenture Trustee with instructions to deliver such funds to the Borrower (or its designee). (b) For purposes of determining whether specific Collections have been received on account of Purchased Property or on account of Unsold Receivables, the parties hereto agree as follows: (i) All payments made by an Obligor which is obligated to make payments on Purchased Receivables but is not obligated to make any payments on Unsold Receivables shall be conclusively presumed to be payments on account of Purchased Receivables, and all payments made by an Obligor which is obligated to make payments on Unsold Receivables but is not obligated to make any payments on Purchased Receivables shall be conclusively presumed to be payments on account of Unsold Receivables. (ii) All payments made by an Obligor which is obligated to make payments with respect to both Purchased Receivables and Unsold Receivables shall be applied against the specific Receivables, if any, which are designated by such Obligor by reference to the applicable invoice as the Receivables with respect to which such payments are to be applied, and, absent such designation, such payments shall be applied against the oldest outstanding Receivables or portion thereof owed by such Obligor to the extent such oldest Receivable or portion thereof is not in dispute. (c) Subject to the terms and conditions of this Section 2.04(c), he Indenture Trustee agrees that, unless the Agent has notified the Indenture Trustee that the Bank Claim has been satisfied in full in cash, (i) it shall not release its control over the Lockbox Accounts to the 8 Issuer without the prior written consent of the Agent, and (ii) it shall, from and after the date that the Indenture has been terminated in accordance with its terms and all obligations of the Issuer thereunder have been satisfied, transfer to the Agent the Indenture Trustee's control over the Lockbox Accounts upon receipt by the Indenture Trustee of a certificate of the Servicer to the effect that either (x) the Purchaser Claim Termination Date has occurred or (y) that all outstanding Purchased Receivables have been paid in full in cash or written-off as uncollectible. If the Agent has so notified the Indenture Trustee of satisfaction of the Bank Claim, the Indenture Trustee shall release control of the Lockbox Accounts without any such consent of, or transfer of control to, the Agent. Any such transfer shall be without representation, recourse or warranty of any kind on the part of the Indenture Trustee. Notwithstanding any such transfer, all Collections and other proceeds subsequently deposited into the Lockbox Accounts or the Collection Account on account of the Purchased Property shall be delivered to the Issuer as provided in Section 2.03(b) above. (d) In order to effect more fully the provisions of this Agreement, the parties hereto agree that: (i)in the event that the Agent shall foreclose or otherwise dispose of any inventory with which Returned Goods have been commingled, the Indenture Trustee shall be allowed to have a representative observe such foreclosure or disposition and the Agent's application of proceeds received therefrom; (ii) in the event that the Indenture Trustee shall foreclose or otherwise dispose of any Returned Goods which have been commingled with other inventory, the Agent shall be allowed to have a representative observe such foreclosure or disposition and the Indenture Trustee's application of proceeds therefrom; and (iii) neither the Agent, the Indenture Trustee, the Issuer nor any Company, shall, before the Purchaser Claim Termination Date, send any notices to any Obligor of any Receivable directing such Obligor to remit Collections of any Receivables other than to the Lockbox Accounts. (e) The Servicer and the Indenture Trustee each further agree that they will not cause the Servicer to be replaced by a successor servicer except (i) in accordance with the terms of the Receivables Purchase Agreement and (ii) unless such successor servicer has acknowledged the terms of this agreement and agreed to be bound hereby. SECTION 2.05. Enforcement Actions. The parties hereto agree ------------------- that during an Enforcement Period: (a) Subject to any applicable restrictions in the Purchaser Documents, the Indenture Trustee may take any action to liquidate the Purchased Property or to foreclose or realize upon or enforce any of the rights of the Issuer with respect to the Purchased Property without the prior written consent of the Agent or any Lender or any other party hereto; provided, however, that with respect to Returned Goods, the -------- ------- Indenture Trustee shall not take any action to foreclose or realize upon or to enforce any rights it may have with respect to any Purchased Property constituting Returned Goods without the prior written consent of the Agent, unless either (i) such Returned Goods have been segregated from, and are separately identifiable from, the Collateral or (ii) the Bank Claim shall have been first paid and satisfied in full in cash. The Indenture Trustee shall not have any rights to liquidate or foreclose on any Unsold Receivables. 