<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-28811, 333-28811-01
PROSPECTUS
PROFFITT'S CREDIT CARD MASTER TRUST
$180,000,000 CLASS A 6.50% ASSET BACKED CERTIFICATES, SERIES 1997-2
$ 20,000,000 CLASS B 6.69% ASSET BACKED CERTIFICATES, SERIES 1997-2
<TABLE>
<S> <C>
PROFFITT'S CREDIT CORPORATION PROFFITT'S, INC.
TRANSFEROR SERVICER
</TABLE>
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Each Class A 6.50% Asset Backed Certificate (collectively, the "Class A
Certificates") and each Class B 6.69% Asset Backed Certificate (the "Class B
Certificates" and together with the Class A Certificates, the "Offered
Certificates") will represent an undivided interest in the Proffitt's Credit
Card Master Trust (the "Trust") created pursuant to a master pooling and
servicing agreement (the "Pooling and Servicing Agreement") by and among
Proffitt's Credit Corporation, as transferor (in such capacity, the "Transferor"
or "PCC"), Proffitt's, Inc., as servicer (the "Servicer"), and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"), to be dated as of
the Closing Date. Beneficial interests in the Offered Certificates will be
offered for purchase in denominations of $1,000 and integral multiples thereof
(the "Offering"). The Offered Certificates will be subject to optional early
repurchase in the discretion of the Transferor upon satisfaction of certain
conditions described herein. See "Description of the Series 1997-2 Certificates
and the Pooling and Servicing Agreement -- Optional Repurchase; Final Payment of
Principal; Termination." In addition, a Collateral Indebtedness Interest (as
defined herein) having an initial principal amount of $21,000,000 will be issued
to a third party purchaser in a separate private offering concurrently with the
Offering and Class D Certificates (as defined herein) having an initial
principal amount of $14,300,000 will be retained by the Transferor as part of
Series 1997-2. The Collateral Indebtedness Interest and the Class D Certificates
will be subordinated to the Offered Certificates as described herein and are not
offered hereby. The property of the Trust includes receivables (the
"Receivables") generated from time to time in a portfolio of revolving consumer
credit card accounts (the "Accounts") originated by Proffitt's, Inc. and its
affiliates, all monies due or to become due in payment of the Receivables, and
certain other property, as more fully described herein. The Trust is
concurrently offering and selling in a private offering separate from this
Offering one other Series of certificates, the Series 1997-1 Variable Funding
Certificates, which will be issued as of the Closing Date. From time to time
additional Series may be offered and sold in private or public offerings (the
certificates of which will not be registered under the Registration Statement of
which this Prospectus is a part). Each such future Series will evidence
undivided interests in certain assets of the Trust and may have terms
significantly different from the Offered Certificates. Each outstanding Series
of certificates will rank pari passu with all other outstanding Series of
certificates. The issuance of such other Series may affect the amount or timing
of payments on the Offered Certificates. See "Risk Factors -- Issuance of
Additional Series; Master Trust Considerations" and "Maturity Assumptions." The
Transferor will own
(Continued on the following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
OFFERED CERTIFICATES. THERE IS CURRENTLY NO SECONDARY MARKET FOR THE OFFERED
CERTIFICATES, AND THERE IS NO ASSURANCE THAT ONE WILL DEVELOP.
---------------------
THE OFFERED CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN, OR RECOURSE OBLIGATIONS OF, PROFFITT'S, INC., PROFFITT'S
CREDIT CORPORATION OR ANY AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT, AND
NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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===========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
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<S> <C> <C> <C>
Per Class A Certificate.................. 99.887% 0.30% 99.587%
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Per Class B Certificate.................. 99.992% 0.35% 99.642%
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................... $199,795,000 $610,000 $199,185,000
===========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from August 21, 1997.
(2) Before deduction of expenses estimated to be $500,000.
---------------------
The Certificates are offered by the Underwriters when, as and if issued by
the Trust and accepted by the Underwriters and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that the Certificates
will be delivered in book-entry form on or about August 21, 1997, through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and the
Euroclear System, against payment therefor in immediately available funds.
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
BANCAMERICA SECURITIES, INC.
J.P. MORGAN & CO.
UNDERWRITER OF THE CLASS B CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
---------------------
August 14, 1997
<PAGE> 2
(Continued from cover)
the remaining undivided interest in the Trust not represented by the Offered
Certificates, the Collateral Indebtedness Interest or the Class D Certificates
or by other outstanding Series issued by the Trust. Such remaining interest will
be represented by the Exchangeable Transferor Certificate. McRae's, Inc., a
wholly-owned subsidiary of the Servicer, will act as the initial subservicer
(the "Subservicer") for the Receivables.
Interest will accrue on the Class A Certificates at a rate of 6.50% per
annum. Interest will accrue on the Class B Certificates at a rate of 6.69% per
annum. Interest with respect to the Offered Certificates will be distributed on
the 15th day of each month (or, if such 15th day is not a business day, the next
succeeding business day) (each, a "Distribution Date"), commencing with the
September 1997 Distribution Date. Principal on the Class A Certificates is
scheduled to be paid in full on the August 2002 Distribution Date, but may be
paid earlier or later under certain circumstances described herein. Principal on
the Class B Certificates is scheduled to be paid in full on the September 2002
Distribution Date, but may be paid earlier or later under certain circumstances
described herein. Principal on the Class B Certificates will not be paid until
the Class A Certificates have been paid in full. See "Maturity Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates
as described herein. The Collateral Indebtedness Interest and the Class D
Certificates will be subordinated to the Class A Certificates and the Class B
Certificates, as described herein. The Offered Certificates, the Collateral
Indebtedness Interest and the Class D Certificates will also be entitled to the
benefits of the funds, if any, on deposit in a Cash Collateral Account, as
described herein. See "Description of the Series 1997-2 Certificates and the
Pooling and Servicing Agreement -- Cash Collateral Account."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
CERTIFICATES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS,
SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING" HEREIN.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF
SECURITIES IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND OTHER APPLICABLE LAWS AND REGULATIONS WITH RESPECT TO
ANYTHING DONE BY ANY PERSON IN RELATION TO SECURITIES IN FORM OR OTHERWISE
INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING."
---------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) are issued
(which will occur only in limited circumstances), monthly and annual servicer
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and the sole registered holder of the
related Certificates, pursuant to the Pooling and Servicing Agreement. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. Owners of the beneficial interest in
book-entry Certificates (the "Certificate Owners") will only receive such
reports in accordance with the DTC Rules and the rules and policies of the DTC
Participants. The Trustee and the Servicer will also make such reports available
to the Certificateholders and Certificate Owners upon request. PCC is not
required and does not intend to send any of its financial reports to
Certificateholders or to the Certificate Owners. The Servicer will file with the
Securities and Exchange Commission (the "Commission") such periodic reports with
respect to the Trust, including the Monthly Servicer Reports, as are required
under the Securities Exchange Act of 1934,
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<PAGE> 3
as amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder. See "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Reports to Certificateholders," "-- Evidence as to
Compliance," "-- Book-Entry Registration" and "-- Definitive Certificates."
AVAILABLE INFORMATION
The Transferor has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Offered Certificates. This
Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement (including any amendments thereof and exhibits thereto)
and any reports and other documents incorporated herein by reference as
described below under "Incorporation of Certain Documents by Reference," which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such periodic reports, proxy statements and other information filed with the
Commission by the Servicer with respect to the Trust can also be reviewed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
("EDGAR") System which is publicly available through the Commission's Web Site
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. Any statement contained
herein or in a document deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of the Offered Certificates, to whom a copy of this Prospectus
is delivered, on the written or verbal request of any such person, a copy of any
or all of the documents incorporated by reference herein (other than exhibits to
such documents). Written requests for such copies should be directed to the
Servicer, 3455 Highway 80 West, P.O. Box 20080, Jackson, Mississippi,
39289-0080. Telephone requests for such copies should be directed to (601)
968-4251.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements. Such forward-looking statements may involve
uncertainties and other factors that may cause the actual results and
performance of Proffitt's, Inc. (together with its subsidiaries, the "Company"),
the Trust, the Accounts and the Receivables to be materially different from
future results or performance expressed or implied by such statements.
Cautionary statements regarding the risks associated with such forward-looking
statements, include, without limitation, those statements included under "Risk
Factors," "Composition of the Trust Portfolio -- Geographic Distribution" and
elsewhere herein or incorporated by reference herein. Among others, factors that
could adversely affect actual results and performance include local and regional
economic conditions in the areas served by the Company, the level of consumer
spending for apparel and other consumer goods, levels of consumer debt and
bankruptcies, changes in interest rates, changes in buying, charging and
iii
<PAGE> 4
payment behavior among the Company's customers, the effects of weather
conditions on seasonal sales in the Company's market areas, competition among
department and specialty stores, changes in merchandise mixes, site selection
and related traffic and demographic patterns, best practices and merchandising,
inventory management and turnover levels, realization of planned synergies and
cost savings, and the Company's ability to integrate recent and potential future
acquisitions. See "Risk Factors -- Forward-Looking Statements."
All written or verbal forward-looking statements attributable to the
Company are expressly qualified in their entirety by the cautionary statements.
iv
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms which are used herein are defined elsewhere in this Prospectus. Unless the
context otherwise requires, certain capitalized terms, when used herein, only
relate to the Offered Certificates. As used herein, unless the context otherwise
requires, the "Company" means Proffitt's, Inc. and its subsidiaries, and the
terms "Proffitt's," "McRae's," "Parisian" and "Herberger's" refer to the
Company's respective department store chains that are the initial sellers of
Receivables to the Transferor (the "Department Stores"), and the existing and
predecessor entities that conduct or conducted business under such names.
References in this Prospectus to the Company's fiscal year means the fiscal year
ended on the Saturday nearest January 31 of the following calendar year (e.g.,
"fiscal 1996" means the fiscal year ended February 1, 1997). Otherwise all
references to years mean calendar years ending December 31. All references
herein to the Trust, the Pooling and Servicing Agreement, the Receivables
Purchase Agreements and the terms and conditions thereof, including the
formation of the Trust, refer to the Trust after the execution and delivery of
the Pooling and Servicing Agreement and the Receivables Purchase Agreements,
unless otherwise specified or the context otherwise requires. See "Index of Key
Terms" at the conclusion of the Prospectus.
Type of Securities......... $180,000,000 aggregate principal amount of Class A
6.50% Asset Backed Certificates, Series 1997-2 (the
"Class A Certificates") and $20,000,000 aggregate
principal amount of Class B 6.69% Asset Backed
Certificates, Series 1997-2 (the "Class B
Certificates," and together with the Class A
Certificates, the "Offered Certificates").
Overview of the
Transaction................ The Trust is being formed and the Offering
conducted primarily to replace an existing
short-term, variable rate funding source of the
Company with a longer term, fixed rate funding
source. The assets of the Trust are held by the
Trustee for the benefit of the Series 1997-2
Certificateholders and the holders of certificates
of any other Series issued by Trust. The Trust will
hold the Receivables and will issue the Offered
Certificates and other similar securities. Each
Offered Certificate will represent the right to
receive a portion of the collections on the
Receivables. Such portion of the collections will
be used to pay interest and principal due on such
Offered Certificate on the applicable payment date.
The Class A Certificates will also have the
benefits of excess collections of finance charges,
amounts in the Cash Collateral Account, if any, and
the subordination of the Class B Certificates, the
Collateral Indebtedness Interest and the Class D
Certificates. The Class B Certificates will also
have the benefits of excess collections of finance
charges not needed to cover shortfalls in respect
of the Class A Certificates, amounts in the Cash
Collateral Account, if any, not needed to cover
shortfalls in respect of the Class A Certificates
and the subordination of the Collateral
Indebtedness Interest and the Class D Certificates.
Trust...................... The Proffitt's Credit Card Master Trust (the
"Trust") will be a master trust formed pursuant to
a master pooling and servicing agreement, to be
dated as of the Closing Date (the "Pooling and
Servicing Agreement"), by and among Proffitt's
Credit Corporation, as transferor (in such
capacity, the "Transferor" or "PCC"), Proffitt's,
Inc., as servicer (in such capacity, the
"Servicer"), and Norwest Bank Minnesota, National
Association, as trustee (in such capacity, the
"Trustee"). The Trust will offer privately and
issue separately from this Offering one other
Series of certificates, the Series 1997-1 Variable
Funding Certificates ("Series 1997-1 Variable
Funding Certificates"). The Trust also may issue
additional series (each, a "Series") from time to
time, each pursuant to a series supplement to the
Pooling and Servicing Agreement (each, a
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<PAGE> 6
"Series Supplement" or "Supplement"). Each such
Series may have terms significantly different from
the Offered Certificates and will evidence an
undivided interest in the Trust.
The Offered Certificates are part of Series 1997-2
of the Trust ("Series 1997-2"). Series 1997-2 is
part of "Group One" which will share Shared Excess
Finance Charge Collections and Shared Principal
Collections with other Series in Group One,
including the Series 1997-1 Variable Funding
Certificates. The Offered Certificates will be
issued pursuant to the Pooling and Servicing
Agreement as supplemented by the Series 1997-2
Supplement (the "Series 1997-2 Supplement")
(hereinafter, the term "Pooling and Servicing
Agreement," unless the context requires otherwise,
refers to the Pooling and Servicing Agreement as
supplemented by the Series 1997-2 Supplement). An
interest referred to as the "Collateral
Indebtedness Interest" and deemed to be a class of
investor certificates and a class of investor
certificates referred to as the "Class D
Certificates" will also be issued as part of Series
1997-2 (the Offered Certificates, the Collateral
Indebtedness Interest and the Class D Certificates
are collectively referred to as the "Series 1997-2
Certificates" or the "Certificates"). The Class D
Certificates will be held by the Transferor and
will not be transferable without the delivery of a
tax opinion to the effect that such transfer would
not adversely affect the tax characterization of
the Trust. The Transferor may, at its option during
the Revolving Period, and subject to the
satisfaction of certain conditions set forth in the
Series 1997-2 Supplement, cause the issuance of
additional Class D Certificates. There can be no
assurance as to whether the Transferor will elect
to issue any such additional Class D Certificates.
Each certificate of a Series will represent the
right to receive (i) payments of interest at the
specified rate or rates per annum (each, a
"Certificate Rate") and (ii) payments of principal
during or at the end of the Accumulation Period,
Rapid Amortization Period or other type of
amortization period.
As used in this Prospectus, the term
"Certificateholders" refers to registered holders
of the Offered Certificates, the term "Class A
Certificateholders" refers to registered holders of
the Class A Certificates, the term "Class B
Certificateholders" refers to registered holders of
the Class B Certificates, the term "Collateral
Indebtedness Holder" refers to the holder of the
Collateral Indebtedness Interest and the term
"Class D Certificateholders" refers to holders of
the Class D Certificates.
The assets of the Trust will be allocated among the
certificateholders of each Series and the holder of
the Exchangeable Transferor Certificate. The
interest of Series 1997-2 in the Trust means, on
any date of determination, the sum of the Class A
Investor Amount, the Class B Investor Amount, the
Collateral Indebtedness Amount and the Class D
Investor Amount (the "Investor Amount"). The
aggregate initial principal amount of the Series
1997-2 Certificates is $235,300,000 (the "Initial
Investor Amount"). See "Description of the Series
1997-2 Certificates and the Pooling and Servicing
Agreement -- General."
Sellers.................... Proffitt's, McRae's, Parisian and Herberger's, as
the initial Sellers, will be the originators of the
Receivables, together with any other affiliates of
the Company that may be hereafter designated,
subject to the Rating
2
<PAGE> 7
Agency Condition, to originate, acquire and sell
receivables to the Transferor (herein, such initial
and future sellers are referred to as the "Sellers"
or as "Eligible Originators").
Transferor................. PCC will be the originator of the Trust and the
Transferor of the Receivables and is a wholly-owned
(directly and indirectly), limited purpose
subsidiary of Proffitt's, Inc.
Servicer................... Proffitt's, Inc., as Servicer, and McRae's, Inc.,
as Subservicer, will service the Receivables for
the Trust pursuant to the Pooling and Servicing
Agreement. The Servicer will receive a monthly
servicing fee from the Trust, from which it will
pay the Subservicer's fees.
Trust Assets............... The property of the Trust will include receivables
(the "Receivables") arising under certain consumer
revolving credit card accounts (the "Accounts")
originated or acquired by the Sellers, including
any additional accounts following their designation
as such (the "Additional Accounts") and any
Automatic Additional Accounts following their
creation, and selected by the Transferor from the
portfolio of consumer revolving credit card
accounts owned or acquired by the Sellers, all
monies due or to become due in payment of the
Receivables, all Recoveries, collections, all other
proceeds of the Receivables and proceeds of credit
insurance policies relating to the Receivables, all
monies held in certain accounts of the Trust
(including investment earnings on such amounts,
unless otherwise specified in the Pooling and
Servicing Agreement or the related Series
Supplement), and the benefit of funds, if any, held
in the Cash Collateral Account. The Transferor will
initially designate Automatic Additional Accounts;
however, the Transferor may discontinue the
inclusion of Automatic Additional Accounts at any
time, in its sole discretion. Initially, the Trust
will not include accounts or receivables of the
Younkers Department Stores ("Younkers"), but these
may be added at a later date, subject to the
maintenance of the outstanding ratings on rated
securities issued by the Trust.
Interest and Principal..... Each of the Offered Certificates represents an
undivided interest in the Trust, and each Offered
Certificate represents the right to payments of
interest at the specified Certificate Rate. All
payments in respect of the Offered Certificates
will be made in U.S. Dollars. Each Class A
Certificate represents the right to receive
payments of (i) interest at the rate of 6.50% per
annum (the "Class A Certificate Rate"), accruing
from August 21, 1997 (the "Closing Date") and (ii)
principal scheduled to be paid in full on the
August 2002 Distribution Date (the "Class A
Expected Payment Date"), but which may be paid
later or earlier, including, under certain limited
circumstances, during the rapid amortization
period, which commences at the close of business on
the day on which a Pay Out Event with respect to
Series 1997-2 is deemed to have occurred, and ends
on the first to occur of (a) the payment in full of
the Class A Investor Amount, the Class B Investor
Amount, the Collateral Indebtedness Amount and the
Class D Investor Amount, respectively, or (b) the
Stated Series Termination Date (the "Rapid
Amortization Period.")
Each Class B Certificate represents the right to
receive payments of (i) interest at the rate of
6.69% per annum (the "Class B Certificate Rate"),
accruing from the Closing Date and (ii) principal
scheduled to
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<PAGE> 8
be paid in full on the September 2002 Distribution
Date (the "Class B Expected Payment Date"), but
which may be paid later or earlier, including,
under certain limited circumstances, during the
Rapid Amortization Period.
The aggregate undivided interest in the Trust
represented by the Class A Certificates (the "Class
A Investor Amount") initially will equal
$180,000,000 (the "Class A Initial Investor
Amount") and will decline as principal is paid to
the Class A Certificateholders or as Class A
Investor Charge Offs occur.
The aggregate undivided interest in the Trust
represented by the Class B Certificates (the "Class
B Investor Amount") initially will equal
$20,000,000 (the "Class B Initial Investor Amount")
and will decline as principal is paid to the Class
B Certificateholders or as collections of Principal
Receivables allocable to the Class B Certificates
are reallocated for the benefit of the Class A
Certificates, as Class A Allocable Amounts are
allocated to the Class B Certificates, or as Class
B Investor Charge Offs occur.
The final distribution of principal and interest on
the Offered Certificates will be made no later than
the December 2005 Distribution Date (the "Stated
Series Termination Date"). After the Stated Series
Termination Date, the Trust will have no further
obligation to pay principal or interest on the
Offered Certificates.
The Offered Certificates will include the right to
receive varying percentages of the collections of
Finance Charge Receivables and Principal
Receivables received during each monthly period
(each, a "Monthly Period") determined in accordance
with the Pooling and Servicing Agreement. See
"Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement -- Investor
Percentages and Transferor Percentage."
Interest payments will be funded from (i) the
portion of Finance Charge Receivables and Net
Recoveries, if any, collected during the preceding
month allocable to the Investor Amount, (ii) any
Shared Excess Finance Charge Collections allocable
to the Investor Amount, (iii) drawings from the
Reserve Account and the Cash Collateral Account
plus Reallocated Principal Collections and (iv)
interest, if any, earned (net of investment
expenses and losses) on the Excess Funding Account
allocable to the Investor Amount (collectively,
"Available Finance Charge Collections"). The term
"Net Recoveries" means, with respect to any Monthly
Period, the excess, if any, of all amounts
(including insurance proceeds, if any) received by
the Servicer during such Monthly Period with
respect to Receivables in Defaulted Accounts
("Recoveries") over the aggregate amount of
Principal Receivables in Defaulted Accounts charged
off during such Monthly Period. Principal payments
with respect to the Certificates will be funded
from Available Principal Collections.
Denominations.............. Beneficial interests in the Offered Certificates
will be offered for purchase in denominations of
$1,000 and integral multiples thereof.
Registration of Offered
Certificates............. The Offered Certificates initially will be
represented by global Series 1997-2 Certificates
registered in the name of Cede, as the
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<PAGE> 9
nominee of DTC (in the United States) or the Cedel
Bank societe anonyme ("Cedel") or Euroclear (in
Europe). Except as specified herein, Certificate
Owners of each Series offered hereby may elect to
hold their Certificates through any of DTC (in the
United States) or Cedel or Euroclear (in Europe).
Transfers within DTC, Cedel or Euroclear, as the
case may be, will be made in accordance with the
usual rules and operating procedures of the
relevant system. Cross-market transfers between
persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding
directly or indirectly through Cedel or Euroclear,
on the other, will be effected by DTC through the
relevant Depositaries of Cedel or Euroclear. No
purchaser of an Offered Certificate will be
entitled to receive a definitive certificate except
under certain limited circumstances described
herein. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing
Agreement -- Book-Entry Registration" and
"-- Definitive Certificates".
Record Date................ The close of business on the last business day of
the month preceding any Distribution Date shall be
the "Record Date."
Receivables................ The Receivables will consist of amounts charged by
holders of credit cards issued by the Sellers to
purchase or obtain merchandise (such amount, less
the Discount Option Receivables, the "Principal
Receivables"). The Receivables will also include
"Finance Charge Receivables," which consist of the
sum of (i) the related periodic finance charges and
any amounts charged to the Accounts in respect of
late fees, over limit fees, returned check fees or
other fees and charges (collectively, "Finance
Charges") and (ii) Discount Option Receivables. The
Transferor is initially exercising its Discount
Option to establish the Discount Percentage at 2%.
An amount equal to the product of the Discount
Percentage and the amount of the Receivables
arising in the Accounts on and after the date such
Discount Option is exercised that otherwise would
be Principal Receivables will be treated as Finance
Charge Receivables. The aggregate amount of
Receivables in the Accounts as of July 31, 1997 was
$270,650,780, comprised of $267,350,232 of
Principal Receivables (without reduction for
Discount Option Receivables), $3,300,548 of Finance
Charge Receivables (without including Discount
Option Receivables) and $5,347,005 of Discount
Option Receivables. The Finance Charge Receivables
(exclusive of the effect of Discount Option
Receivables) will not affect the Investor Amount or
the Transferor Amount. The aggregate undivided
interest in the Principal Receivables in the Trust
evidenced by the Offered Certificates, the
Collateral Indebtedness Interest and the Class D
Certificates will never exceed the Adjusted
Investor Amount regardless of the total amount of
Principal Receivables in the Trust at any time. The
entire portfolio of the credit card accounts
originated by the initial Sellers is referred to
herein as the "Trust Portfolio."
Late charges and returned check charges are imposed
under applicable state law. Annual fees currently
are not imposed on the credit card accounts.
Under the Pooling and Servicing Agreement, the
Servicer may estimate the amount of collections
with respect to the Accounts to be allocated
between Principal Receivables and Finance Charge
Receivables. For each Monthly Period, the amount of
collections allocated to Finance
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<PAGE> 10
Charge Receivables for all Accounts shall be equal
to the amount of Finance Charges actually assessed
on all Accounts in the immediately preceding
Monthly Period. If the Servicer is able to
determine the actual amount of collections proceeds
which are collections of Finance Charge Receivables
and collections of Principal Receivables, the
Servicer may at its option allocate collections in
accordance with such actual amounts.
Receivables Purchase
Agreements............... Pursuant to the Receivables Purchase Agreements, as
heretofore amended (the "Receivables Purchase
Agreements"), between PCC and each of the initial
Sellers, all Receivables existing under the
Accounts at the dates specified therein, and all
Receivables created thereafter until termination of
the Trust or the beginning of the Rapid
Amortization Period for all outstanding Series were
sold to PCC. In addition, from time to time,
Receivables in the related Additional Accounts and
Automatic Additional Accounts may be sold to PCC by
the Sellers. PCC, as Transferor, will in turn
transfer such Receivables to the Trust pursuant to
the Pooling and Servicing Agreement. The Transferor
has also assigned to the Trust its rights under the
Receivables Purchase Agreements. See "Description
of the Receivables Purchase Agreements."
Servicing Fee.............. Proffitt's is the Servicer of the Receivables, and
McRae's, Inc. will act as Subservicer. The Servicer
will receive a monthly fee as servicing
compensation from the Trust in an amount equal to
one-twelfth ( 1/12th) of the product of 2% per
annum and the Adjusted Investor Amount (the
"Investor Monthly Servicing Fee"), from which it
will pay the Subservicer for its servicing
activities. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing
Agreement -- Servicing Compensation and Payment of
Expenses."
Interest Payments.......... Interest on the Class A Certificates will be
distributed on each Distribution Date in an amount
equal to the product of one-twelfth ( 1/12th) of
the Class A Certificate Rate and the principal
amount of the Class A Certificates as of the
preceding Record Date; provided, however, that in
the case of the first Distribution Date, the amount
of interest payable on the Class A Certificates
will be $780,000.
Interest on the Class B Certificates will be
distributed on each Distribution Date in an amount
equal to the product of one-twelfth ( 1/12th) of
the Class B Certificate Rate and the principal
amount of the Class B Certificates as of the
preceding Record Date; provided, however, that in
the case of the first Distribution Date, the amount
of interest payable on the Class B Certificate will
be $89,200.
Interest on the Offered Certificates will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest on the
Class A Certificates or the Class B Certificates
for any Distribution Date due but not paid on such
Distribution Date will be payable on the next
succeeding Distribution Date, together with
additional interest on such amount at the Class A
Certificate Rate or the Class B Certificate Rate,
as applicable, plus 2% per annum.
Revolving Period and
Accumulation Period...... The revolving period with respect to the Offered
Certificates (the "Revolving Period") is scheduled
to end (although such period may end
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sooner upon the occurrence of a Pay Out Event) and
the accumulation period with respect to the Offered
Certificates (the "Accumulation Period") is
scheduled to commence at the close of business on
the last day of the July 2001 Monthly Period.
Subject to the conditions set forth under
"Description of the Series 1997-2 Certificates and
Pooling and Servicing Agreement -- Postponement of
Accumulation Period" herein, the day on which the
Revolving Period is scheduled to end and the
Accumulation Period commences may be delayed to no
later than the close of business on the last day of
the June 2002 Monthly Period. Unless a Pay Out
Event has occurred, (i) the "Class A Accumulation
Period" will commence at the close of business on
the last day of the Revolving Period and end on the
earliest of (a) the commencement of the Rapid
Amortization Period, (b) the payment in full to the
Class A Certificateholders of the Class A Investor
Amount or (c) the Stated Series Termination Date,
and (ii) the "Class B Accumulation Period" will
commence on the Distribution Date on which the
Class A Investor Amount is paid in full or, if the
Class A Investor Amount is paid in full on the
Class A Expected Payment Date, at the close of
business on the Class A Expected Payment Date, and
end on the earliest of (a) the commencement of the
Rapid Amortization Period, (b) the payment in full
to the Class B Certificateholders of the Class B
Investor Amount or (c) the Stated Series
Termination Date.
Principal Payments......... No principal will be payable to the Class A
Certificateholders until the Class A Expected
Payment Date or, upon the occurrence of a Pay Out
Event, the first Distribution Date with respect to
the Rapid Amortization Period. No principal will be
payable to the Class B Certificateholders until the
Class B Expected Payment Date or, upon the
occurrence of a Pay Out Event, until the Class A
Investor Amount is paid in full (the "Class B
Principal Commencement Date"). No principal will be
payable to the Class B Certificateholders until the
Class A Certificates have been paid in full. For
the period beginning on the Closing Date and ending
with the commencement of the Accumulation Period or
the Rapid Amortization Period, collections of
Principal Receivables otherwise allocable to the
Certificateholders (other than any portion of such
collections applied as Reallocated Principal
Collections) will, subject to certain limitations,
be treated as Shared Principal Collections and
applied to cover principal payments due to or for
the benefit of certificateholders of other Series,
if so specified in the Series Supplement for such
other Series, be deposited in the Excess Funding
Account, be paid to the Transferor as holder of the
Exchangeable Transferor Certificate, or, in certain
limited circumstances, be paid to the Collateral
Indebtedness Holder or the Class D
Certificateholders. See "Description of the Series
1997-2 Certificates and the Pooling and Servicing
Agreement -- Pay Out Events" for a discussion of
the events which might lead to the termination of
the Revolving Period prior to the scheduled
commencement of the Accumulation Period.
Paired Series.............. Series 1997-2 may be paired with one or more other
Series (each a "Paired Series"). If a Paired Series
is issued with respect to Series 1997-2, following
the issuance of such Paired Series, as the Adjusted
Investor Amount decreases, the investor interest of
the Paired Series will increase by an equal amount.
This will have the effect of increasing the
investor interest of the Paired Series by an amount
that would have
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<PAGE> 12
otherwise increased the Transferor Interest. If a
pay out event occurs with respect to any such
Paired Series prior to the payment in full of the
Certificates, the percentages used to determine the
share of collections of Principal Receivables
allocable to the Certificates may be reduced, which
may delay the final payment of principal to the
Certificateholders. See "Description of the Series
1997-2 Certificates and the Pooling and Servicing
Agreement -- Paired Series," "Description of the
Series 1997-2 Certificates and the Pooling and
Servicing Agreement -- Investor Percentages and
Transferor Percentage" and "Maturity Assumptions."
Subordination of the Class
B Certificates, the
Collateral Indebtedness
Interest and the Class D
Certificates............. The Class B Certificates, the Collateral
Indebtedness Interest and the Class D Certificates
will be subordinated as described herein to the
extent necessary to fund certain payments with
respect to the Class A Certificates. In addition,
the Collateral Indebtedness Interest and the Class
D Certificates will be subordinated as described
herein to the extent necessary to fund certain
payments with respect to the Class B Certificates.
If the amount held in the Cash Collateral Account
is zero and the Collateral Indebtedness Amount and
the Class D Investor Amount are reduced to zero,
the Class B Certificateholders will bear directly
the credit and other risks associated with their
undivided interest in the Trust, including losses
that would otherwise be borne by the Class A
Certificateholders. In addition, if the Class B
Investor Amount is reduced to zero, the Class A
Certificateholders will bear directly the credit
and other risks associated with their undivided
interest in the Trust. To the extent the Class B
Investor Amount or the Class A Investor Amount is
reduced, the percentage of collections of Finance
Charge Receivables allocable to the Class B
Certificateholders and the Class A
Certificateholders, respectively, with respect to
subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such
reduction in the Class B Investor Amount or the
Class A Investor Amount is not reimbursed, the
amount of principal distributable to the Class B
Certificateholders and the Class A
Certificateholders, respectively, will be reduced.
See "Description of the Series 1997-2 Certificates
and the Pooling and Servicing Agreement -- Investor
Percentages and Transferor Percentage" and
"-- Subordination of the Class B Certificates, the
Collateral Indebtedness Interest and the Class D
Certificates."
Exchangeable Transferor
Certificate.............. PCC (or one or more of its affiliates) will hold
the undivided interest in the assets of the Trust
not represented by the Series 1997-2 Certificates
or certificates of any other Series (the
"Transferor Interest"). The amount of such interest
(the "Transferor Amount") will equal the aggregate
amount of Principal Receivables plus the amount
held in the Excess Funding Account minus the
aggregate adjusted investor amount for all Series
and minus the investor amount of any interest in
the Trust issued to an Enhancement Provider
(without duplication). The Transferor Amount will
fluctuate as the aggregate amount of Principal
Receivables changes, as the amount in the Excess
Funding Account changes, as Receivables from
Additional Accounts and Automatic Additional
Accounts and Receivables from Removed Accounts are
added to
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<PAGE> 13
and removed from the Trust and as other Series are
issued and as outstanding Series amortize. Such
interest will be evidenced by one or more
certificates (individually and collectively, the
"Exchangeable Transferor Certificate"). The
Transferor, from time to time, may create other
Series of certificates. However, at all times the
Exchangeable Transferor Certificate must represent
an interest in the Trust at least equal to the
Minimum Transferor Amount. The ability of the
Transferor to reduce the Minimum Transferor Amount
is subject to certain additional conditions,
including the delivery of an opinion of counsel
that such reduction will not have a material
adverse effect on the federal income tax
characterization of any outstanding Series and
written confirmation from each Rating Agency that
such reduction will not result in such Rating
Agency reducing or withdrawing its rating on any
rated certificates then outstanding under any
Series. See "The Accounts."
Amounts Available as
Enhancement.............. On each Distribution Date, the amount of
enhancement available to the Certificateholders
will equal the lesser of (i) the sum of the
Collateral Indebtedness Amount, the Class D
Investor Amount and the amount, if any, held in the
Cash Collateral Account (collectively, the
"Available Enhancement Amount") and (ii) the
Required Enhancement Amount. The "Required
Enhancement Amount" means, with respect to any
Distribution Date, subject to certain limitations
more fully described herein, the product of the
Adjusted Investor Amount and 15%, but not less than
$7,059,000; provided, however, that if a Pay Out
Event occurs, then the Required Enhancement Amount
shall equal the Required Enhancement Amount on the
Distribution Date immediately preceding the
occurrence of such Pay Out Event. If on any
Distribution Date, the Available Enhancement Amount
(after giving effect to any issuance of additional
Class D Certificates on such Distribution Date,
which issuance will be at the sole option of the
Transferor and subject to the satisfaction of
certain conditions) is less than the Required
Enhancement Amount, certain Excess Spread and
Shared Excess Finance Charge Collections allocable
to Series 1997-2, to the extent available, will be
used to increase the Available Enhancement Amount
to the extent of such shortfall. If on any
Distribution Date the Available Enhancement Amount
exceeds the Required Enhancement Amount, such
excess may be applied to reduce the Available Cash
Collateral Amount or the Collateral Indebtedness
Amount in accordance with the Loan Agreement and,
accordingly, if so applied, would not be available
to the Certificateholders. The Required Enhancement
Amount may be reduced upon receipt of notice from
the Rating Agencies rating the Offered Certificates
that a reduction of the Required Enhancement Amount
will not result in the reduction of the ratings of
the Offered Certificates.
Cash Collateral Account.... A Cash Collateral Account (the "Cash Collateral
Account") will be held in the name of the Trustee
for the benefit of the Certificateholders, the
Collateral Indebtedness Holder and the Class D
Certificateholders. The balance of the Cash
Collateral Account (the "Available Cash Collateral
Amount") initially will be zero and will increase
thereafter, subject to the availability of Excess
Spread and Shared Excess Finance Charge collections
allocable to Series 1997-2, and to the extent
amounts
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<PAGE> 14
are required to be deposited therein pursuant to
the Loan Agreement. Withdrawals may be made from
the Cash Collateral Account to fund such amounts as
described under "Description of the Series 1997-2
Certificates and the Pooling and Servicing
Agreement -- Cash Collateral Account."
Collections................ During any Monthly Period in the Revolving Period,
the Servicer will deposit all collections of
Finance Charge Receivables allocable to the Series
1997-2 Certificates in an account established for
such purpose (the "Collection Account"), on a daily
basis, subject to certain exceptions. During any
Monthly Period in the Revolving Period, the
Servicer will generally pay to the holder of the
Exchangeable Transferor Certificate collections in
respect of Principal Receivables, less any amounts
applied to reduce the Collateral Indebtedness
Amount, any applied Reallocated Principal
Collections and amounts required to be deposited in
the Excess Funding Account. During the Accumulation
Period or the Rapid Amortization Period, the
Servicer will deposit all collections of Principal
Receivables allocable to the Series 1997-2
Certificates in the Collection Account on a daily
basis, subject to certain exceptions. See
"Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement -- Applications
of Collections."
Optional Repurchase........ The Class A Certificates and the Class B
Certificates will be subject to optional repurchase
by the Transferor on any Distribution Date on or
after the Distribution Date on which the sum of the
Class A Adjusted Investor Amount, the Class B
Adjusted Investor Amount, the Collateral
Indebtedness Amount and the amount of the Class D
Investor Amount held by parties other than the
Transferor or any of its affiliates is less than or
equal to 10% of the sum of the Class A Investor
Amount on the Closing Date, the Class B Investor
Amount on the Closing Date, the Collateral
Indebtedness Amount on the Closing Date and the
highest amount of the Class D Investor Amount held
by parties other than the Transferor or any of its
affiliates since the Closing Date. The repurchase
price of the Offered Certificates will be equal to
the Adjusted Investor Amount thereof plus accrued
and unpaid interest thereon. See "Description of
the Series 1997-2 Certificates and the Pooling and
Servicing Agreement -- Optional Repurchase; Final
Payment of Principal; Termination."
ERISA Considerations....... If the Trust's assets were deemed to be "plan
assets" of an investor that is a Benefit Plan, it
is uncertain whether existing exemptions from the
"prohibited transaction" rules of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code") would apply to all
transactions involving the Trust's assets.
Accordingly, if the Offered Certificates are
acquired by Benefit Plan investors, such
acquisition could result in excise taxes and other
liabilities under ERISA and the Code. Plan
fiduciaries must carefully determine whether the
acquisition and holding of the Offered Certificates
and the operation of the Trust would result in such
excise taxes and other liabilities to their Benefit
Plan. See "ERISA Considerations."
Class A Certificate
Rating..................... It is a condition to the issuance of the Class A
Certificates that they be rated in the highest
rating category by at least two nationally
recognized Rating Agencies. The rating of the Class
A Certificates is based
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<PAGE> 15
primarily on the value of the Receivables as
determined by the applicable Rating Agency and the
terms of the Class B Certificates, the Collateral
Indebtedness Interest and the Class D Certificates.
See "-- Subordination of the Class B Certificates,
the Collateral Indebtedness Interest and the Class
D Certificates" and "Risk Factors -- Limited Nature
of Certificate Rating."
Class B Certificate
Rating..................... It is a condition to the issuance of the Class B
Certificates that they be rated in one of the three
highest rating categories by at least two
nationally recognized Rating Agencies. The rating
of the Class B Certificates is based primarily on
the value of the Receivables as determined by the
applicable Rating Agency and the terms of the
Collateral Indebtedness Interest and the Class D
Certificates. See "-- Subordination of the Class B
Certificates, the Collateral Indebtedness Interest
and the Class D Certificates" and "Risk
Factors -- Limited Nature of Certificate Rating."
Risk Factors............... See "Risk Factors" beginning on page 12 of this
Prospectus for a discussion of certain factors that
should be considered by prospective purchasers of
the Offered Certificates.
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<PAGE> 16
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Certificates, and there is no
assurance that one will develop. The Underwriters expect, but are not obligated,
to make a market in the Offered Certificates. There is no assurance that any
such market will develop or, if it does develop, that it will provide liquidity
of investment or continue.
LIMITED CREDIT ENHANCEMENT
Credit enhancement will be provided by subordination of the Collateral
Indebtedness Interest and the Class D Certificates and additionally, in the case
of the Class A Certificates, by subordination of the Class B Certificates.
Amounts, if any, deposited in the Cash Collateral Account will also provide
limited credit enhancement. Certificateholders will have no recourse with
respect to credit losses on Receivables against the Sellers, the Transferor, the
Servicer, the Subservicer, the Trustee or any of their affiliates. Consequently,
if the available credit enhancement is reduced to zero, the Certificateholders
will bear directly the credit and other risks associated with their undivided
interests in the Trust. Certificateholders must rely solely upon payments on the
Receivables for the payment of principal of, and interest on, the Offered
Certificates. Should the Offered Certificates not be paid in full on a timely
basis, Certificateholders may not look to any assets of the Sellers, the
Transferor, the Servicer, the Subservicer, the Trustee or any affiliate thereof
to satisfy any payment obligations with respect to the Certificates.
TRANSFER OF RECEIVABLES
The Transferor has represented and warranted in the Pooling and Servicing
Agreement that the transfer of the Receivables to the Trust is either a valid
transfer and assignment of the Receivables to the Trust or the grant to the
Trust of a security interest in the Receivables and the Sellers have represented
in the Receivables Purchase Agreements that the transfer of the Receivables to
the Transferor is a valid sale of the Receivables. The Sellers and the
Transferor have taken and will take all actions as are required under applicable
law to perfect the Transferor's and the Trust's interest in the Receivables. The
Transferor has represented and warranted that if the transfer of the Receivables
by the Transferor to the Trust is the grant to the Trust of a security interest
in the Receivables, such security interest constitutes a first priority
perfected security interest therein and, to the extent provided under the
applicable Uniform Commercial Code (the "UCC"), in the proceeds thereof (except
for liens for local taxes and government charges not due and payable or being
contested in good faith by the Transferor). The Sellers have similarly
represented and warranted that the Transferor's interest in the Receivables
constitutes a first priority perfected ownership interest in the Receivables and
the proceeds thereof (except for liens for local taxes and governmental charges
not due and payable or being contested in good faith by the applicable Seller).
Nevertheless, a tax or government lien on property of a Seller or the Transferor
arising before any Receivable comes into existence may have priority over the
Transferor's or the Trust's interest in such Receivable. See "Certain Legal
Aspects of the Receivables -- Transfer of Receivables."
COMMINGLING OF COLLECTIONS
While Proffitt's, Inc. and McRae's, Inc. are the Servicer and Subservicer,
respectively, collections held by or on behalf of the Servicer may, during
periods when certain conditions specified in the Pooling and Servicing Agreement
are satisfied, be commingled and used for the Servicer's own benefit prior to
each Distribution Date and, in the event of the insolvency or receivership of
any of the Sellers, the Servicer, the Subservicer or the Transferor or, in
certain circumstances, the lapse of certain time periods as provided under the
UCC, the Trust may not have a perfected interest in such collections. During
periods when the Company fails to maintain the rating or meet other criteria
required by the applicable Rating Agency, the Servicer will be required to
deposit a portion of the collections directly into the Collection Account no
later than the second business day after the date of processing of such
collections.
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BANKRUPTCY RISKS
Each of the Sellers warrants in the applicable Receivables Purchase
Agreement that the sale of Receivables to be sold by them to the Transferor is a
valid sale of such Receivables to the Transferor, and the Transferor warrants in
the Pooling and Servicing Agreement that the transfer of the Receivables by it
to the Trust is either a valid transfer of the Receivables or the grant of a
security interest in the Receivables to the Trust. Each of the Sellers and the
Transferor has agreed to take such actions as are required to perfect the sale
of Receivables to the Transferor and to perfect the Trust's interest in the
Receivables. Each of the Sellers intends that each transfer of Receivables by
them to the Transferor constitutes a "true sale" of such Receivables to the
Transferor. If such transfer constitutes a "true sale", such Receivables and the
proceeds thereof would not be part of the Seller's bankruptcy estate under
Section 541 of the U.S. Bankruptcy Code (Title 11, United States Code), as
amended (the "Bankruptcy Code"). If any Seller should become a debtor subject to
a Bankruptcy Code proceeding subsequent to such transfer, the Receivables and
related proceeds should not be available to creditors of such Seller.
Notwithstanding the foregoing, if a Seller were to become a debtor in a
bankruptcy case and a creditor or a trustee-in-bankruptcy of such debtor or such
debtor itself, as debtor-in-possession, were to take the position that the sale
of Receivables by such Seller to the Transferor should be recharacterized as a
pledge of such Receivables to secure a borrowing of such debtor, then delays in
payments of collections of Receivables to the Transferor and consequently to the
Trust and delays in payments on the Offered Certificates could occur. If the
court were to rule in favor of such recharacterization then reductions in the
amount of such payments could occur and Certificateholders could experience
losses in their investment in the Offered Certificates. See "Certain Legal
Aspects of the Receivables -- Certain Matters Relating to Bankruptcy or
Insolvency."
The Transferor has taken steps in structuring the transactions contemplated
hereby that are intended to reduce the risk that a bankruptcy case with respect
to the Company or any Seller will result in consolidation of the assets and
liabilities of the Company or any Seller with those of the Transferor. The
Transferor has also been organized in a manner intended to reduce the risk that
it will become subject to a bankruptcy case. If, notwithstanding the foregoing,
(i) a court concluded that the assets and liabilities of the Transferor should
be consolidated with the assets and liabilities of the Company or any Seller;
(ii) the Transferor became a debtor in a bankruptcy proceeding, or (iii) a
creditor or a trustee-in-bankruptcy of such debtor itself, as debtor-in-
possession, were to litigate the consolidation issue, then delays in
distributions in respect of the Offered Certificates and possible reductions in
the amounts of such distributions could occur. See "Certain Legal Aspects of the
Receivables -- Certain Matters Relating to Bankruptcy or Insolvency."
If the Company or an individual Seller or the Transferor were to become a
debtor in a bankruptcy case or certain other events relating to the insolvency
of the Company or an individual Seller or the Transferor were to occur, causing
a Pay Out Event pursuant to the Pooling and Servicing Agreement, new Principal
Receivables would not be transferred to the Trust. If any such events occur with
respect to the Transferor, the Trustee would sell the Receivables (unless
holders of more than 50% of the principal amount of outstanding certificates of
each class under each Series instruct otherwise), thereby causing a termination
of the Trust and a loss to the Certificateholders if the net proceeds from such
sale were insufficient to pay the Certificateholders in full. If no Servicer
Default other than such insolvency event exists, the debtor-in-possession may
have the power to prevent either the Trustee or the Certificateholders from
appointing a successor Servicer. See "Certain Legal Aspects of the
Receivables -- Certain Matters Relating to Bankruptcy or Insolvency."
Payments made by each of the Sellers pursuant to the Receivables Purchase
Agreements in respect of repurchases of Ineligible Receivables or in respect of
Adjustments may be recoverable by such Sellers, as applicable, as
debtor-in-possession or by a trustee-in-bankruptcy of an individual Seller, as
applicable, from the Transferor or the Certificateholders as a preferential
transfer, if such payments were made within one year prior to the commencement
of a bankruptcy case in respect of the Seller, as applicable.
Under federal law, under certain circumstances, a tax, government or other
nonconsensual lien arising prior to the creation of a Receivable could have
priority over the Trust's interest in such Receivable. Under the Receivables
Purchase Agreements, each of the Sellers will warrant to the Transferor, and
under the Pooling and Servicing Agreement, the Transferor will warrant to the
Trust, that such party has conveyed the
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<PAGE> 18
Receivables free and clear of any lien of any third party, except for liens for
local taxes and governmental charges not due and payable or being contested in
good faith by the applicable Seller or the Transferor, as applicable. Each of
the Transferor and each of the Sellers will also covenant not to sell, pledge,
assign, transfer or grant any lien on any Receivable included in the Trust other
than to the Trust.
EFFECT OF CONSUMER AND DEBTOR PROTECTION LAWS ON COLLECTIBILITY OF RECEIVABLES
The Accounts and the Receivables are subject to numerous federal and state
consumer protection laws which impose requirements on the making and collection
of consumer credit. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect the Servicer's ability to collect the Receivables
or any of the Department Stores' ability to maintain or improve historic levels
of finance charges and other fees.
During recent years, consumer awareness has increased with respect to the
level of finance charges and fees and other practices of credit card issuers and
other consumer revolving credit loan providers which could result in public
pressure on federal and state legislators to impose limitations on finance
charges or other fees. If federal or state laws imposing a ceiling on finance
charge rates were enacted and were applicable to the Sellers, each of the
Department Stores could be required to lower the finance charges that it
assesses on the Receivables to a level which might result in a Pay Out Event,
thus causing commencement of the Rapid Amortization Period and other adverse
consequences to Certificateholders.
Pursuant to the Pooling and Servicing Agreement, the Transferor agrees to
accept retransfer from the Trust, and pursuant to the Receivables Purchase
Agreements, each of the Sellers agrees to repurchase from the Transferor, each
Receivable that did not comply with all requirements of law at the time it was
transferred to the Trust where the related Account becomes a Defaulted Account
or the proceeds of the Receivable are impaired. Pursuant to such agreements, the
Transferor makes to the Trust, and each of the Sellers makes to the Transferor,
certain other representations and warranties relating to the validity and
enforceability of the Receivables. However, it is not anticipated that the
Trustee will make any examination of the Receivables or the records relating
thereto for the purpose of establishing the presence or absence of defects or
compliance with such representations and warranties, or for any other purpose.
The sole remedy if any such representation and warranty is breached, and such
breach continues beyond the applicable cure period, is that the Transferor will
be obligated to accept the retransfer of such Receivables and, as applicable,
each of the Sellers will be obligated to repurchase such Receivables from the
Transferor. See "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Representations and Warranties," and "Certain Legal
Aspects of the Receivables -- Consumer and Debtor Protection Laws, Proposed
Legislation and Recent Litigation."
Application of federal and state bankruptcy and debtor relief laws could
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being charged off as uncollectible. See "Description
of the Series 1997-2 Certificates and the Pooling and Servicing
Agreement -- Allocation of Investor Default Amount; Adjustment Amounts; Investor
Charge Offs."
EFFECT OF PAYMENT RATE ON CERTIFICATES
The Receivables may be paid at any time and there is no assurance that
there will be additional Receivables or that any particular pattern of the
Department Stores' credit card account repayments will occur. A significant
decline in the amount of Receivables generated could result in the occurrence of
a Pay Out Event and the commencement of the Rapid Amortization Period, and a
significant decrease in the Department Stores' credit card account monthly
payment rates could result in the Offered Certificates being paid later than the
Class A Expected Payment Date or the Class B Expected Payment Date, as
applicable, or could slow the return of principal during the Rapid Amortization
Period. See "Maturity Assumptions" and "-- Ability to Change Terms of the
Receivables" for a discussion of the Company's ability to change the terms,
including interest rate and fees, on the Accounts.
EFFECT OF CONVENIENCE USE ON CERTIFICATES
Certain of the Department Stores do not impose finance charges on purchases
made by their respective credit card accounts if the obligor pays a specified
percentage of his or her entire amount due within a specified period. Also, each
of the Department Stores from time to time offers deferred billing on certain
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<PAGE> 19
purchases. No interest is charged on such a deferred Receivable for up to 90
days. An increase in the "convenience use" of the Sellers' credit card accounts
or in the level of deferred billing Receivables could have adverse effects upon
the Certificateholders. See "Credit Card Program -- Billing and Payments."
ABILITY TO CHANGE TERMS OF THE RECEIVABLES
The Sellers may, after consultation with and approval by the Company's
senior merchandising and finance executives, change the annual percentage rate
of interest and other Finance Charges which will be applicable from time to time
to the Accounts of the Department Stores, alter the minimum monthly payments
required on the Accounts and change any other terms with respect to the
Accounts. A decrease in the annual percentage rate and/or in the other Finance
Charges would decrease the effective yield on the Accounts and could result in
the occurrence of a Pay Out Event and the commencement of the Rapid Amortization
Period. Each of the Sellers has agreed that, except as otherwise required by law
or as is deemed advisable by each of the Sellers, respectively, for their
respective Department Store credit card program based upon a good faith
assessment by them, in their sole discretion, of the various factors affecting
the use of their respective credit card accounts, they will not reduce the
annual percentage rate used to assess the Finance Charges on the Receivables or
other fees on the Accounts if, as a result of such reduction, their reasonable
expectation of the Portfolio Yield after giving effect to such reduction would
be less than the weighted average base rates of all outstanding Series. In
addition, each of the Sellers has agreed that, unless required by law, they will
not reduce such annual percentage rate if their reasonable expectation of the
Portfolio Yield after giving effect to such reduction would be less than the
highest certificate rate for any outstanding Series. Each of the Sellers may
from time to time elect to change the terms applicable to certain segments of
their respective Department Store credit card accounts, based upon its
determination of credit risk or other considerations. In servicing the Accounts,
the Servicer is required to exercise the same care and apply the same policies
that it exercises in handling similar matters for its own comparable accounts.
Except as specified above, there are no restrictions on any Seller's ability to
change the terms of the Accounts or the respective Seller's credit card
guidelines (the "Credit Card Guidelines"), including policies on credit
approval. There can be no assurance that changes in applicable law, changes in
the marketplace or prudent business practice might not result in a determination
by each of the Sellers to take actions which would change Account terms. See
"Credit Card Program" and "Description of the Series 1997-2 Certificates and the
Pooling and Servicing Agreement -- Pay Out Events."
DEPENDENCE ON THE COMPANY'S DEPARTMENT STORES; COMPETITION
Because the credit card Accounts currently included in the Trust can be
used for purchases of merchandise and services only from the respective
Department Stores that issued such Accounts, the Trust is completely dependent
upon sales made by the Sellers. The retailing business is highly competitive,
and the Department Stores compete with other stores operating in the geographic
areas in which they operate as well as numerous other types of retail outlets.
Each of the Department Stores has several major competitors in each of its
markets. The Company's Department Stores also compete with national and regional
department stores, specialty apparel stores and discount store chains, some of
which are larger than the Company and may be able to devote greater financial
and other resources to marketing and other competitive activities. The Company
also competes with local stores that carry similar or alternative categories of
merchandise. The Company generally competes on the basis of pricing, quality,
merchandise selection, customer service and amenities and store design. The
Company's success also depends in part on its ability to anticipate and respond
to changing merchandise trends and customer preferences in a timely manner.
Accordingly, any failure by the Company to anticipate and respond to changing
merchandise trends and customer preferences could materially adversely affect
sales of the Company's private brands and product lines, which in turn could
materially adversely affect the Company's business, financial condition or
results of operations. There can be no assurance that the Company's stores will
continue to compete successfully with such other stores or that any such
competition will not have a material impact on the Company's financial condition
or results of operations. In addition, the Pooling and Servicing Agreement does
not prohibit the respective stores from disposing of all or any portion of its
business or assets. See "Credit Card Program."
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<PAGE> 20
There can be no assurance that the Department Stores will continue to
generate Receivables at the same rate as in prior years. In the event the
Department Stores do not generate an adequate level of Receivables, a Payout
Event will occur. The occurrence of a Pay Out Event will result in the
commencement of the Rapid Amortization Period. During the Rapid Amortization
Period, collections of Principal Receivables allocated to the Investor Amount
will be applied to reduce the Class A Investor Amount and after such amount has
been reduced to zero, to reduce the Class B Investor Amount. The Class A
Investor Amount and the Class B Investor Amount may be reduced to zero prior to,
or on or after the respective Class A Expected Payment Date and Class B Expected
Payment Date. The reduction of the Class A Investor Amount and the Class B
Investor Amount prior to the Class A Expected Payment Date or the Class B
Expected Payment Date, as the case may be, means that a holder will not receive
the benefit of the Certificate Rate for the period of time originally expected
on the amount of such reduction. There can be no assurance that the holder will
be able to reinvest the proceeds at a similar rate of return and at a similar
risk level. An early repayment could benefit a holder who acquired a Class A
Certificate or Class B Certificate at a discount and harm a holder who acquired
a Class A Certificate or Class B Certificate at a premium.
COMPETITION FROM OTHER CREDIT AND PAYMENT SOURCES
The Department Stores accept other credit cards in addition to their
respective proprietary credit cards, including American Express(R),
MasterCard(R), VISA(R) and the Discover Card(R). Therefore, not all sales on
credit by the Department Stores will generate Receivables. The credit card
market is highly competitive and has experienced increased advertising, target
marketing and pricing competition as traditional and new credit card issuers
have sought to enter the market or expand. The use of incentive programs, (e.g.
awards for card usage) may also affect the volumes charged on various credit
cards. There can be no assurance that customer purchases using Department Store
credit card accounts in the future will continue to represent their current
percentage of each Department Store's sales, compared to sales made on other
credit cards, debit cards, and by cash or check. See "Credit Card
Program -- Portfolio Information."
SOCIAL, LEGAL AND ECONOMIC FACTORS
Changes in credit use and payment patterns by credit card account holders
may also result from a variety of social, legal and economic factors. Economic
factors, nationally and in the regions served by the Sellers including
inflation, prevailing interest rates and unemployment levels, may also be
reflected in increased defaults by the Department Stores' credit card holders
and in the generation of new Receivables. Changes in tax laws, laws regulating
permissible Finance Charges and the Bankruptcy Code could also affect the use
and terms of, and collections on, credit cards. The Transferor is unable to
determine and has no basis to predict whether, or to what extent, social, legal
or economic factors will affect future credit card account use or repayment
patterns. An increase in defaults may result in Class B Investor Charge Offs or
Class A Investor Charge Offs, which will directly reduce the Class B Investor
Amount and the Class A Investor Amount, respectively. In addition, slower
repayments of principal and interest by cardholders due to a higher annual
percentage rate applicable to the Accounts could result in the Offered
Certificates not being paid in full by the Class A Expected Payment Date and the
Class B Expected Payment Date, respectively. A reduction in the annual
percentage rate applicable to the Accounts may result in a decline in the
Portfolio Yield, which could result in a Pay Out Event. See "Maturity
Assumptions" and "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Pay Out Events."
LIMITED NATURE OF CERTIFICATE RATING
It is a condition to issuance of the Class A Certificates that they be
rated in the highest rating category by at least two Rating Agencies. It is a
condition to issuance of the Class B Certificates that they be rated in one of
the three highest rating categories by at least two Rating Agencies. The ratings
address the likelihood of full payment of principal and interest of the Offered
Certificates, in the case of principal, by the Stated Series Termination Date,
and in the case of interest, on the applicable interest payment dates. These
ratings will be based primarily on the value of the Receivables, the credit
support provided by the subordination of the Collateral Indebtedness Interest
and the Class D Certificates and, in the case of the Class A Certificates, by
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<PAGE> 21
the subordination of the Class B Certificates. These ratings do not address the
possibility of a Pay Out Event or the likelihood that the Class A Certificates
will be paid on the Class A Expected Payment Date or that the Class B
Certificates will be paid on the Class B Expected Payment Date. These ratings
are not recommendations to purchase, hold or sell the Offered Certificates, as
such ratings do not comment as to the market price of the Offered Certificates
or their suitability for a particular investor. There is no assurance that
either rating will remain for any given period of time or that either rating
will not be lowered or withdrawn by the applicable Rating Agency, if, in its
judgment, circumstances so warrant.
There can be no assurance as to whether any nationally recognized
statistical rating agency not requested to rate the Offered Certificates will
nonetheless issue a rating with respect to either class of the Offered
Certificates, and if so, what such rating may be. A rating assigned to either
Class A Certificates or Class B Certificates by such a rating agency that has
not been requested by the Transferor to do so may be lower than the ratings
assigned by the Rating Agencies pursuant to the Transferor's request.
BOOK-ENTRY REGISTRATION
The Offered Certificates will initially be represented by certificates
registered in the name of Cede and will not be registered in the names of the
Certificate Owners or their nominees. Unless and until Definitive Certificates
are issued, Certificate Owners will therefore not be recognized by the Trustee
as Certificateholders, as that term is used in the Pooling and Servicing
Agreement. Until such time, Certificate Owners will accordingly only be able to
receive payments to, and exercise the rights of, Certificateholders indirectly
through DTC and its participating organizations ("Participants"), and will
receive reports and other information provided for under the Pooling and
Servicing Agreement only in accordance with the rules, regulations and
procedures creating and affecting DTC. However, the Trustee will deliver such
reports and other information to the Certificate Owners upon request. The
Monthly Servicer Report will be filed with the Commission on a Current Report on
Form 8-K and will be available to Certificate Owners as provided under
"Available Information." In addition, the ability of Certificate Owners to
pledge Offered Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of Offered Certificates,
may be limited due to the lack of a physical certificate for such Offered
Certificates. See "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Reports to Certificateholders," "-- Book-Entry
Registration" and " -- Definitive Certificates."
ABSENCE OF CONTROL ON CERTAIN VOTING MATTERS
Subject to certain exceptions, the holders of certificates of each Series
may take certain actions, or direct certain actions to be taken, under the
Pooling and Servicing Agreement or the related Series Supplement (as defined
below). However, under certain circumstances, the consent or approval of a
specified percentage of the aggregate unpaid principal amount of the
certificates of all outstanding Series will be required to direct certain
actions, including requiring the appointment of a successor Servicer following a
Servicer Default, amending the Pooling and Servicing Agreement under certain
circumstances and directing a reassignment of the entire portfolio of
Receivables. See "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Servicer Default," " -- Amendments,"
" -- Representations and Warranties" and " -- Definitive Certificates."
ISSUANCE OF ADDITIONAL SERIES; MASTER TRUST CONSIDERATIONS
In addition to the Series 1997-2 Certificates, as a master trust, the Trust
may issue additional Series of certificates from time to time. While the
principal terms of any such Series will be specified in the Series Supplement to
the Pooling and Servicing Agreement creating such Series, the provisions of a
Series Supplement and, therefore, the terms of any additional Series, will not
be subject to the prior review or consent of holders of the certificates of any
previously issued Series (including, without limitation, the Offered
Certificates). Such principal terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
security or enhancement, different classes of certificates (including
subordinated classes of certificates), provisions subordinating such Series to
another Series, and/or including Series as part of a Paired Series or a Group,
and any other amendment or supplement to the Pooling and
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<PAGE> 22
Servicing Agreement which is made applicable only to such Series. In addition,
the provisions of any Supplement may give the holders of the certificates issued
pursuant thereto consent, approval or other rights that could result in such
holders having power to cause the Transferor, the Servicer or the Trustee to
take or refrain from taking certain actions, including, without limitation,
actions with respect to the exercise of certain rights and remedies under the
Pooling and Servicing Agreement, without regard to the position or interest of
the holders of Offered Certificates or certificates of any other Series. Similar
rights may also be given to the provider of any enhancement for any Series. For
example, holders of 50% of the aggregate investor amount of all outstanding
Series may elect to terminate all the rights and obligations of the Servicer
under the Pooling and Servicing Agreement in the event of a Servicer Default, or
in the event of a voluntary or involuntary bankruptcy of the Transferor. Also,
if the Transferor were to become a debtor in a bankruptcy case or certain other
events relating to the insolvency of the Transferor were to occur, holders of
50% of the investor amount of each class of each series would have the right to
preclude the Trustee from instructing the Servicer to liquidate the Receivables.
It is a condition precedent to issuance of any additional Series that each
Rating Agency that has rated certificates of any outstanding Series, at the
request of the Transferor, deliver written confirmation that such new issuance
will not result in any such Rating Agency reducing or withdrawing its rating of
certificates of any outstanding Series. There can be no assurance, however, that
the principal terms of any other Series, including any Series issued from time
to time hereafter, might not have an adverse effect on the timing and amount of
payments received by a Certificateholder or the value of Offered Certificates,
even if there is no change in the rating of any outstanding Series. Such adverse
effect could result from, among other factors, a change in allocations of
collections of Receivables among the various Series and the classes thereof.
Such a change may occur, for example, if a Rapid Amortization Period were to
occur with respect to a Paired Series. See "-- Limited Nature of Certificate
Rating" and "Description of the Series 1997-2 Certificates and the Pooling and
Servicing Agreement," including "-- Paired Series."
EFFECT OF DISCOUNT OPTION
Pursuant to the Pooling and Servicing Agreement, the Transferor has elected
to exercise its discount option (the "Discount Option") by initially designating
2% of the amount of Receivables that otherwise would be treated as Principal
Receivables to be treated as Finance Charge Receivables. The Transferor may,
without notice or consent of the Series 1997-2 Certificateholders, from time to
time, increase, reduce or eliminate such percentage. A designation of Principal
Receivables to be treated as Finance Charge Receivables will increase the
percentage of collections on the Receivables that are treated as collections of
Finance Charge Receivables, which will increase the Portfolio Yield to a level
higher than it would be in the absence of such designation. As a result, such
designation should decrease the likelihood of the occurrence of a Pay Out Event
based upon a reduction of the average Portfolio Yield for any three-month period
to a rate below the average Base Rate for such period. However, such designation
will also reduce the aggregate amount of Principal Receivables, which may
increase the likelihood that the Transferor will be required to add Principal
Receivables to the Trust in accordance with the Pooling and Servicing Agreement
and which could, if additional Principal Receivables were not available at such
time, cause the occurrence of a Pay Out Event. A decline in, or the elimination
of, the percentage of Receivables subject to the discount option would reduce
the Portfolio Yield and may increase the possibility of a Pay Out Event arising,
if the average Portfolio Yield for any three-month period is less than the
amounts necessary to pay interest on the Certificates and the Investor Monthly
Servicing Fee for such period. The ability of the Transferor to adjust the
Discount Percentage to change the amount of Receivables that otherwise would be
treated as Principal Receivables to be treated as Finance Charge Receivables is
limited in certain circumstances. The Transferor must provide 30 days' prior
written notice to the Servicer, the Trustee, each Rating Agency and, in limited
circumstances, holders of certificates that are not rated, of any such increase,
reduction or elimination, and such increase, decrease or elimination will become
effective on the date specified therein unless the Transferor reasonably
believes that such increase, reduction or elimination will at the time of its
occurrence cause a Pay Out Event, or an event which with notice or the lapse of
time would constitute a Pay Out Event, to occur with respect to any Series,
including Series 1997-2; provided that if such designation would cause the
Discount Percentage to be less than 1% or more than 3%, the Rating Agency
Condition must be satisfied and in limited circumstances, holders of outstanding
certificates that are not rated must consent to such action. Any such adjustment
will be publicly
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<PAGE> 23
disclosed by the Servicer in a Current Report on Form 8-K filed with the
Commission under the Exchange Act. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Discount Option
Receivables."
EFFECT OF LIMITED SUBORDINATION ON CLASS B CERTIFICATES
The Class B Certificates are subordinated in right of payment of principal
to payments of principal and interest on the Class A Certificates. Payments of
principal in respect of the Class B Certificates will not commence until after
the final principal payment with respect to the Class A Certificates has been
made as described herein. In addition, the Class B Investor Amount is subject to
reduction if the amounts required to be paid in respect of the Class A
Certificates for any Monthly Period are not funded from collections allocable to
the Class A Certificates or the Class B Certificates. If the Class B Investor
Amount suffers such a reduction, the portion of collections of Finance Charge
Receivables allocable to the Class B Certificates in future Monthly Periods will
be reduced and principal and interest payments on the Class B Certificates may
be delayed or reduced. See "Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement."
Further, in the event of a sale of the Receivables due to a Pay Out Event,
the portion of the net proceeds of such sale allocable to pay principal of the
Offered Certificates will first be used to pay principal amounts due to the
Class A Certificateholders and any remainder will be used to pay amounts due to
the Class B Certificateholders, thereby causing a loss to Class B
Certificateholders if such remainder is insufficient to pay the Class B
Certificateholders in full. If the Collateral Indebtedness Amount is reduced to
zero, the Class B Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust. See "Description of
the Series 1997-2 Certificates and the Pooling and Servicing Agreement --
Principal Payments" and " -- Pay Out Events."
GEOGRAPHIC CONCENTRATIONS
The Company operates 175 stores in 24 states. Unlike certain of the
Company's competitors that operate nationally, each Department Store has a
regional focus. Proffitt's has 19 stores in six states. Parisian has 40 stores
in seven states. McRae's has 29 stores in four states. Herberger's has 37 stores
in 10 states. Receivables in the Trust Portfolio that originated from stores
located in Alabama, Mississippi, Tennessee and Georgia represent 38.42%, 18.25%,
12.69% and 8.99%, respectively, of the total receivables outstanding in the
Trust Portfolio as of July 11, 1997. Such geographic concentration will subject
the receivables in the Trust Portfolio to the economic, legal and other
conditions present in such states. Economic trends and other factors in any of
these states, particularly Alabama, Mississippi, Tennessee and Georgia, could
adversely affect collections of Receivables, the generation of new Receivables
and payment rates. See "Credit Card Program -- Geographic Distribution."
Herberger's only recently began offering proprietary credit cards, and as
it expands its program, and if other selling department stores are added to the
Sellers, the percentages of Accounts and Receivables attributable to other
states could increase, thereby potentially reducing or shifting existing
concentration levels. See "-- Social, Legal and Economic Factors" and "Credit
Card Program."
GENERAL ECONOMIC CONDITIONS; SEASONALITY
The Company's future performance is subject to prevailing economic
conditions and to all operating risks normally incident to the retail industry.
The Company experiences seasonal fluctuations in sales and net income, with
disproportionately large amounts typically realized during the fiscal fourth
quarter of each year. Sales are generally weakest during the fiscal second
quarter.
INTEGRATION OF ACQUIRED COMPANIES
As part of its business strategy, the Company has successfully consummated
several acquisitions and will regularly evaluate future acquisition
opportunities, including acquisitions of other regional department store chains
and individual stores or locations. The Company's operations and earnings have
been, and will continue
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to be affected by its ability to continue to successfully integrate the
operations, including proprietary credit cards, of any acquired businesses or
store locations. While the Company has in the past been successful at
effectively integrating the operations of acquired businesses and managing the
related portfolios of proprietary credit cards, there can be no assurance that
the Company will be able to continue to do so. In addition, the successful
integration of operations, including credit card operations will be subject to
numerous contingencies, some of which are beyond the Company's control. The
failure to successfully integrate any such operations with those of the Company
could have a material adverse effect on the Company's financial position,
results of operations and cash flows and the performance of its credit card
portfolios. See "Credit Card Program -- Department Stores."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's, the Sellers' and the Trust's existing and contemplated operations,
economic performance and financial condition. These statements are based upon a
number of assumptions and estimates which are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, the Sellers or the Trust, including, among others, the level of
consumer spending for apparel and other consumer goods carried by the Company,
economic conditions, including local and regional economic conditions in the
areas served by the Company, competition among department and specialty stores
and other retail outlets, levels of consumer debt and bankruptcies, changes in
interest rates and inflation, changes in buying, charging and payment behavior
by customers, the effects of weather conditions on seasonal sales in the
Company's markets, competition among department and specialty stores, and the
Company's ability to integrate recent and potential acquisitions. See
"Cautionary Notice Regarding Forward-Looking Statements."
CREDIT CARD PROGRAM
GENERAL
PCC, headquartered in Las Vegas, Nevada, was incorporated as a Nevada
corporation in January 1997. PCC's activities are limited to purchasing credit
card receivables from each of the Sellers, financing those purchases and other
activities directly related to such purchases and financings.
DEPARTMENT STORES
Proffitt's. The Company operates 19 Proffitt's department stores, 12 of
which are in Tennessee, with the remainder in Georgia, North Carolina, Virginia,
Kentucky and West Virginia. Proffitt's stores average approximately 95,000 gross
square feet and approximately $149 in net sales per square foot of selling
space. Proffitt's stores offer moderate to better brand name fashion apparel,
shoes, accessories, cosmetics and decorative home furnishings. Major brands
found in a typical Proffitt's store include Liz Claiborne, Calvin Klein, Jones
New York, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Marisa Christina, Enzo,
Nine West, Timberland, Levi's, Clinique, Lancome and Estee Lauder. Proffitt's
stores are principally anchor stores in leading regional or community malls.
Proffitt's is headquartered in Birmingham, Alabama.
McRae's. McRae's, which was acquired on March 31, 1994, operates 29
department stores located in Mississippi, Alabama, Florida and Louisiana, 26 of
which are located in Mississippi and Alabama. McRae's stores average
approximately 101,000 gross square feet and approximately $183 in net sales per
square foot of selling space. The merchandise selection of the McRae's stores is
very similar to that of the Proffitt's stores with modifications for regional
tastes. McRae's is headquartered in Jackson, Mississippi.
Parisian. Parisian, which was acquired on October 11, 1996, operates 40
specialty department stores located in nine states, with 33 of its stores
located in the Southeast (Alabama, Florida, Georgia, South Carolina and
Tennessee), with the remainder located in the Midwest (Indiana, Ohio and
Michigan). Parisian stores average approximately 107,000 gross square feet and
approximately $228 in net sales per square foot of selling space. Parisian's
stores are generally anchor stores in enclosed regional and premium malls.
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Parisian carries moderate to better apparel, cosmetics, shoes, accessories
and gifts customarily found in other quality department stores, but does not
carry home furnishings, housewares or furniture. In addition to popular brands
found in the Company's other department stores, Parisian carries premium lines
such as Brighton, Robert Talbott, Armani, Coach and MAC cosmetics. Parisian
seeks to create a special shopping experience in its stores through carefully
selected fashion merchandise assortments, attractive store design, exciting
visual presentations and promotional events, and personal amenities that enhance
customer convenience and comfort.
Parisian is headquartered in Birmingham, Alabama. Parisian stores overlap
with McRae's and Proffitt's stores in certain markets. In several instances,
these stores serve as anchor stores in the same mall. The Company believes that
the product offerings and image of the Parisian chain are distinct and allow for
the successful coexistence of these stores.
Herberger's. Herberger's, which was acquired on February 1, 1997, operates
37 department stores located in ten states throughout the Midwest and Great
Plains states, including Minnesota, Wisconsin, Montana, Nebraska, North Dakota,
South Dakota, Iowa, Illinois, Colorado and Wyoming. Herberger's stores average
approximately 64,000 gross square feet and approximately $143 in net sales per
square foot of selling space. Most Herberger's stores are located in rural
population centers where Herberger's is generally the leading brand name
department store. Such markets typically encompass a retail trade area ranging
in size from approximately 50,000 to 300,000 people, although certain stores are
in larger markets where Herberger's believes it successfully fulfills the
customer's desire for a "neighborhood" department store.
Brands typically found in a Herberger's store include Liz Claiborne, Susan
Bristol, Chaps by Ralph Lauren, Calvin Klein, Woolrich, Timberland, Nike and
Estee Lauder. Prior to its acquisition by the Company, the size and location of
the Herberger's chain made it difficult to establish relationships with certain
popular and premium vendors as an independent company. As one of the Company's
chains, Herberger's has recently received commitments to introduce key brands
such as Tommy Hilfiger, Nautica, and Lancome in certain of its locations during
1997. The Herberger's chain is headquartered in St. Cloud, Minnesota.
Prior to its merger with the Company, Herberger's did not have an existing
proprietary credit card program. Instead, Herberger's had participated in a
co-branded VISA program with a third-party financial institution which has been
terminated. Beginning May 15, 1997, the Company introduced a proprietary credit
card at the Herberger's stores. Based on experience in its other chains, the
Company believes that the introduction of the proprietary credit card will
increase sales, improve customer loyalty and generate additional finance charge
income.
Younkers. Younkers, which was acquired on February 3, 1996, is a leading
fashion department store that operates 50 stores located in Iowa, Wisconsin,
Michigan, Nebraska, Illinois, Minnesota and South Dakota. Younkers stores
average approximately 97,000 gross square feet and approximately $149 in net
sales per square foot of selling space. Younkers' stores are generally located
in mid-sized to smaller cities where Younkers is one of the primary department
stores and competition is more limited than in major metropolitan areas.
Younkers stores are full-line department stores which offer a merchandise
selection similar to Proffitt's with modifications for regional taste. In
certain states, Younkers also sells furniture and operates restaurants. Younkers
is headquartered in Des Moines, Iowa. Initially, the Company does not expect to
sell any Younkers proprietary credit card receivables to the Trust.
Prior to adding any Younkers credit card accounts, including all
receivables in such accounts whether then existing or thereafter created, to the
Trust, the conditions, including satisfaction of the Rating Agency Condition,
described under "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Addition of Accounts" must be satisfied. In addition,
Younkers may be designated as an Eligible Originator upon the satisfaction of
the Rating Agency Condition. Thereafter, additional Younkers credit card
accounts may be added to the Trust as Automatic Additional Accounts upon
satisfaction of the conditions described under "Description of the Series 1997-2
Certificates and the Pooling and Servicing
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Agreement -- Addition of Accounts." The Monthly Servicer Report filed publicly
on behalf of the Trust on a Current Report on Form 8-K will disclose that
Younkers receivables have been added to the Trust.
PROPRIETARY CREDIT CARDS
The Company issues proprietary credit cards for each of the Proffitt's,
McRae's, Younkers, Herberger's and Parisian Department Stores (however, the
Younkers credit card accounts and receivables initially will not be included in
the Trust). All proprietary credit card programs are administered from the
Company's central credit card services center located in Jackson, Mississippi
(the "Credit Services Center"). Approximately 47.5% of the Company's net sales
in calendar year 1996 were charged to the Company's proprietary credit cards.
Frequent use of the Company's proprietary credit cards by customers is an
important element in the Company's marketing and growth strategies, and
generates significant finance charge income which augments the income received
from the sale of merchandise. The Company believes that proprietary credit card
holders shop more frequently with the Department Stores, purchase more
merchandise, and are generally more loyal to the Department Stores than are
customers who use other payment methods. The Department Stores also make
frequent use of the names and addresses of their respective proprietary credit
card holders in direct marketing efforts.
Generally, each of the Department Stores seeks to expand the number and use
of its proprietary credit cards by, among other things, providing incentives to
sales associates to open "instant credit" accounts, which can generally be
opened by sales associates within approximately three minutes using automated
voice response units and other systems operated by the Credit Services Center
that provide rapid credit checks. Also, customers who open accounts are entitled
to certain discounts on initial and subsequent purchases. Recently, the Company
has introduced a "Younkers Gold Card" to preferred customers of Younkers stores
which enables such cardholders to receive "points" for each purchase charged to
the Gold Card. Points can be redeemed for discounts on subsequent purchases at
Younkers' stores. Historically, cardholders redeeming points have tended to make
other purchases in addition to the merchandise purchased through redemption of
points. Based on its experience with the Younkers Gold Card, the Company plans
to introduce the gold card concept in its other Department Stores in Fall 1997.
The Company has an aggregate of approximately four million credit card
accounts outstanding, of which approximately two million accounts have been
active within the last six months. The Company employs state-of-the-art systems
to monitor and administer its credit cards through the Vision 21 system. All
credit card servicing, credit granting, administration and collection functions
have been consolidated and are conducted centrally by the Company's Credit
Services Center. The Company believes that it takes appropriate steps to control
losses on its credit card program. For instance, the Company conducts behavior
scoring on all active card holders semi-annually and utilizes the results to
adjust credit limits and/or terminate certain accounts.
LEGAL COMPLIANCE
The Receivables are currently governed by federal law and the laws of the
state where the Obligor resides if the Company has a store in that state. From
time to time, state attorneys general or state financial regulators examine the
practices of credit providers. The primary areas of inquiry include compliance
with state consumer-credit laws, compliance with regulations regarding
fraudulent charges and collections of accounts, and compliance with federal
bankruptcy provisions. The Company knows of no such examinations or proceedings
currently pending with respect to its credit card operations. Individuals may
also bring actions against credit providers in connection with such matters.
State laws governing the maximum finance charges and late charges that may be
assessed directly affect the profitability of the Company's credit card
portfolio. However, the proposed credit card bank will permit the Company to
standardize the charges and fees that it may assess regardless of the law of the
state in which the Obligor resides. See "-- Proposed Credit Card Bank."