9 (b) Subject to any applicable restrictions in the Bank Loan Documents, the Agent may, at its option and without the prior written consent of the other parties hereto, take any action to accelerate payment of the Bank Claim and to foreclose or realize upon or enforce any of its rights with respect to (i) the Collateral and (ii) any Purchased Property constituting Returned Goods which has been redelivered to LS&Co. and become commingled with other inventory of LS&Co.; provided, however, that the Agent shall apply proceeds of any Purchased Property consisting of Returned Goods as provided in Section 2.03 above. SECTION 2.06. Access to and Use of Collateral. The Indenture --------------------------------- Trustee and the Agent hereby agree that, notwithstanding the priorities set forth in this Agreement, the Indenture Trustee and the Agent shall have the following rights of access to and use of the Purchased Property and the Collateral, respectively: (a) Subject to any applicable restrictions in the Purchaser Documents, the Indenture Trustee may enter one or more premises of any Company, whether leased or owned, at any time during reasonable business hours, without force or process of law and without obligation to pay rent or compensation to any Company or the Issuer, whether before, during or after an Enforcement Period, in order to have access to and use of all Records located thereon and may have access to and use of any other property to which such access and use are granted under the Purchaser Documents, in each case provided that such use is for any purpose permitted under the Purchaser Documents or for the purposes of enforcing the rights of the Indenture Trustee with respect to the Purchased Property. (b) Subject to any applicable restrictions in the Bank Loan Documents, the Agent may enter one or more premises of any Company, whether leased or owned, at any time during reasonable business hours, without force or process of law and without obligation to pay rent or compensation to any Company, the Issuer or the Indenture Trustee, whether before, during or after an Enforcement Period, and may have access to and use of all Records located thereon, provided that such use is for any purpose permitted under the Bank Loan Documents or for the purposes of enforcing the Agent's rights (i) with respect to the Collateral and (ii) subject to the limits provided in Section 2.01 above, with respect to Purchased Property consisting of Returned Goods. SECTION 2.07. Agency for Perfection and Control. The Indenture --------------------------------- Trustee and the Agent hereby appoint each other as agent for purposes of perfecting by possession or by control their respective security interests and ownership interests and liens on any Collateral (which may include any Subordinated Note)and Purchased Property to the extent that such security or ownership interests cannot be perfected by the filing of a financing statement. In the event the Indenture Trustee, to the actual knowledge of an officer responsible for overseeing compliance with this Agreement, obtains possession of any of the Collateral, the Indenture Trustee shall hold such Collateral in trust and, at the request of the Servicer or the Agent, shall deliver such Collateral to the Agent. In the event that the Agent, to the actual knowledge of an officer responsible for overseeing compliance with this Agreement, obtains possession of any of the Purchased Property, the Agent shall hold such Purchased Property in trust and, at the request 10 of the Servicer or the Indenture Trustee, shall deliver such Purchased Property to the Indenture Trustee. SECTION 2.08. UCC Notices. In the event that any party hereto ----------- shall be required by the UCC or any other applicable law to give notice to the other of intended disposition of Purchased Property or Collateral, respectively, such notice shall be given in accordance with Section 3.01 hereof and ten (10) days' notice shall be deemed to be commercially reasonable. SECTION 2.09. Independent Credit Investigations. None of the ---------------------------------- Indenture Trustee or the Agent or any of their respective directors, officers, agents or employees shall be responsible to the other or to any other Person for the solvency, financial condition or ability of the Issuer or the Companies to repay the Notes, the Purchaser Claim or the Bank Claim, as applicable, or for the value of the Purchased Property or the Collateral, or for statements of any Company or the Issuer oral or written, or for the validity, sufficiency or enforceability of the Purchaser Claim, the Bank Claim, the Purchaser Documents, the Bank Loan Documents, the Indenture Trustee's lien on the Purchased Property or the Agent's security interest in the Collateral or any other