The Company believes that the most important aspect of state laws are the
provisions governing interest rates and other charges. Summaries of such
provisions in the laws of Alabama, Mississippi, Tennessee, Georgia and Florida,
the states where 5% or more of the Company's Accounts were concentrated as of
July 11,
22
<PAGE> 27
1997, are set forth below. In Alabama, a finance charge of up to an annual
percentage rate of 21% may be charged on balances of up to $750 and a rate of
18% may be charged on balances over $750. A late charge of the greater of $10 or
five percent of the amount of scheduled payments in default (but not to exceed
$100) may be assessed. In Mississippi, a finance charge of up to an annual
percentage rate of 21% may be charged and a late fee of $10 may be assessed. In
Tennessee, a finance charge of up to an annual percentage rate of 21% may be
charged. Tennessee has not enacted any statute which governs the imposition of a
late charge, but courts in Tennessee recognize that a reasonable late charge may
be imposed. In Georgia, a finance charge of up to an annual percentage rate of
21% may be charged and a late charge of $10 may be assessed. In Florida, a
finance charge of up to an annual percentage rate of 21% may be charged and a
late fee of $10 may be assessed. See "Credit Card Programs -- Geographic
Distribution of the Trust Portfolio;" and "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Consumer and Debtor
Protection Laws, Recent and Proposed Legislation."
PROPOSED CREDIT CARD BANK
The origination of Receivables at the Department Stores subjects the
Company to regulatory compliance in each of the 24 states in which it currently
operates at least one store. State regulations, among other things, impose
interest ceilings and may restrict the application of certain other Finance
Charges such as late fees. Accordingly, the Company is considering forming a
special purpose credit card bank to issue proprietary credit cards on behalf of
the Company's department stores. The Company believes that the formation of a
national bank as a wholly-owned subsidiary for purposes of issuing proprietary
credit cards would enhance its profitability by: (i) allowing for greater
standardization of terms across all divisions, (ii) providing for the
exportation of interest rates and late fee income across the franchise states,
and (iii) allowing for future flexibility and potential income generation
through various other programs (e.g., co-branded MasterCard and VISA credit
cards). The Company is also considering the introduction of proprietary credit
cards that may be used at all of its Department Stores, as well as co-branded
MasterCards and VISA cards. The Pooling and Servicing Agreement permits a credit
card bank to be substituted for the Transferor, the Servicer and the
Subservicer, the Accounts of the Department Stores to be transferred to such a
bank and amendments to the Pooling and Servicing Agreement, and the amendment
and/or termination of the Receivables Purchase Agreements to reflect a credit
card bank, without the consent of the Certificateholders, provided the Trustee
is provided with acceptable opinions of counsel and provided further that such
transaction is not determined by the applicable Rating Agencies to adversely
affect their ratings of the Offered Certificates. The Company understands that
the current practice of bank regulatory agencies may require charge offs of
Receivables approximately 30 days earlier than the Company's current policy,
which may result in accelerated charge offs. See "-- Delinquency, Collections
and Losses."
PORTFOLIO INFORMATION
All information below regarding the credit card accounts relates to the
aggregate portfolio of proprietary credit cards generated by Proffitt's,
Parisian, McRae's and Herberger's (collectively, the "Trust Portfolio"). As of
the Cut-Off Date, the balance of receivables in accounts which are not eligible
for inclusion in the Trust totaled approximately $20,000. Therefore, the assets
of the Trust as of the Closing Date will generally consist of virtually all of
the receivables in the accounts of the Sellers at the Cut-Off Date, plus
receivables in new accounts originated by the Sellers from the Cut-Off Date
through the Closing Date. Thereafter, the Trust will also include all
Receivables in Additional Accounts and Automatic Additional Accounts, less
Receivables in Removed Accounts. As a result, the Trust Portfolio as described
in the following tables reflects the attributes and performance of the Seller's
accounts prior to the formation of the Trust. The Herberger's proprietary credit
card program was initiated in May 1997 through a mailing to one million persons,
most of whom were believed to be Herberger's customers. Although the Herberger's
credit card program is administered pursuant to the Company's Credit Card
Guidelines applicable to the other Sellers' credit card accounts, except for
information dated after May 31, 1997 the following tables do not reflect any
experience with Herberger's Accounts, and no assurance can be given that such
experience will be similar to the historical experience of the other Sellers.
Amounts and percentages in the following tables may not add to the totals
because of rounding. See "The Accounts."
23
<PAGE> 28
Receivables outstanding on credit card accounts in the Trust Portfolio for
the periods presented have been as set forth below. There can be no assurance
that the receivables outstanding in the future will be similar to the historical
experience set forth below.
RECEIVABLES OUTSTANDING
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MAY 31, AS OF DECEMBER 31,
-------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Receivables Outstanding(1)(2).... $278,038 $279,876 $ 331,635 $ 323,050 $308,271
Number of Accounts(2)............ 926,438 956,221 1,065,399 1,063,322 859,629
</TABLE>
- ---------------
(1) Receivables typically decrease from December to May due to subsequent
payments of holiday purchases.
(2) Includes only Accounts with outstanding balances for Parisian and only
Accounts with outstanding debit balances for the other Sellers.
The Trust Portfolio credit card account balances are currently created by
purchases of merchandise and services (including, without limitation, travel
agency services, dining room charges and alterations) from the Department
Stores. If any of the Department Stores in the future conducts any of their
retail business through one or more subsidiaries, the Trust Portfolio credit
card account balances will also be created by purchases of merchandise and
services (including without limitation travel agency services, dining room
charges and alterations) from such subsidiaries. Accordingly, the Trust depends
on the Department Stores and their ability to generate credit sales. In
addition, since the Department Stores accept other credit cards, including
American Express, MasterCard, VISA and the Discover Card, the Trust will also
depend upon the decisions of customers to use their Department Store proprietary
credit cards rather than other payment methods.
Each of the Department Stores offers its credit card holders a variety of
incentives to use their Department Store credit card accounts. These incentives,
which change from time to time and may be changed at any time in the future,
have included discounts on first day purchases under the Instant Credit program
described below, and discount coupons for new cardholders, for cardholders with
no recent activity in their accounts, and for cardholders whose monthly
purchases exceed a certain level.
There can be no assurance that the Department Stores' credit card sales in
the future will be similar to the historical experience set forth below.
PRIVATE LABEL CREDIT CARD SALES AT THE SELLERS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS FOR THE 12 MONTHS
ENDED MAY 31, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995(1) 1994(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Private Label Credit Card Sales..... $315,836 $316,710 $854,010 $844,558 $810,961
</TABLE>
- ---------------
(1) Not including Proffitt's.
24
<PAGE> 29
SELLERS' SALES BY FORM OF PAYMENT
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE 12 MONTHS ENDED
MAY 31, DECEMBER 31,
--------------- ---------------------------
1997 1996(1) 1996(1) 1995(2) 1994(2)
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Department Stores' Credit Card Accounts............ 45.70% 47.72% 47.46% 50.17% 51.37%
Other Credit Cards................................. 25.44 23.41 23.92 21.96 19.56
Cash, Check or Other............................... 28.86 28.87 28.62 27.87 29.07
</TABLE>
- ---------------
(1) Not including Proffitt's for January 1996.
(2) Not including Proffitt's.
CREDIT ORIGINATION AND UNDERWRITING
All of the Department Stores' credit granting, administration and
collection functions are managed centrally through the Credit Services Center.
The Credit Services Center has taken over these functions from the individual
Department Stores following each acquisition by the Company. All of Parisian's
credit card accounts were converted June 15, 1997 to the Company's systems and
are now managed by the Credit Services Center.
Each Company credit card account is governed by a written agreement
containing the terms and conditions of the account. Pursuant to such agreements,
the Company reserves the right to change or terminate any terms, conditions,
services or features of the account (including, among others, increasing or
decreasing finance charges, other charges or minimum payments).
Credit card accounts of the Department Stores are created through three
principal programs:
New Account Programs
1. IN-STORE "INSTANT CREDIT APPLICATION". Each of the Department
Stores offers instant credit to customers at the time of purchase in
Department Store locations. Excluding accounts obtained through new store
promotions described below and the recent introduction of Herberger's
proprietary credit card, approximately 80% of the Company's new accounts
were generated through in-store instant credit applications. Sales
associates are encouraged through various incentives and promotional events
to open instant credit accounts. To open an instant credit account, the
customer completes the instant credit application at the point of sale. In
order to qualify for an instant credit account, in addition to completing
the application, the customer must have a valid picture identification. On
receipt of the necessary information, the sales associate relays the
information to the Credit Services Center over the telephone. This
information is queued directly into the Vision 21 Application Processing
System. Once all the information is obtained, a full credit report is
obtained, and a credit bureau derived risk score generated. If all Company
policy rules are passed, an account number is immediately assigned by the
system. The credit limit is based on the risk score and other factors
commonly used by creditors.
2. MAIL-IN CREDIT CARD APPLICATION. Like the instant credit
application, mail-in credit applications are also available in the various
Department Stores. Upon completion by the customer, these applications can
be submitted either at the service desk in one of the Department Stores or
mailed to the Credit Services Center. When received, the application is
reviewed for completeness. The application is queued directly into the
Vision 21 Application Processing System and a full credit report is
obtained, and a credit bureau derived risk score is generated. If all
Company policy rules are passed and the risk score is above the cut-off,
then an account number is immediately assigned by the system.
3. PROMOTIONAL (PRE-APPROVED) APPLICATIONS. Promotional
(pre-approved) applications are used as part of the credit solicitation
effort for new store openings. To obtain potential new account holders, the
Company provides the credit bureaus with minimum criteria for potential
account holders in the area to be served by a new store. The lists
generated by the credit bureaus are compared by computer against the
Company's existing account holders to eliminate duplications. All
qualifying names are sent a marketing
25
<PAGE> 30
package which includes information about the relevant Department Store and
its credit card program, plus the new location to be opened, along with an
application to be signed. If the application is returned, signed and
unaltered, a credit limit is established based on an automatic limit
setting risk score matrix. If the application is returned with a change in
name or address indicated, the application is reviewed in a similar manner
to a long form application.
In addition, each of the Department Stores has other credit card plans for
major purchases, and china, silver and crystal products. The credit-granting
procedures are the same as for the Company's other credit program. The Company
also has commercial accounts with a relatively small number of businesses and
organizations. In the aggregate, outstanding balances under major purchase, and
china, silver and crystal programs represented less than approximately 3% of the
Company's total credit card receivables as of the end of its fiscal 1996.
Post-Approval Account Monitoring. No automatic adjustment to an account
holder's credit limit is made during the initial six-months from account
activation. Ongoing monitoring of a customer's credit limit is done through the
use of the credit bureau-generated risk scores in connection with the Company's
periodic portfolio reviews. Portfolio reviews are executed semi-annually or
quarterly based on need as determined by the Credit Services Center. Accounts
are selected and passed to the credit bureau based on the activity in the past
12-months. The credit bureau assigns a risk score to each account record, which
is maintained in the Company's master file for each account. The risk score is a
measure of the customer's current creditworthiness as derived by payment and
delinquency patterns with the entire credit granting community. Based on the
score, number of months with a balance and the current delinquency status of the
account, the credit limit may be raised or lowered.
Automatic Over Limit Authorization. When customers attempt to incur
charges that exceed their designated credit limit ("over limit charges"), the
Vision 21 system will automatically review the account during the authorization
process and determine an acceptable dollar amount of over limit charges for the
customer. The amount of the over limit charge authorization is determined by the
number of times the account has been billed, the current delinquency status of
the account and the account risk score. A credit authorizer may override the
Vision 21 automatic analysis and take the following actions based on certain
pre-defined criteria: increase the credit limit, approve the sale without
increasing the credit limit (customer will be over their credit limit) or reject
the sale. Generally, such credit authorizer would utilize the following tools to
assist in making decisions that promote sales but reduce credit risks to the
Company: (i) portfolio risk score; (ii) length of time the account has been
active; (iii) delinquency/payment history; and/or (iv) a new credit report with
an updated risk score. No over limit fees are charged.
Deactivation/Cancellation of Accounts. Credit card accounts can be
deactivated at the request of the accountholder. An account is automatically
deactivated if it has no balance, and remains unused, for 36 consecutive months.
A deactivated account is removed from the applicable Department Store mailing
list and cannot be used by the accountholder. If an account is deactivated
solely due to non-use, it can generally be reactivated if accountholders present
their credit cards along with evidence of identity and current address. When an
account is reactivated, its credit limit is set at $500 until a new credit
bureau risk score is obtained. If accountholders cannot produce their credit
card or if the deactivation occurred for a reason other than non-use, then the
accountholder must reapply for credit through one of the normal credit
origination programs described above.
BILLING AND PAYMENTS
Generally, the Company uses approximately eight billing cycles within a
month. Each cycle is assigned, on a random basis, an approximately equal number
of accounts. Accounts having all billing cycles will be included in the Trust.
The average daily outstanding balance is determined by taking the beginning
balance of the account each day, adding any new purchases or miscellaneous
debits and subtracting any new payments, miscellaneous credits and unpaid
finance charges (where required by law). The daily balances for each day of the
billing cycle are added together and divided by the total number of days in the
billing cycle to arrive at the average
26
<PAGE> 31
daily outstanding balance. The Department Stores do not charge fees when
customers exceed their credit limits.
Account holders are given a grace period of approximately 25 to 30 days,
depending on the respective Department Store, after each billing cycle closes.
Generally, the respective Department Store assesses interest charges on an
account based upon the average daily balance outstanding on the account during a
monthly billing cycle. However, no finance charge is imposed if there is no
balance at the beginning of the billing cycle and the entire balance of the
account is paid during the grace period. If a payment is not received by the
payment due date, a finance charge is imposed on all purchases from the date of
purchase to the date of repayment, except for residents of Minnesota and
Montana, where purchases and credits (other than payments) are not reflected in
the average daily balance until the beginning of the next billing cycle. Except
for residents of Nebraska and North Carolina, where no minimum finance charge is
imposed, a $.50 minimum finance charge is imposed for any billing cycle in which
a finance charge of less than $0.50 would otherwise be imposed. Interest charges
vary by state, with the annual percentage rate ranging from 18% to 21%.
Subject to applicable laws, account holders are generally charged $25.00 if
a check is dishonored after the second presentment. Late charges are assessed in
accordance with state law. If permitted by state law, a late charge of $5.00 to
$10.00 is assessed for each month a payment is more than 30 days or more past
due. The late fee is not assessed for any month in which an appropriate minimum
payment is made. None of the Department Stores imposes annual fees or
transaction-related service fees.
The Proffitt's and McRae's standard credit card programs were recently
changed to reduce the minimum monthly payment account holders must make from the
greater of 10.0% of the account balance or $10.00 to the greater of 7.5% of the
account balance or $10.00. Herberger's credit cards have the same minimum
payments. Under the Parisian credit card accounts, customers have a no-interest
payment option or an interest-bearing payment option. Currently, under the
Parisian no-interest payment option, the required minimum payment is one-sixth
( 1/6th) of the highest account balance over the prior six months. Also, under
the current Parisian interest-bearing payment option, the minimum payment is
one-twelfth ( 1/12th) of the highest balance over the prior 12 months. Parisian
is considering a change to these minimum payment provisions to the following
terms: (i) the greater of 25% of the ending balance or $25 for the no-interest
payment option, and (ii) the greater of 7.5% of the ending balance or $10 for
the interest-bearing option. Payments by account holders are applied first to
interest and other charges or fees, and then to purchases in the order made.
Each such minimum payment specified in this paragraph is referred to herein as a
"qualified minimum payment."
Under the Proffitt's, McRae's and Herberger's china, silver and crystal
plans, account holders can purchase such merchandise on an installment basis
with no finance charges for a period of 24 months. The monthly payment under
such plan is equal to one twenty-fourth ( 1/24th) of the highest balance in
existence since the account last had a zero balance. Under the McRae's,
Proffitt's and Herberger's major purchase plans, the account holder has the
option to pay one-third of the highest balance for three consecutive months
without incurring finance charges. Under the Parisian Plus Account for certain
large purchases, cardholders have the option to make monthly payments each month
equal to one-twelfth ( 1/12th) of the highest balance of the last 12 months and
incur no finance charge, or equal to one twenty-fourth ( 1/24th) of the highest
balance over the last 24 months and incur finance charges at normal rates for
Parisian credit cards.
From time to time, each of the Department Stores offers deferred billing
promotions to their respective credit card account holders. These promotions
typically allow the account holder to delay the billing of the account for up to
90 days for specific purchases. During the deferred billing periods, the
purchases either do not appear on the customer's statement or appear but are not
added to the outstanding balances. No finance charges accrue on such purchases
until they have been billed, at which point they are treated like ordinary
purchases (that is, a grace period is available until the payment due date,
unless the card holder has a balance when the deferred purchase is billed, in
which case finance charges accrue from the date the purchase is billed). All
purchases are, however, immediately recorded on the Company's credit
authorization system, which reduces the customer's available credit limit
accordingly. Approximately 2% of the Company's credit sales for fiscal year 1996
were done on a deferred billing basis, with an average deferred period of 90
days.
27
<PAGE> 32
Receivables, including Receivables in deferred billing accounts, will be
included in the Trust from the date such Receivables are created.
DELINQUENCY, COLLECTIONS AND LOSSES
The Company measures delinquency by the number of days an account is past
due, and accounts move into the collection queue based on contractual
delinquency. When an account becomes one payment past due, a reminder is printed
on the bottom of the next account statement. When an account becomes two
payments past due, a suspension message is printed on the statement notifying
the customer that they will be unable to use their credit card account until
payment is made. The account enters the collection system at this point and is
scheduled for collection department action 10 days later (i.e., the 40th day
past due). When an account ages to 40 days past due, a reminder letter is mailed
to the customer. Accounts between 40 and 119 days past due are worked randomly
by collectors over the telephone using a predictive autodialer system. When the
account is 60 days past due, (i) a stronger message appears on the customer's
statement and (ii) a third party collection letter is sent to the customer
notifying the customer that additional purchases are not permitted to be
charged. As an account becomes 120 days past due the account is assigned to a
late stage collector for stronger collection efforts, including (i) skip tracing
(using credit bureau sources, address and neighbor information and
cross-reference directory searches), (ii) customized customer demand notices,
(iii) specialized phone-based collection techniques, including predictive
autodialing, and (iv) selective utilization of collection agencies and
attorneys.
Delinquent accounts are removed from the collection queue and returned to
current status if three consecutive qualified minimum payments or, in the case
of Proffitt's, McRae's and Herberger's, three payments aggregating 22.5% or more
of the outstanding balance and in the case of Parisian, three payments
aggregating 25% or more of the outstanding balance, are received. No delinquent
account is permitted to be cured more than once every six months. In addition,
in limited circumstances, the Company will re-age delinquent accounts prior to
or without evidence of a payment. Such circumstances include bill adjustment
problems, and untimely receipt of billing statements.
Accounts are turned over to outside collection agencies at different times
based on the outstanding balance and the number of months without proper
payment. Generally, all accounts are assigned to a collection agency or attorney
following the charge off of the account.
The Company's current policy generally recognizes losses on the seventh
month after the customer has failed to make a qualified minimum payment. The
Company may recognize losses earlier if an account is determined to be
uncollectible, if the customer is deceased or if the customer has filed
bankruptcy. In certain instances, losses may not be recognized on accounts that
satisfy the charge off criteria set forth above if the Credit Services Center
believes that the account will be paid. The Company is contemplating forming a
credit card bank. The Company understands that the current practice of the bank
regulatory agencies may require charge offs of delinquent receivables
approximately 30 days earlier than the Company's current guidelines. See "Credit
Card Program -- Proposed Credit Card Bank."
The Company's credit evaluation, servicing and charge off policies and
collections practices may change at any time as dictated by the Company's
business judgment and applicable law.
28
<PAGE> 33
The following table sets forth the loss experience with respect to the
credit card accounts in the Trust Portfolio for each of the periods shown. There
can be no assurance that future loss experience for the Receivables will be
similar to the historical experience set forth below. See "Risk Factors."
LOSS EXPERIENCE OF THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS FOR THE 12 MONTHS
ENDED MAY 31, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Principal Receivables(1)........................... $289,667 $283,805 $277,619 $266,101 $249,089
Total Principal Charge Offs(2)............................. 4,991 4,046 10,856 8,732 7,190
Recoveries................................................. 1,080 954 2,166 2,060 1,885
Net Principal Charge Offs.................................. 3,911 3,091 8,690 6,671 5,304
Net Principal Charge Offs Percentage(3).................... 3.24% 2.61% 3.13% 2.51% 2.13%
</TABLE>
- ---------------
(1) Average Principal Receivables for a particular period is the average of the
principal balances outstanding at the beginning and the end of each month
during such period.
(2) Total Principal Charge Offs are charge offs before Recoveries and do not
include fraud losses.
(3) The percentages for the five months ended May 31, 1997 and 1996 are
annualized figures, which are not necessarily indicative of results that may
be realized for the entire year.
The following tables set forth the delinquency experience with respect to
payments by cardholders that were 31 days or more past due for each of the
periods shown for the Trust Portfolio. Because delinquencies are affected by a
number of factors, including competitive and general economic conditions and
consumer debt levels, there can be no assurance that the delinquency experience
for the Receivables, including but not limited to, Receivables in Herberger's
Accounts, in the future will be similar to the historical experience set forth
below.
HISTORICAL DELINQUENCIES
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MAY 31, AS OF DECEMBER 31,
--------------------------------------------------------- -----------------------------------------
1997 1996 1996 1995
--------------------------- --------------------------- --------------------------- -----------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
RECEIVABLES TOTAL RECEIVABLES TOTAL RECEIVABLES TOTAL RECEIVABLES
(3) RECEIVABLES (3) RECEIVABLES (3) RECEIVABLES (3)(5)
----------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current(1)............ $265,257 95.30% $269,955 95.47% $319,503 96.05% $311,923
31 to 60 days
delinquent.......... 6,782 2.44 7,284 2.58 6,972 2.10 6,658
61 to 90 days
delinquent.......... 2,322 0.83 1,875 0.66 2,230 0.67 1,994
Over 91 days
delinquent.......... 3,981 1.43 3,659 1.29 3,940 1.18 3,726
-------- ------ -------- ------ -------- ------ --------
Total
Delinquent...... 13,084 4.70 12,818 4.53 13,141 3.95 12,378
-------- ------ -------- ------ -------- ------ --------
Total
Receivables..... $278,341 100.00% $282,773 100.00% $332,644 100.00% $324,301
======== ====== ======== ====== ======== ====== ========
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1995 1994
------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF
TOTAL RECEIVABLES TOTAL
RECEIVABLES (2)(3)(4) RECEIVABLES
------------- ----------- -------------
<S> <C> <C> <C>
Current(1)............ 96.18% $229,059 95.73%
31 to 60 days
delinquent.......... 2.05 6,475 2.71
61 to 90 days
delinquent.......... 0.61 1,437 0.60
Over 91 days
delinquent.......... 1.15 2,311 0.97
------ -------- ------
Total
Delinquent...... 3.82 10,223 4.27
------ -------- ------
Total
Receivables..... 100.00% $239,282 100.00%
====== ======== ======
</TABLE>
- ---------------
(1) Includes both current accounts and accounts that are less than 31 days past
due.
(2) 1994 data as of January 31, 1995.
(3) For Parisian, the number of Accounts and Receivables outstanding are
compiled from data as of each billing cycle date during the period
specified. All other Accounts and Receivables are as of the end of the
specified date.
(4) Excludes Proffitt's data.
(5) Proffitt's delinquencies are excluded from January 1995 through July 1995.
The Company's net principal charge offs and delinquencies at any time
reflect, among other factors, the overall credit quality of the cardholders, the
seasoning of the accounts, the success of the Company's collection efforts and
general economic conditions. As shown above, net principal charge offs as a
percentage of average principal receivables outstanding for the 12 months ended
December 31 were 2.13% for 1994, 2.51% for 1995, and 3.13% for 1996. In
addition, net principal charge offs as a percentage of average principal
receivables outstanding were 2.61% for the five months ended May 31, 1996, and
3.24% for the five months ended May 31, 1997. Delinquent receivables as a
percentage of total receivables outstanding were 4.27% as of January 31, 1995,
3.82% at December 31, 1995, and 3.95% at December 31, 1996. In addition,
delinquent receivables as a percentage of total receivables outstanding were
4.53% at May 31, 1996 and 4.70% at May 31,
29
<PAGE> 34
1997. The Company believes that these trends are comparable with those exhibited
by its competitors and other providers of consumer revolving credit.
Newly originated accounts generally exhibit higher delinquencies and losses
than seasoned accounts beginning approximately six months from issuance and
reach a steady state within approximately two to three years. The Company
believes that this tendency has not had a material impact on the Trust Portfolio
given the moderate growth historically exhibited by the Trust Portfolio. In
addition, the Company believes that the trends exhibited in the Trust Portfolio
(of moderately increasing losses and delinquencies) are consistent with general
economic conditions in the United States, particularly the nationwide rise in
consumer loan delinquencies and the rise in personal bankruptcy filings. The
Company's focus is on maintaining the profitability of its accounts and selling
merchandise within the context of acceptable risk characteristics. The Company
believes that its underwriting procedures and risk management policies will keep
the loss and delinquency experience approximately the same as historical ranges.
See "-- Credit Origination and Underwriting" and "Description of the Series
1997-2 Certificates and the Pooling and Servicing Agreement -- Addition of
Accounts."
COMPOSITION OF THE TRUST PORTFOLIO
GENERAL
The information describing the Trust Portfolio reflects its composition as
of the dates shown. There can be no assurance that the composition and
performance of the Trust Portfolio in the future will be similar to the
historical experience reflected below. Amounts and percentages in the following
tables may not add to the totals because of rounding.
COMPOSITION OF ACCOUNTS
BY AGE
AS OF JULY 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
NUMBER OF RECEIVABLES RECEIVABLES
NUMBER OF ACCOUNTS(1) ACCOUNTS OUTSTANDING OUTSTANDING
--------------------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Under 6 months........................... 335,988 15.04% $ 24,134 8.63%
6 months to 1 year....................... 166,738 7.47 16,575 5.93
1-2 years................................ 241,412 10.81 22,637 8.10
2-3 years................................ 312,871 14.01 32,377 11.58
3 years and older........................ 1,176,396 52.67 183,872 65.76
--------- ------ -------- ------
Total............................ 2,233,405 100.00% $279,595 100.00%
========= ====== ======== ======
</TABLE>
- ---------------
(1) Includes all active Accounts.
30
<PAGE> 35
COMPOSITION OF THE TRUST PORTFOLIO
BY ACCOUNT BALANCE
AS OF JULY 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS(1) NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
No Balance(2)..................................... 1,208,710 54.12% $ -- 0.00%
$0.01 to $500.00.................................. 817,575 36.61 135,755 48.55
$500.01 to $1,000.00.............................. 118,846 5.32 81,376 29.11
$1,000.01 to $2,000.00............................ 34,263 1.53 45,351 16.22
$2,000.01 to $3,000.00............................ 4,915 0.22 11,644 4.16
$3,000.01 to $4,000.00............................ 1,192 0.05 4,071 1.46
$4,000.01 to 5,000.00............................. 347 0.02 1,542 0.55
$5,000.00+........................................ 266 0.01 2,000 0.72
Credit balance(3)................................. 47,291 2.12 (2,144) (0.77)
--------- ------ -------- ------
Total..................................... 2,233,405 100.00% $279,595 100.00%
========= ====== ======== ======
</TABLE>
- ---------------
(1) Includes all active Accounts.
(2) Accounts currently having no outstanding balance are included, because
Receivables may be generated in such Accounts in the future.
(3) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently having
an outstanding credit balance are included, as Receivables may be generated
in such Accounts in the future.
COMPOSITION OF THE TRUST PORTFOLIO
BY CREDIT LIMIT
AS OF JULY 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF TOTAL AGGREGATE AGGREGATE
CREDIT LIMIT ACCOUNTS(1) NUMBER OF ACCOUNTS CREDIT LIMIT CREDIT LIMIT
- ------------ ----------- ------------------- ------------ -------------
<S> <C> <C> <C> <C>
Zero................................................... 69,121 3.09% -- 0.00%
$0.01 - $600.00........................................ 580,762 26.00 253,753 7.14
$600.01 - $1,000.00.................................... 432,154 19.35 384,988 10.83
$1,000.01 - 2,000.00................................... 725,444 32.48 1,086,939 30.59
$2,000.01 - 3,000.00................................... 113,370 5.08 293,982 8.27
$3,000.01 - 4,000.00................................... 14,935 0.67 53,141 1.50
$4,000.01 - 5,000.00(2)................................ 295,097 13.21 1,460,742 41.11
$5,000.01 or more...................................... 2,522 0.11 19,761 0.56
--------- ------ ---------- -------
Total.......................................... 2,233,405 100.00% $3,553,306 100.00%
========= ====== ========== =======
</TABLE>
- ---------------
(1) Includes all active Accounts.
(2) The concentration of Accounts in the $4,000.01 - $5,000.00 credit limit
range is due to the fact that this is the highest credit limit assigned
without special exceptions.
31
<PAGE> 36
COMPOSITION OF THE TRUST PORTFOLIO
BY PAYMENT STATUS
AS OF JULY 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS(1) NUMBER OF ACCOUNTS OUTSTANDING(1) OUTSTANDING
- -------------- ----------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Current(2).......................... 951,092 97.31% $272,644 96.77%
31 to 60 days delinquent............ 11,450 1.17 3,611 1.28
61 to 90 days delinquent............ 5,128 0.52 1,813 0.64
Over 91 days delinquent............. 9,734 1.00 3,670 1.30
------- ------- -------- -------
Total..................... 977,404 100.00% $281,739 100.00%
======= ======= ======== =======
</TABLE>
- ---------------
(1) Includes only Accounts with outstanding balances for Parisian and only
Accounts with outstanding debit balances for the other Sellers.
(2) Includes all Accounts that are current or less than 31 days past due.
GEOGRAPHIC DISTRIBUTION
Except for the states listed below, no state accounted for more than 5% of
the number of active aggregate store credit card accounts in the Trust Portfolio
or 5% of the Receivables outstanding in the Trust Portfolio as of July 11, 1997.
GEOGRAPHIC DISTRIBUTION OF THE TRUST PORTFOLIO
AS OF JULY 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
STATE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- ----- --------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Alabama................................. 634,507 28.41% $107,419 38.42%
Mississippi............................. 263,296 11.79 51,019 18.25
Tennessee............................... 271,971 12.18 35,484 12.69
Georgia................................. 212,353 9.51 25,127 8.99
Florida................................. 150,053 6.72 13,246 4.74
Other................................... 701,225 31.40 47,301 16.92
--------- ------- -------- -------
Total......................... 2,233,405 100.00% $279,595 100.00%
========= ======= ======== =======
</TABLE>
The foregoing States (each of which accounted for more than 5% of the
credit card accounts in the Trust Portfolio) are all located in the Federal
Reserve Bank of Atlanta's ("FRB-Atlanta") Sixth District (the "District"). These
States have benefited, in varying ways and degrees from the general growth of
the Southeast. In particular, according to FRB-Atlanta's First Quarter 1997
Regional Update, the majority of District retailers reported that recent sales
exceeded year-ago levels, with a significant number reporting strong increases
and almost two-thirds saying that holiday sales met or exceeded their
expectations. Apparel sales had the strongest showing across the region. In
contrast, textile manufacturing employment in the region has been declining.
Recent estimates from FRB-Atlanta indicate that Second Quarter 1997 consumer
spending in the District will exceed last year slightly.
Average annual pay has been increasing in the U.S. Bureau of Labor
Statistics' Southeast Region (which includes the above States, plus Kentucky,
North Carolina and South Carolina) and in 1995, the latest year available, such
annual pay increased 3.6% compared to 3.4% for the nation. Average annual pay
was highest in Georgia, followed closely by Tennessee, Florida and Alabama,
although Mississippi had the lowest average annual pay in this region and was
fourth lowest nationally.
Alabama's population grew an estimated 5.6% from 1990 to 1996 to
approximately 4.3 million persons, in comparison to the U.S. growth rate of
approximately 6.4% for the same period. The unemployment rate in
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<PAGE> 37
Alabama dropped over this period and was estimated by the U.S. Bureau of Labor
Statistics at 5.4% (not seasonally adjusted) during June 1997, versus 5.2% for
the nation. Median household income was estimated at $27,195 in 1995, 84.3% of
the national average. The Company believes that it is among the 10 largest
employers in Alabama. Historically, Alabama's economy and employment levels have
been adversely affected by cyclical downturns, especially in the mining, metal
manufacturing and fabrication, forest products and textile industries, although
growth in service businesses and other economic diversification in recent years
may reduce such economic risks. Cut-backs in the space program and changes in
other federal spending in Alabama have also had adverse effects in the past.
In Mississippi, the population has grown an estimated 5.4% since 1990 to
approximately 2.7 million in 1996. The unemployment rate generally declined
during this period and was estimated at 6.1% (not seasonally adjusted) during
June 1997, which was above the national average. Median household income was
estimated at $25,400 in 1995, 78.7% of the national average. The casino business
and related tourism has been a major component of recent economic growth, and
FRB-Atlanta reports that Mississippi is the third largest gambling market in the
U.S., trailing only Nevada and New Jersey. The gambling industry has low average
wages, and the level of tourism may vary, in part, upon the business cycle. The
casino business and related tourism have benefited from the absence of legalized
gambling in nearby states, and could be adversely affected by changes in such
states' laws. Changes in government employment and spending, including U.S. Navy
procurement of ships from Mississippi's largest private employer, as well as
cyclical economic downturns in forest products, agriculture and manufacturing
(including textiles) have historically and may in the future adversely effect
the Mississippi economy.
Tennessee's population grew an estimated 8.8% from 1990 to 1996 to
approximately 5.3 million persons. The unemployment rate generally declined over
this period and was estimated by the U.S. Bureau of Labor Statistics at 5.8%
(not seasonally adjusted) during June 1997, versus 5.2% for the nation. Median
household income was estimated at $28,639 in 1995, 88.8% of the national
average. According to FRB-Atlanta, retail growth rates in Tennessee outpaced the
nation in 1996, despite slowing as the year progressed. The Tennessee economy
has been affected adversely in the past by cyclical and other downturns in
tourism and the entertainment industry, auto and truck manufacturing (currently,
Tennessee's largest durables sector) and chemicals, as well as real estate
overbuilding in certain metropolitan areas. Reductions in government spending,
employment and investment, including the Tennessee Valley Authority and the Oak
Ridge nuclear facilities, could also have adverse effects.
Georgia's population grew an estimated 13.0% from 1990 to 1996 to
approximately 7.3 million persons. The unemployment rate has been relatively low
historically compared to the national average, and was estimated by the U.S.
Bureau of Labor Statistics at 4.9% (not seasonally adjusted) during June 1997,
which was below the national average. Job growth has slowed during 1997 to
slightly below the national average, and the Atlanta metropolitan area accounts
for approximately three-quarters of all job growth in Georgia. Median household
income for Georgia was estimated at $31,467 in 1995, 97.5% of the national
average. Tourism, including Atlanta's national convention business, is an
important part of Georgia's economy, and while projected to continue at strong
rates in 1997, likely will suffer from comparisons with 1996 when Atlanta hosted
the Olympics. Tourism may also be vulnerable to adverse changes in the economic
cycle. According to FRB-Atlanta, retail growth rates in Georgia were generally
similar to national rates. Approximately 25% of Georgia's non-farm employment is
in service industries, and in 1996, Georgia was the only state in the District
that showed job growth in the manufacturing sector compared to 1995. Although
Georgia has a diversified economy, much of Georgia's population and businesses
are concentrated in the Atlanta metropolitan area, which has been adversely
affected in the past by cyclical downturns and overbuilding of real estate.
Florida is the most populous state of those represented in the above table,
and its population grew an estimated 10.6% from 1990 to 1996 to approximately
14.4 million persons. The unemployment rate has declined generally over this
period, and was estimated by the U.S. Bureau of Labor Statistics at 5.2% (not
seasonally adjusted) during June 1997, which was the same as the national
average. According to FRB-Atlanta, since the beginning of the economic recovery
in the early 1990s, Florida's economy has consistently outperformed the nation.
Growth is attributable to strong tourism (domestic and international), trade
with Latin America and the Association of Southeast Asian Nations (ASEAN),
corporate relocations related to
33
<PAGE> 38
Florida's relatively low business costs and continued net migration and
immigration of people into Florida. While median household income for Florida
was estimated at $29,924 in 1995, 92.7% of the national average, consumer
spending is supported by relatively high levels of investments and savings among
Florida residents that have been bolstered by gains in the stock and bond
markets in recent years. FRB-Atlanta predicts that retail sales have outpaced,
and are expected to continue to outpace, the nation. The Florida economy has
been adversely affected in the past by hurricanes and storm damage, overbuilding
of real estate, adverse changes in foreign economies, especially in Latin
America, and by cyclical and seasonal changes in tourism and migration.
THE ACCOUNTS
At the Closing Date, the Accounts will consist of all eligible credit card
accounts of the Department Stores as of the close of business on the Cut-Off
Date and those accounts added thereafter prior to the Closing Date. Additional
eligible accounts originated in the normal operation of the credit card business
of the Sellers generally will be added on a daily basis as Automatic Additional
Accounts. In addition, subject to the provisions of the Pooling and Servicing
Agreement, certain eligible accounts relating to acquired businesses may in the
future be added as Additional Accounts.
The Accounts include all of Proffitt's, Parisian's, McRae's and Herberger's
credit card accounts existing as of the Cut-Off Date which are Eligible Accounts
and the Receivables will include all amounts payable by accountholders under
such Accounts which are Eligible Receivables. As a result some of the Accounts
will be recently solicited, unseasoned accounts (e.g. Receivables generated by
Herberger's). See "Credit Card Program" and "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Representations and
Warranties."
An "Eligible Account" means, as of the date of its selection, each Account
(a) which is in existence and owned by any Eligible Originator or the
Transferor, and payable in United States Dollars, (b) the Obligor of which has
provided, as its most recent billing address, an address which is located in the
United States or its territories or possessions, (c) which relates to credit
cards that have not been reported lost or stolen or designated by the Servicer
to be counterfeit or fraudulent, (d) in which the Receivables have not been
charged off in accordance with the Credit Card Guidelines, (e) which was
originated or acquired by or on behalf of an Eligible Originator, (f) which has
not been identified in the Transferor or Servicer's computer files as having
been cancelled or charged off due to the Obligor's bankruptcy or death, (g)
which does not have Receivables which are then subject to any sale, assignment
or pledge to any party other than the Transferor or the Trust pursuant to the
Receivables Purchase Agreements and the Pooling and Servicing Agreement and (h)
with respect to which the Transferor or any corporate affiliate of the
Transferor is not the Obligor.
An "Eligible Receivable" means each Receivable (a) which has arisen under
an Eligible Account, (b) which was created in compliance with all applicable
requirements of law pursuant to a credit card account agreement which complies
with all requirements of applicable law, in either case the failure to comply
with which would have a material adverse effect upon certificateholders, (c)
with respect to which all material consents, licenses, approvals or
authorizations of, or registrations with, any governmental authority required to
be obtained or given by an Eligible Originator or by the Transferor in
connection with the creation of such Receivable or the execution, delivery and
performance by such Eligible Originator of the credit card account agreement
pursuant to which such Receivable was created, have been duly obtained or given
and are in full force and effect as of such date of creation, (d) as to which,
upon the transfer of such Receivable to the Trust by the Transferor, the Trust
will have good and marketable title thereto free and clear of all liens (other
than as permitted under the Pooling and Servicing Agreement, including certain
tax liens for taxes not then due or which the Transferor is contesting in good
faith), (e) which will at all times be the legal, valid and binding payment
obligation of the obligor thereof (the "Obligor"), enforceable against such
Obligor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights in general ("Debtor Relief Laws") and except as such
enforceability may be limited by general principles of
34
<PAGE> 39
equity (whether considered in a suit at law or in equity), (f) which constitutes
either an "account," a "general intangible" or "chattel paper" under and as
defined in Article 9 of the UCC as then in effect in the jurisdictions where UCC
filings are required to perfect and maintain the security interest of the
Trustee (the "Relevant UCC State"), (g) which, at the time of transfer to the
Trust, has not been waived or modified except in accordance with the Credit Card
Guidelines (or as permitted in the Pooling and Servicing Agreement), (h) which,
at the time of transfer to the Trust, is not (to the knowledge of the Transferor
or the Servicer) subject to any claim of rescission, set-off, counterclaim or
any other defense (including defenses arising out of violations of usury laws)
of the Obligor, which requires that such Receivable be charged off in accordance
with the Credit Card Guidelines, other than defenses arising out of applicable
Debtor Relief Laws and equity related defenses, (i) as to which, at the time of
transfer to the Trust, each of the Transferor and the Eligible Originator has
satisfied all obligations required to be satisfied by such time, (j) as to which
the Eligible Originator and/or the Transferor has done nothing, as of the time
of its transfer to the Trust, to impair the rights of the Trust or holders of
Certificates of any Series outstanding therein and (k) which has been the
subject of either a valid transfer and assignment from the Transferor to the
Trust of all of the Transferor's right, title and interest therein or the grant
of a first priority perfected security interest therein (and in the proceeds
thereof to the extent set forth in Section 9-306 of the UCC as in effect in the
Relevant UCC State), effective until the termination of the Trust.
The Receivables arising from the Accounts as of the Cut-Off Date reflect
balances which include unpaid principal, finance charges, and credit insurance
if applicable.
Pursuant to the Pooling and Servicing Agreement, the Transferor has the
right (and, under certain circumstances, the obligation), subject to certain
limitations and conditions discussed under "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Addition of Accounts,"
to designate from time to time additional qualifying Company credit card
accounts to be included as Additional Accounts and to transfer to the Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. New accounts generated by the Sellers (including
any additional entities hereafter included as Sellers) generally will be
included automatically as Accounts on an ongoing basis, subject to the right of
the Transferor in its sole discretion, to cease such automatic additions.
Further, pursuant to the Pooling and Servicing Agreement, the Transferor has the
right, subject to certain limitations and conditions discussed under
"Description of the Series 1997-2 Certificates and the Pooling and Servicing
Agreement -- Removal of Accounts," to designate certain Accounts to be removed
from the Trust and to require the Trustee to retransfer all Receivables in such
removed Accounts to the Transferor. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Transfer of
Receivables."
The Receivables arising from the Accounts as of the Cut-Off Date totaled
$270,650,780, of which $267,350,232 (98.8% of the Receivables) were Principal
Receivables (without reduction for Discount Option Receivables), $3,300,548
(1.2% of the Receivables) were Finance Charge Receivables (without inclusion of
Discount Option Receivables) and $5,347,005 (2.0% of the Receivables) were
Discount Option Receivables. See "Description of the Series 1997-2 Certificates
and the Pooling and Servicing Agreement -- Investor Percentages and Transferor
Percentage."
THE TRUST
The Trust will be formed in accordance with the laws of the State of New
York pursuant to the Pooling and Servicing Agreement. Norwest Bank Minnesota,
National Association is the Trustee of the Trust. The Pooling and Servicing
Agreement sets forth the rights and obligations of the Trustee with respect to
the Trust. Each of the Servicer, the Transferor and holders of certificates of
all outstanding Series have the right to instruct the Trustee with respect to
certain matters, subject to the satisfaction of certain conditions, including
providing the Trustee with indemnities. The Trust will be formed for the
transactions relating to the issuance of the Series 1997-1 Variable Funding
Certificates, the transactions described herein, and similar transactions, as
contemplated by the Pooling and Servicing Agreement, and prior to formation will
have had no assets or obligations. The Trust will not engage in any business
activity, other than as described herein, but rather will
35
<PAGE> 40
only acquire and hold the Receivables, issue (or cause to be issued) the Series
1997-2 Certificates, the Exchangeable Transferor Certificate, and certificates
representing additional Series, and make payments on the Certificates and
conduct activities incidental thereto. Accordingly, the Trust is not expected to
have any need for additional capital resources. See "Description of the Series
1997-2 Certificates and the Pooling and Servicing Agreement."
PCC
PCC was incorporated in Nevada in January 1997, and is wholly-owned,
directly and indirectly, by Proffitt's, Inc. PCC was organized for the limited
purposes of purchasing accounts receivable such as the Receivables from the
Company, forming trusts such as the Trust and transferring such accounts
receivable to such trusts. Prior to the formation of the Trust, PCC's sole
activity was to act as transferor of certain accounts receivable in connection
with a receivables purchase facility. The principal executive offices of PCC are
located at Bank of America Plaza, Suite 1100, 300 South Fourth Street, Las
Vegas, Nevada 89101. Its telephone number is (702) 598-3738.
THE COMPANY
The Company is a leading regional department store chain operating 175
stores in 24 states, primarily in the Southeast and Midwest. Most of the stores
are located in premier regional malls in the respective trade areas served. The
Company's stores offer a wide selection of fashion apparel, accessories,
cosmetics and decorative home furnishings, featuring assortments of premier
brands, private brands and specialty merchandise. Each of the Company's chains
operates with its own merchandising, marketing and store operations team in
order to tailor regional assortments to the local customer. At the same time,
the Company coordinates merchandising among the chains and consolidates
administrative and support functions to realize scale economies, to promote a
competitive cost structure and to increase margins.
Under the leadership of an experienced senior management team, the Company
has executed a disciplined acquisition strategy and strategic approach to new
store openings, growing from 11 stores and net sales of $94.8 million in fiscal
1989 to 175 stores and pro forma net sales of $2.3 billion in fiscal 1996.
The Company was incorporated under the laws of the State of Tennessee in
1919. The principal executive offices of the Company are located at 750
Lakeshore Parkway, Birmingham, Alabama 35211, and its telephone number is (205)
940-4000.
USE OF PROCEEDS
The Trustee on behalf of the Trust will issue the Series 1997-2
Certificates to or upon the order of the Transferor. The entire net proceeds
received from the sale of the Offered Certificates and the Collateral
Indebtedness Interest, which are expected to be $220,185,000 before deduction of
expenses, will be paid to the Transferor. The Transferor will use such proceeds
to repay substantially all outstanding amounts owed with respect to the
Transferor's sales of receivables to a multi-seller, asset-backed commercial
paper conduit for which an affiliate of NationsBanc Capital Markets, Inc.
("NCMI") serves as agent. Such conduit is supported by the receivables in the
Trust Portfolio. The conduit facility is funded by commercial paper with a
maturity of 30 days or less and with floating interest rates approximating the
commercial paper composite rate, and such commercial paper facility will be
terminated upon repayment on the Closing Date. Approximately $20,000,000 of the
net proceeds from the sale of the Registrant's Series 1997-1 Variable Funding
Certificates will also be used, as needed, to repay the balance outstanding
under such existing commercial paper conduit facility. See "Underwriting."
MATURITY ASSUMPTIONS
The Pooling and Servicing Agreement provides that the Class A
Certificateholders will not receive payments of principal until the Class A
Expected Payment Date, except in the event of a Pay Out Event which results in
the commencement of the Rapid Amortization Period. The Class B
Certificateholders will not
36
<PAGE> 41
receive payments of principal until the Class B Expected Payment Date, except in
the event of a Pay Out Event which results in the commencement of the Rapid
Amortization Period; provided that in no event will the Class B
Certificateholders receive payments or principal until the Class A Certificates
have been paid in full. See "Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement -- Pay Out Events" and "Risk
Factors -- Effect of Payment Rate on Certificates."
Assuming that the Rapid Amortization Period has not commenced, during the
Accumulation Period, a portion of the collections in respect of the Receivables
equal to the product of (i) the Investor Percentage with respect to collections
of Principal Receivables and (ii) collections in respect of Principal
Receivables received during such Monthly Period will be deposited in the
Principal Account. Such amount to be deposited is limited to the applicable
Controlled Accumulation Amount (equal to $15,000,000 and $20,000,000 with
respect to the Class A Accumulation Period and Class B Accumulation Period,
respectively), subject to adjustment during the Class A Accumulation Period
based on the calculated Accumulation Period Length beginning with the first
Distribution Date of the Accumulation Period and ending when the amount held in
the Principal Account is sufficient to pay the Class A Investor Amount in full.
In addition, any existing Deficit Controlled Accumulation Amount will be
deposited into the Principal Account. Amounts held in the Principal Account will
be paid to the Class A Certificateholders on the Class A Expected Payment Date
and to the Class B Certificateholders on the Class B Expected Payment Date,
respectively, or in each case, the first Distribution Date during the Rapid
Amortization Period, if earlier. A decline in the rate of cardholder reborrowing
together with a decline in the rate of establishing new Accounts during the
Accumulation Period could extend the time of repayment of principal to the
Certificateholders, resulting in a longer term exposure to loss and liquidity
concerns by holders of the Offered Certificates.
Should a Pay Out Event occur and the Rapid Amortization Period begin,
Available Principal Collections distributable or to be deposited with respect to
the Class A Investor Amount or the Class B Investor Amount will no longer be
limited to the Controlled Accumulation Amount. Instead, Available Principal
Collections will be distributed monthly in their entirety on each Distribution
Date to the Certificateholders, beginning with the Distribution Date in the
month following the commencement of the Rapid Amortization Period. The Class B
Investor Amount will generally begin amortizing only after the Class A Investor
Amount is paid in full, the Collateral Indebtedness Amount will generally begin
amortizing only after the Class B Investor Amount is paid in full and the Class
D Investor Amount will begin amortizing only after the Collateral Indebtedness
Amount is paid in full. Allocations based upon an Investor Percentage with a
fixed numerator during the Rapid Amortization Period may result in greater
distributions of principal to Certificateholders than would be the case if an
Investor Percentage with a floating numerator were used to determine the
percentage of collections distributed in respect of the Investor Amount. The
Offered Certificates are also subject to an optional repurchase by the
Transferor on any Distribution Date on or after the Distribution Date on which
the sum of the Class A Adjusted Investor Amount, the Class B Adjusted Investor
Amount, the Collateral Indebtedness Amount and the amount of the Class D
Investor Amount held by parties other than the Transferor or any of its
affiliates is less than or equal to 10% of the sum of the Class A Investor
Amount on the Closing Date, the Class B Investor Amount on the Closing Date, the
Collateral Indebtedness Amount on the Closing Date and the highest amount of the
Class D Investor Amount held by parties other than the Transferor or any of its
affiliates since the Closing Date. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Optional Repurchase;
Final Payment of Principal; Termination."
The Transferor may, at or after the time the Accumulation Period commences
for Series 1997-2, cause the Trust to issue another Series as a Paired Series
with respect to Series 1997-2 to be used to finance the increase in the
Transferor Interest caused by the accumulation of principal in the Principal
Account with respect to Series 1997-2. No assurances can be given as to whether
such other Series will be issued and, if issued, the terms thereof, since the
terms of the Certificates may vary from the terms of such other Series, the pay
out events with respect to such other Series may vary from the Pay Out Events
with respect to Series 1997-2 and may include pay out events which are unrelated
to the status of the Transferor or the Receivables, such as pay out events
related to the continued availability and rating of certain providers of credit
enhancement with respect to such Series. If a pay out event does occur with
respect to any such Paired Series prior to the payment in full of the
Certificates, the final payment of principal to the Certificateholders
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<PAGE> 42
may be delayed. See "Description of the Series 1997-2 Certificates and the
Pooling and Servicing Agreement -- Paired Series". If a pay out event occurs
with respect to the Paired Series when Series 1997-2 is in the Accumulation
Period, the percentage used for allocating collections of Principal Receivables
for Series 1997-2 and for the Paired Series may be reset as specified herein.
See "Description of the Series 1997-2 Certificates and the Pooling and Servicing
Agreement -- Investor Percentages and Transferor Percentage."
Principal payments on the Offered Certificates will begin prior to their
respective expected payment dates in the event of a Pay Out Event. Pay Out
Events may be caused, by among other things, a decrease in Portfolio Yield or an
inability to generate sufficient new Receivables. A reduction in Portfolio Yield
may result from reductions in collections of Finance Charge Receivables or an
increase in charge offs. A reduction in collections of Finance Charge
Receivables may occur as a result of increased delinquencies, or as a result of
increased payments of principal being made by cardholders on a monthly basis.
Such increased payments would result in lower finance charges being assessed. A
decline in the rate of reborrowing or a decline in the rate of establishing new
Accounts would also contribute to a reduction in the creation and collection of
Finance Charge Receivables. The Offered Certificates will be paid after their
respective expected payment dates if sufficient Principal Receivables are not
collected during the Accumulation Period. A reduction in collections of
Principal Receivables may occur due to a reduction in payment rates.
Although it is anticipated that principal payments will be made to Class A
Certificateholders and to the Class B Certificateholders on the Class A Expected
Payment Date and on the Class B Expected Payment Date, respectively, no
assurance can be given in that regard. The ability of the Trust to make such
payments depends on the payment rates on the Receivables, the amount of
outstanding Receivables from time to time, delinquencies, the rate of charge
offs on the Receivables, the potential issuance by the Trust of additional
Series and the availability of Shared Principal Collections. The Transferor
cannot predict, and no assurance can be given as to, any of the foregoing. Thus
no assurance can be given as to the actual rate of payment of principal of the
Offered Certificates. See "Risk Factors," "Credit Card Program" and "Composition
of the Trust Portfolio."
The following table sets forth the highest and lowest credit card
accountholder monthly payment rates for the Trust Portfolio during any month in
the periods shown and the average accountholder monthly payment rates for all
months during the periods shown, in each case calculated as a percentage of the
total opening monthly credit card account balances during the periods shown.
Payments shown in the table include amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts. There can be no assurance that monthly payment rates in the future
will be similar to this historical experience. See "Risk Factors."
ACCOUNTHOLDER MONTHLY PAYMENT RATES(1)
TRUST PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS FOR THE 12 MONTHS
ENDED MAY 31, ENDED DECEMBER 31,
-------------- -----------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Lowest Month....................................... 21.41% 20.54% 20.54% 21.87% 22.24%
Highest Month...................................... 22.80 22.76 22.76 24.69 23.79
Monthly Average.................................... 21.95 22.11 22.02 22.80 23.02
</TABLE>
- ---------------
(1) The monthly payment rates are calculated as the amount of total payments
received during the month, divided by total Receivables outstanding at the
beginning of each month.
The amount of collections on Receivables may vary from month to month due
to seasonal variations, general economic conditions and the payment habits of
individual accountholders. There can be no assurance that collections of
Principal Receivables with respect to the Accounts, and thus the rate at which
Certificateholders could expect to receive payments of principal on their
Offered Certificates, will be similar to
38
<PAGE> 43
the historical experience set forth above. In addition, if a Pay Out Event
occurs, the average life and maturity of the Offered Certificates could be
significantly reduced.
Because there may be a slow-down in the payment rate below the payment rate
used to determine the Controlled Accumulation Amount or a Pay Out Event may
occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the beginning of the
Accumulation Period to the final Distribution Date with respect to the Offered
Certificates will equal the expected number of months. The amount of outstanding
Receivables and the rates of payments, delinquencies, write-offs and new
borrowings on the Accounts depend upon a variety of factors, including seasonal
variations, the availability of other sources of credit, general economic
conditions and consumer spending and borrowing patterns. Accordingly, there can
be no assurance that future accountholder monthly payment rate experience will
be similar to historical experience.
RECEIVABLES YIELD CONSIDERATIONS
The yield for active credit card accounts in the Trust Portfolio for each
of the periods shown is set forth in the following table. The historical yield
figures in the table are calculated on an as-billed basis. Collections on
Receivables included in the Trust will be on a cash-collection basis and may not
reflect the historical yield experience in the table. Revenues from finance
charges and fees will be affected by numerous factors, including the rates of
the finance charges on Principal Receivables, the amount of other fees paid by
accountholders, the percentage of accountholders who pay off their balances in
full each month or who have the benefit of a deferred billing or interest free
option and thus do not incur monthly periodic charges on purchases, and changes
in delinquency rates. There can be no assurance that the portfolio yield in the
future will be similar to the historical experience set forth below. See "Risk
Factors."
PORTFOLIO YIELD
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS FOR THE 12 MONTHS
ENDED MAY 31, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Receivables(1).............. $293,534 $287,413 $281,184 $269,306 $252,982
Billed Finance Charges and Fees,
Unadjusted........................ $ 18,932 $ 17,805 $ 42,191 $ 38,129 $ 36,250
Portfolio Yield, Unadjusted(2)(3)... 15.48% 14.87% 15.00% 14.16% 14.33%
Discount Option Receivable
Collections (2% Discount
Percentage)....................... $ 6,174 $ 6,084 $ 13,982 $ 13,948 $ 13,178
Portfolio Yield,
Discount-Adjusted(2)(4)........... 20.53% 19.95% 19.98% 19.34% 19.54%
</TABLE>
- ---------------
(1) Average Receivables for a particular period is the average of the total
balances outstanding at the beginning and the end of each month during such
period.
(2) The percentages for the five months ended May 31, 1997 and 1996 are
annualized figures, which are not necessarily indicative of results that may
be realized for the entire year.
(3) The term "unadjusted" represents the Portfolio Yield without the inclusion
of Discount Option Receivable Collections.
(4) Represents the historical Portfolio Yield adjusted to reflect the inclusion
of Discount Option Receivable Collections and a Discount Percentage of 2%
for all periods indicated. If a Discount Percentage of 1% were used, the
discount-adjusted Portfolio Yield would be 17.49%, 16.75% and 16.93% for the
12-month periods ended December 31, 1996, 1995, and 1994, respectively, and
18.00% and 17.41% for the five-month periods ended May 31, 1997 and 1996,
respectively. See "Risk Factors -- Effect of Discount Option" for a
description of the risk factors associated with the Discount Option.
POOL FACTORS
The "Class A Pool Factor," the "Class B Pool Factor," the "Collateral Pool
Factor" and the "Class D Pool Factor" are each a seven-digit decimal, which the
Servicer will compute monthly, expressing as of each
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<PAGE> 44
Record Date: the Class A Investor Amount as a proportion of the Class A Investor
Amount as of the Closing Date, the Class B Investor Amount as a proportion of
the Class B Investor Amount as of the Closing Date, the Collateral Indebtedness
Amount as a proportion of the Collateral Indebtedness Amount as of the Closing
Date or the Class D Investor Amount as a proportion of the Class D Investor
Amount as of the Closing Date, respectively. On the Closing Date, the Class A
Pool Factor, the Class B Pool Factor, the Collateral Pool Factor and the Class D
Pool Factor (collectively, the "Pool Factors") will each be 1.0000000 and will
remain unchanged during the Revolving Period, except in certain limited
circumstances. Thereafter, on and after the beginning of the Rapid Amortization
Period, the Class A Pool Factor will decline to reflect reductions in the Class
A Investor Amount, and after the Class A Investor Amount has been reduced to
zero, the Class B Pool Factor will decline to reflect reductions in the Class B
Investor Amount. The Collateral Pool Factor will decline to reflect reductions
in the Collateral Indebtedness Amount. See "Description of the Series 1997-2
Certificates and the Pooling and Servicing Agreement -- Allocation of Investor
Default Amount; Adjustment Amounts; Investor Charge Offs."
Pursuant to the Pooling and Servicing Agreement, monthly reports concerning
the Investor Amount, the Adjusted Investor Amount, the Pool Factors and various
other items of information will be made available to the Certificateholders. In
addition, on or before January 31 of each year, beginning in 1998, information
for tax reporting purposes will be made available to Certificateholders. See
"Description of the Series 1997-2 Certificates and the Pooling and Servicing
Agreement -- Book-Entry Registration" and "-- Reports to Certificateholders."
DESCRIPTION OF THE SERIES 1997-2 CERTIFICATES
AND THE POOLING AND SERVICING AGREEMENT
The Series 1997-2 Certificates will be issued pursuant to the Pooling and
Servicing Agreement, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following is a
summary of the material provisions of the Pooling and Servicing Agreement and is
qualified in its entirety by reference to the Pooling and Servicing Agreement.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Pooling and Servicing Agreement.
GENERAL
The Series 1997-2 Certificates will represent undivided interests in the
Trust, including an interest in all payments on the Receivables in the Trust
based upon the applicable Investor Percentage. Each Offered Certificate
represents the right to receive monthly payments of interest at one-twelfth
( 1/12th) of the applicable Certificate Rate and payments of principal at the
respective maturity dates or during the Rapid Amortization Period funded from
collections of Finance Charge Receivables, Net Recoveries and Principal
Receivables, respectively, allocated to the Investor Amount. See "-- Investor
Percentages and Transferor Percentage;" "-- Applications of Collections" and
"-- Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge
Offs."
The Transferor will initially own the interest not represented by the
Series 1997-2 Certificates or other Series of certificates. The Transferor
Amount will be evidenced by the Exchangeable Transferor Certificate, which will
represent an undivided interest in the Trust, including the right to a floating
percentage (the "Transferor Percentage") of all payments on the Receivables in
the Trust. The Transferor will be permitted to assign any or all of its
interests in the Exchangeable Transferor Certificate to the Company or any of
its affiliates. The Exchangeable Transferor Certificate may be subdivided and a
portion thereof may be sold to third parties in the form of a separate Series.
The ability of the Transferor to issue other Series and to subdivide the
Exchangeable Transferor Certificate is subject to certain additional conditions,
including delivery to the Trustee of (i) an opinion of counsel that the issuance
of such new series will not have a material adverse effect on the federal income
tax characterization of any outstanding Series and (ii) written confirmation
from each Rating Agency rating each of the outstanding Series that the issuance
of such new Series will not result in such Rating Agency reducing or withdrawing
its rating on any certificates then outstanding. See "-- Investor Percentages
and Transferor Percentage" and " -- Issuance of New Series."
40
<PAGE> 45
During the Revolving Period, the Investor Amount will remain constant
except in certain limited circumstances. The amount of Principal Receivables in
the Trust, however, will vary as new Principal Receivables are added to the
Trust and others are paid or removed. The Transferor Amount will fluctuate,
therefore, to reflect the changes in the amount of the Principal Receivables in
the Trust. During the Accumulation Period, all or a portion of the collections
of Principal Receivables allocable to the entire Investor Amount will be
deposited in the Principal Account until the relevant Expected Payment Date or
the commencement of the Rapid Amortization Period. During the Rapid Amortization
Period, the Investor Amount will decline as payments of Principal Receivables
allocated to the Investor Amount are collected and distributed monthly to the
Certificateholders on the applicable payment dates. As a result, the Transferor
Amount during the Accumulation Period or a Rapid Amortization Period may
generally increase relative to the Investor Amount to reflect the reductions in
the Investor Amount and will also change to reflect the variations in the amount
of Principal Receivables in the Trust or the amount held in the Excess Funding
Account. See "-- Allocation of Investor Default Amount; Adjustment Amounts;
Investor Charge Offs."
The assets of the Trust will consist of the Receivables, all monies due or
to become due in respect thereof (including all Finance Charge Receivables), all
collections, Recoveries and other proceeds of the Receivables and proceeds of
credit insurance policies, if any, relating to the Receivables, all rights to
security, if any, for any Receivables, all proceeds and products of all of the
foregoing, and all monies held in certain accounts of the Trust, including the
Collection Account, the Excess Funding Account, the Reserve Account and the Cash
Collateral Account. For purposes of this section, the term "Receivables" shall
include all the property and rights listed in the preceding sentence. In
addition, the Transferor will assign to the Trust the Transferor's rights
relating to the Receivables under the Receivables Purchase Agreements, pursuant
to which the Receivables transferred to the Trust by the Transferor have been
and will be purchased by the Transferor from each of the Sellers. See
"Description of the Receivables Purchase Agreements."
The Offered Certificates will initially be represented by two or more
certificates, each registered in the name of a nominee of DTC. The Offered
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form. The Transferor has been
informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is expected
to be the holder of record of the Offered Certificates. No Certificate Owner
will be entitled to receive a certificate representing such person's interest in
the Offered Certificates, except as described under "-- Definitive
Certificates." Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants and all references herein to distributions, notices, reports
and statements to Certificateholders shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the Offered
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC's procedures. See "-- Book-Entry Registration" and
"-- Definitive Certificates."
On the Closing Date, the Trustee will authenticate and deliver, upon the
order of the Transferor, two or more certificates representing the Offered
Certificates to DTC, and one or more certificates representing the Collateral
Indebtedness Interest to the Collateral Indebtedness Holder and one or more
certificates representing the Class D Certificates to the Transferor (or its
designee) against payment of the net purchase price for the Series 1997-2
Certificates. On the Closing Date, the Servicer will deliver to the Trustee a
certificate setting forth the aggregate amounts of the Principal Receivables and
Finance Charge Receivables as of the close of business on the day preceding the
Closing Date.
INTEREST PAYMENTS
Interest will accrue on the Offered Certificates from the Closing Date.
Beginning with the month following the month in which such accrual date occurs,
interest at one-twelfth of the Certificate Rate will be paid on the Distribution
Date in each month to the Certificateholders in whose names the Offered
Certificates were registered at the close of business on the Record Date.
Interest will be distributed on the September 1997 Distribution Date, and on
each Distribution Date thereafter. Interest due on any Distribution Date will be
calculated on the amount of the Investor Amount as of the preceding Record Date
(plus any prior interest deficiency) or, in the case of the initial Distribution
Date, on the amount of the Investor Amount on the
41
<PAGE> 46
Closing Date. Interest will be prorated for the actual number of days in the
first accrual period. Interest will be calculated on the basis of a 360-day year
comprised of twelve 30-day months, with each accrual period constituting a
single month. Interest payments on any Distribution Date will be generally
funded from Available Finance Charge Collections.
PRINCIPAL PAYMENTS
During the Revolving Period, which begins on the Closing Date and ends on
the close of business on the last day of the Monthly Period preceding the
commencement of the Accumulation Period or, if earlier, the day the Rapid
Amortization Period begins, principal payments will be made to the holder of the
Exchangeable Transferor Certificate, allocated to other Series of certificates,
applied as Reallocated Principal Collections, if required, or deposited in the
Excess Funding Account rather than deposited to the Principal Account or paid to
the Certificateholders. Under certain circumstances, the commencement of the
Accumulation Period may be postponed by the Transferor. On or prior to the
Distribution Date occurring 12 months prior to the Class A Expected Payment
Date, the Transferor shall designate the number of Monthly Periods in the
Accumulation Period and the commencement date of the Accumulation Period. In the
absence of such a designation, the Accumulation Period will commence at the
close of business on the last day of the July 2001 Monthly Period.
During the Accumulation Period, a portion of Available Principal
Collections will be deposited in the Principal Account on each Distribution
Date. During the Rapid Amortization Period, which would begin upon the
occurrence of a Pay Out Event, any amounts held in the Principal Account will be
allocated first to the Class A Certificateholders, with the balance, if any, to
the Class B Certificateholders to the extent of their respective Investor
Amounts, and thereafter Available Principal Collections will be paid to the
Certificateholders on each Distribution Date. The Class A Investor Amount will
be equal to the Class A Initial Investor Amount minus the aggregate amount of
principal payments paid to the Class A Certificateholders and minus the amount
of Class A Investor Charge Offs which have not been reimbursed, plus the
aggregate amount of reductions of the Series Adjustment Amounts allocable to the
Class A Certificates. The Class A Adjusted Investor Amount is equal to the Class
A Investor Amount minus the amount held in the Principal Account on behalf of
the Class A Certificateholders. The first principal payment will be made to the
Principal Account or to the Certificateholders, as the case may be, beginning on
the first Distribution Date following the month in which either the Accumulation
Period or the Rapid Amortization Period commences. If a Rapid Amortization
Period does not commence, principal payments will be funded from the amounts on
deposit in the Principal Account. The Class B Investor Amount will be equal to
the Class B Initial Investor Amount minus the aggregate amount of principal
payments paid to the Class B Certificateholders minus any Class B Subordinated
Principal Collections applied for the benefit of the Class A Certificates minus
the amount of the unreimbursed Class B Investor Charge Offs and reallocations of
the Class B Investor Amount to the Class A Investor Amount to cover the Class A
Allocable Amount and plus the aggregate amount of reductions of the Series
Adjustment Amounts allocable to the Class B Certificates. The Class B Adjusted
Investor Amount is equal to the Class B Investor Amount minus, prior to the
payment in full of the Class A Investor Amount, the excess of the Principal
Account Balance over the Class A Investor Amount, and after the payment in full
of the Class A Investor Amount, the Principal Account Balance, if any (but not
less than zero). On the Class A Expected Payment Date, amounts on deposit in the
Principal Account will be distributed to holders of the Class A Certificates,
and on the Class B Expected Payment Date, amounts on deposit in the Principal
Account will be distributed to holders of the Class B Certificates; provided
that the Rapid Amortization Period has not commenced. During the Collateral
Amortization Period, certain collections of Principal Receivables will be
distributed to the Collateral Indebtedness Holders. See "-- Investor Percentages
and Transferor Percentage;" "-- Applications of Collections;" "-- Collateral
Amortization Period" and "-- Pay Out Events".
POSTPONEMENT OF ACCUMULATION PERIOD
The Accumulation Period is scheduled to commence at the close of business
on the last day of the July 2001 Monthly Period. Upon written notice to the
Trustee, the Transferor may elect to postpone the commencement of the
Accumulation Period and extend the length of the Revolving Period, subject to
certain conditions, including those set forth below. The Transferor may make
such election only if the Accumulation
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<PAGE> 47
Period Length (determined as described below) is less than 12 months. On each
Determination Date, until the Accumulation Period begins, the Servicer will
determine the "Accumulation Period Length," which is the number of months
expected to be required to fund the Principal Account up to the Class A Initial
Investor Amount no later than the Class A Expected Payment Date, based on (a)
the monthly collections of Principal Receivables expected to be distributable to
the certificateholders of all Series (excluding certain other Series), assuming
a principal payment rate no greater than the lowest monthly principal payment
rate on the Receivables for the preceding 12 months and (b) the amount of
principal expected to be distributable to certificateholders of all Series
(excluding certain other Series) which are not expected to be in their revolving
periods during the Accumulation Period. If the Accumulation Period Length is
less than 12 months, the Transferor may, at its option, postpone the
commencement of the Accumulation Period such that the number of months included
in the Accumulation Period will be equal to or exceed the Accumulation Period
Length. The effect of the foregoing calculation is to permit the reduction of
the length of the Accumulation Period based on the investor amounts of certain
other Series which are scheduled to be in their revolving periods during the
Accumulation Period and on increases in the principal payment rate occurring
after the Closing Date. The length of the Accumulation Period will never be less
than one month nor greater than 12 months.
TRANSFER OF RECEIVABLES
The Transferor has transferred to the Trust all its right, title and
interest in and to all the Receivables in the Accounts as of July 31, 1997 (the
"Cut-Off Date"), and in and to all Receivables thereafter created in the
Accounts and thereafter acquired by the Transferor from the Sellers pursuant to
the Receivables Purchase Agreements. In addition to the occasional designation
of Additional Accounts (as discussed below), the Transferor has agreed that each
new credit card account originated by the Sellers after the Cut-Off Date and
purchased by the Transferor pursuant to the Receivables Purchase Agreements
shall automatically be included as an Account (and the Receivables arising
thereunder are automatically transferred to the Trust); provided that such new
account satisfies certain eligibility requirements ("Automatic Additional
Accounts"). The Transferor, at its option, may terminate or suspend the
automatic inclusion of such Automatic Additional Accounts at any time. In the
future, the property of the Trust may include credit card accounts Receivables
generated by, or acquired by, other subsidiaries or divisions of the Company,
including, without limitation, those resulting from acquisitions, subject to the
satisfaction of certain conditions. See "Description of the Receivables Purchase
Agreements."
In connection with the transfer of the Receivables to the Trust, the
Transferor will cause the Servicer to indicate or cause to be indicated in the
computer files of the Transferor and each Seller that the Receivables have been
sold and transferred to the Transferor and thereupon transferred by the
Transferor to the Trust. In addition, the Transferor will provide or cause to be
provided to the Trustee a computer file or a microfiche or written list
containing a true and complete list showing each Account, identified by account
number and by Receivable balance, as of the Cut-Off Date. The agreements
relating to the Accounts and the Receivables maintained by or on behalf of the
Transferor or the Servicer will not be segregated by or on behalf of the
Transferor or the Servicer from other agreements relating to other credit card
accounts and receivables and such agreements will not be stamped or marked to
reflect the transfer of the Receivables to the Trust, but the books and records,
including computer records, of the Receivables will be marked to evidence such
transfer. The Transferor will file financing statements under the UCC with
respect to the Receivables meeting the requirements of applicable state law. See
"Certain Legal Aspects of the Receivables."
Pursuant to the Pooling and Servicing Agreement, the Transferor may, and
under certain circumstances and subject to certain limitations and conditions
shall, designate from time to time Additional Accounts to be included as
Accounts pursuant to the Receivables Purchase Agreements, and all Receivables in
such Additional Accounts, whether such Receivables are then existing or
thereafter created. All Receivables so acquired by the Transferor will be
transferred by the Transferor to the Trust. The Transferor may also (under
certain circumstances and subject to certain limitations and conditions) remove
Accounts. See "-- Addition of Accounts" and "-- Removal of Accounts."
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<PAGE> 48
REPRESENTATIONS AND WARRANTIES
The Transferor will make certain representations and warranties to the
Trust to the effect that, among other things, (a) as of the Closing Date it is
duly incorporated, validly existing and in good standing and has the authority
to consummate the transactions contemplated by the Pooling and Servicing
Agreement and the Receivables Purchase Agreements and (b) as of the Cut-Off Date
(or as of the date of the addition of Additional Accounts) each Account was an
Eligible Account and no selection procedures adverse to the Certificateholders
have been employed by the Transferor in selecting the Accounts. If any of these
representations and warranties proves to have been incorrect in any material
respect when made, and (i) continues to be incorrect in any material respect for
60 days after written notice of such breach is received by the Transferor from
the Trustee or by the Transferor and the Trustee from holders of Series 1997-2
Certificates representing not less than 50% of the Investor Amount, and (ii) as
a result of which the interests of the holders of Series 1997-2 Certificates are
materially and adversely affected and remain materially and adversely affected
for such period, then the Trustee, or the holders of Series 1997-2 Certificates
representing more than 50% of the Investor Amount, may declare that a Pay Out
Event has occurred, thereby commencing the Rapid Amortization Period. See
"-- Pay Out Events."
The Transferor will also make representations and warranties to the Trustee
for the benefit of certificateholders of each Series relating to the Receivables
to the effect, among other things, that (a) as of the Cut-Off Date or the
creation date, as applicable, and in the case of Receivables in Additional
Accounts, as of the related cut off date for any such Additional Accounts (the
"Additional Account Cut-Off Date"), each of the Receivables then existing is an
Eligible Receivable and (b) each Receivable transferred on such day has been
transferred free and clear of any liens, other than certain liens permitted by
the Pooling and Servicing Agreement, such as liens for taxes and governmental
charges not then due or which the Transferor is contesting in good faith, the
Transferor's interests in the Receivables as holder of the Exchangeable
Transferor Certificate and the Transferor's right to receive certain interest
and investment earnings under the Pooling and Servicing Agreement and various
Series Supplements thereunder. In the event of a breach of any representation
and warranty set forth in this paragraph, and where, as a result, any Receivable
becomes a Receivable in a Defaulted Account or the Trust's rights in, to or
under such Receivable or its proceeds are materially impaired or the proceeds of
such Receivables are not available for any reason to the Trust free and clear of
liens, except those liens described in the prior sentence, then, unless such
breach is cured within 90 days or such longer period specified by the Trustee
upon request of the Servicer (not to exceed an additional 90 days) of the
earlier to occur of the discovery of any such event by the Transferor or the
Servicer or the Transferor's or the Servicer's receipt of written notice of such
breach from the Trustee, the Transferor shall accept retransfer of such
Receivable (each an "Ineligible Receivable") on the terms and conditions set
forth below; provided, however, no such retransfer shall be required to be made
with respect to such Ineligible Receivable if, on any day within such 90-day
period, the representations and warranties with respect to such Ineligible
Receivable shall then be true and correct in all material respects as if such
Ineligible Receivable has been transferred to the Trust on such day and the
related Account is no longer a Defaulted Account and the Trust's rights with
respect to such Receivable are no longer materially impaired and the proceeds of
such Receivable are available to the Trust free and clear of all liens.
Notwithstanding the above, in the event of a breach of the representation and
warranty set forth in clause (b) of this paragraph and either (i) such lien (1)
ranks prior to the lien created pursuant to the Pooling and Servicing Agreement,
(2) arises in favor of the United States of America or any state or any agency
or instrumentality thereof or involves taxes or liens arising under Title IV of
ERISA, or (3) has been consented to by the Transferor, or (ii) such lien is not
of the types described in clause (i) above, but, as a result of such breach or
event, such Receivable becomes a Receivable in a Defaulted Account or the
Trust's rights in, to or under such Receivable or its proceeds are materially
impaired or the proceeds of such Receivable are not available for any reason to
the Trust free and clear of any lien except permitted as described above, the
Transferor shall immediately repurchase and the Trustee shall convey, without
recourse, all of the Trustee's right, title and interest in each such Ineligible
Receivable. The Transferor shall accept retransfer of each such Ineligible
Receivable and there shall be deducted from the aggregate amount of Principal
Receivables used to calculate the Transferor Amount the aggregate amount of each
such Ineligible Receivable. If the exclusion of an Ineligible Receivable from
the calculation of the Transferor Amount would reduce the Transferor Amount
below the Minimum Transferor Amount (after
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giving effect to the addition of any Principal Receivables to the Trust), the
Transferor will be obligated to make a deposit in the Excess Funding Account in
immediately available funds in an amount equal to the amount by which the
Minimum Transferor Amount exceeds the Transferor Amount or designate sufficient
Additional Accounts. Such deposit will be considered a repayment in full of the
Ineligible Receivable and will be allocated as a collection in respect of
Principal Receivables. The obligation of the Transferor to accept retransfer of
any Ineligible Receivable is the sole remedy respecting any breach of the
representations and warranties set forth in this paragraph with respect to such
Receivable available to Certificateholders or the Trustee on behalf of
Certificateholders.
The Transferor will also make representations and warranties to the Trustee
for the benefit of certificateholders of all Series to the effect, among other
things, that as of the Closing Date (a) the Pooling and Servicing Agreement
constitutes a legal, valid and binding obligation of the Transferor and (b) the
Pooling and Servicing Agreement constitutes a valid transfer to the Trust of all
right, title and interest of the Transferor in and to the Receivables, whether
then existing or thereafter created in the Accounts and acquired by the
Transferor pursuant to the Receivables Purchase Agreements and the proceeds
thereof (including amounts in any of the accounts established for the benefit of
the Certificateholders) or the grant to the Trust of a first priority perfected
security interest in such Receivables (except for certain liens permitted by the
Pooling and Servicing Agreement such as tax liens not then due or which the
Company or the Transferor is contesting in good faith) and the proceeds thereof,
which is effective as to each Receivable upon the transfer thereof to the Trust
or upon its creation, as the case may be. In the event (x) any of the
representations and warranties described in this paragraph is either not true
and correct or (y) a material amount of Receivables are Ineligible Receivables,
and in either case, such event has a material adverse effect on the interests of
certificateholders of all Series, either the Trustee or the holders of
certificates evidencing undivided interests in the Trust aggregating more than
50% of the aggregate investor amounts of all Series (the "Aggregate Investor
Amount"), by written notice to the Transferor (and to the Trustee and the
Servicer if given by the Certificateholders), may direct the Transferor to
accept transfer of all the Receivables within 90 days of such notice or within
such longer period as may be specified in such notice (not to exceed an
additional 90 days). The Transferor will be obligated to accept transfer of such
Receivables on a Distribution Date occurring within such applicable period. Such
retransfer will not be required to be made, however, if at any time during such
applicable period the representations and warranties shall then be true and
correct in all material respects or there is no longer a material amount of such
Receivables which are not Eligible Receivables. The price for such retransfer
will be equal to the Aggregate Investor Amount at the end of the business day
preceding the Distribution Date on which the retransfer is scheduled to be made
less the amount, if any, held in any principal account and the Excess Funding
Account on such Transfer Date plus an amount equal to all accrued but unpaid
interest on all Series at the applicable Certificate Rates through the end of
the respective interest accrual period(s) of such Series, plus any enhancement
required to be paid pursuant to any Supplement. The payment of the retransfer
amount shall be made into the Collection Account in immediately available funds,
and will be considered a prepayment in full of all such Receivables and will be
paid to the certificateholders, and the Enhancement Providers, if any. These
obligations will constitute the sole remedy respecting a breach of the
representations and warranties set forth in this paragraph available to the
Trustee or the Certificateholders.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects
or compliance with the Transferor's representations and warranties or for any
other purpose.