collateral. The Agent and the Indenture Trustee have entered into their respective agreements with the Companies and the Issuer, as applicable, based upon their own independent investigations. None of the Agent or the Indenture Trustee makes any warranty or representation to the other nor does it rely upon any representation of the other with respect to matters identified or referred to in this Section 2.09. SECTION 2.10. Limitation on Liability of Parties to Each Other. ------------------------------------------------- The Indenture Trustee and the Agent each undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Indenture Trustee or the Agent. Except as expressly provided in this Agreement, the Agent shall have no liability to the Indenture Trustee and the Indenture Trustee shall have no liability to the Agent, except in each case for liability arising from the gross negligence or willful misconduct of such party or its representatives. In no event shall the Indenture Trustee or the Agent be liable to any other party hereto for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits). SECTION 2.11. Marshalling of Assets. Nothing in this Agreement --------------------- will be deemed to require either the Indenture Trustee or the Agent (a) to proceed against certain property securing any or all of the Bank Claim or the Purchaser Claim prior to proceeding against other property securing any such Claim or (b) to marshal the Collateral or the Purchased Property (as applicable) upon the enforcement of the Agent's or the Indenture Trustee's rights or remedies under the Bank Loan Documents or Purchaser Documents, as applicable. SECTION 2.12. Effect upon Bank Loan Documents and Purchaser -------------------------------------------------- Documents. By executing this Agreement, the Companies and the Issuer agree to be --------- bound by the provisions hereof as they relate to the relative rights of the Agent and the Indenture Trustee with respect to the Collateral and the Purchased Property. Each of the Companies, the Issuer, the Indenture Trustee and the Agent acknowledge that the provisions of this Agreement shall not give the Companies or the Issuer any substantive rights as against any other Person and that nothing in this Agreement shall amend, modify, change or supersede the terms of (x) the Bank Loan 11 Documents as between the Borrower, the other Companies, the Agent and the Lenders or (y) the Purchaser Documents as among the Companies, the Issuer and the Indenture Trustee. The Agent, individually and on behalf of the Lenders, hereby confirms that the Purchaser Documents in existence as of the date hereof have been furnished to it and that the Bank Loan Documents expressly permit the transactions contemplated thereby and hereby consents to the execution, delivery and performance by each Company of such Purchaser Documents. Notwithstanding the foregoing, the Agent, on the one hand, and the Indenture Trustee, on the other hand, agree that, as between themselves, to the extent the terms and provisions of the Bank Loan Documents or the Purchaser Documents are inconsistent with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control. SECTION 2.13. Further Assurances. Concurrently with the -------------------- execution hereof, the Agent shall execute or otherwise authorize the filing of UCC-3 partial releases in the form of Exhibit A hereto to evidence the release --------- of Collateral described in Section 2.01 hereof to be filed in the jurisdictions noted in Exhibit A. Each of the parties hereto agrees to take such actions as --------- may be reasonably requested by any other party, whether before, during or after an Enforcement Period, in order to effect the rules of distribution and allocation set forth above in this Article II. ARTICLE III MISCELLANEOUS SECTION 3.01. Notices. All notices and other communications ------- provided for hereunder shall, unless otherwise stated herein, be in writing (including telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or overnight courier or facsimile, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, two Business Days after having been given to such courier, unless sooner received by the addressee and (d) if transmitted by facsimile, when sent, upon receipt confirmed by telephone or electronic means. Notices and communications sent hereunder on a day that is not a Business Day shall be deemed to have been sent on the following Business Day. If to LS&Co. or the Transferor: 1155 Battery Street, San Francisco, California 94111, Attention: Treasurer, Telecopy: (415) 501-1342; If to LS Financial: 3125 Chad Drive, Eugene, Oregon 97408, Attention: Director, Telecopy: (541) 242-7577; If to the Indenture Trustee: 111 Wall Street, 14th Floor, NY, NY 10043, Attn: Structured Finance, Levi Strauss Series 2001-A, Telecopy (212) 657-4009; and If to the Agent: 1455 Market Street, San Francisco, CA 94103, Attn: Kathleen Carry (Fax)(415) 503-5001; or, as to any such