ADDITION OF ACCOUNTS
Subject to the conditions specified below, the Transferor may designate
from time to time Additional Accounts (which may be from any billing cycle and
which may be VISA, MasterCard or proprietary credit card accounts) to be
included as Accounts and transfer to the Trust all Receivables in such
Additional Accounts, whether such Receivables are then existing or thereafter
created. In addition, if as of the end of any Monthly Period, the Transferor
Amount (after giving effect to any amounts deposited in the Excess Funding
Account) is less than the Minimum Transferor Amount, or if, as of the end of any
Monthly Period, the
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aggregate Principal Receivables is less than the Minimum Aggregate Principal
Receivables, then the Transferor will, under the Receivables Purchase
Agreements, cause the Receivables of Additional Accounts to be included as
Accounts, and the Transferor will purchase Receivables in such Additional
Accounts under the Receivables Purchase Agreements and transfer such Receivables
to the Trust in a sufficient amount so that the Transferor Amount as of the end
of such Monthly Period would have equaled or exceeded the Minimum Transferor
Amount or the aggregate Principal Receivables would have equaled or exceeded the
Minimum Aggregate Principal Receivables. "Minimum Aggregate Principal
Receivables" means the sum of the numerators used to determine investor
percentages with respect to Principal Receivables for each Series outstanding
for such period.
The Transferor may designate Additional Accounts only upon satisfaction of
the following conditions: (i) the Transferor shall give the Trustee and the
Servicer at least five business days' notice of the proposed addition which
specifies the approximate amount of Receivables to be transferred, (ii) the
Transferor shall give the Trustee an executed transfer agreement together with a
list of such Additional Accounts, (iii) the Transferor shall represent and
warrant that each Additional Account was as of the date of selection an Eligible
Account, no selection procedures believed by the Transferor to be materially
adverse to the interests of any outstanding Series of Certificates were used in
selecting such Additional Accounts, and that as of the closing date of such
transfer, the Transferor is not nor will it be made insolvent by the transfer of
Receivables in such Additional Accounts, (iv) the Transferor shall represent and
warrant that the transfer of such Additional Accounts constitutes a valid
transfer to the Trust of all right, title and interest of the Transferor in and
to the Receivables in such Additional Accounts, whether then existing or
thereafter created, and the proceeds thereof (including amounts in any of the
accounts established for the benefit of the Certificateholders) or the grant to
the Trust of a first priority perfected security interest in such Receivables
(except for certain liens permitted under the Pooling and Servicing Agreement)
and the proceeds thereof, which is effective as to each Receivable upon the
transfer thereof to the Trust, (v) the Transferor shall deliver an officer's
certificate confirming the items specified in clauses (ii), (iii) and (iv) in
this paragraph, (vi) with respect to the designation of certain Additional
Accounts, the Transferor shall deliver an opinion of counsel in respect of such
addition in the form specified in the Pooling and Servicing Agreement, (vii)
with respect to the designation of certain Additional Accounts, the Transferor
shall notify each Rating Agency of such proposed addition of Additional Accounts
and such Rating Agency shall have delivered a letter confirming that the Rating
Agency Condition shall have been satisfied and (viii) the Transferor records and
files appropriate financing statements with respect to the Receivables then
existing and thereafter created in the Additional Accounts for the transfer of
accounts, general intangibles and chattel paper meeting the requirements of
applicable state law necessary to perfect the transfer and assignment of the
Receivables in Additional Accounts by the Transferor to the Trust. The
Transferor will deliver to the Trustee a computer file, microfiche or written
list of all such included Accounts.
Accounts opened during the normal operation of each of the Sellers' credit
card account business shall be automatically added to the Accounts as Automatic
Additional Accounts on an ongoing basis; provided, however, that such automatic
inclusion and transfer shall not occur with respect to any such account if: (i)
such account does not qualify as an Eligible Account, (ii) the inclusion in the
Trust of the Receivables arising under such account would exceed the Aggregate
Automatic Addition Limit or (iii) the Transferor otherwise designates such
account as an account which is not to be included as an Account. The Transferor
will deliver to the Trustee a computer file, microfiche or written list of all
such included Accounts and record and file all appropriate financing statements
with respect to the Receivables in such Automatic Additional Accounts. The
Transferor, at its option may, by providing written notice to the Trustee and
the Sellers, terminate or suspend the automatic inclusion of Automatic
Additional Accounts at any time.
"Aggregate Automatic Addition Limit" means (i) the number of Eligible
Accounts designated as Automatic Additional Accounts, which either (x) with
respect to any period of three consecutive Monthly Periods commencing in
January, April, July or October of a calendar year equals 15% of the sum of the
number of Accounts as of the last business day preceding the commencement of
such period (or, the Cut-Off Date, whichever is later) and the number of
Additional Accounts included as Accounts since such business day or (y) with
respect to any period of 12 consecutive Monthly Periods, equals 20% of the sum
of the number
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of Accounts as of the last business day preceding the commencement of such
period (or, the Cut-Off Date, whichever is later) and the number of Additional
Accounts included as Accounts since such business day or (ii) such higher number
of Automatic Additional Accounts as to which Standard & Poor's and Moody's or
any other applicable Rating Agency rating any certificates shall consent to in
writing.
REMOVAL OF ACCOUNTS
Subject to the conditions specified below, during the Revolving Period, the
Transferor may, at its option, remove from the Trust all Receivables from
certain Accounts which it designates (the "Removed Accounts") and accept
reconveyance of all Receivables in the Removed Accounts without notice to the
Certificateholders; provided, however, that the Transferor shall not make more
than one such designation in any Monthly Period. The Transferor shall give the
Trustee and the Servicer notice of such removal 10 business days prior to the
date on which the Accounts are to be reassigned to the Transferor. The
Transferor shall be permitted to designate and require retransfer to it of
Receivables from Removed Accounts only upon satisfaction of the following
conditions: (i) each Rating Agency shall have delivered a letter confirming that
the Rating Agency Condition has been satisfied, (ii) the Transferor shall have
delivered or caused to be delivered to the Trustee for execution a written
retransfer agreement and a computer file, microfiche or written list containing
a true and complete list of all Removed Accounts identified by account number
and Receivables balance in such Removed Accounts; (iii) the Transferor shall
represent and warrant that no selection procedures believed by the Transferor to
be materially adverse to the interests of the certificateholders of any
outstanding Series or any provider of enhancement with respect to certificates,
including any holder of the Collateral Indebtedness Interest (each an
"Enhancement Provider") were used in selecting the Removed Accounts; (iv) such
removal shall not, in the reasonable belief of the Transferor, cause the
Transferor Amount to be less than the Minimum Transferor Amount, and the
aggregate amount of Principal Receivables in the Trust shall not be less than
the Minimum Aggregate Principal Receivables; (v) the removal of any Receivables
of any Removed Accounts shall not, in the reasonable belief of the Transferor,
result in a Pay Out Event; and (vi) the Transferor shall have delivered to the
Trustee an officer's certificate confirming the items set forth in clauses (i)
through (v) above.
DISCOUNT OPTION RECEIVABLES
Pursuant to the Pooling and Servicing Agreement, the Transferor has
designated 2% (the "Discount Percentage") of the amount of Receivables arising
in the Accounts on and after the date of such designation that would otherwise
be treated as Principal Receivables to be treated as Finance Charge Receivables
(the "Discount Option Receivables"). The Transferor may, without notice to or
consent of the Series 1997-2 Certificateholders, from time to time, exercise its
Discount Option to increase, reduce or eliminate (subject to the limitation
described below) the Discount Percentage for Discount Option Receivables arising
in the Accounts on and after the date of such change or to apply the Discount
Percentage to Receivables created in Accounts not previously subject to the
Discount Percentage. The Transferor must provide 30 days' prior written notice
to the Servicer, the Trustee, each Rating Agency and, in limited circumstances,
holders of certificates that are not rated, of any such increase, reduction or
elimination, and such increase, reduction or elimination will become effective
on the date specified therein unless the Transferor reasonably believes that
such increase, reduction or elimination will at the time of its occurrence cause
a Pay Out Event, or an event which with notice or the lapse of time would
constitute a Pay Out Event, to occur with respect to any Series, including
Series 1997-2; provided that if such designation would cause the Discount
Percentage to be less than 1% or more than 3%, the Rating Agency Condition must
be satisfied and in limited circumstances, holders of outstanding certificates
that are not rated must consent to such action.
Discount Option Receivables shall be equal to, on any date of processing
(commencing with the Cut-Off Date), the sum of (a) the aggregate Discount Option
Receivables at the end of the prior date of processing plus (b) any new Discount
Option Receivables created on such date of processing minus (c) any Discount
Option Receivable Collections received on such date of processing. The Discount
Option Receivables created on any date of processing shall be the product of (i)
the amount of Principal Receivables created on such date of processing (without
giving effect to the deduction of the Discount Option Receivables) and (ii) the
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Discount Percentage; provided, however, that the aggregate Discount Option
Receivables at the end of the date of processing preceding the Cut-Off Date
shall be deemed to be $5,347,005.
"Discount Option Receivable Collections" means, on any date of processing
on and after the date on which the Transferor's exercise of its Discount Option
is in effect, the product of (a) a fraction the numerator of which is the amount
of Discount Option Receivables and the denominator of which is the sum of the
Principal Receivables and the Discount Option Receivables, in each case at the
end of the prior Monthly Period, and (b) collections of Principal Receivables
(without giving effect to Discount Option Receivables) on such date of
processing.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing and administering the Receivables in accordance with
the Servicer's policies and procedures in effect for servicing credit card
account receivables comparable to the Receivables, as such policies and
procedures may be modified from time to time by the Servicer. The Servicer has
designated its affiliate, McRae's, Inc., as the initial Subservicer.
COLLECTION AND RESERVE ACCOUNTS
The Servicer will establish and maintain, or cause to be established and
maintained, the Collection Account, which will be a segregated corporate trust
account, with the Trustee or another Qualified Institution, in the Trustee's
name and for the benefit of the holders of the certificates of all Series then
outstanding. The Servicer will also establish a "Principal Account" as a
segregated trust account established with a Qualified Institution. A "Qualified
Institution" is defined generally as a (i) depository institution or trust
company, organized under the laws of the United States or any State thereof (or
any domestic branch or agency of any foreign bank), the deposits of which are
insured by the Federal Deposit Insurance Corporation, which at all times has a
rating of at least P-1 by Moody's Investors Service, Inc. ("Moody's") and of A-1
by Standard & Poor's Ratings Services ("Standard & Poor's", and together with
Moody's, the "Rating Agency") in the case of the certificates of deposit or
short-term unsecured debt, or a rating from the applicable Rating Agency of at
least Aaa or AAA or the equivalent, as applicable, in the case of its long-term
unsecured debt obligations, or (ii) a depository institution, otherwise
acceptable to each Rating Agency rating any Series. Notwithstanding the
foregoing, any institution which shall have corporate trust powers (whether or
not such institution takes deposits) and which maintains the Collection Account,
the Excess Funding Account, the Principal Account or any other account
maintained for the benefit of holders of certificates of any Series as a fully
segregated trust account with the trust department of such institution shall not
be required to meet the foregoing rating requirements, and need only at all
times have a long-term unsecured debt rating of at least Baa3 from Moody's so
long as Moody's is a Rating Agency rating any Series.
All payments to Certificateholders will be paid solely out of the amounts
in the Collection Account and Principal Account. Funds in the Collection Account
and Principal Account will be invested, at the direction of the Servicer, in
"Permitted Investments," which include (i) direct obligations of, and
obligations fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of depository institutions or
trust companies, incorporated under the laws of the United States of America or
any state thereof (including the District of Columbia, and any domestic branch
or agency of any foreign bank), and which is subject to supervision and
examination by federal or state banking or depository institution authorities;
provided, however, that the commercial paper, if any, and short-term unsecured
debt obligations of such depository institution or trust company shall have, at
the time of the Trust's investment or contractual commitment to invest therein,
a credit rating from the Rating Agency in the highest investment category
granted by such Rating Agency, (iii) commercial paper having, at the time of the
Trustee's investment or contracted commitment to invest therein, a rating in the
highest investment category granted by such Rating Agency, (iv) bankers'
acceptances issued by any depository institution or trust company described in
clause (ii) above, (v) money market funds which have the highest rating from, or
have otherwise been approved in writing by the Rating Agencies, (vi) time
deposits (having maturities of not more than 30 days) or notes which are payable
on demand by an entity the commercial paper of which has a rating of the highest
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investment category granted by the Rating Agencies, (vii) certain repurchase
obligations involving Permitted Investment instruments so long as the
counterparty thereto has at the time of the Trust's investment therein, a
short-term debt rating of at least A-1 or P-1, or the equivalent from the
applicable Rating Agencies and (viii) any other investments approved in writing
by the applicable Rating Agencies prior to the Trust's investment therein. For
purposes of determining the availability of funds or balances in the Collection
Account, all investment earnings on such funds shall be deemed not to be
available or on deposit until actually credited to such account. The Servicer,
or the Subservicer on behalf of the Servicer, will have the revocable power to
withdraw funds from the Collection Account and to instruct the Trustee to make
withdrawals and payments from the Collection Account and the Principal Account
for the purpose of carrying out the Servicer's duties under the Pooling and
Servicing Agreement. The paying agent for the Series 1997-2 Certificates (the
"Paying Agent") will initially be the Trustee. The Paying Agent will have the
revocable power to withdraw funds from the Principal Account for the purpose of
making distributions to the Certificateholders.
The Servicer will establish and maintain, or cause to be established or
maintained, a "Reserve Account" with a Qualified Institution in the Trustee's
name as a segregated trust account and for the benefit of the holders of the
Certificates. As described in "-- Applications of Collections," after the
Reserve Account Funding Date but prior to the termination of the Reserve
Account, a portion of the amounts held in the Collection Account will be applied
to fund the Reserve Account. During the Accumulation Period, the Trustee will
withdraw an amount equal to the lesser of the amount held in the Reserve Account
and the difference between (a) the product of amounts held in the Principal
Account and the interest rates applicable to the Offered Certificates and (b)
investment income on the Principal Account, and deposit such amount in the
Collection Account. Amounts on deposit in the Reserve Account in excess of the
amounts required to be maintained therein from time to time will be distributed
to the Transferor.
The "Reserve Account Funding Date" will be the Distribution Date with
respect to the Monthly Period which commences three months prior to the
commencement of the Class A Accumulation Period (or earlier, under certain
circumstances relating to the yield on the Receivables).
CASH COLLATERAL ACCOUNT
The Cash Collateral Account will be a segregated trust account established
with a Qualified Institution which will be held for the benefit of the Class A
Certificateholders, the Class B Certificateholders, the Collateral Indebtedness
Interest Holder and the Class D Certificateholders, as their interests appear in
the Series 1997-2 Supplement, and in the case of the Collateral Indebtedness
Holder, in the loan agreement among the Trustee, the Transferor, the Servicer
and the Collateral Indebtedness Holder (the "Loan Agreement") (which interest,
in the case of the Collateral Indebtedness Holder, will be subordinated to the
interests of the Class A Certificateholders and Class B Certificateholders as
provided in the Series 1997-2 Supplement). The purpose of the Loan Agreement is
to govern the terms and conditions of the purchase of the Collateral
Indebtedness Interest by the Collateral Indebtedness Holder. Funds held in the
Cash Collateral Account will be invested in Permitted Investments. On each
Distribution Date, all interest and earnings (net of losses and investment
expenses) received during the preceding Monthly Period on funds in the Cash
Collateral Account will be allocable to the Excess Spread.
The Available Cash Collateral Amount initially will be zero and will
increase thereafter (i) to the extent the Transferor elects to deposit Excess
Spread and Shared Excess Finance Charge Collections in the Cash Collateral
Account (ii) to the extent Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1997-2 are required to be deposited in the Cash
Collateral Account pursuant to the Loan Agreement and (iii) to the extent the
Available Enhancement Amount is less than the Required Enhancement Amount,
Excess Spread and Shared Finance Charge Collections allocable to Series 1997-2
will be deposited therein.
On each Distribution Date, one or more withdrawals may be made from the
Cash Collateral Account in an amount up to the amount therein to fund, in order
of priority, the Class A Required Amount, the Class B Required Amount and the
Collateral Required Amount.
At the Servicer's option, on each Distribution Date, if the Cash
Enhancement Surplus, after giving effect to all deposits to and withdrawals from
the Cash Collateral Account and all payments of principal to
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Series 1997-2 Certificateholders with respect to such Distribution Date, is
greater than zero, the Servicer or the Trustee, acting pursuant to the
Servicer's instructions, will withdraw from the Cash Collateral Account, and pay
to the Transferor, an amount equal to such Cash Enhancement Surplus.
"Cash Enhancement Surplus" means, as of any Determination Date, the lesser
of (a) the Enhancement Surplus and (b) the excess of the amount held in and
available to be withdrawn from the Cash Collateral Account over the Required
Cash Collateral Amount.
"Enhancement Surplus" means, with respect to any Distribution Date, the sum
of the amount held in and available to be withdrawn from the Cash Collateral
Account, the Collateral Indebtedness Amount and the Class D Investor Amount,
over the Required Enhancement Amount.
EXCESS FUNDING ACCOUNT
On any Business Day that the Transferor Amount does not equal or exceed the
Minimum Transferor Amount after giving effect to any addition of Principal
Receivables to the Trust (the "Shortfall Amount"), the Servicer shall not
distribute to the holder of the Exchangeable Transferor Certificate any
collections of Principal Receivables that otherwise would be distributed to the
holder of the Exchangeable Transferor Certificate, but shall deposit such funds
equal to the Shortfall Amount, in a segregated trust account (which may be a
sub-account of the Collection Account) established and maintained by the
Servicer in the name of the Trustee, in trust for the benefit of the holders of
certificates of all Series outstanding entitled to the benefits of such Excess
Funding Account, with a Qualified Institution and designating clearly that the
funds deposited therein are held for the benefit of such holders of certificates
of all Series outstanding (the "Excess Funding Account"). Funds held in the
Excess Funding Account will be withdrawn and paid to the holder of the
Exchangeable Transferor Certificate on any date to the extent the Transferor
Amount exceeds the Minimum Transferor Amount on such date; provided, however,
that if an Accumulation Period or Rapid Amortization Period commences with
respect to any Series in a Group entitled to the benefits of Shared Principal
Collections, the Servicer shall determine the aggregate amount of Principal
Shortfalls, if any, with respect to each such Series that is entitled to receive
Shared Principal Collections, and the Servicer shall instruct the Trustee to
withdraw such amount up to the amount of any funds held in the Excess Funding
Account and allocate such amount among each Series as Shared Principal
Collections to the extent needed to cover principal payments due to or for the
benefit of such Series.
Funds in the Excess Funding Account shall be invested by the Trustee, at
the direction of the Servicer, in Permitted Investments. Any interest and other
investment earnings (net of losses and investment expenses), if any, on amounts
held in the Excess Funding Account during any Monthly Period will be withdrawn
from the Excess Funding Account and treated as collections of Finance Charge
Receivables with respect to such Monthly Period.
SUBORDINATION OF THE CLASS B CERTIFICATES, THE COLLATERAL INDEBTEDNESS INTEREST
AND THE CLASS D CERTIFICATES
The Class B Certificates, the Collateral Indebtedness Interest and the
Class D Certificates will be subordinated to the extent necessary to fund
certain payments with respect to the Class A Certificates. In addition, the
Collateral Indebtedness Interest and the Class D Certificates will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain collections of Principal Receivables otherwise
allocable to the Class B Certificateholders ("Class B Subordinated Principal
Collections") may be reallocated to the Class A Certificateholders and the Class
B Investor Amount may be reduced. Similarly, certain collections of Principal
Receivables allocable to the Class D Certificates and the Collateral
Indebtedness Interest may be reallocated to the Class A Certificateholders and
the Class B Certificateholders, and the Class D Investor Amount and the
Collateral Indebtedness Amount may be reduced as a result. To the extent the
Class B Investor Amount is reduced, the percentage of collections of Finance
Charge Receivables allocated to the Class B Certificateholders in subsequent
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Investor Amount is not reimbursed, the amount of
principal distributable to the Class B Certificateholders will be reduced. See
"-- Investor Percentages and Transferor Percentage," "-- Reallocation of Cash
Flows," and "-- Applications of Collections" herein.
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INVESTOR PERCENTAGES AND TRANSFEROR PERCENTAGE
Pursuant to the Pooling and Servicing Agreement, the Servicer will allocate
between the Investor Amount, other Series or certificates outstanding and the
Transferor Amount, all amounts collected on Finance Charge Receivables and
Principal Receivables. The Servicer will make each allocation by reference to
the applicable investor percentage and the transferor percentage in each case.
The Pooling and Servicing Agreement provides that the Servicer may estimate the
amounts of collections that are allocable to collections of Principal
Receivables and to collections of Finance Charge Receivables. If the Servicer is
able to determine the actual amount of collections proceeds which are
collections of Finance Charge Receivables and collections of Principal
Receivables, the Servicer may at its option allocate collections in accordance
with such actual amounts. All estimates of collections of Finance Charge
Receivables will be binding for all purposes on the Certificateholders, the
Trustee and the Transferor.
The Investor Percentage (the "Investor Percentage") will be calculated as
follows:
Principal Receivables during Revolving Period, Finance Charge
Receivables (other than during the Rapid Amortization Period) and Allocable
Amounts. With respect to (A) Principal Receivables during any Monthly
Period during the Revolving Period, (B) Finance Charge Receivables during
any Monthly Period other than during a Rapid Amortization Period, and (C)
the Allocable Amounts during any Monthly Period, the percentage equivalent
of a fraction the numerator of which is equal to the Adjusted Investor
Amount as of the last day of the immediately preceding Monthly Period (or
the Initial Investor Amount, in the case of the first Monthly Period
applicable to Series 1997-2) and the denominator of which is the greater of
(i) the sum of the aggregate Principal Receivables in the Trust and the
Excess Funding Amount, in each case at the close of business on the last
day of the immediately preceding Monthly Period and (ii) the sum of the
numerators used to calculate the applicable investor percentages with
respect to Principal Receivables, Finance Charge Receivables or the
Allocable Amounts, as applicable, for all Series outstanding as of the date
on which such determination is being made.
Finance Charge Receivables during the Rapid Amortization Period. With
respect to Finance Charge Receivables (and any other amounts treated as
Finance Charge Receivables) during any Monthly Period during a Rapid
Amortization Period, the percentage equivalent of a fraction the numerator
of which is equal to the Adjusted Investor Amount as of the last day of the
Revolving Period and the denominator of which is the greater of (i) the sum
of the aggregate Principal Receivables in the Trust and the Excess Funding
Amount, in each case at the close of business on the last day of the
immediately preceding Monthly Period and (ii) the sum of the numerators
used to calculate the investor percentages with respect to Finance Charge
Receivables for all Series outstanding as of the date on which such
determination is being made.
Principal Receivables during the Accumulation Period and the Rapid
Amortization Period. With respect to Principal Receivables during any
Monthly Period during the Accumulation Period or the Rapid Amortization
Period, the percentage equivalent of a fraction the numerator of which is
equal to the Adjusted Investor Amount as of the last day of the Revolving
Period and the denominator of which is the greater of (i) the sum of the
aggregate Principal Receivables in the Trust and the Excess Funding Amount,
in each case at the close of business on the last day of the immediately
preceding Monthly Period and (ii) the sum of the numerators used to
calculate the investor percentages with respect to Principal Receivables
for all Series outstanding as of the date on which such determination in
being made; provided, however, that during an Accumulation Period if the
Series 1997-2 Certificates are paired with a Paired Series and a Rapid
Amortization Period commences for such Paired Series, the Transferor may,
by written notice to the Trustee and Servicer, designate a different
numerator to be used to determine such percentage.
As used herein, the following terms have the meanings indicated:
"Class A Investor Amount" means, on any date of determination, an amount
equal to (a) the Class A Initial Investor Amount, minus (b) the aggregate amount
of principal payments made to the Class A Certificateholders prior to such date,
minus (c) the excess, if any, of the aggregate amount of Class A Investor
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Charge Offs for all prior Distribution Dates over the sum of the aggregate
amount of reimbursed Class A Investor Charge Offs and, without duplication, the
aggregate amount of reductions of the Series Adjustment Amount allocable to the
Class A Certificates; provided, however, that the Class A Investor Amount may
not be reduced below zero.
"Class A Adjusted Investor Amount" means, on any date of determination
while the Class A Certificates are outstanding, an amount equal to the Class A
Investor Amount minus the amount, if any, of funds held in the Principal Account
(the "Principal Account Balance") (but not less than zero).
"Class A Investor Percentage" shall be calculated by substituting the Class
A Adjusted Investor Amount and the Class A Initial Investor Amount in all
references to the Adjusted Investor Amount and the Initial Investor Amount,
respectively, in the definition of Investor Percentage.
"Class B Investor Amount" means, on any date of determination, an amount
equal to (a) the Class B Initial Investor Amount, minus (b) the aggregate amount
of principal payments made to the Class B Certificateholders prior to such date,
minus (c) the aggregate amount of Class B Investor Charge Offs for all prior
Distribution Dates, minus (d) the amount of Class B Subordinated Principal
Collections used to make payments in respect of the Class A Certificates on all
prior Distribution Dates, minus (e) an amount equal to the amount by which the
Class B Investor Amount has been reduced on all prior Distribution Dates in
respect of the Class A Allocable Amount, plus (f) the sum of the amount of
Excess Spread and Shared Excess Finance Charge Collections allocated and
available on all prior Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c), (d) and (e) and, without
duplication, the aggregate amount of the reductions of the Series Adjustment
Amount allocable to the Class B Investor Amount; provided, however, that the
Class B Investor Amount may not be reduced below zero.
"Class B Adjusted Investor Amount" shall mean, on any date of
determination, an amount equal to the Class B Investor Amount minus, prior to
the payment in full of the Class A Investor Amount, the excess of the Principal
Account Balance over the Class A Investor Amount, and after the payment in full
of the Class A Investor Amount, the Principal Account Balance, if any (but not
less than zero).
"Class B Investor Percentage" shall be calculated by substituting the Class
B Adjusted Investor Amount and the Class B Initial Investor Amount in all
references to the Adjusted Investor Amount and the Initial Investor Amount
respectively, in the definition of Investor Percentage.
"Collateral Indebtedness Amount" means, on any date of determination, an
amount equal to (a) the initial Collateral Indebtedness Amount equal to
$21,000,000, minus (b) the aggregate amount of principal payments made to the
Collateral Indebtedness Holder on or prior to such date, minus (c) the amount of
Collateral Subordinated Principal Collections used to make payments in respect
of the Certificates on all prior Distribution Dates that have resulted in a
reduction of the Collateral Indebtedness Amount, minus (d) an amount equal to
the amount by which the Collateral Indebtedness Amount has been reduced on all
prior Distribution Dates in respect of the Class A Allocable Amount, the Class B
Allocable Amount and the Collateral Allocable Amount, plus (e) the sum of the
amount of Excess Spread and Shared Excess Finance Charge Collections allocated
and available on all prior Distribution Dates for the purpose of reimbursing
amounts deducted pursuant to the foregoing clauses (c) and (d) and, without
duplication, reductions of the Series Adjustment Amount allocable to the
Collateral Indebtedness Interest; provided, however, that the Collateral
Indebtedness Amount may not be reduced below zero.
"Collateral Investor Percentage" shall be calculated by substituting the
Collateral Indebtedness Amount and the Collateral Initial Indebtedness Amount in
all references to the Adjusted Investor Amount and the Initial Investor Amount,
respectively, in the definition of Investor Percentage.
"Class D Investor Amount" means, on any date of determination, an amount
equal to (a) the initial Class D Investor Amount equal to $14,300,000 (plus the
initial principal amount of any additional Class D Certificates issued during
the Revolving Period, at the sole option of the Transferor), minus (b) the
aggregate amount of principal payments made to the Class D Certificateholders
prior to such date, minus (c) the amount of Class D Subordinated Principal
Collections used to make payments in respect of the Offered Certificates and the
Collateral Indebtedness Interest on all prior Distribution Dates, minus (d) an
amount
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equal to the amount by which the Class D Investor Amount has been reduced on all
prior Distribution Dates in respect of the Class A Allocable Amount, the Class B
Allocable Amount, the Collateral Allocable Amount and the Class D Allocable
Amount, plus (e) the sum of the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available on all prior Distribution
Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c) and (d) and, without duplication, the aggregate amount of the
reductions of the Series Adjustment Amount allocable to the Class D Investor
Amount; provided, however, that the Class D Investor Amount may not be reduced
below zero.
"Adjusted Investor Amount" shall mean, as of any date of determination, an
amount equal to the sum of the Class A Adjusted Investor Amount, the Class B
Adjusted Investor Amount, the Collateral Indebtedness Amount and the Class D
Investor Amount, in each case as of such date.
"Class D Investor Percentage" shall be calculated by substituting the Class
D Investor Amount and the Class D Initial Investor Amount in all references to
the Adjusted Investor Amount and the Initial Investor Amount, respectively, in
the definition of Investor Percentage.
"Class D Subordinated Principal Collections" means, with respect to any
Monthly Period, an amount equal to the product of (i) the applicable Class D
Investor Percentage with respect to collections of Principal Receivables and
(ii) the aggregate amount of collections of Principal Receivables for such
Monthly Period.
"Collateral Subordinated Principal Collections" means, with respect to any
Monthly Period, an amount equal to the product of (i) the applicable Collateral
Investor Percentage with respect to collections of Principal Receivables and
(ii) the aggregate amount of collections of Principal Receivables for such
Monthly Period.
The Transferor Percentage will be equal to 100% minus the sum of the
investor percentages for all Series outstanding.
As described above, during the Revolving Period, the Investor Percentage
applied when allocating collections on Principal Receivables is expected to vary
from month to month because the Investor Amount as a percentage of the total
amount of Principal Receivables in the Trust will fluctuate from day to day.
During the Rapid Amortization Period, the amount of collections on Principal
Receivables allocated to the Investor Amount each day will be determined by
reference to a percentage based on the Investor Amount on the last day of the
Revolving Period.
REALLOCATION OF CASH FLOWS
On each Determination Date, the Servicer will determine the amount (the
"Class A Required Amount"), if any, by which (a) the sum of (i) Class A Monthly
Interest for such Distribution Date, (ii) any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, (iii) any Class A Additional Interest for the immediately
following Distribution Date and any Class A Additional Interest previously due
but not paid to the Class A Certificateholders on a prior Distribution Date,
(iv) the Class A Allocable Amount, if any, for such Distribution Date and (v) if
Proffitt's, Inc. is no longer the Servicer, the Class A Servicing Fee for the
related Distribution Date and any unpaid Class A Servicing Fee for a prior
Distribution Date exceeds (b) the Class A Available Funds for the preceding
Monthly Period. If the Class A Required Amount is greater than zero, Excess
Spread and Shared Excess Finance Charge Collections allocable to Series 1997-2
and available for such purpose will be used to fund the Class A Required Amount
with respect to such Distribution Date. If such Excess Spread and Shared Excess
Finance Charge Collections available with respect to such Distribution Date are
insufficient to fund the Class A Required Amount, amounts, if any, held in the
Cash Collateral Account will then be used to fund the remaining Class A Required
Amount. If such Excess Spread and Shared Excess Finance Charge Collections and
amounts, if any, held in the Cash Collateral Account are insufficient to fund
the Class A Required Amount, collections of Principal Receivables allocable
first to the Class D Certificates, then to the Collateral Indebtedness Interest
and then to the Class B Certificates for the related Monthly Period
("Reallocated Principal Collections") will then be used to fund the remaining
Class A Required Amount. If such Reallocated Principal Collections with respect
to the related Monthly Period are insufficient to fund the remaining Class A
Required Amount, then the Class A Investor Amount, Class B Investor Amount, the
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Collateral Indebtedness Amount and the Class D Investor Amount may be reduced.
See "-- Allocation of Investor Default Amount; Adjustment Amount; Investor
Charge Offs."
On each Determination Date, the Servicer will determine the amount (the
"Class B Required Amount"), if any, equal to the sum of (a) the amount, if any,
by which the sum of (i) Class B Monthly Interest for the immediately following
Distribution Date, (ii) any Class B Monthly Interest previously due but not paid
to the Class B Certificateholders on a prior Distribution Date, (iii) any Class
B Additional Interest for the following Distribution Date and any Class B
Additional Interest previously due but not paid to the Class B
Certificateholders on a prior Distribution Date and (iv) if Proffitt's, Inc. is
no longer the Servicer, the Class B Servicing Fee for the related Distribution
Date and any unpaid Class B Servicing Fee for a prior Distribution Date exceeds
the Class B Available Funds for the preceding Monthly Period and (b) the amount,
if any, by which the Class B Allocable Amount, if any, for such Distribution
Date exceeds the amount of Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1997-2 available on such Distribution Date as
specified in clause (d) under "-- Application of Collections -- Excess Spread;
Shared Excess Finance Charge Collections." If the Class B Required Amount is
greater than zero, Excess Spread and Shared Excess Finance Charge Collections
allocable to Series 1997-2 not required to fund the Class A Required Amount or
reimburse Class A Investor Charge Offs will be used to fund the Class B Required
Amount with respect to such Distribution Date. If such Excess Spread and Shared
Excess Finance Charge Collections available with respect to such Distribution
Date are insufficient to fund the Class B Required Amount, amounts, if any, held
in the Cash Collateral Account not required to fund the Class A Required Amount
will then be used to fund the remaining Class B Required Amount. If such Excess
Spread and Shared Excess Finance Charge Collections and amounts, if any,
available in the Cash Collateral Account are insufficient to fund the Class B
Required Amount, Reallocated Principal Collections allocable first to the Class
D Certificates and then to the Collateral Indebtedness Interest not required to
fund the Class A Required Amount will then be used to fund the remaining Class B
Required Amount. If such Reallocated Principal Collections with respect to the
related Monthly Period are insufficient to fund the remaining Class B Required
Amount, then the Class B Investor Amount, Collateral Indebtedness Amount and the
Class D Investor Amount may be reduced. See "-- Allocation of Investor Default
Amount; Adjustment Amounts; Investor Charge Offs".
On each Determination Date, the Servicer will determine the amount (the
"Collateral Required Amount"), if any, equal to the sum of (a) the amount, if
any by which the sum of (i) Collateral Monthly Interest for the immediately
following Distribution Date, (ii) any Collateral Monthly Interest previously due
but not paid to the Collateral Indebtedness Holder on a prior Distribution Date,
(iii) any Collateral Additional Interest for such Distribution Date and any
Collateral Additional Interest previously due but not paid to the Collateral
Indebtedness Holder on a prior Distribution Date and (iv) if Proffitt's, Inc. is
no longer the Servicer, the Collateral Servicing Fee for such Distribution Date
and any unpaid Collateral Servicing Fee for a prior Distribution Date exceeds
the Collateral Available Funds and Excess Spread and Shared Excess Finance
Charge Collections with respect to the preceding Monthly Period available to
make payments with respect thereto and (b) the amount, if any, by which the
Collateral Allocable Amount, if any, for such Distribution Date exceeds the
amount of Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1997-2 available on such Distribution Date as specified in clause (h)
under "-- Applications of Collections -- Excess Spread; Shared Excess Finance
Charge Collections." If the Collateral Required Amount is greater than zero,
amounts, if any, held in the Cash Collateral Account not required to fund the
Class A Required Amount or the Class B Required Amount or pay certain other
amounts will then be used to fund the remaining Collateral Required Amount. If
such Excess Spread and Shared Excess Finance Charge Collections and amounts, if
any, available in the Cash Collateral Account are insufficient to fund the
Collateral Required Amount, then Reallocated Principal Collections allocable to
the Class D Certificates and not required to fund the Class A Required Amount or
the Class B Required Amount and other than Class B Subordinated Principal
Collections or Collateral Subordinated Principal Collections will be used to
fund the remaining Collateral Required Amount. If such Reallocated Principal
Collections with respect to the related Monthly Period are insufficient to fund
the remaining Collateral Required Amount, then the Collateral Indebtedness
Amount and the Class D Investor Amount may be reduced. See "-- Allocation of
Investor Default Amount; Adjustment Amounts; Investor Charge Offs."
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APPLICATIONS OF COLLECTIONS
Deposit of Collections into Collection Account
Except as otherwise provided below, the Servicer is required to deposit
collections of Principal Receivables and Finance Charge Receivables into the
Collection Account no later than the second business day following the date of
processing such collections. Collections shall not be required to be invested in
Permitted Investments until such time as they are deposited into the Collection
Account. As long as the Company or an affiliate of the Company shall be the
Servicer and no Pay Out Event relating to a Servicer Default shall have occurred
and be continuing, and either (i) the Company or such affiliate shall maintain a
short-term debt or certificate of deposit rating (which may be an implied
rating) of P-1 by Moody's and of A-1+ by Standard & Poor's, or (ii) the Company
shall obtain a written notification from each Rating Agency rating any Series to
the effect that such Rating Agency does not intend to downgrade or withdraw its
then current rating of any outstanding Series despite the Servicer's inability
to satisfy the rating requirement specified in clause (i), and for two Business
Days following any reduction of either such rating or failure to satisfy the
conditions of clause (ii), the Servicer may make a single deposit in the
Collection Account in immediately available funds on the business day prior to
each Distribution Date in an amount equal to the collections with respect to the
Monthly Period preceding such Distribution Date to the extent such amounts and
collections are allocated to Series 1997-2 as described herein under
"-- Applications of Collections -- Allocations."
During the Revolving Period, so long as the Available Enhancement Amount is
not less than the Required Enhancement Amount, collections of Principal
Receivables allocable to Series 1997-2 with respect to each Monthly Period are
not required to be deposited into the Collection Account on a daily basis during
such Monthly Period; provided, however, that in the event that the Minimum
Transferor Amount exceeds the Transferor Amount on any date, such collections of
Principal Receivables shall be deposited into the Excess Funding Account until
the Transferor Amount equals the Minimum Transferor Amount. During the
Accumulation Period, after an amount of collections of Principal Receivables
allocable to Series 1997-2 equal to the Controlled Deposit Amount with respect
to each Monthly Period has been deposited into the Collection Account, and so
long as the Available Enhancement Amount is not less than the Required
Enhancement Amount, collections of Principal Receivables allocable to Series
1997-2 with respect to each Monthly Period need not be deposited into the
Collection Account on a daily basis during such Monthly Period; provided,
however, that in the event that the Minimum Transferor Amount exceeds the
Transferor Amount on any date, such collections of Principal Receivables shall
be deposited into the Excess Funding Account until the Transferor Amount equals
the Minimum Transferor Amount.
The Servicer may make deposits into the Collection Account and the Excess
Funding Account on any date net of amounts payable to the Transferor from such
accounts on such date.
Allocations
The Servicer will allocate among Series 1997-2, the interests of all other
Series issued and outstanding, and the Transferor Interest, all collections of
Finance Charge Receivables and Principal Receivables and all Allocable Amounts
with respect to each Monthly Period. Collections of Finance Charge Receivables
with respect to any Monthly Period will be allocated to Series 1997-2 based on
the Investor Percentage applicable to Finance Charge Receivables for such
Monthly Period.
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Payment of Interest, Fees and Other Items
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply the Class A Available Funds, Class B Available Funds,
Collateral Available Funds and Class D Available Funds as follows:
(A) On each Distribution Date, an amount equal to the Class A
Available Funds with respect to the Monthly Period immediately preceding
such Distribution Date will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to Class A Certificateholders on a
prior Distribution Date at a rate equal to the Class A Certificate Rate
plus 2% per annum ("Class A Additional Interest"), will be distributed
to the Class A Certificateholders;
(ii) if Proffitt's, Inc. is no longer the Servicer, an amount equal
to the Class A Servicing Fee for such Distribution Date, plus the amount
of any Class A Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the
Servicer;
(iii) an amount equal to the Class A Allocable Amount, if any, for
such Distribution Date will be treated as a portion of Available
Principal Collections for such Distribution Date as described under
"-- Payments of Principal"; and
(iv) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections".
(B) On each Distribution Date, an amount equal to the Class B
Available Funds with respect to such Distribution Date will be distributed
in the following priority:
(i) an amount equal to Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Monthly Interest
previously due but not paid to the Class B Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to Class B Certificateholders on a
prior Distribution Date at a rate equal to the Class B Certificate Rate
plus 2% per annum ("Class B Additional Interest"), will be distributed
to the Class B Certificateholders;
(ii) if Proffitt's, Inc. is no longer the Servicer, an amount equal
to the Class B Servicing Fee for such Distribution Date, plus the amount
of any Class B Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the
Servicer; and
(iii) the balance, if any, will constitute Excess Spread and will
be allocated and distributed as described under "-- Excess Spread;
Shared Excess Finance Charge Collections".
(C) On each Distribution Date, an amount equal to the Collateral
Available Funds with respect to such Distribution Date will be distributed
in the following priority:
(i) if Proffitt's, Inc. is no longer the Servicer, an amount equal
to the Collateral Servicing Fee for such Distribution Date, plus the
amount of any Collateral Servicing Fee previously due but not
distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer; and
(ii) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections".
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(D) On each Distribution Date, an amount equal to the Class D
Available Funds with respect to such Distribution Date will be distributed
in the following priority:
(i) if Proffitt's, Inc. is no longer the Servicer, an amount equal
to the Class D Servicing Fee for such Distribution Date, plus the amount
of any Class D Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the
Servicer; and
(ii) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections".
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (i) the applicable Class A Investor Percentage of
collections of Finance Charge Receivables with respect to such Monthly Period
plus any other amounts that are to be treated as collections of Finance Charge
Receivables, (ii) if such Monthly Period immediately precedes a Distribution
Date that occurs prior to the Class B Principal Commencement Date, the earnings
(net of losses and investment expenses), if any, earned on the Principal Account
with respect to such Monthly Period, (iii) the amount, if any, to be withdrawn
from the Reserve Account and included in Class A Available Funds pursuant to the
Series 1997-2 Supplement with respect to such Distribution Date and (iv) the
amount of investment earnings (net of losses and investment expenses), if any,
on amounts held in the Reserve Account required to be included in Class A
Available Funds pursuant to the Series 1997-2 Supplement with respect to such
Distribution Date.
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to one-twelfth ( 1/12th) of the product of (i) the Class A
Certificate Rate and (ii) the outstanding principal amount of the Class A
Certificates as of the preceding Record Date; provided, however, with respect to
the first Distribution Date, Class A Monthly Interest will be equal to $780,000.
"Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (i) the applicable Class B Investor Percentage of
collections of Finance Charge Receivables with respect to such Monthly Period
plus any other amounts that are to be treated as collections of Finance Charge
Receivables, (ii) if such Monthly Period immediately precedes a Distribution
Date that occurs on or after the Class B Principal Commencement Date, the
earnings (net of losses and investment expenses), if any, earned on the
Principal Account with respect to such Monthly Period, (iii) the amount, if any,
to be withdrawn from the Reserve Account and included in Class B Available Funds
pursuant to the Series 1997-2 Supplement with respect to such Distribution Date
and (iv) the amount of investment earnings (net of losses and investment
expenses), if any, on amounts in the Reserve Account required to be included in
Class B Available Funds pursuant to the Series 1997-2 Supplement with respect to
such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution Date, an
amount equal to one-twelfth ( 1/12th) of the product of (i) the Class B
Certificate Rate and (ii) the outstanding principal amount of the Class B
Certificates as of the preceding Record Date; provided, however, with respect to
the first Distribution Date, Class B Monthly Interest will be equal to $89,200.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the applicable Collateral Investor Percentage of the collections
of Finance Charge Receivables with respect to such Monthly Period and any other
amounts that are to be treated as collections of Finance Charge Receivables.
"Class D Available Funds" means, with respect to any Monthly Period, an
amount equal to the applicable Class D Investor Percentage of the collections of
Finance Charge Receivables with respect to such Monthly Period and any other
amounts that are to be treated as collections of Finance Charge Receivables.
"Available Principal Collections" means, with respect to any Distribution
Date, an amount equal to (a) the applicable Investor Percentage of collections
of Principal Receivables for the related Monthly Period, plus (b) amounts
designated as Available Principal Collections as described under "Applications
of Collections -- Excess Spread; Shared Excess Finance Charge Collections",
minus (c) any applied Reallocated Principal Collections for the related Monthly
Period, plus (d) Shared Principal Collections allocated to Series 1997-2.
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"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clauses (A)(iv), (B)(iii), (C)(ii)
and (D)(ii) above plus investment earnings (net of losses and investment
expenses), if any, on amounts held in the Cash Collateral Account received
during the preceding Monthly Period.
"Class D Monthly Interest" means, with respect to any Distribution Date, an
amount equal to the product of (i) the Class D Certificate Rate for the related
interest accrual period, (ii) the outstanding principal amount of the Class D
Certificates as of the preceding Record Date (or, in the case of the first
Distribution Date, as of the Closing Date) and (iii) a fraction, the numerator
of which is the actual number of days in the related interest accrual period and
the denominator of which is 360.
"Class D Certificate Rate" means a rate equal to LIBOR plus 1.00% per
annum, or a lesser rate.
"Collateral Monthly Interest" means, with respect to any Distribution Date,
an amount equal to the product of (i) an amount equal to the product of the
Collateral Indebtedness Amount as of the preceding Record Date (or, in the case
of the first Distribution Date, as of the Closing Date) and the Collateral Rate
for the related Interest Period plus, in the event of any Collateral
Indebtedness Charge Offs in the related Monthly Period, an amount equal to the
product of the Collateral Indebtedness Charge Offs during such Monthly Period
and the Collateral Alternative Rate and (ii) a fraction, the numerator of which
is the actual number of days in the related Interest Period and the denominator
of which is 360.
"Collateral Rate" means a rate equal to LIBOR plus 1.00% per annum, or such
lesser rate that is designated pursuant to the Loan Agreement.
"Collateral Alternative Rate" means a rate equal to the sum of 1% and the
greater of (a) the prime rate of interest as determined by the agent to the
Collateral Indebtedness Holder and (b) the overnight federal funds rate quoted
by such agent for deposit plus one-quarter of one percent ( 1/4 of 1%).
Excess Spread; Shared Excess Finance Charge Collections
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1997-2 with respect to the related Monthly
Period to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Distribution Date will be used to fund any deficiency
pursuant to clauses (A)(i), (ii) and (iii) above under "-- Payment of
Interest, Fees and Other Items," in that order of priority;
(b) an amount equal to the aggregate amount of Class A Investor Charge
Offs which have not been previously reimbursed will be treated as a portion
of Available Principal Collections for such Distribution Date as described
under "-- Payments of Principal;"
(c) an amount up to the Class B Required Amount, if any, with respect
to such Distribution Date will be used to fund any deficiency pursuant to
clauses (B)(i) and (ii) above under "-- Payment of Interest, Fees and Other
Items," in that order of priority;
(d) an amount equal to any remaining portion of the Class B Required
Amount for such Distribution Date will be treated as a portion of Available
Principal Collections for such Distribution Date as described under
"-- Payments of Principal;"
(e) an amount equal to unreimbursed reductions of the Class B Investor
Amount, if any, due to: (i) Class B Investor Charge Offs; (ii) allocations
of Reallocated Principal Collections for the benefit of the Class A
Certificates on all prior Distribution Dates that have resulted in a
reduction of the Class B Investor Amount; or (iii) reallocations of the
Class B Investor Amount to the Class A Investor Amount as a result of
unreimbursed Class A Allocable Amounts will each be treated as a portion of
Available Principal Collections for such Distribution Date as described
under "-- Payments of Principal;"
(f) an amount equal to Collateral Monthly Interest for such
Distribution Date, plus the amount of Collateral Monthly Interest
previously due but not paid to the Collateral Indebtedness Holder on a
prior
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Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to the Collateral Indebtedness Holder on
a prior Distribution Date at a rate equal to the Collateral Rate plus 2%
per annum ("Collateral Additional Interest") will be distributed to the
Collateral Indebtedness Holder;
(g) an amount equal to the Class A Servicing Fee, the Class B
Servicing Fee and the Collateral Servicing Fee for such Distribution Date
(or, if Proffitt's, Inc. is no longer the Servicer, the portion thereof
remaining unpaid) plus the amount of any Class A Servicing Fee, Class B
Servicing Fee or Collateral Servicing Fee previously due but not
distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer;
(h) an amount equal to the Collateral Allocable Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payments of
Principal;"
(i) an amount equal to the unreimbursed reductions of the Collateral
Indebtedness Amount, if any, due to: (i) Collateral Indebtedness Charge
Offs; (ii) Reallocated Principal Collections used to make payments in
respect of the Certificates on all prior Distribution Dates that have
resulted in a reduction of the Collateral Indebtedness Amount and (iii)
reallocations of the Collateral Indebtedness Amount to the Class A Investor
or the Class B Investor Amount as a result of unreimbursed Class A
Allocable Amounts or unreimbursed Class B Allocable Amounts, respectively,
will be treated as a portion of Available Principal Collections for such
Distribution Date as described under "-- Payments of Principal;"
(j) an amount equal to the greater of (i) the excess, if any, of the
Required Cash Collateral Amount over the Available Cash Collateral Amount
and (ii) the excess, if any, of the Required Enhancement Amount over the
Available Enhancement Amount, (without giving effect to any deposit made on
such date under the Pooling and Servicing Agreement) will be deposited into
the Cash Collateral Account;
(k) an amount equal to the Class D Allocable Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payments of
Principal;"
(l) an amount equal to unreimbursed reductions of the Class D Investor
Amount, if any, due to: (i) Class D Investor Charge Offs; (ii) allocations
of Reallocated Principal Collections that have resulted in the reduction of
Class D Investor Amount and (iii) reallocations of the Class D Investor
Amount to the Class A Investor Amount, the Class B Investor Amount or the
Collateral Indebtedness Amount as a result of unreimbursed Class A
Allocable Amounts, unreimbursed Class B Allocable Amounts or unreimbursed
Collateral Allocable Amounts, respectively, will be treated as a portion of
Available Principal Collections for such Distribution Date as described
under "-- Payments of Principal;"
(m) an amount equal to the excess, if any, of the Required Reserve
Account Amount over the amount held in the Reserve Account will be
deposited into the Reserve Account;
(n) an amount equal to the aggregate of any other amounts (generally
indemnities and costs of reimbursements) then due to the Collateral
Indebtedness Holder pursuant to the Loan Agreement will be applied in
accordance with the Loan Agreement;
(o) an amount equal to Class D Monthly Interest for such Distribution
Date, plus the amount of Class D Monthly Interest previously due but not
paid to the Class D Certificateholders on a prior Distribution Date, plus
any additional interest with respect to interest amounts that were due but
not paid to the Class D Certificateholders on a prior Distribution Date at
a rate equal to the Class D Certificate Rate plus 2% per annum ("Class D
Additional Interest") will be distributed to the Class D
Certificateholders;
(p) an amount equal to the Class D Servicing Fee for such Distribution
Date (or, if Proffitt's, Inc. is no longer the Servicer, the portion of the
Class D Servicing Fee for such Distribution Date remaining unpaid), plus
the amount of any Class D Servicing Fee previously due but not distributed
to the Servicer on a prior Distribution Date, will be distributed to the
Servicer; and
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(q) the balance, if any, will constitute "Shared Excess Finance Charge
Collections" with respect to Group One to be applied with respect to other
Series in Group One.
"Required Cash Collateral Amount" means the amount specified as such in the
Series 1997-2 Supplement or such higher amount designated by the Transferor.
"Required Reserve Account Amount" means the amount specified as such in the
Series 1997-2 Supplement, which shall be zero prior to the Reserve Account
Funding Date, and thereafter shall not be less than 1.50% of the Class A
Investor Amount without satisfaction of the Rating Agency Condition and
Enhancement Provider consent.
Collateral Amortization Period
During the period beginning on the earlier of (i) payment in full of the
Class B Investor Amount and (ii) any date selected by the Servicer if the
Available Enhancement Amount exceeds the Required Enhancement Amount as of the
related Determination Date, and ending upon the earlier of (a) the payment in
full of the Collateral Indebtedness Amount, (b) the reduction of the Collateral
Indebtedness Amount to an amount whereby the Available Enhancement Amount is
equal to the Required Enhancement Amount if the Collateral Amortization Period
arises pursuant to clause (ii) above, (c) the onset of the Rapid Amortization
Period, if the Class A Investor Amount and Class B Investor Amount have not been
paid in full or (d) the Series 1997-2 Termination Date (the "Collateral
Amortization Period"), certain collections of Principal Receivables allocated to
the Investor Amount will be distributed monthly, subject to the limitations
described below, to the holders of the Collateral Indebtedness Interest on each
Distribution Date beginning with the first Distribution Date with respect to the
Collateral Amortization Period. A Collateral Amortization Period may occur more
than once prior to the payment in full of the Class B Investor Amount if the
Collateral Amortization Period arises as described in clause (ii) above.
The amount of collections of Principal Receivables to be distributed to the
Collateral Indebtedness Holder on any Distribution Date during the Collateral
Amortization Period (the "Enhancement Distribution Amount") will be calculated
as follows:
(A) in order to reduce the Available Enhancement Amount to the
Required Enhancement Amount as of the related Determination Date and
provided that a Pay Out Event has not occurred while Class A Certificates
and Class B Certificates remain outstanding, the Enhancement Distribution
Amount shall be equal to the lesser of (x) Available Principal Collections
(after any allocations to meet any Class A Certificate or Class B
Certificate principal amortization obligations and after any reallocations
required to pay the Class A Required Amount and/or the Class B Required
Amount) and (y) the amount necessary to reduce the Available Enhancement
Amount to the Required Enhancement Amount as of the related Determination
Date;
(B) after the Class B Investor Amount is paid in full, the Enhancement
Distribution Amount shall be equal to the Available Principal Collections
for such Monthly Period; and
(C) upon the occurrence of a Pay Out Event, the Enhancement
Distribution Amount shall equal zero until the Class B Investor Amount is
paid in full, after which time the Enhancement Distribution Amount will be
calculated as described in clause (B) above.
Payments of Principal
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will distribute Available Principal Collections in the following
priority:
(A) On each Distribution Date with respect to the Revolving Period,
all such Available Principal Collections, less any portion thereof
allocated at the option of the Transferor as part of Collateral Monthly
Principal or Class D Monthly Principal to make a payment with respect to
the Collateral Indebtedness Interest or the Class D Investor Amount
(subject to maintaining the Required Enhancement Amount and subject to any
other restrictions specified in the Loan Agreement), will be treated as
Shared Principal Collections with respect to other Series and applied as
described under "-- Shared Principal Collections"; and
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(B) On each Distribution Date with respect to the Accumulation Period
or the Rapid Amortization Period, all such Available Principal Collections
will be deposited or distributed in the following priority:
(i) an amount equal to Class A Monthly Principal for such
Distribution Date will, during the Class A Accumulation Period, be
deposited in the Principal Account for payment to the Class A
Certificateholders on the earlier to occur of the Class A Expected
Payment Date and the first Distribution Date with respect to the Rapid
Amortization Period or, during the Rapid Amortization Period, be
distributed to the Class A Certificateholders;
(ii) an amount equal to Class B Monthly Principal for such
Distribution Date will, during the Class B Accumulation Period, be
deposited in the Principal Account for payment to the Class B
Certificateholders on the earlier to occur of the Class B Expected
Payment Date and the first Distribution Date with respect to the Rapid
Amortization Period or, during the Rapid Amortization Period, be
distributed to Class B Certificateholders;
(iii) an amount equal to Collateral Monthly Principal for such
Distribution Date will be applied in accordance with the Loan Agreement;
(iv) an amount equal to Class D Monthly Principal for such
Distribution Date will be distributed to the Class D Certificateholders;
and
(v) the balance, if any, will be treated as Shared Principal
Collections with respect to other Series in Group One and applied as
described under "-- Shared Principal Collections".
"Class A Monthly Principal" with respect to any Distribution Date relating
to the Accumulation Period or the Rapid Amortization Period will equal the least
of (i) the Available Principal Collections held in the Collection Account with
respect to such Distribution Date, (ii) for each Distribution Date with respect
to the Accumulation Period prior to the Class A Expected Payment Date, the
Controlled Deposit Amount for such Distribution Date, and (iii) the Class A
Adjusted Investor Amount on such Distribution Date.
"Class B Monthly Principal" with respect to any Distribution Date relating
to the Accumulation Period or the Rapid Amortization Period, after the Class A
Certificates have been paid in full, will equal the least of (i) the Available
Principal Collections held in the Collection Account with respect to such
Distribution Date (minus the portion of such Available Principal Collections
applied to any Class A Monthly Principal on such Distribution Date), (ii) for
each Distribution Date with respect to the Accumulation Period prior to the
Class B Expected Payment Date, the Controlled Deposit Amount for such
Distribution Date, and (iii) the Class B Adjusted Investor Amount on such
Distribution Date.
"Collateral Monthly Principal" with respect to any Distribution Date prior
to the payment in full of the Class B Certificates will equal the lesser of (i)
the Available Principal Collections held in the Collection Account with respect
to such Distribution Date (minus the portion of such Available Principal
Collections applied to any Class A Monthly Principal or Class B Monthly
Principal on such Distribution Date) and (ii) the Enhancement Surplus on such
Distribution Date (after giving effect to any increase in the amount held in the
Cash Collateral Account or increase in the Class D Investor Amount on such
Distribution Date), provided that the Transferor shall have elected to pay such
Collateral Monthly Principal, and with respect to each Distribution Date
beginning with the Distribution Date on which the Class B Certificates have been
paid in full, the lesser of (x) the Available Principal Collections on deposit
in the Collection Account with respect to such Distribution Date (minus the
amount of such Available Principal Collections applied to any Class A Monthly
Principal or Class B Monthly Principal on such Distribution Date) and (y) the
Collateral Indebtedness Amount on such Distribution Date.
"Class D Monthly Principal" with respect to any Distribution Date after the
Collateral Indebtedness Interest has been paid in full, or prior thereto subject
to the requirements of the Loan Agreement (and provided that such distribution
would not require the Transferor to designate a Minimum Transferor Interest
Percentage pursuant to the Series 1997-2 Supplement), will equal the least of
(i) the Available Principal Collections held in the Collection Account with
respect to such Distribution Date (minus the portion of such Available Principal
Collections applied to any Class A Monthly Principal, Class B Monthly Principal
or
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Collateral Monthly Principal on such Distribution Date), (ii) the Enhancement
Surplus on such Distribution Date and (iii) the Class D Investor Amount on such
Distribution Date.
"Controlled Accumulation Amount" means (a) for any Distribution Date with
respect to the Class A Accumulation Period, $15,000,000; provided, however, if
the Accumulation Period Length is determined to be less than 12 months, the
Controlled Accumulation Amount with respect to the Class A Certificates shall be
equal to (i) the product of (x) the Class A Initial Investor Amount and (y) the
Accumulation Period Factor for such Monthly Period divided by (ii) the Required
Accumulation Factor Number and (b) for any Distribution Date with respect to the
Class B Accumulation Period, $20,000,000.
"Accumulation Period Factor" means, for each Monthly Period, a fraction,
the numerator of which is equal to the sum of the initial investor amounts of
all outstanding Series, and the denominator of which is equal to the sum of (a)
the Initial Investor Amount (plus the aggregate initial principal amount of any
additional Class D Certificates), (b) the initial investor amounts (or other
applicable amounts) of all outstanding Series (other than Series 1997-2) which
are not expected to be in their revolving periods during such Monthly Period and
(c) the initial investor amounts (or other applicable amounts) of all other
outstanding Series which are not allocating Shared Principal Collections to
other Series and are expected to be in their revolving periods during such
Monthly Period.
"Required Accumulation Factor Number" is a fraction, rounded upwards to the
nearest whole number, the numerator of which is one and the denominator of which
is equal to the lowest monthly principal payment rate on the Accounts for the 12
months preceding the date of such calculation (or any lower monthly principal
payment rate selected by the Servicer at its option in its sole discretion),
expressed as a decimal.
"Controlled Deposit Amount" means, for any Distribution Date with respect
to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.
"Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the applicable Controlled
Accumulation Amount for such Distribution Date over the amount deposited into
the Principal Account as Class A Monthly Principal or Class B Monthly Principal,
as the case may be, for such Distribution Date, and (b) on each subsequent
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the applicable Controlled Deposit
Amount for such subsequent Distribution Date over the amount deposited into the
Principal Account as Class A Monthly Principal or Class B Monthly Principal, as
the case may be, for such subsequent Distribution Date.
"Available Enhancement Amount" means, with respect to any Distribution
Date, the sum of the amount on deposit in the Cash Collateral Account (after
giving effect to deposits or withdrawals from the Cash Collateral Account on
such Distribution Date), the Collateral Indebtedness Amount and the Class D
Investor Amount. The Available Enhancement Amount may be reduced on any
Distribution Date, subject to the requirements of the Series 1997-2 Supplement,
to the extent the Available Enhancement Amount as of the preceding Determination
Date exceeds the Required Enhancement Amount, provided that a Pay Out Event has
not occurred. Such reduction of the Available Enhancement Amount may be effected
via either a reduction of the Available Cash Collateral Amount or the Collateral
Indebtedness Amount or the Class D Investor Amount.
"Required Enhancement Amount" means, with respect to any Distribution Date,
an amount equal to the product of the Adjusted Investor Amount (after giving
effect to all reductions thereof to be made on such Distribution Date) and 15%,
but not less than $7,059,000; provided, however, that (i) if a Pay Out Event
occurs, then the Required Enhancement Amount shall equal the Required
Enhancement Amount on the Distribution Date immediately preceding such Pay Out
Event, (ii) in no event shall the Required Enhancement Amount exceed the sum of
the Class A Adjusted Investor Amount and the Class B Adjusted Investor Amount on
such date and (iii) the Required Enhancement Amount may be reduced without the
consent of the Series 1997-2 Certificateholders if (x) the Transferor shall have
received written notice from each Rating Agency that such reduction will not
result in the reduction or withdrawal of the then current
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rating of the Offered Certificates, (y) the Transferor shall have delivered to
the Trustee an officer's certificate to the effect that, based on the facts
known to such officer at such time, in the reasonable belief of the Transferor,
such reduction will not cause a Pay Out Event, or an event that, after the
giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to Series 1997-2 and (z) the Transferor shall have delivered
an opinion of counsel, addressed to the Trustee, to the effect that such
reduction will not (a) adversely affect the tax characterization as debt of
certificates of any outstanding Series or Class with respect to which an opinion
of counsel was delivered at the time of their issuance that such certificates
would be characterized as debt, (b) cause the Trust to be classified, for
Federal income tax purposes, as an association (or publicly traded partnership)
taxable as a corporation and (c) cause or constitute an event in which gain or
loss would be recognized by any Certificateholder.
EXAMPLE OF DISTRIBUTIONS
The following is an example of the application of the foregoing provisions
to the first Monthly Period during which the Offered Certificates will be
outstanding:
<TABLE>
<S> <C>
August 1 - August 31..................... Monthly Period
August 31................................ Record Date
September 10............................. Determination Date
September 12............................. Transfer Date
September 15............................. Distribution Date
</TABLE>
All payments collected at any time with respect to a Monthly Period will be
deposited in the Collection Account, and will then be allocated and paid or
deposited in accordance with the provisions of the Pooling and Servicing
Agreement. Distributions of interest will be made on the Distribution Date to
Certificateholders of record at the close of business on the Record Date.
"Determination Date" with respect to any Monthly Period will be a business day
occurring in the first ten days of the succeeding calendar month as selected
from time to time by the Servicer. The "Transfer Date" will be the business day
immediately preceding each Distribution Date. On the Determination Date, the
Servicer will instruct the Trustee regarding amounts to be withdrawn from the
Collection Account on the Distribution Date. On the Transfer Date, the Servicer
shall deposit to the Collection Account the amount of collections required to be
deposited therein, if daily deposits of collections are not required. See
" -- Book-Entry Registration" and " -- Definitive Certificates."
PAIRED SERIES
The 1997-2 Certificates may be paired with one or more other Series (such
other Series, a "Paired Series"). Such Paired Series either will be prefunded
with an initial deposit to a prefunding account in an amount up to the initial
principal balance of such Paired Series and primarily from the proceeds of the
sale of such Paired Series or will have a variable principal amount. Any such
prefunding account will be held for the benefit of such Paired Series and not
for the benefit of the holders of the 1997-2 Certificates. As funds are
accumulated in the Principal Account, either (i) in the case of a prefunded
Paired Series, an equal amount of funds on deposit in any prefunding account for
such prefunded Paired Series will be released (which funds will be distributed
to the Transferor) or (ii) in the case of a Paired Series having a variable
principal amount, an interest in such variable Paired Series in an equal or
lesser amount may be sold by the Trust (and the proceeds thereof will be
distributed to the Transferor) and, in either case, the investor amount in the
Trust of such Paired Series will increase by up to a corresponding amount. Upon
payment in full of the 1997-2 Certificates, assuming that there have been no
unreimbursed charge offs with respect to any related Paired Series, the
aggregate investor amount of such related Paired Series will have been increased
by an amount up to an aggregate amount equal to the Investor Amount on the
Closing Date. The issuance of a Paired Series will be subject to the
satisfaction of the Rating Agency Condition among other conditions. There can be
no assurance, however, that the terms of any Paired Series might not affect the
timing or amount of payments received by the holders of the Offered
Certificates. In particular, the numerator of the Investor Percentage with
respect to allocations of collections of Principal Receivables may be changed
upon the occurrence of a Pay Out Event with respect to a Paired Series (provided
that such numerator is not less than the Adjusted Investor Amount as of the last
day of the revolving period for such Paired Series). In such case, the time over
which principal
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will be received by holders of the Offered Certificates will be extended. See
"Risk Factors -- Issuance of Additional Series; Master Trust Considerations,"
"Maturity Assumptions" and "-- Investor Percentages and Transferor Percentage."
ALLOCATION OF INVESTOR DEFAULT AMOUNT; ADJUSTMENT AMOUNTS; INVESTOR CHARGE OFFS
"Defaulted Receivables" for any Monthly Period are Principal Receivables in
Accounts which were charged off as uncollectible in such Monthly Period
("Defaulted Accounts"). Receivables in an Account will be considered charged off
for the purposes of the Pooling and Servicing Agreement on the date on which
such Account is charged off in accordance with the usual and customary servicing
procedures of the Servicer, but in any event no later than 30 days after receipt
of notice by the Servicer that the related obligor has died or has become the
subject of a bankruptcy petition. The default amount (the "Default Amount") for
any Monthly Period will be an amount (not less than zero) equal to (a) the
amount of the Principal Receivables that were charged off in such Monthly Period
less (b) the amount of Recoveries received by the Servicer with respect to
Defaulted Accounts during such Monthly Period.
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Investor
Percentage applicable to Allocable Amounts with respect to such Monthly Period
and (ii) the Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class A Certificateholders (the "Class A
Investor Default Amount") on each Distribution Date in an amount equal to the
product of (i) the Class A Investor Percentage applicable during the related
Monthly Period and (ii) the Default Amount for such Monthly Period. A portion of
the Investor Default Amount will be allocated to the Class B Certificateholders
(the "Class B Investor Default Amount") on each Distribution Date in an amount
equal to the product of (i) the Class B Investor Percentage applicable during
the related Monthly Period and (ii) the Default Amount for such Monthly Period.
A portion of the Investor Default Amount will be allocated to the Collateral
Indebtedness Holder (the "Collateral Default Amount") on each Distribution Date
in an amount equal to the product of (i) the Collateral Investor Percentage
applicable during the related Monthly Period and (ii) the Default Amount for
such Monthly Period. A portion of the Investor Default Amount will be allocated
to the Class D Certificateholders (the "Class D Investor Default Amount") on
each Distribution Date in an amount equal to the product of (i) the Class D
Investor Percentage applicable during the related Monthly Period and (ii) the
Default Amount of such Monthly Period.
On each Determination Date, the Servicer will also calculate the Series
Adjustment Amount, as described below under "-- Allocation of Adjustment
Amounts." A portion of the Series Adjustment Amount will be allocated to the
Class A Certificateholders (the "Class A Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1997-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class A
Adjusted Investor Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Class B Certificateholders (the "Class B Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1997-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class B
Adjusted Investor Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Collateral Indebtedness Holder (the "Collateral Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1997-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Collateral
Indebtedness Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Class D Certificateholders (the "Class D Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1997-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class D
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Investor Amount and the denominator of which is the Adjusted Investor Amount,
each as of the last day of the Monthly Period preceding the related Monthly
Period.
The sum of the Class A Investor Default Amount and the Class A Adjustment
Amount with respect to a Distribution Date is referred to as the "Class A
Allocable Amount." The sum of the Class B Investor Default Amount and the Class
B Adjustment Amount with respect to a Distribution Date is referred to as the
"Class B Allocable Amount." The sum of the Collateral Default Amount and the
Collateral Adjustment Amount with respect to a Distribution Date is referred to
as the "Collateral Allocable Amount." The sum of the Class D Investor Default
Amount and the Class D Adjustment Amount with respect to a Distribution Date is
referred to as the "Class D Allocable Amount." The sum of the Class A Allocable
Amount, the Class B Allocable Amount, the Collateral Allocable Amount and the
Class D Allocable Amount equals the "Allocable Amount."
An amount equal to the Class A Allocable Amount for each Monthly Period
will be funded with Class A Available Funds, Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1997-2, amounts, if any, held in
the Cash Collateral Account and Reallocated Principal Collections applied as
described above in "-- Applications of Collections -- Payment of Interest, Fees
and Other Items" and "-- Reallocation of Cash Flows." An amount equal to the
Class B Allocable Amount for each Monthly Period will be funded with Class B
Available Funds, Excess Spread and Shared Excess Finance Charge Collections
allocable to Series 1997-2, amounts, if any, held in the Cash Collateral Account
and Reallocated Principal Collections applied as described above in
"-- Applications of Collections -- Payment of Interest, Fees and Other Items"
and "-- Reallocation of Cash Flows."
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1997-2, amounts, if any, in the Cash
Collateral Account and Reallocated Principal Collections, then the Class D
Investor Amount will be reduced by the amount of such excess, but not by more
than the excess of the Class A Allocable Amount for such Distribution Date over
the amount of Excess Spread and Shared Excess Finance Charge Collections, the
amount withdrawn from the Cash Collateral Account and the amount of Reallocated
Principal Collections used to fund the Class A Allocable Amount for such
Distribution Date. In the event that such reduction would cause the Class D
Investor Amount to be a negative number, the Class D Investor Amount will be
reduced to zero, and the Collateral Indebtedness Amount will be reduced by the
amount by which the Class D Investor Amount would have been reduced below zero,
but not by more than the excess, if any, of the Class A Allocable Amount for
such Distribution Date over the amount of such reduction, if any, of the Class D
Investor Amount with respect to such Distribution Date and the amount of Excess
Spread and Shared Excess Finance Charge Collections, the amount withdrawn from
the Cash Collateral Account and the amount of Reallocated Principal Collections
used to fund the Class A Allocable Amount for such Distribution Date. In the
event that such reduction would cause the Collateral Indebtedness Amount to be a
negative number, the Collateral Indebtedness Amount will be reduced to zero and
the Class B Investor Amount will be reduced by the amount by which the
Collateral Indebtedness Amount would have been reduced below zero, but not by
more than the excess, if any, of the Class A Allocable Amount for such
Distribution Date over the aggregate amount of the reductions, if any, of the
Collateral Indebtedness Amount and the Class D Investor Amount with respect to
such Distribution Date and the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class A
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class B Investor Amount to be a negative number, the Class B
Investor Amount will be reduced to zero, and the Class A Investor Amount will be
reduced by the amount by which the Class B Investor Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Allocable Amount for such Distribution Date over the aggregate amount of the
reductions, if any, of the Class D Investor Amount, the Collateral Indebtedness
Amount and the Class B Investor Amount for such Distribution Date and the amount
of Excess Spread and Shared Excess Finance Charge Collections, the amount
withdrawn from the Cash Collateral Account and the amount of Reallocated
Principal Collections used to fund the Class A Investor Allocable Amount for
such Distribution Date (a "Class A Investor Charge Off"), which will have the
effect of slowing or reducing the return of principal to the Class A
Certificate-
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holders. If the Class A Investor Amount has been reduced by the amount of any
Class A Investor Charge Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate Class A
Investor Charge Offs) by the amount of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1997-2 and available for such purpose as
described above in "-- Applications of Collections -- Excess Spread; Shared
Excess Finance Charge Collections". In addition, to the extent that such
reduction is due to the allocation of Series Adjustment Amounts, such reduction
may be reimbursed as a result of deposits in the Excess Funding Account,
increases in the amount of Principal Receivables in the Trust or certain
decreases in the aggregate Investor Amount of the Trust.
On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1997-2 not required to pay the Class A
Required Amount or reimburse Class A Investor Charge Offs, amounts, if any, in
the Cash Collateral Account not required to pay the Class A Required Amount and
Reallocated Principal Collections (exclusive of the portion of Reallocated
Principal Collections arising from the Class B Investor Amount's allocation of
collections of Principal Receivables) not required to pay the Class A Required
Amount, then the Class D Investor Amount will be reduced by the amount of such
excess, but not by more than the excess of the Class B Allocable Amount for such
Distribution Date over the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class B
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class D Investor Amount to be a negative number, the Class D
Investor Amount remaining after any reduction for the benefit of the Class A
Certificates will be reduced to zero, and the Collateral Indebtedness Amount
remaining after any reduction for the benefit of the Class A Certificates will
be reduced by the amount by which the Class D Investor Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class B
Allocable Amount for such Distribution Date over the amount of the reductions,
if any, of the Class D Investor Amount with respect to such Distribution Date
and the amount of Excess Spread and Shared Excess Finance Charge Collections,
the amount withdrawn from the Cash Collateral Account and the amount of
Reallocated Principal Collections used to fund the Class B Allocable Amount for
such Distribution Date. In the event that such reduction would cause the
Collateral Indebtedness Amount to be a negative number, the Collateral
Indebtedness Amount will be reduced to zero, and the Class B Investor Amount
will be reduced by the amount by which the Collateral Indebtedness Amount would
have been reduced below zero, but not by more than the excess, if any, of the
Class B Allocable Amount for such Distribution Date over the aggregate amount of
the reductions, if any, of the Collateral Indebtedness Amount and the Class D
Investor Amount with respect to such Distribution Date and the amount of Excess
Spread and Shared Excess Finance Charge Collections, the amount withdrawn from
the Cash Collateral Account and the amount of Reallocated Principal Collections
used to fund the Class B Allocable Amount for such Distribution Date (a "Class B
Investor Charge Off"), which will have the effect of slowing or reducing the
return of principal to the Class B Certificateholders. If the Class B Investor
Amount has been reduced by the amount of any Class B Investor Charge Offs, it
will thereafter be increased on any Distribution Date (but not by an amount in
excess of the aggregate Class B Investor Charge Offs) by the amount of Excess
Spread and Shared Excess Finance Charge Collections allocable to Series 1997-2
and available for such purpose as described above in "-- Applications of
Collections -- Excess Spread; Shared Excess Finance Charge Collections." In
addition, to the extent that such reduction is due to the allocation of Series
Adjustment Amounts, such reduction may be reimbursed as a result of deposits in
the Excess Funding Account, increases in the amount of Principal Receivables in
the Trust or certain decreases in the aggregate Investor Amount of the Trust.
On each Distribution Date, if the Collateral Required Amount for such
Distribution Date exceeds the amounts, if any, in the Cash Collateral Account
not required to pay the Class A Required Amount or the Class B Required Amount
or to pay certain other amounts and Reallocated Principal Collections (exclusive
of the portion of Reallocated Principal Collections arising from the Class B
Certificates' or the Collateral Indebtedness Amount's allocation of collections
of Principal Receivables) not required to pay the Class A Required Amount or the
Class B Required Amount, then the Class D Investor Amount remaining after any
reduction for the benefit of the Class A Certificates or the Class B
Certificates will be reduced by the amount of such excess, but not by more than
the Collateral Allocable Amount for such Distribution Date. In the event
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that such reduction would cause the Class D Investor Amount to be a negative
number, the Class D Investor Amount will be reduced to zero, and the Collateral
Indebtedness Amount will be reduced by the amount by which the Class D Investor
Amount would have been reduced below zero (a "Collateral Indebtedness Charge
Off").
On each Distribution Date, if the Class D Allocable Amount exceeds the
amount of Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1997-2 available on such Distribution Date as specified in clause (m)
under "-- Applications of Collections -- Excess Spread; Shared Excess Finance
Charge Collections" above, then the Class D Investor Amount will be reduced by
the amount of such excess (a "Class D Investor Charge Off").
ALLOCATION OF ADJUSTMENT AMOUNTS
The "Minimum Transferor Interest Percentage" shall be equal to the highest
Minimum Transferor Interest Percentage designated for any Series outstanding.
The Minimum Transferor Interest Percentage applicable to Series 1997-2 will
initially be zero; provided, however, that (a) the Transferor may, at its option
and in its sole discretion, designate a higher percentage as the Minimum
Transferor Interest Percentage so long as, after giving effect to such
designation and any repurchase of Certificates or designation of Additional
Accounts, the Transferor Amount equals or exceeds the Minimum Transferor Amount
and (b) if on any Distribution Date during the Revolving Period (after giving
effect to all distributions and adjustments to be made on such Distribution
Date), the portion of the Class D Investor Amount owned by the Transferor is
less than 2% of the Investor Amount and the Minimum Transferor Interest
Percentage is then less than 2%, the Transferor will be required, on or before
the last day of the second Monthly Period following the Monthly Period in which
such Distribution Date occurs (unless the portion of the Class D Investor Amount
owned by the Transferor then equals or exceeds 2% of the Investor Amount), to
(i) repurchase or otherwise repay certificates (to the extent permitted) or
designate Additional Accounts to the extent necessary to permit the designation
of a Minimum Transferor Interest Percentage of 2% without causing the Transferor
Amount to be less than the Minimum Transferor Amount and (ii) upon compliance
with clause (i), designate 2% as the Minimum Transferor Interest Percentage. In
the event that the Transferor has designated a Minimum Transferor Interest
Percentage in excess of 0%, the Transferor may, during the Revolving Period,
designate a lower percentage (not less than 0%) if the portion of Class D
Investor Amount owned by the Transferor as a percentage of the Investor Amount
averaged over the three Distribution Dates preceding such designation (after
giving effect to all distributions and adjustments made on each such
Distribution Date) equals or exceeds 4%; provided, however, such lower
percentage may not be less than 2% if the portion of Class D Investor Amount
owned by the Transferor as a percentage of the Investor Amount on the
Distribution Date preceding such designation (after giving effect to all
distributions and adjustments made on such Distribution Date) does not equal or
exceed 2%. The "Minimum Transferor Amount" will generally be equal to the
product of the aggregate adjusted investor amount for all Series outstanding and
the applicable Minimum Transferor Interest Percentage.
If as a result of an Adjustment (i) the Principal Receivables plus the
Excess Funding Account balance is less than (ii) the aggregate investor amount
of all Series (after giving effect to any required transfer of Receivables in
Additional Accounts to the Trust and any amounts deposited in the Excess Funding
Account), and the Transferor fails to make any payment required by the Pooling
and Servicing Agreement in respect thereof, then the amount of such deficiency
will be allocated among all Series based on their respective Investor
Percentages (a "Series Adjustment Amount"). The Series Adjustment Amount, as
applicable to Series 1997-2, will be allocated as described above under
"-- Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge
Offs." A Series Adjustment Amount will be reduced and the investor amount
increased to the extent that allocations of Excess Spread and Shared Excess
Finance Charge Collections covers the Series Adjustment Amount, the amount of
Principal Receivables in the Trust increases, certificates are repaid, amounts
are deposited in the Excess Funding Account or the Transferor subsequently makes
a payment allocable to Series 1997-2 in respect of an Adjustment. Reductions in
a Series Adjustment Amount will be allocated first to the Class A Certificates,
then to the Class B Certificates, then to the Collateral Indebtedness Interest
and finally to the Class D Certificates, in each case to the extent of any
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reductions in the Class A Investor Amount, the Class B Investor Amount, the
Collateral Indebtedness Amount or the Class D Investor Amount, as applicable,
attributable to a Series Adjustment Amount.