party, at such other address as shall be designated by such party in a written 12 notice to each of the other parties hereto. SECTION 3.02. Agreement Absolute. This Agreement shall be and ------------------ remain absolute and unconditional under any and all circumstances, and no acts or omissions on the part of any other party to this Agreement shall affect or impair the agreement of any party to this Agreement, unless otherwise agreed to in writing by all of the parties hereto. This Agreement shall be applicable both before and after the filing of any petition by or against any Company or the Issuer under the Bankruptcy Code and all references herein to any Company or the Issuer shall be deemed to apply to a debtor-in-possession or trustee for such party and all allocations of payments among the parties hereto shall, subject to any court order to the contrary, continue to be made after the filing of such petition on the same basis that the payments were to be applied prior to the date of the petition. SECTION 3.03. Successors and Assigns. This Agreement shall be ---------------------- binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. The successors and assigns for the Companies and the Issuer shall include a debtor-in-possession or trustee of or for such party. The successors and assigns for the Agent, the Servicer and the Indenture Trustee, as the case may be, shall include any successor Agent, Indenture Trustee or Servicer, as the case may be, appointed under the terms of the Bank Loan Documents or the Purchaser Documents, as applicable. Each of the Agent and the Indenture Trustee, as the case may be, agrees to not transfer any interest it may have in the Bank Loan Documents or the Purchaser Documents, as the case may be, or to delegate its role as agent or trustee, as applicable, unless such transferee or delegate has been notified of the existence of this Agreement and has agreed to be bound hereby. SECTION 3.04. Third-Party Beneficiaries. The terms and ------------------------- provisions of this Agreement shall be for the sole benefit of the parties hereto and their respective successors and assigns and no other Person shall have any right, benefit or priority by reason of this Agreement. SECTION 3.05. Amendments, Etc. No amendment or waiver of any --------------- provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by all the parties hereto, and any such amendment or waiver shall be effective only in the specific instance and or the specific purpose for which given. SECTION 3.06. Section Titles. The article and section headings -------------- contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 3.07. Severability. Any provision of this Agreement that ------------ is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 3.08. Execution in Counterparts. This Agreement may be ------------------------- executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature 13 page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 3.09. Governing Law. THIS AGREEMENT, INCLUDING THE --------------- RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING 5-1401 OF THE GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. SECTION 3.10. Submission to Jurisdiction. (i) Each of the ---------------------------- parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the Bank Loan Documents or Purchaser Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any of the Bank Loan Documents or Purchaser Documents shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any Bank Loan Documents or Purchaser Documents to which it is a party in the courts of any jurisdiction. (ii) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the Bank Loan Documents or Purchaser Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 3.11. Consent to Service of Process. Each party to this ----------------------------- Agreement irrevocably consents to service or process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 3.12. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT -------------------- WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OR CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND 14 AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. LEVI STRAUSS FUNDING, LLC, as Transferor By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS FINANCIAL CENTER CORPORATION, as Seller and Servicer By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS & CO., as Borrower and Originator By: _________________________________ Name: Joseph M. Maurer Title: Treasurer LEVI STRAUSS RECEIVABLES FUNDING, LLC, as Issuer By: _________________________________ Name: Joseph M. Maurer Title: Treasurer CITIBANK, N.A., not in its individual capacity but solely as Indenture Trustee By: _________________________________ Name: Title: BANK OF AMERICA, N.A., as Agent By: _________________________________ Name: Title: Exhibit A to Consent and Release Agreement ------------------------------------------ See Attached.