Under the terms of the Pooling and Servicing Agreement, fraud-related
receivables will be treated as an Adjustment and not as Defaulted Receivables.
OPTIONAL REPURCHASE; FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Series 1997-2 Certificates are subject to optional repurchase by the
Transferor on any Distribution Date on or after the Distribution Date on which
the sum of the Class A Adjusted Investor Amount, the Class B Adjusted Investor
Amount, the Collateral Indebtedness Amount and the amount of the Class D
Investor Amount held by parties other than the Transferor or any of its
affiliates is less than or equal to 10% of the sum of the Class A Investor
Amount on the Closing Date, the Class B Investor Amount on the Closing Date, the
Collateral Indebtedness Amount on the Closing Date and the highest amount of the
Class D Investor Amount held by parties other than the Transferor or any of its
affiliates since the Closing Date. The repurchase price for the Series 1997-2
Certificates will be equal to (a) the Adjusted Investor Amount, plus (b) accrued
and unpaid interest on the 1997-2 Certificates, less (c) the amount held in the
Collection Account allocable to Series 1997-2 to be applied other than to
deposits to the Reserve Account and any excess payable to the Transferor as
holder of the Exchangeable Transferor Certificate.
In any event, if the Investor Amount has not been reduced to zero on or
prior to the Stated Series Termination Date, final payment in respect of the
1997-2 Certificates as of such day is required to be made on such day. The final
payment will be funded by the proceeds of the sale, to the extent necessary, of
an amount of Receivables equal to 110% of the Adjusted Investor Amount.
The Trust will terminate upon the earlier of (i) the day designated by the
Transferor after the Distribution Date following the date on which funds shall
have been deposited in the collection account or applicable principal account
sufficient to pay the aggregate investor amount plus interest through such
Distribution Date and (ii) the day on which the final payment of principal is
made to the holders of Series 1997-2 Certificates and certificates of all other
outstanding Series, and all right, title and interest in and to the Receivables
and other funds of the Trust (other than funds on deposit in the Principal
Account) will be transferred to the holder of the Exchangeable Transferor
Certificate.
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables and certain other amounts for any
Monthly Period allocated to any Series in a Group will first be used to cover
certain amounts described in the related Series Supplements (including any
required deposits into a Principal Account or required distributions to
certificateholders of such Series). The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period (plus certain other
amounts required by the related Series Supplement) allocated to such Series
remaining after covering such required deposits and distributions and any
similar amount remaining for any other Series in such Group (collectively,
"Shared Principal Collections"), and will allocate the Shared Principal
Collections to cover any principal distributions to certificateholders and
deposits to Principal Accounts for any Series in such Group which are either
scheduled or permitted and which have not been covered out of collections of
Principal Receivables and certain other amounts for such Series, provided that
the Series Supplement for such Series so provides ("Principal Shortfalls"). If
Principal Shortfalls exceed Shared Principal Collections for any Monthly Period,
Shared Principal Collections will be allocated pro rata among the Series in a
Group entitled to the benefits thereof based on the respective Principal
Shortfalls of such Series. To the extent that Shared Principal Collections
exceed Principal Shortfalls, the balance will be distributed to the holder of
the Exchangeable Transferor Certificate; provided, however, that (i) such Shared
Principal Collections will be distributed to the holder of the Exchangeable
Transferor Certificate only to the extent the Transferor Amount is greater than
the Minimum Transferor Amount and (ii) in certain circumstances described under
"-- Excess Funding Account," such Shared Principal Collections will be deposited
in the Excess Funding Account. Any such reallocation of collections of Principal
Receivables and
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other amounts will not result in a reduction in the Investor Amount of the
Series to which such collections were initially allocated.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series may be included in a Group of Series (a "Group"). Each Series in
a Group will be entitled to share Shared Excess Finance Charge Collections in
the manner, and to the extent, described below with each other Series, if any,
in such Group. Collections of Finance Charge Receivables and certain other
amounts allocable to any Series which is included in such Group in excess of the
amounts necessary to make required payments with respect to such Series that are
payable out of collections of Finance Charge Receivables ("Shared Excess Finance
Charge Collections") will be applied to cover any shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to any
other Series included in such Group, pro rata based upon the amount of the
shortfall, if any, with respect to each other Series in such Group, provided,
however, that the sharing of Shared Excess Finance Charge Collections among
Series in a Group will continue only until such time, if any, at which the
Transferor shall deliver to the Trustee a certificate of an authorized officer
to the effect that, in the reasonable belief of the Transferor or its counsel,
the continued sharing of Shared Excess Finance Charge Collections among Series
in any Group would have adverse regulatory implications with respect to the
Transferor. Following the delivery by the Transferor of any such certificate to
the Trustee there will not be any further sharing of Shared Excess Finance
Charge Collections among the Series in a Group. In all cases, any Shared Excess
Finance Charge Collections remaining after covering shortfalls with respect to
all outstanding Series in a Group will be paid to the holder of the Exchangeable
Transferor Certificate. While the Transferor believes that, based upon
applicable rules and regulations as currently in effect, the sharing of Shared
Excess Finance Charge Collections among Series in a Group will not have adverse
regulatory implications that may be applicable if the Transferor is a bank,
there can be no assurance that this will continue to be true in the future.
PAY OUT EVENTS
As described above, the Revolving Period will continue through and include
the last day of the July 2001 Monthly Period, unless the Transferor has
designated a different date for the commencement of the Accumulation Period or a
Pay Out Event occurs prior to such date. See "-- Principal Payments."
A "Pay Out Event" refers to any of the following events:
(a) The Transferor or Proffitt's, Inc. shall (i) become insolvent or
admit in writing its inability to pay its debts as they become due or
voluntarily and generally suspend payment of its obligations, (ii)
voluntarily seek, consent to, or acquiesce in the benefit or benefits of
any Debtor Relief Law, (iii) become a party to (or be made the subject of)
any proceeding provided for by any Debtor Relief Law, other than as a
creditor or claimant, and, in the event such proceeding is involuntary, (A)
within 10 Business Days after the Transferor or Proffitt's, Inc. has
knowledge of such proceeding or the filing thereof either (I) the petition
instituting same has not been dismissed or (II) an order has not been
entered by the court having jurisdiction which allows continued transfer to
the Trust of Principal Receivables with no adverse effect to the Trust or
the Certificateholders or (B) an order as contemplated in (A)(II) above
having previously been entered, is no longer in effect other than by reason
of the termination of such proceeding, or (iv) become unable for any reason
to transfer Receivables to the Trust in accordance with the provisions of
the Pooling and Servicing Agreement; or
(b) the Trust or the Transferor shall become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended; or
(c) failure on the part of the Transferor or the Servicer (i) to make
any payment or deposit required by the terms of (A) the Pooling and
Servicing Agreement, or (B) the Series 1997-2 Supplement, on or before the
date occurring five Business Days after the date such payment or deposit is
required to be made or (ii) duly to observe or perform in any material
respect any covenants or agreements applicable to it set forth in the
Pooling and Servicing Agreement or the Series 1997-2 Supplement, which
failure has a material adverse effect on the holders of the 1997-2
Certificates, and which continues unremedied for a
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period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Transferor
by the Trustee, or to the Transferor and the Trustee by the holders of
Series 1997-2 Certificates representing not less than 50% of the Investor
Amount, and continues to materially and adversely affect the holders of the
Series 1997-2 Certificates for such period; or
(d) any representation or warranty made by the Transferor in the
Pooling and Servicing Agreement or the Series 1997-2 Supplement, or any
information contained in a computer file, microfiche or written list
required to be delivered by the Transferor pursuant to the Pooling and
Servicing Agreement, shall prove to have been incorrect in any material
respect when made or when delivered, (i) which continues to be incorrect in
any material respect for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Transferor by the Trustee, or to the Transferor and
the Trustee by the holders of Series 1997-2 Certificates representing not
less than 50% of the Investor Amount, and (ii) as a result of which the
interests of the holders of the Series 1997-2 Certificates are materially
and adversely affected and continue to be materially and adversely affected
for such period; provided, however, that a Pay Out Event shall not be
deemed to have occurred if the Transferor has accepted reassignment of the
related Receivable, or all of such Receivables, if applicable, during such
period in accordance with the provisions of the Pooling and Servicing
Agreement; or
(e) the average of the Portfolio Yields for any three consecutive
Monthly Periods is a rate which is less than the average Base Rate for such
three consecutive Monthly Periods; or
(f) failure to pay the Class A Investor Amount on the Class A Expected
Payment Date or failure to pay the Class B Investor Amount on the Class B
Expected Payment Date; or
(g) the Transferor shall fail to designate, or be unable to designate,
Additional Accounts the Receivables of which will be Eligible Receivables,
as required by the Pooling and Servicing Agreement, and such failure shall
continue for a period of five business days; or
(h) any Servicer Default shall occur which would have a material
adverse effect on the holders of the Series 1997-2 Certificates; or
(i) the Available Enhancement Amount shall be less than the Required
Enhancement Amount for three consecutive Monthly Periods;
then (x) in the case of any such event described in clauses (c), (d) or (h)
above, after the applicable grace period set forth in such subparagraphs,
either the Trustee or holders of Series 1997-2 Certificates representing
more than 50% of the Investor Amount, by notice then given in writing to
the Transferor and the Servicer (and to the Trustee if given by the holders
of Series 1997-2 Certificates) may declare that a Pay Out Event has
occurred with respect to only the Series 1997-2 Certificates as of the date
of such notice, and (y) in the case of any such event described in clauses
(a), (b), (e), (f), (g) or (i) above, a Pay Out Event with respect to only
the Series 1997-2 Certificates will be deemed to have occurred, without any
notice or other action, immediately upon the occurrence of such event.
"Portfolio Yield" means with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is (x) the sum of
(i) the amount of collections of Finance Charge Receivables and Shared Excess
Finance Charge Collections allocated to the Series 1997-2 Certificates for such
Monthly Period, (ii) the amount of investment earnings (net of investment
expenses and losses), if any, on the Principal Account and Reserve Account
balances, (iii) interest and earnings (net of investment expenses and losses, if
any) on amounts held in the Cash Collateral Account and included as Excess
Spread pursuant to the Pooling and Servicing Agreement and (iv) the amount of
funds withdrawn from the Reserve Account less (v) an amount equal to the Default
Amount allocable to the Series 1997-2 Certificates for such Monthly Period, and
the denominator of which is (y) the Investor Amount as of the last day of the
preceding Monthly Period.
"Base Rate" means with respect to any Monthly Period, the sum of (i) the
annualized percentage equivalent of a fraction, the numerator of which is the
sum of the Class A Monthly Interest, Class B Monthly
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Interest, Collateral Monthly Interest and Class D Monthly Interest payable on
the Series 1997-2 Certificates on the following Distribution Date and the
denominator of which is the Investor Amount as of the last day of the preceding
Monthly Period and (ii) the product of (a) 2% percent per annum and (b) a
fraction, the numerator of which is the Adjusted Investor Amount and the
denominator of which is the Investor Amount, in each case determined as of the
last day of the preceding Monthly Period.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses will be a monthly servicing fee. The monthly servicing fee will
be allocated among the Transferor Amount and the Investor Amount. The Investor
Monthly Servicing Fee for Series 1997-2 for each Monthly Period will be equal to
one-twelfth ( 1/12th) of the product of 2% and the Adjusted Investor Amount as
of the last day of the preceding Monthly Period. The Investor Monthly Servicing
Fee will be funded from collections on Finance Charge Receivables allocable to
the Investor Amount, and will be paid each month from the funds on deposit in
the Collection Account for the account of the Investor Amount. See
"-- Applications of Collections."
The share of the Investor Monthly Servicing Fee allocable to each class of
Certificates will be calculated as follows: (i) the share of such fee allocable
to the Class A Certificates (the "Class A Servicing Fee") with respect to any
Distribution Date shall be equal to one-twelfth ( 1/12th) of the product of (a)
2% (the "Servicing Fee Percentage") and (b) the Class A Adjusted Investor
Amount; provided, however, with respect to the first Distribution Date, the
Class A Servicing Fee shall be equal to $240,000, (ii) the share of such fee
allocable to the Class B Certificates (the "Class B Servicing Fee") with respect
to any Distribution Date shall be equal to one-twelfth ( 1/12th) of the product
of (a) the Servicing Fee Percentage and (b) the Class B Adjusted Investor
Amount; provided, however, with respect to the first Distribution Date, the
Class B Servicing Fee shall be equal to $26,667, (iii) the share of such fee
allocable to the Collateral Indebtedness Interest (the "Collateral Servicing
Fee") with respect to any Distribution Date shall be equal to one-twelfth
( 1/12th) of the product of (a) the Servicing Fee Percentage and (b) the
Collateral Indebtedness Amount; provided, however, with respect to the first
Distribution Date, the Collateral Servicing Fee shall be equal to $28,000, and
(iv) the share of such fee allocable to the Class D Certificates (the "Class D
Servicing Fee") with respect to any Distribution Date shall be equal to
one-twelfth ( 1/12th) of the product of (a) the Servicing Fee Percentage and (b)
the Class D Investor Amount; provided, however, with respect to the first
Distribution Date, the Class D Servicing Fee shall be equal to $19,067.
The Servicer will pay from its servicing compensation the expenses incurred
in connection with servicing the Receivables including, without limitation,
payment of the fees and disbursements of independent accountants and the
Subservicer, if any.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon determination that (i) performance
of its duties is or will become impermissible under applicable law, regulation
or order and (ii) there is no reasonable action which the Servicer could take to
make the performance of its duties permissible under such applicable law,
regulation or order. No such resignation will become effective until the Trustee
or a successor to the Servicer has assumed the Servicer's responsibilities and
obligations under the Pooling and Servicing Agreement. The Servicer may delegate
any of its servicing duties to any person or entity that agrees to conduct such
duties in accordance with the Credit Card Guidelines and the Pooling and
Servicing Agreement; however, such delegation will not relieve the Servicer of
its liability and responsibility to perform such duties in accordance with the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that Proffitt's, Inc., as
initial Servicer, will indemnify the Transferor, the Trust and the Trustee,
including its officers, directors, agents and employees, from and against any
loss, liability, expense, damage or injury suffered or sustained by them and
arising out of or relating to any claims, actions or proceedings brought or
asserted by third parties regarding the activities of the Trust or the Trustee
for which the Servicer is responsible pursuant to the Pooling and Servicing
Agreement or the Series 1997-2 Supplement; provided, however, that the Servicer
shall not indemnify (a) the Transferor, the Trust,
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or the Trustee for liabilities imposed by reason of fraud, negligence or breach
of fiduciary duty by (i) the Trustee in the performance of its duties under the
Pooling and Servicing Agreement or (ii) the Transferor or any Certificateholder,
(b) the Transferor, the Trust, the Trustee, the Certificate Owners or the
Certificateholders for liabilities arising from actions taken by the Trustee at
the request of Certificateholders, (c) the Transferor, the Trust, the Trustee,
the Certificate Owners or the Certificateholders as to any losses, claims or
damages incurred by a Certificateholder or a Certificate Owner in its capacity
as an investor, including without limitation losses incurred as a result of
Defaulted Receivables or Receivables which are charged off as uncollectible or
(d) the Trust, the Trustee, the Certificate Owners or the Certificateholders for
any liabilities, costs or expenses of the Trust, the Trustee or the Certificate
Owners or Certificateholders arising under any tax law, including, without
limitation, any federal, state or local income or franchise tax or any other tax
imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be paid by
the Trust, the Certificate Owners or the Certificateholders in connection with
the Trust or the Pooling and Servicing Agreement to any taxing authority. Except
as set forth in the preceding sentence, the Pooling and Servicing Agreement
provides that neither the Servicer nor any of its directors, officers, employees
or agents will be under any other liability to the Trust, the Trustee, the
Certificateholders or any other person for any action taken, or for refraining
from taking any action pursuant to the Pooling and Servicing Agreement. Neither
the Transferor nor the Servicer nor any of their respective directors, officers,
employees or agents will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of the Transferor, the Servicer or any such person in the performance
of its duties. The Transferor and the Servicer will be liable for any actual
damages resulting directly from the material failure to perform any of their
respective obligations under the Pooling and Servicing Agreement. In addition,
the Pooling and Servicing Agreement provides that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling and Servicing
Agreement and which in its opinion may expose it to any expense or liability.
Any entity into which, in accordance with the Pooling and Servicing
Agreement, the Servicer may be merged or consolidated or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of or acquiring all or substantially all the
properties or assets of, the Servicer, upon execution of a supplement to the
Pooling and Servicing Agreement, delivery of an opinion of counsel with respect
to the compliance of the transaction with the applicable provisions of the
Pooling and Servicing Agreement and delivery of notice thereof to each Rating
Agency and the satisfaction of the Rating Agency Condition, will be the
successor to the Servicer under the Pooling and Servicing Agreement.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have notified the Transferor in writing that such action
will not result in a reduction or withdrawal of its rating of any outstanding
Series with respect to which it is a Rating Agency. The Transferor shall furnish
any such notice from the Rating Agencies to the Trustee.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below) that has not been
remedied, either the Trustee or the holders of certificates of any Series then
outstanding evidencing undivided interests aggregating more than 50% of the
aggregate Investor Amount, by written notice to the Servicer (and to the
Trustee, if given by the holders of certificates of any Series then
outstanding), may terminate all of the rights and obligations of the Servicer,
in its capacity as servicer under the Pooling and Servicing Agreement, with
respect to all of the Receivables held by the Trust with respect to all Series,
and the proceeds thereof, and the Trustee shall thereafter appoint a new
Servicer (a "Service Transfer"). The rights and interests of the Transferor
under the Pooling and Servicing Agreement in the Transferor Interest will not be
affected by any Service Transfer. The Transferor shall have the right to
nominate to the Trustee a potential successor Servicer. The Trustee shall as
promptly as possible appoint the entity nominated by the Transferor if such
entity meets certain eligibility criteria set forth in the Pooling and Servicing
Agreement. If the Transferor does not nominate an entity to be successor
Servicer, the Trustee shall as promptly as possible appoint a successor
Servicer, and if no successor Servicer has been appointed by the Trustee and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all authority, power and obligations of the Servicer under the Pooling and
Servicing
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Agreement will pass to, and be vested in, the Trustee. Prior to any Service
Transfer, the Trustee will seek to obtain bids from potential servicers meeting
certain eligibility requirements set forth in the Pooling and Servicing
Agreement to serve as a successor Servicer for servicing compensation not in
excess of the Investor Monthly Servicing Fee plus the servicing fee allocable to
the Transferor Interest. If the Trustee is unable to obtain any bids from
eligible Servicers and the Servicer delivers an officer's certificate to the
effect that it cannot in good faith cure the related Servicer Default, then the
Trustee will under certain circumstances offer the Transferor the right to
accept the reassignment of all of the Receivables. The deposit amount of such a
reassignment shall be equal to the sum of the aggregate Investor Amount (less
the aggregate principal amount held in the Excess Funding Account and any
principal funding account with respect to any Series) plus accrued and unpaid
interest on the certificates of all Series plus certain amounts payable to
specified providers of credit enhancement, if applicable.
A "Servicer Default" means any of the following events:
(i) failure by the Servicer to make any payment, transfer or deposit,
or to give instructions or notice to the Trustee to make such payment,
transfer or deposit, on the date the Servicer is required to do so under
the Pooling and Servicing Agreement or any Series Supplement (upon
expiration of a five business day grace period), provided, however, that
any such failure caused by circumstances beyond the Servicer's control
shall not constitute a Servicer Default if the Servicer promptly remedies
such failure within five business days after receiving notice thereof or
otherwise becoming aware of such failure;
(ii) failure on the part of the Servicer duly to observe or perform
any other covenants or agreements of the Servicer in the Pooling and
Servicing Agreement or any Series Supplement which has a material adverse
effect on the certificateholders of any Series then outstanding (without
regard to any Available Enhancement Amount), which continues unremedied for
a period of 60 days after written notice and which continues to materially
adversely affect the rights of the certificateholders of any Series then
outstanding for such period, or the Servicer delegates its duties under the
Pooling and Servicing Agreement, except as specifically permitted
thereunder;
(iii) any representation, warranty or certification made by the
Servicer in the Pooling and Servicing Agreement or any Series Supplement or
in any certificate delivered pursuant to the Pooling and Servicing
Agreement or any Series Supplement proves to have been incorrect when made,
which has a material adverse effect on the rights of the certificateholders
of any Series outstanding (without regard to the amount of any Available
Enhancement Amount), and which continues to be incorrect in any material
respect for a period of 60 days after written notice and which continues to
materially adversely affect the rights of the certificateholders of any
Series (without regard to the amount of any enhancement) then outstanding
for such period; or
(iv) the occurrence of certain events of bankruptcy or insolvency
relating to the Servicer (such events include the appointment (voluntary or
involuntary) of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings relating to the Servicer of all or substantially all of its
property and the Servicer admitting in writing its inability to pay its
debts as they become due, filing a petition to take advantage of an
insolvency or reorganization statute, making an assignment for the benefit
of its creditors or voluntarily suspending payment of its obligations).
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of 10 business days after the
applicable grace period or a delay in or failure of performance referred to
under clauses (ii) or (iii) for a period of 60 business days after the
applicable grace period shall not constitute a Servicer Default, if such delay
or failure could not have been prevented by the exercise of reasonable diligence
by the Servicer and such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event, the Servicer shall
not be relieved from using its best reasonable efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling and
Servicing Agreement or any Series Supplement, and the Servicer shall provide the
Trustee and the providers of credit enhancement, if any, applicable to any
Series, the Transferor and the Certificateholders prompt notice of such failure
or delay by it, together with a description of its efforts to so perform its
obligations. The Servicer will immediately notify the Trustee in writing of any
Servicer Default.
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REPORTS TO CERTIFICATEHOLDERS
By each Distribution Date, the Paying Agent will forward to the Trustee and
each Rating Agency a statement prepared by the Servicer (the "Monthly Servicer
Report") setting forth certain information with respect to the Trust and
certificates of each Series, including: (a) the aggregate amount of collections
of Finance Charge Receivables and the aggregate amount of collections of
Principal Receivables processed during the immediately preceding Monthly Period;
(b) the Investor Percentage for such Monthly Period; (c) for each Series and for
each class within any such Series, the total amount of such distribution
allocable to principal and interest, if any, (d) the aggregate outstanding
balance of the Accounts which were delinquent by 31 days, 61 days and 91 days or
more as of the close of business on the last day of the Monthly Period
immediately preceding such Distribution Date; (e) the Investor Default Amount
for the immediately preceding Monthly Period; (f) the amount of Investor Charge
Offs and the amount of reimbursements thereof for the next succeeding
Distribution Date; (g) the amount of the Investor Monthly Servicing Fee for the
next succeeding Distribution Date; (h) the aggregate amount of Receivables in
the Trust at the close of business on the last day of the Monthly Period
immediately preceding such Distribution Date; (i) the Investor Amount and the
Adjusted Investor Amount at the close of business on the last day of the Monthly
Period immediately preceding such Distribution Date; and (j) whether a Pay Out
Event shall have occurred.
On each Distribution Date with respect to each Series the Paying Agent, on
behalf of the Trustee, will forward to each Certificateholder of record a
statement (the "Payment Date Statement") prepared by the Servicer setting forth
the information with respect to the Certificates of such Series set forth in the
Monthly Servicer Report supplied to the Trustee as described in the preceding
paragraph since the immediately preceding Distribution Date and the following
additional information (which, in the case of (a), (b) and (c) below, will be
stated on the basis of an original principal amount of $1,000 per Certificate):
(a) the total amount distributed; (b) the amount of such distribution allocable
to principal; (c) the amount of such distribution allocable to interest; and (d)
the amount, if any, by which the principal balance of the Certificates exceeds
the Investor Amount as of the Record Date with respect to such Distribution
Date.
On or before June 30 of each calendar year beginning with 1998, the Paying
Agent, on behalf of the Trustee, will furnish to each person who at any time
during the preceding calendar year was a Certificateholder of record a statement
prepared by the Servicer containing the information required to be contained in
the regular monthly report to such Certificateholders, as set forth in clauses
(a), (b) and (c) above aggregated for such calendar year or the applicable
portion thereof during which such person was a Certificateholder, together with
such other customary information (consistent with the treatment of the Offered
Certificates as debt) as the Trustee or the Servicer deems necessary or
desirable to enable the Certificateholder to prepare their tax returns.
Unless Definitive Certificates are issued, all reports and statements to
Certificateholders shall be provided to DTC or its nominee, Cede, as the
registered holder of the Offered Certificates. All reports and statements
discussed under "-- Reports to Certificateholders" will be delivered to
Certificate Owners by DTC and the DTC Participants in accordance with the DTC
Rules and the rules and policies of the DTC Participants. In addition, the
Trustee will deliver all such reports and statements to the Certificate Owners
upon request. The Monthly Servicer Report will also be filed with the Commission
on a Current Report on Form 8-K and will be available to Certificate Owners as
provided under "Reports to Certificateholders" and "Available Information."
ISSUANCE OF NEW SERIES
The Transferor may tender the Exchangeable Transferor Certificate in
exchange for one or more newly issued Series of Certificates and receive a
reissued Exchangeable Transferor Certificate (an "Exchange"). The Transferor may
perform an Exchange by delivering a notice to the Trustee that specifies with
respect to the Series to be issued, among other things, the initial Investor
Amount, the Certificate Rate and the applicable enhancements. On the date of
issuance of a new Series, the Transferor will deliver, among other things, to
the Trustee (i) a supplement in satisfactory form, (ii) the applicable
enhancement, if any, (iii) an opinion of counsel that the delivery of the
Certificates with respect to such Series does not adversely affect the
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tax opinion originally delivered, (iv) an agreement, if any, pursuant to which
the enhancement provider agrees to provide enhancement, (v) evidence of
satisfaction of the Rating Agency Condition, (vi) the existing Exchangeable
Transferor Certificate and (vii) written certification that the Transferor
Amount is at least equal to the Minimum Transferor Amount.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before June 30 of
each calendar year, beginning with 1998, the Servicer will cause a firm of
independent public accountants to furnish a report covering the preceding annual
period to the effect that such firm has applied certain procedures to certain
documents and records relating to the servicing of the Accounts, compared the
information contained in the Servicer's certificates delivered during the period
covered by such report with such documents and records and that, based upon such
procedures, no matters came to the attention of such accountants that caused
them to believe that such servicing was not conducted in all material respects
in compliance with specified sections of the Pooling and Servicing Agreement,
except for such exceptions as such accountants believe to be immaterial and such
other exceptions as shall be set forth in such report.
In addition, for each calendar year, such accountants will include as part
of their annual report, a comparison of the mathematical calculations of the
amounts contained in the monthly certificates forwarded by the Servicer during
the period covered by such report with the Servicer's computer reports that were
the source of such amounts and deliver a report to the Trustee confirming that
such amounts are consistent, except for such exceptions as such accountants
believe to be immaterial and such other exceptions as shall be set forth in such
report. The Trustee will make such reports available for inspection by
Certificateholders.
The Pooling and Servicing Agreement provides for delivery to the Trustee on
or before June 30 of each calendar year, beginning with 1998, of an annual
statement signed by an officer of the Servicer to the effect that to such
officer's knowledge the Servicer has fully performed its obligations under the
Pooling and Servicing Agreement throughout the preceding year, or if there has
been a default in the performance of any such obligation, specifying the nature
and status of the default.
AMENDMENTS
The Pooling and Servicing Agreement and the Series 1997-2 Supplement also
may be amended by the Transferor, the Servicer and the Trustee, without the
consent of any of the Certificateholders, to cure any ambiguity, to revise
certain exhibits and schedules, to correct or supplement any provision therein
which may be inconsistent with any other provision therein, to add other
identifying code numbers or other identifying characteristics to the definition
of Account, or to add any other provisions with respect to matters or questions
arising under the Pooling and Servicing Agreement which are not inconsistent
with the provisions of the Pooling and Servicing Agreement. No such amendment,
however, may adversely affect in any material respect the interests of the
Certificateholders.
The Pooling and Servicing Agreement and the Series 1997-2 Supplement also
may be amended by the Transferor, the Servicer and the Trustee without the
consent of any of the Certificateholders for the purpose of adding, changing or
eliminating any provision thereof or any right of the holders of Certificates
thereunder, provided that (i) the Servicer shall have furnished the Trustee with
an officer's certificate to the effect that the amendment will not materially
and adversely affect the interests of any Certificateholder, (ii) such amendment
will not cause the Trust to be characterized as a corporation for Federal income
tax purposes or otherwise have a material adverse effect on the Federal income
taxation of any Series and (iii) the Servicer shall have given each Rating
Agency 10 business days' prior written notice of such amendment and shall have
received written confirmation from each Rating Agency that the Rating Agency
Condition shall be met as a result of such amendment. No such amendment,
however, may effect any of the amendments that require unanimous
Certificateholder consent as set forth in the next paragraph, or (i) reduce in
any manner the amount of, or delay the timing of, distributions which are
required to be made on any Investor Certificates of any Series, (ii) change the
definition of or the manner of calculating the interest of any
Certificateholder, (iii) alter the requirements for changing the percentage by
which the Minimum Transferor Amount for the
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Series 1997-2 Certificates is determined, (iv) change the manner in which the
Transferor Amount is determined, or (v) reduce the percentage required in the
following paragraph to consent to such amendment. Notwithstanding the foregoing,
the transfer of Receivables to, and the generation of new Receivables by, a
credit card bank established by Proffitt's, Inc. and the appointment of the
credit card bank as Servicer in connection with such transfer will be deemed not
to materially and adversely affect the interests of the Certificateholders.
The Pooling and Servicing Agreement may also be amended by the Transferor,
the Servicer and the Trustee with the consent of the holders of certificates of
all Series then outstanding evidencing undivided interests aggregating not less
than 50% of the investor amount of all Series adversely affected, for the
purpose of adding any provisions to, changing in any manner or eliminating any
of the provisions of the Pooling and Servicing Agreement or of modifying in any
manner the rights of holders of certificates of any Series then outstanding. No
such amendment, however, may (i) reduce in any manner the amount of, or delay
the timing of, distributions required to be made on any certificate of such
Series without the consent of all holders of the related Certificate, (ii)
change the definition of or the manner of calculating the investor amount, the
investor percentage, the required amount of any enhancement or the investor
default amount of such Series without the consent of each holder of certificates
adversely affected thereby or (iii) reduce the aforesaid percentage of undivided
interests the holders of which are required to consent to any such amendment,
without the consent of all holders of certificates of all Series. Furthermore,
any such amendment shall require prior written confirmation from the applicable
Rating Agency that the Rating Agency Condition will be met.
AMENDMENTS TO THE POOLING AND SERVICING AGREEMENT RELATING TO FASIT ELECTION
Each Certificateholder, by acquiring an interest in an Offered Certificate,
is deemed to consent to any amendment to the Pooling and Servicing Agreement or
the Series 1997-2 Supplement necessary for the Transferor to elect financial
asset securitization trust ("FASIT") status for the Trust or any portion
thereof, provided that, such election may not be made unless the Transferor
delivers to the Trustee an opinion of counsel to the effect that (i) the
issuance of FASIT regular interests will not adversely affect the tax
characterization as debt of certificates of any outstanding Series or Class with
respect to which an opinion of counsel was delivered at the time of their
issuance that such certificates would be characterized as debt, (ii) following
such issuance the Trust will not be classified for Federal income tax purposes
as an association (or publicly traded partnership) taxable as a corporation and
(iii) such issuance will not cause or constitute an event in which gain or loss
would be recognized by any Certificateholder. See "Federal Income Tax
Consequences -- Recent Legislation."
LIST OF CERTIFICATEHOLDERS
Upon written request of certificateholders of record representing undivided
interests in the Trust aggregating not less than 10% of the investor amount of
any Series, the Trustee, after having been adequately indemnified by such
certificateholders for its costs and expenses, and having given the Servicer
notice that such request has been made, the Trustee will afford such
certificateholders access during normal business hours to a list of
certificateholders of the Trust that is as of a date no more than 45 days prior
to the date the Trustee received the applicable request, for purposes of
communicating with other certificateholders with respect to their rights under
the Pooling and Servicing Agreement. See "-- Book-Entry Registration" and "--
Definitive Certificates."
The Pooling and Servicing Agreement generally does not provide for any
annual or other meetings of Certificateholders.
THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee and initial
Paying Agent under the Pooling and Servicing Agreement. The Transferor, the
Servicer, the Sellers, and their respective affiliates have had deposit, lock
box, borrowing and similar transactions with the Trustee in the ordinary course
of business, and may hereafter have further relationships and transactions with
the Trustee and its affiliates. The Trustee, the
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Transferor, the Servicer and any of their respective affiliates may hold
certificates of any Series in their own names. In addition, for purposes of
meeting the legal requirements of certain jurisdictions, the Trustee shall have
the power to appoint a co-trustee or separate trustees of all or any part of the
Trust. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Pooling and Servicing
Agreement shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, except in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, in which case such
rights, powers, duties and obligations shall be conferred and imposed singly
upon such separate trustee or co-trustee, who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of Trustee.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
The Trustee's address is Norwest Bank Minnesota, National Association,
Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-0070,
Attention: Asset Backed Securities Corporate Trust Department, telephone number
(612) 667-9528.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe), if they are participants of such
systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (who may
include the underwriters of any Series), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with the DTC
Rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with the DTC Rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making
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or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants may
not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, the Offered Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal of and interest on the Certificates from the Trustee through the
Participants who in turn will receive them from DTC. Under a book-entry format,
Certificate Owners may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC
will forward such payments to its Participants which thereafter will forward
them to Indirect Participants or Certificate Owners. It is anticipated that the
only "Certificateholder" with respect to each class of Offered Certificates will
be Cede, as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Pooling and Servicing
Agreement, and Certificate Owners will only be permitted to exercise the rights
of Certificateholders indirectly through the Participants who in turn will
exercise the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "DTC Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Offered
Certificates and is required to receive and transmit distributions of principal
and interest on the Offered Certificates. Participants and Indirect Participants
with which Certificate Owners have accounts with respect to the Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess Certificates, Certificate Owners
will receive payments and be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Offered Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by a Certificateholder under any related Agreement only at the direction
of one or more Participants to whose account with DTC the Offered Certificates
are credited. Additionally, DTC has advised the Transferor that it will take
such actions with respect to specified percentages of the Investor Amount only
at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose holdings include such
undivided interests.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 34
currencies, including United States Dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may
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include the underwriters of any Series of Certificates. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 34
currencies, including United States Dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in more than 25 countries generally similar to
the arrangements for cross-market transfers with DTC described above. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear Clearance System, Societe Cooperative, a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative Board establishes policy for the Euroclear System.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include the underwriters of any Series of Certificates. Indirect access to the
Euroclear System is also available to other firms that maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System (collectively, the "Terms
and Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences." Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Transferor would seek an alternative depository (if available) or
cause the issuance of Definitive Certificates to affected Certificate Owners or
their nominees in the manner described under "-- Definitive Certificates."
DEFINITIVE CERTIFICATES
The Offered Certificates will be issued in fully registered, certificated
form to Certificate Owners or their nominees ("Definitive Certificates"), rather
than to DTC or its nominee, only if (i) the Transferor advises the Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Offered Certificates, and the
Trustee or the Transferor is unable to locate a qualified
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successor, (ii) the Transferor, at its option, advises the Trustee in writing
that it elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Servicer Default, Certificate Owners representing not less than
50% (or such other percentage specified in the related Prospectus Supplement) of
the Investor Amount advise the Trustee and DTC through Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Certificate Owners through
the Participants of the availability through DTC of Definitive Certificates.
Upon surrender by DTC of the definitive certificate representing the Offered
Certificates and receipt of instructions for reregistration, the Trustee will
issue the Offered Certificates as Definitive Certificates and, thereafter, the
Trustee will recognize the holders of such Definitive Certificates as holders
under the Policy and Servicing Agreement.
Distribution of principal and interest on the Offered Certificates will be
made by the Trustee directly to holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Series 1997-2 Supplement and the
Pooling and Servicing Agreement. Interest payments and any principal payments on
each Distribution Date will be made to holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by check mailed to the address of such holder
as it appears on the register maintained by the Trustee. The final payment on
any Certificate (whether Definitive Certificates or the Certificates registered
in the name of Cede representing the Offered Certificates), however, will be
made only upon presentation and surrender of such Certificate at the office or
agency specified in the notice of final distribution to Certificateholders. The
Trustee will provide such notice to registered Certificateholders not later than
the fifth day of the month of such final distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar for the Offered Certificates (the
"Transfer Agent and Registrar"), which shall initially be the Trustee. No
service charge will be imposed for any registration of transfer or exchange, but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENTS
The Receivables transferred to the Trust by the Transferor are acquired by
the Transferor from the Sellers pursuant to the Receivables Purchase Agreements
entered into between the Transferor as purchaser of the Receivables and each of
the Sellers as a seller of the Receivables, in the form filed as an exhibit to
the Registration Statement of which this Prospectus is a part. Under the
applicable Receivables Purchase Agreements, each of the Sellers agrees to sell
or transfer Receivables in specified Accounts to the Transferor. Pursuant to the
Pooling and Servicing Agreement, all such Receivables are immediately
transferred by the Transferor to the Trust, and the Transferor assigns its
rights in, to and under each Receivables Purchase Agreement to the Trust. The
following summary describes certain terms of the Receivables Purchase Agreements
and is qualified in its entirety by reference to the Receivables Purchase
Agreements.
Under the Receivables Purchase Agreements, each Seller may from time to
time designate certain of their subsidiaries, divisions or department stores as
"Selling Subsidiaries." To become a Selling Subsidiary, (i) the applicable
entity must execute an assumption agreement pursuant to which it assumes certain
obligations under the applicable Receivables Purchase Agreement and is granted
the right to sell Receivables to the Transferor on the terms set forth in the
applicable Receivables Purchase Agreement, (ii) the applicable entity must
deliver certain other documents (including UCC-1 financing statements) to the
Transferor, the Trustee and the Rating Agencies, (iii) certain representations
and warranties made by such must be true as of the date it first sells
Receivables to the Transferor, and (iv) each Rating Agency must confirm that the
Rating Agency Condition will be met. There will be no Selling Subsidiaries when
the Series 1997-2 Certificates are issued; however, for the purpose of
describing the Receivables Purchase Agreements, each reference to the Sellers in
this section shall be deemed to include each Selling Subsidiary.
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SALE OR TRANSFER OF RECEIVABLES
Pursuant to the Receivables Purchase Agreements, each of the Sellers has
sold to the Transferor all its right, title and interest in and to all the
Receivables in the Accounts created by each such Seller as of the Cut-Off Date
and all Receivables thereafter created in such Accounts. With respect to the
Receivables in Additional Accounts and Automatic Additional Accounts added from
time to time to the Accounts, as of the date of such addition or creation,
respectively, each of the Sellers shall transfer such Receivables and all
Receivables thereafter created in such Additional Accounts and Automatic
Additional Accounts to the Transferor. The purchase price of the purchased
Receivables will be based upon a formula applied to the Aggregate Principal
Receivables to be purchased, as set forth in the Receivables Purchase
Agreements. Such purchase price will be payable by the Transferor in cash, a
subordinated note, or for those Sellers who are equity owners of PCC, a capital
contribution to PCC or any combination thereof. The purchase price of each
Receivable purchased will be adjusted monthly if any merchandise giving rise
thereto is returned or refused by a Seller's customer, the Servicer grants a
refund, chargeback or adjustment, the customer asserts a valid counterclaim or
the Servicer determines that the Receivable was created as the result of a
fraudulent or counterfeit charge.
In connection with the sale or transfer of the Receivables to the
Transferor, each of the Sellers has agreed to include in its books and records,
including the computer files of the Receivables, statements and notations
evidencing that the Receivables have been sold or transferred to the Transferor,
and that such Receivables have been transferred by the Transferor to the Trust.
In addition, each of the Sellers will make available to the Transferor a
computer file, microfiche or written list containing a true and complete list
showing each Account, identified by account number and by Receivables balance as
of the Cut-Off Date. The agreements relating to the Accounts and Receivables
will not be segregated from other agreements relating to other credit card
accounts and receivables, and will not be stamped or marked to reflect the sale
or transfer of the Receivables to the Transferor. Each of the Sellers will have
filed UCC financing statements with respect to the Receivables meeting the
requirements of state law in the states in which the Sellers' chief executive
offices are located. See "Certain Legal Aspects of the Receivables."
In general, Accounts will be automatically included in the Trust as
Automatic Additional Accounts when created in the normal operation of the
Sellers' credit card program. Pursuant to the Receivables Purchase Agreements,
each Seller will, if the Transferor is required or determines to cause the
Sellers to designate Additional Accounts under the Pooling and Servicing
Agreement, designate Additional Accounts to be included as Accounts under the
applicable Receivables Purchase Agreement. Each of the Sellers and the
Transferor may also agree from time to time to designate Additional Accounts
under the applicable Receivables Purchase Agreement. The Transferor and the
Sellers may agree that the Sellers will repurchase Accounts designated as
Removed Accounts pursuant to the Pooling and Servicing Agreement. The purchase
price for Accounts so designated will be determined by a formula specified in
the Receivables Purchase Agreement and the amount paid will not exceed the total
unpaid balance thereof. See "Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement -- Addition of Accounts" and "-- Removal of
Accounts."
REPRESENTATIONS AND WARRANTIES
Each of the Sellers makes certain representations and warranties to the
Transferor to the effect that, among other things, (a) as of the initial closing
date it is duly incorporated and in good standing and that it has the authority
to perform its obligations under the applicable Receivables Purchase Agreement
and (b) as of the Cut-Off Date (or as the date of the addition of Additional
Accounts) each Account was an Eligible Account.
Each of the Sellers also makes representations and warranties to the
Transferor relating to the Receivables to the effect, among other things, that
(a) as of the initial closing date, each of the Receivables then existing is an
Eligible Receivable and (b) as of the date any new Receivable is created, such
Receivable is an Eligible Receivable and the representation and warranty set
forth in clause (b) in the immediately following paragraph is true and correct
with respect to such Receivable. In the event of a breach of any
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representation and warranty set forth in this paragraph which results in the
requirement that the Transferor accept retransfer of each Ineligible Receivable
as to which such breach relates pursuant to the Pooling and Servicing Agreement,
the Seller of such Receivable shall repurchase such Ineligible Receivable from
the Transferor on the date of such retransfer. The repurchase price for such
Ineligible Receivable shall be the outstanding principal balance of such
Receivable plus Finance Charges outstanding through the date of such repurchase,
of which at least the amount of any cash deposit required to be made by the
Transferor under the Pooling and Servicing Agreement in respect of the
retransfer of such Ineligible Receivable shall be paid in cash.
Each of the Sellers also makes representations and warranties to the
Transferor to the effect, among other things, that as of the initial closing
date (a) the applicable Receivables Purchase Agreement constitutes a legal,
valid and binding obligations of such Seller and (b) the applicable Receivables
Purchase Agreement constitutes a valid sale or transfer to the Transferor of all
right, title and interest of such Seller in and to the Receivables, whether then
existing or thereafter created in the Accounts and the proceeds thereof which is
effective as to each Receivable upon the creation thereof. If the breach of any
of the representations and warranties described in this paragraph results in the
Transferor having an obligation under the Pooling and Servicing Agreement to
accept retransfer of the Receivables, the applicable Seller(s) will repurchase
the Receivables retransferred to the Transferor by it in an amount equal to the
outstanding principal balance of such Receivable plus Finance Charges
outstanding through the date of such repurchase, but in no event less than the
amount of cash equal to the amount of cash the Transferor is required to deposit
under the Pooling and Servicing Agreement in connection with such retransfer.
Each of the Sellers agrees to indemnify the Transferor and to hold the
Transferor harmless from and against any and all losses, damages and expenses
(including reasonable attorneys' fees and charges) suffered or incurred by the
Transferor arising from a material breach of such Seller's representations and
warranties set forth above.
CERTAIN COVENANTS
In each Receivables Purchase Agreement, each Seller covenants that it will
perform its obligations under the credit card agreements relating to the
Accounts and its Credit Card Guidelines relating to the Accounts unless the
failure to do so would not have a material adverse effect on the rights of the
Transferor, the Trust, as assignee of the Receivables or the Certificateholders,
on the Servicer's ability to collect the Receivables, on the validity or
enforceability of the applicable Receivables Purchase Agreement, the Pooling and
Servicing Agreement or the other agreements and documents related thereto or on
the performance by any party of its obligations thereunder. In this regard, each
of the Sellers may change the terms and provisions of such credit card
agreements or Credit Card Guidelines in any respect (including, without
limitation, the calculation of the amount, or the timing, of charge offs), so
long as any such changes are made applicable to comparable segments of the
credit card accounts originated by each of the Sellers which have
characteristics the same as, or substantially similar to, the Accounts.
Each Seller also covenants that, except as required by law or as such
Seller shall deem advisable for such Seller's credit card program based on a
good faith assessment by such Seller, in its sole discretion, of the various
factors affecting the use of the Seller's credit card accounts, such Seller will
not reduce the finance charges or other fees on the Accounts if, as a result of
such reduction, its reasonable expectation of Portfolio Yield as of the time of
such reduction would be less than the weighted average base rates of all
outstanding Series. In addition, each Seller covenants that, unless required by
law, it will not reduce the annual percentage rate, if its reasonable
expectation of Portfolio Yield would be less than the highest Certificate Rate
for any outstanding Series.
In addition, each Seller expressly acknowledges and consents to the
Transferor's assignment of its rights relating to the Receivables under the
applicable Receivables Purchase Agreement to the Trustee for the benefit of the
Certificateholders.
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TERMINATION
Each Receivables Purchase Agreement will terminate immediately after the
Trust terminates, or if a Pay Out Event has occurred with respect to all
outstanding Series of the Trust. In addition, if the Transferor or a Seller
becomes insolvent, admits in writing its inability to pay its debts as they come
due, voluntarily and generally suspends payment of its obligations or becomes
party to any bankruptcy or similar proceeding (other than as a claimant) the
Sellers will cease to sell or transfer Receivables to the Transferor and
promptly give notice of such event to the Transferor.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Each of the Sellers sells the Receivables to the Transferor and the
Transferor transfers the Receivables to the Trust. Each of the Sellers warrants
to the Transferor that the sale of Receivables by it constitutes a valid sale to
the Transferor of all right, title and interest of each such Seller in and to
the Receivables, and the Transferor warrants to the Trustee that its transfer
constitutes a valid transfer to the Trust of all right, title and interest of
the Transferor in and to the Receivables, except for the interest of the
Transferor as holder of the Exchangeable Transferor Certificate. The Transferor
further warrants to the Trust that if the transfer of the Receivables to the
Trust does not constitute a valid transfer of the Receivables, it constitutes a
grant of a security interest to the Trust in and to the Receivables. The
Transferor also warrants to the Trust that, if the transfer of Receivables to
the Trust is deemed to create a security interest under the UCC, there exists a
valid and enforceable first priority perfected security interest in the
Receivables at the time of the formation of the Trust in favor of the Trust and
a valid and enforceable first priority perfected security interest in the
Receivables created thereafter in favor of the Trust on and after their creation
(except for certain liens permitted under the Pooling and Servicing Agreement),
in each case until termination of the Trust. For a discussion of the Trust's
rights arising from a breach of these warranties, see "Description of the Series
1997-2 Certificates and the Pooling and Servicing Agreement -- Representations
and Warranties."
Each Seller warrants to the Transferor, and the Transferor warrants to the
Trust, that the Receivables are "accounts," "general intangibles" or "chattel
paper" for the purposes of the UCC. Both the sale or transfer of accounts or
chattel paper and the transfer of accounts or chattel paper as security for an
obligation are treated under the UCC as creating a security interest therein and
are subject to its provisions, and in either case the filing of appropriate
financing statements is required to perfect the interests of the Transferor and
the Trust in the Receivables. If a transfer of general intangibles is deemed to
create a security interest, the UCC applies and the filing of appropriate
financing statements is required to perfect the interests of the Transferor and
the Trust in the Receivables. Financing statements covering the Receivables were
therefore filed under the UCC to perfect the interests of the Transferor and the
Trust in the Receivables. If a transfer of general intangibles is deemed to be a
sale, then the UCC is not applicable and no action under the UCC is required to
perfect the ownership interest of the Transferor or the Trust in the
Receivables.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the Closing
Date could have an interest in such Receivables with priority over the Trust's
interest. A tax or other government lien on property of the Sellers or the
Transferor arising prior to the time a Receivable comes into existence may also
have priority over the interest of the Trust in such Receivable. Under each
Receivables Purchase Agreement, however, each Seller warrants, and under the
Pooling and Servicing Agreement the Transferor warrants, that each Seller or the
Transferor, as the case may be, has sold or transferred the Receivables to the
Transferor or the Trust, as the case may be, free and clear of the lien of any
third party except for liens permitted under the Pooling and Servicing
Agreement. In addition, each of the Sellers and the Transferor covenants that
each Seller or the Transferor, as the case may be, will not sell, pledge,
assign, transfer or grant any lien on any Receivable (or any interest therein)
other than to the Transferor or the Trust, as the case may be.
If any Seller or the Transferor were to become a debtor in a bankruptcy
case or certain other events relating to the insolvency of any Seller or the
Transferor were to occur, causing a Pay Out Event pursuant to
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the Pooling and Servicing Agreement, new Principal Receivables would not be
transferred to the Trust. If any such events occur with respect to the
Transferor, the Trustee would sell the Receivables (unless holders of more than
50% of the principal amount of outstanding certificates under all Classes of all
Series instruct otherwise), thereby causing a termination of the Trust and a
loss to the Certificateholders if the net proceeds from such sale is
insufficient to pay the Certificateholders in full. However, in a bankruptcy
proceeding affecting the Transferor, the Transferor may not be permitted to
suspend transfers of Receivables to the Trust, and the Trustee's instructions to
sell the Receivables may not be enforceable. If no Servicer Default other than
such insolvency event exists, the debtor-in-possession may have the power to
prevent either the Trustee or the Certificateholder from appointing a successor
Servicer.
CERTAIN MATTERS RELATING TO BANKRUPTCY OR INSOLVENCY
The Transferor has taken steps in structuring the transactions contemplated
hereby that are intended to reduce the risk that a bankruptcy case with respect
to they Company or any of its affiliates, including Sellers, will result in
consolidation of the assets and liabilities of the Transferor with those of any
of such entities. The Transferor will not engage in any activities except
purchasing Receivables and related property from the Sellers, managing and
servicing such Receivables, selling and assigning Receivables and issuing
evidences of ownership or assignment in respect thereof and engaging in
activities incident to, or necessary or convenient to accomplish, the foregoing.
In addition, the Transferor's certificate of incorporation contains restrictions
requiring, among other things, that the Transferor adhere to specified operating
procedures including, without limitation (i) that at all times no less than two
members of the Board of Directors of the Transferor will be composed of
individuals who are not affiliated with the Company or any of its affiliates,
except as members of the Board of Directors of the Transferor, (ii) the
Transferor will not incur any indebtedness or assume or guaranty any
indebtedness of any other entity, (iii) the Transferor will maintain its own
payroll and separate books of account and corporate documents, (iv) that to the
extent that the Transferor's office is located in the offices of any affiliate,
it will pay fair market rent and a fair share of the overheads associated with
such office space, (v) the Transferor will act solely in its corporate name and
through its own authorized officers and agents, (vi) the Transferor will manage
its liabilities separately from those of any of its affiliates and will pay its
own liabilities and (vii) the Transferor will not impermissibly commingle any of
its assets with those of any of its affiliates or any other entity and will not
hold itself out as being liable for the debts of another. Such separate business
restrictions may be waived with the unanimous consent of the Board.
Certain restrictions have been imposed on the Transferor and certain
parties to the transactions described herein which are intended to reduce the
risk of a bankruptcy proceeding involving the Transferor. The Transferor's
certificate of incorporation provides that it will not file a voluntary petition
for relief under the Bankruptcy Code or any applicable state insolvency laws
without the affirmative vote of its independent directors. Pursuant to the
Pooling and Servicing Agreement, the Servicer and the Trustee on behalf of
itself and each certificateholder will covenant that they will not institute
against the Transferor any bankruptcy proceeding under any insolvency law prior
to the date which is one year and one day after the payment of the certificates
in full. The Transferor has no intent to file, and the Company has no intent to
cause the filing of, a voluntary application of relief under any insolvency laws
with respect to the Transferor as long as the Transferor is solvent and does not
reasonably foresee becoming insolvent. Pursuant to the Receivables Purchase
Agreements, each of the Sellers has agreed that it will not institute against
the Transferor any bankruptcy proceeding under any insolvency law prior to the
date which is one year and one day after the date of the termination of the
Trust. The Transferor's business is restricted to those activities related to
transactions of the type contemplated by the Pooling and Servicing Agreement.
Counsel has advised the Transferor that (i) a voluntary application of
relief under the United States Bankruptcy Code or any similar applicable state
law with respect to the Transferor may not lawfully be filed without the prior
consent of all directors of the Transferor, including its independent directors,
(ii) subject to certain assumptions (including the assumption that separateness
and corporate formalities are observed by the Company and the Transferor), the
assets and liabilities of the Transferor would not be substantively consolidated
with the assets and liabilities of the Company in the event of an application
for relief under the United States Bankruptcy Code with respect to the Company,
and (iii) the sale and transfer of Receivables by
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the Sellers to the Transferor constitutes a valid sale and transfer and,
therefore, such Receivables and the proceeds thereof should not be a part of the
Company's bankruptcy estate under Section 541 of the Bankruptcy Code if any of
the Sellers or the Company should become a debtor thereunder. Such opinion is
not binding on any court. Accordingly, there can be no assurance that a court
will not reach a different conclusion.
If the Company or any of the Sellers were to become a debtor in a
bankruptcy case and a creditor or a trustee-in-bankruptcy of such debtor or such
debtor itself, as debtor-in-possession, were to take the position that the sale
of Receivables to the Transferor should be recharacterized as a pledge of such
Receivables to secure a borrowing by such debtor, then delays in payment of
collections of Receivables to the Transferor and consequently to the Trust and
delays in payments on the Offered Certificates could occur. If the court were to
rule in favor of such recharacterization then reductions in the amount of such
payments could occur and Certificateholders could experience losses in their
investment in the Offered Certificates.
If, notwithstanding the structure described above, (i) a court concluded
that the assets and liabilities of the Transferor should be consolidated with
the assets and liabilities of the Company, (ii) the Transferor became a debtor
in a bankruptcy proceeding, or (iii) a creditor or a trustee-in-bankruptcy of
such debtor or such debtor itself, as debtor-in-possession, were to litigate the
consolidation issue, then delays in distributions on the Offered Certificates
and possible reductions in the amounts of such distributions could occur.
CONSUMER AND DEBTOR PROTECTION LAWS, RECENT AND PROPOSED LEGISLATION
The relationship between an accountholder and a credit card issuer is
extensively regulated by federal and state consumer protection laws. With
respect to the Company's credit cards, the most significant federal laws are
those included in the Federal Truth-in-Lending, Equal Credit Opportunity, Fair
Credit Reporting and Fair Debt Collection Practices Acts, as amended. These laws
require, among other things, extension of credit without regard to impermissible
personal attributes (such as race or sex), disclosure of credit costs both
before credit is extended and thereafter in each monthly account statement,
timely response to claimed billing errors and prompt application of payments,
and regulate collection practices. The Trustee may be liable for certain
violations of consumer protection laws that apply to the Receivables, either as
assignee from the Sellers and the Transferor with respect to obligations arising
before transfer of the Receivables to the Trust or as the party directly
responsible for obligations arising after the transfer. In addition, an
accountholder may be entitled to assert such violations by away of set-off
against the obligations to pay the amount of Receivables owing. The Transferor
agrees to accept from the Trust, and the Sellers agree to accept from the
Transferor, the retransfer of all Receivables that have been charged off and
that were not created in compliance in all material respects with the
requirements of such laws. For a discussion of the Trust's rights in the case of
Receivables that are not created in compliance in all material respects with
applicable laws, see "Description of the 1997-2 Certificates and the Pooling and
Servicing Agreement -- Representations and Warranties."
The Soldiers' and Sailors' Civil Relief Act of 1940 allows individuals on
active duty in the military to cap the interest rate on debts incurred before
the call to active duty to 6% per annum. In addition, subject to judicial
discretion, any action or court proceeding in which an individual in military
service is involved may be stayed if the individual's rights would be prejudiced
by denial of such stay.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in
Receivables being charged off as uncollectible when there is insufficient credit
enhancement to cover such charged off amounts. See "Description of the 1997-2
Certificates and the Pooling and Servicing Agreement -- Allocation of Investor
Default Amount; Adjustment Amounts; Investor Charge Offs."
During recent years, there has been increased consumer awareness with
respect to the level of finance charges and fees and other practices of credit
card issuers and other consumer revolving credit loan providers which could
result in public pressure on federal and state legislators to impose limitations
on finance charges or other fees. For example, legislation has been introduced
in the United States Congress which would limit the finance charges that may be
charged on credit card balances. In particular, on June 19, 1997, a proposal to
amend the Federal Truth-in-Lending Act was introduced in the House of
Representatives and referred to the
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Committee on Banking and Financial Services, which would, among other things,
prohibit the imposition of certain minimum finance charges and other fees,
prohibit certain methods of calculating finance charges, require prior notice of
any increase in the interest rate assessed with respect to a credit card account
and limit the amount of certain fees. If a federal or state law imposing a
ceiling on finance charge rates were enacted, each of the Sellers could be
required to lower the finance charges that it assesses on the Receivables to a
level which might result in a Pay Out Event, thus causing commencement of the
Rapid Amortization Period and other adverse consequences to Certificateholders.
Pursuant to the Pooling and Servicing Agreement, the Transferor agrees to
accept retransfer from the Trust, and pursuant to the Receivables Purchase
Agreement, each of the Sellers agrees to repurchase from the Transferor, each
Receivable that did not comply with all requirements of law at the time it was
transferred to the Trust. The Transferor makes to the Trust, and each of the
Sellers makes to the Transferor, certain other representations and warranties
relating to the validity and enforceability of the Receivables. However, it is
not anticipated that the Trustee will make any examination of the Receivables or
the records relating thereto for the purpose of establishing the presence or
absence of defects or compliance with such representations and warranties, or
for any other purpose. The sole remedy if any such representation or warranty is
breached, and such breach continues beyond the applicable cure period, is that
the Transferor will be obligated to accept the retransfer of such Receivables
and each of the Sellers will be obligated to repurchase such Receivables from
the Transferor. See "Description of the 1997-2 Certificates and the Pooling and
Servicing Agreement -- Representations and Warranties" and "Description of the
Receivables Purchase Agreements -- Representations and Warranties."
ADJUSTMENTS
On any day that the Servicer adjusts the amount of any Principal Receivable
because of transactions occurring in respect of a rebate or refund to an
accountholder, or because such Principal Receivable was created in respect of
merchandise which was refused or returned by an accountholder, or because an
accountholder asserts a valid counterclaim, the Transferor Amount will be
reduced, on a net basis, by the amount of the adjustment (an "Adjustment"). If
any such reductions would cause the Transferor Amount to be reduced below the
Minimum Transferor Amount, the Transferor must deposit cash, in the amount of
such shortfall, into the Excess Funding Account.
Payments made by the Sellers pursuant to the Receivables Purchase
Agreements in respect of purchases of Receivables or reductions in the amount
thereof as described in the preceding paragraph may be recoverable by the
Sellers as debtor-in-possession or by a trustee-in-bankruptcy of any of the
Sellers from the Transferor or the Certificateholders as a preferential
transfer, if such payments were made within one year prior to the commencement
of a bankruptcy case in respect of any of the Sellers.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material Federal income tax
consequences of the purchase, ownership and disposition of the Certificates of a
Series, is based upon the provisions of the Code, Treasury regulations
promulgated thereunder, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to changes that could prospectively
or retroactively modify or adversely affect the tax consequences summarized
below. This discussion does not address every aspect of the Federal income tax
laws that may be relevant to Certificate Owners of a Series in light of their
personal investment circumstances or to certain types of Certificate Owners of a
Series subject to special treatment under the Federal income tax laws (for
example, banks and life insurance companies). PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL AS
THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY, FOREIGN
COUNTRY, OR OTHER TAXING JURISDICTION.
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The discussion generally describes the consequences of Certificates issued
in registered form. Moreover, the discussion assumes that the interest formula
for the Certificates meets the requirements for "qualified stated interest"
under Treasury regulations (the "OID Regulations") relating to original issue
discount ("OID"), and that any OID on the Certificates (i.e., any excess of the
principal amount of the Certificates over their issue price) does not exceed a
de minimis amount (i.e., 0.25% of the principal amount multiplied by the number
or full years until maturity), all within the meaning of the OID Regulations.
The Company believes these assumptions will be met with regard to the Offered
Certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Alston & Bird LLP, Atlanta, Georgia, special tax counsel to the Transferor
("Special Tax Counsel") has rendered an opinion that the Offered Certificates of
such Series will be treated as indebtedness for Federal income tax purposes.
However, opinions of counsel are not binding on the Internal Revenue Service
(the "IRS") and there can be no assurance that the IRS could not successfully
challenge this conclusion.
The Transferor expresses in the Pooling and Servicing Agreement its intent
that for Federal, state and local income and franchise tax purposes, the Offered
Certificates will be indebtedness secured by the Receivables. The Transferor
agrees and each Certificateholder and Certificate Owner, by acquiring an
interest in the Offered Certificates, will be deemed to agree to treat the
Offered Certificates as indebtedness of the Transferor for Federal, state and
local income and franchise tax purposes (except to the extent that different
treatment is explicitly required under state or local tax statutes). However,
because different criteria are used to determine the non-tax accounting
characterization of the transactions contemplated by the Agreement, the
Transferor expects to treat such transaction, for regulatory and financial
accounting purposes, as a sale of an ownership interest in the Receivables and
not as a debt obligation of the Transferor.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured indebtedness for Federal income tax purposes,
the primary factors in making this determination are whether the Transferor has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. In some instances, courts have
held that a taxpayer is bound by a particular form it has chosen for a
transaction, even if the substance of the transaction does not accord with its
form. It is the opinion of Special Tax Counsel that because substantial
incidents of ownership of the Receivables have not been transferred for Federal
income tax purposes by PCC to the Certificate Owners, the Offered Certificates
would properly be viewed in substance as evidence of indebtedness of PCC for
Federal income tax purposes. However, opinions of counsel are not binding on the
IRS and there can be no assurance that the IRS could not successfully challenge
this conclusion. Except as otherwise expressly indicated, the following
discussion assumes that the Offered Certificates are properly treated as debt
obligations of PCC for Federal income tax purposes. See "-- Possible
Classification of the Transaction as a Partnership or as an Association Taxable
as a Corporation".
TREATMENT OF THE TRUST
In the opinion of Special Tax Counsel, the Trust will not be subject to
Federal income tax. It is the opinion of Special Tax Counsel that (1) if the
Trust is viewed as a collateral arrangement for debt issued directly by the
Transferor and any other holders of equity interests in the Trust, then the
Trust will be disregarded for Federal income tax purposes, and (2) if the Trust
is viewed as a separate entity issuing its own debt and owned by the Transferor
and any other holders of equity interests in the Trust, then the Trust would be
a partnership for Federal income tax purposes rather than an association (or
publicly traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
It is possible that the IRS could assert that, for purposes of the Code,
some or all of the Offered Certificates are not debt obligations for Federal
income tax purposes and that the proper classification of the
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legal relationship between the Transferor, any other holders of equity interests
in the Trust, and the Certificate Owners of such Series resulting from the
transaction is that of a partnership, a publicly traded partnership taxable as a
corporation, or an association taxable as a corporation.
If some or all of the Offered Certificates were treated as equity interests
in a partnership (other than a "publicly traded partnership"), the partnership
itself would not be subject to Federal income tax; rather, the partners of such
partnership, including the Certificate Owners whose interests in the Trust are
treated as equity, would be taxed individually on their respective distributive
shares of the partnership's income, gain, loss, deductions and credits. The
amount and timing of items of income and deductions of a Certificate Owner could
differ if the Offered Certificates were held to constitute partnership
interests, rather than indebtedness. Moreover, an individual's share of expenses
of the partnership would be miscellaneous itemized deductions that, in the
aggregate, are allowed as deductions only to the extent they exceed two percent
of the individual's adjusted gross income, and would be subject to reduction
under Section 68 of the Code if the individual's adjusted gross income exceeded
certain limits. As a result, the individual might be taxed on a greater amount
of income than the stated rate on the Offered Certificates. Furthermore, if any
Offered Certificates were treated as equity interests in a partnership, all or a
portion of such income allocated to a Certificate Owner that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) might constitute "unrelated business taxable
income" generally taxable to such investor under the Code. Finally, if any
Offered Certificates were treated as equity interests in a partnership in which
other interests were debt, all or part of a tax-exempt investor's share of
income from the Offered Certificates that were treated as equity would be
treated under the Code as unrelated debt-financed income taxable to the investor
as unrelated business taxable income.
If the Trust were treated in whole or in part as a partnership in which
some or all Certificate Owners were partners, that partnership could be
classified as a publicly traded partnership taxable as a corporation. A
partnership will be classified as a publicly traded partnership taxable as a
corporation if equity interests therein are traded on an "established securities
market," or are "readily tradable" on a "secondary market" or its "substantial
equivalent" unless certain exceptions apply. One such exception would apply if
the Trust is not engaged in a "financial business" and 90% or more of its income
consists of interest and certain other types of passive income. Because Treasury
regulations do not clarify the meaning of a "financial business" for this
purpose, it is unclear whether this exception applies. The Transferor has taken
and intends to take measures designed to reduce the risk that the Trust could be
classified as a publicly traded partnership taxable as a corporation. However,
there can be no assurance that the Trust could not be classified as a publicly
traded partnership, because certain actions necessary to comply with such
exceptions are not fully within the control of the Transferor.
If it were determined that a transaction created an entity classified as a
corporation (including a publicly traded partnership taxable as a corporation),
the Trust would be subject to Federal income tax at corporate income tax rates
on the income it derives from the Receivables and other investments, which would
reduce the amounts available for distribution to the Certificate Owners,
possibly including Certificate Owners of a Series that is treated as
indebtedness. Such classification might also have adverse state and local tax
consequences that would further reduce amounts available for distribution to
Certificate Owners. Cash distributions to the Certificate Owners (except any
Class not recharacterized as an equity interest in an association) generally
would be treated as dividends for tax purposes to the extent of such deemed
corporation's earnings and profits, and in the case of Certificate Owners that
are non-United States persons, would be subject to withholding tax. See "State
and Local Tax Consequences."
Since Special Tax Counsel will advise that the Offered Certificates will be
treated as indebtedness in the hands of the Certificate Owners for Federal
income tax purposes, the Transferor generally will not attempt to comply with
the Federal income tax reporting requirements that would apply if the Offered
Certificates were treated as interests in a partnership or corporation (unless,
as is permitted by the Agreement, an interest in the Trust is issued or sold
that is intended to be classified as an interest in a partnership).
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TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, Special Tax Counsel has rendered an opinion, that the
Offered Certificates will be treated as indebtedness for Federal income tax
purposes. The Offered Certificates will not be issued with OID and, accordingly,
interest thereon will be includable in income by Certificate Owners as ordinary
income when received (in the case of a cash basis taxpayer) or accrued (in the
case of an accrual basis taxpayer) in accordance with their respective methods
of tax accounting. Under the OID Regulations, a holder of a Certificate issued
with a de minimis amount of OID must include any such OID in income, on a pro
rata basis, as principal payments are made on the Certificate. Interest received
on the Offered Certificates may also constitute "investment income" for purposes
of certain limitations of the Code concerning the deductibility of investment
interest expense.
A subsequent holder who purchases an Offered Certificate at a discount may
be subject to the "market discount" rules of the Code. These rules provide, in
part, for the treatment of gain attributable to accrued market discount as
ordinary income upon the receipt of partial principal payments or on the sale or
other disposition of the Offered Certificate, and for the deferral of certain
interest deductions with respect to debt incurred to acquire or carry the market
discount Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of Certificate
in accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued interest) and (ii) the Certificate Owner's tax basis in the Offered
Certificate (as increased by any OID or market discount previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such Certificate). Subject to the market discount rules
discussed above and to the one-year holding requirement for long-term capital
gain treatment, any such gain or loss generally will be long-term capital gain,
provided that the Offered Certificate was held as a capital asset. The maximum
ordinary income rate for individuals, estates, and trusts exceeds the maximum
long-term capital gains rate for such taxpayers. In addition, capital losses
generally may be used only to offset capital gains.
RECENT LEGISLATION
Recently enacted provisions of the Code provide for the creation of a new
type of entity for Federal income tax purposes, the "financial asset
securitization trust" ("FASIT"). However, these provisions are not effective
until September 1, 1997, and many technical issues concerning FASITs must be
addressed by Treasury regulations that have yet to be drafted. Although
transition rules permit an entity in existence on August 31, 1997, such as the
Trust, to elect FASIT status, at the present time it is not clear how
outstanding interests of such an entity would be treated subsequent to such an
election. In particular, it is not clear whether Series 1997-2 Certificates or
certificates of any other Series outstanding on August 31, 1997 would be treated
as "regular interests" in a FASIT if the Transferor were to elect FASIT status
for the Trust after that date.
FOREIGN INVESTORS
As set forth above, Special Tax Counsel has opined that, upon issuance, the
Offered Certificates will be treated as indebtedness for Federal income tax
purposes. The following information describes the Federal income tax treatment
of Foreign Investors if the Offered Certificates are treated as indebtedness.
The term "Foreign Investor" means any person other than (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is includable in gross income for
U.S. Federal income tax purposes, regardless of its source, or (iv) a trust
whose administration is subject to the primary supervision
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of a United States court and which has one or more United States fiduciaries who
have authority to control all substantial decisions of the trust.
Interest, including OID, paid to a Foreign Investor generally will not be
subject to U.S. withholding taxes provided that (i) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business
carried on in the United States and the investor evidences this fact by
delivering an IRS Form 4224 or (ii) the Foreign Investor and each securities
clearing organization, bank, or other financial institution that holds the
Offered Certificates on behalf of such Foreign Investor in the ordinary course
of its trade or business, in the chain between the Certificate Owner and the
U.S. person otherwise required to withhold the U.S. tax, complies with
applicable identification requirements (and the Certificate Owner does not
actually or constructively own 10% or more of the voting stock of the Transferor
(or of a profits or capital interest of a trust characterized as a partnership)
and is not a controlled foreign corporation that is related to the Transferor
(or a trust treated as a partnership). Applicable identification requirements
generally will be satisfied if there is delivered to a securities clearing
organization (i) IRS Form W-8 signed under penalties of perjury by the
Certificate Owner, stating that the Certificate Owner is not a U.S. person and
providing such Certificate Owner's name and address; provided that in any such
case (x) the applicable form is delivered pursuant to applicable procedures and
is properly transmitted to the United States entity otherwise required to
withhold tax and (y) none of the entities receiving the form has actual
knowledge that the Certificate Owner is a U.S. person. See "Description of the
Series 1997-2 Certificates and the Pooling and Servicing Agreement -- Book-Entry
Registration."
Recently proposed Treasury regulations (the "Proposed Regulations") could
affect the procedures to be followed by a Foreign Investor in complying with
United States Federal withholding, backup withholding and information reporting
rules. The Proposed Regulations are not currently effective and could be altered
before being adopted in final form but, if finalized in their current form,
would be effective for payments made after December 31, 1997. Prospective
investors are urged to consult their tax advisors regarding the effect, if any,
of the Proposed Regulations on the purchase, ownership, and disposition of the
Certificates.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of an Offered Certificate, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or redemption occurs, and
(iii) in the case of gain representing accrued interest, the conditions
described in the second preceding paragraph are satisfied.
If the interests of the Certificate Owners were reclassified as interests
in a partnership (not taxable as a corporation), such recharacterization could
cause a Foreign Investor to be treated as engaged in a trade or business in the
United States. In such event the Certificate Owner would be required to file a
Federal income tax return and, in general, would be subject to Federal income
tax, including branch profits tax in the case of a Certificateholder that is a
corporation (unless eliminated under an applicable tax treaty), on its net
income from the partnership. Further, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the sum, for each foreign
partner, of such foreign partner's distributive share of "effectively connected"
income of the partnership multiplied by the highest rate of tax applicable to
that foreign partner. The tax withheld from each foreign partner would be
credited against such foreign partner's U.S. income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
BACKUP WITHHOLDING
Certain Certificateholders may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Offered Certificates of a Series if
the Certificateholder, upon issuance, fails to supply the Trustee or his broker
with his taxpayer identification number, furnishes an incorrect taxpayer
identification
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number, fails to report interest, dividends, or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fails to provide
the Trustee or his broker with a certified statement, under penalty of perjury,
that he is not subject to backup withholding. Information returns will be sent
annually to the IRS and to each Certificateholder setting forth the amount of
interest paid on the Offered Certificates and the amount of tax withheld
thereon.
STATE AND LOCAL TAX CONSEQUENCES
An investment in the Certificates will have state and local tax
consequences. The state and local tax consequences will depend in part upon the
tax laws of jurisdictions where the Certificateholders reside or are doing
business. Certain Mississippi tax implications of an investment in the
Certificates are described below. The tax consequences arising to the
Certificateholders under the laws of other jurisdictions are not discussed in
this summary. Potential investors should consult their own tax advisers as to
the state and local tax consequences of an investment in the Certificates with
respect to their particular circumstances.
The discussion of Mississippi tax consequences set forth below is based
upon present provisions of the Mississippi statutes and the regulations
promulgated thereunder, and applicable judicial or ruling authority, all of
which are subject to change, which change may be retroactive. No ruling on any
of the issues discussed below will be sought from any Mississippi taxing
authority. Certain activities to be undertaken by the Servicer on behalf of the
Trust pursuant to the Agreement will take place in Mississippi.
If the Certificates are treated for Federal income tax purposes as debt
issued by PCC, this treatment should also apply for Mississippi income tax
purposes. Under such treatment, Certificateholders not otherwise subject to
Mississippi income tax would not become subject to such tax solely because of
their ownership of Certificates. Interest on the Certificates generally would be
taxable to an individual Certificateholder in his state of residence and would
be taxed to a corporate Certificateholder in accordance with the laws of the
jurisdictions in which the corporate Certificateholder is subject to tax.
In the alternative, if the Certificates were treated for Federal income tax
purposes as interests in a partnership (not taxable as a corporation), the same
treatment should also apply for Mississippi income tax purposes. In such case,
the Mississippi State Tax Commission could view the partnership as doing
business in Mississippi. In this circumstance, the partnership would not be an
entity subject to income taxation in Mississippi. However, the partnership's
items of income and deduction would be passed through to resident and
nonresident partners, who would be responsible for any income tax imposed at the
partner level. Consequently, nonresident individual partners could be required
to file Mississippi income tax returns and pay Mississippi income tax on their
distributive share of the partnership's income attributable to Mississippi.
Similarly, corporate partners not otherwise doing business in Mississippi could
be required to file Mississippi income tax returns and pay tax on their
corporate income attributable to Mississippi. Nonetheless, Mississippi tax
counsel to the Transferor and the Servicer is unaware of any circumstances in
which the Mississippi State Tax Commission has sought to require the filing of
Mississippi income tax returns or pay such tax solely as a consequence of the
acquisition or holding by such persons of instruments comparable to the
Certificates.
If the Certificates are instead treated for Federal income tax purposes as
ownership interests in either a publicly traded partnership taxable as a
corporation or an entity classified as an association taxable as a corporation,
the Mississippi treatment should be the same. Assuming this is the case, the
entity would be subject to the Mississippi income tax. The entity-level taxes
could result in reduced distributions to Certificateholders. The
Certificateholders would be taxed on distributions from the Trust in the same
manner as they are taxed on regular corporate dividends and other distributions.
If corporate treatment were to apply, Certificateholders not otherwise subject
to Mississippi tax should not become subject to such tax on distributions from
the Trust solely as a result of their ownership of the Certificates.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (i) employee benefit
plans (as defined in Section 3(3) of ERISA), (ii) plans described in section
4975(e)(1) of the Code, including individual
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retirement accounts or Keogh plans, (iii) any entities whose underlying assets
include plan assets by reason of a plan's investment in such entities and (iv)
persons who have certain specified relationships to such plans. Section 406 of
ERISA prohibits plans described in Section 401 of ERISA from engaging in certain
transactions with persons who are "parties in interest" unless a statutory or
administrative exemption applies to the transaction. Section 4975 of the Code
prohibits plans described in Section 4975(e)(1) of the Code from engaging in
certain transactions with persons who are "disqualified persons" unless a
statutory or administrative exemption applies. Moreover, based on the reasoning
of the United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust
and Sav. Bank, 510 U.S. 86 (1993), an insurance company's general account may be
deemed to include assets of the employee benefit plans investing in the general
account (e.g., through the purchase of an annuity contract), and the insurance
company might be treated as a party in interest with respect to a plan by virtue
of such investment.
ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA. Under ERISA, a person who exercises discretionary authority or
control respecting the management or disposition of the assets of a plan,
renders investment advice or has the authority to render investment advice to a
plan for a fee or other compensation, or has any discretionary authority or
responsibility with respect to the administration of a plan is generally
considered to be a fiduciary of such plan. Fiduciaries, parties in interest and
disqualified persons with respect to employee benefit plans described in Section
401 of ERISA and Section 4975(e)(1) of the Code (collectively, "Benefit Plans"),
may be subject to excise taxes, civil fines and other liabilities for violating
the fiduciary responsibility and prohibited transaction rules of Section 406 of
ERISA and Section 4975 of the Code.
Benefit Plan fiduciaries should determine whether the acquisition and
holding of the Certificates and the operations of the Trust would result in
direct or indirect prohibited transactions under ERISA and the Code. The
operations of the Trust could result in prohibited transactions if Benefit Plans
that purchase the Certificates are deemed to own an interest in the underlying
assets of the Trust. There may also be an improper delegation of the fiduciary
responsibility to manage Benefit Plan assets if Benefit Plans that purchase the
Certificates are deemed to own an interest in the underlying assets of the
Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of a Benefit Plan, the assets and properties of certain entities
in which a Benefit Plan makes an equity investment could be deemed to be assets
of the Benefit Plan in certain circumstances. Accordingly, if Benefit Plans
purchase Certificates, the Trust could be deemed to hold plan assets unless one
of the exceptions under the Final Regulation is applicable to the Certificates
of a Series and the Trust.
The Final Regulation applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Series 1997-2
Certificates are equity interests for purposes of the Final Regulation, the
Final Regulation contains an exception that may apply to the purchase of Series
1997-2 Certificates by a Benefit Plan. Under this exception, the issuer of a
security is not deemed to hold plan assets of a Benefit Plan that purchases the
security so long as the security qualifies as a "publicly-offered security" for
purposes of the Final Regulation. A publicly-offered security is a security that
is (i) freely transferable, (ii) part of a class of securities that is owned by
100 or more investors independent of the issuer and of one another and (iii)
either is (A) part of a class of securities registered with the Commission under
Section 12(b) or 12(g) of the Exchange Act or (B) sold to the Benefit Plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
In addition, the Final Regulation generally provides that if equity
participation by "benefit plan investors" in the Certificates is not
significant, the assets of a Benefit Plan holding Certificates of a Series will
not include any of the underlying assets of the Trust. Equity participation by
benefit plan investors is considered significant
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if immediately after the most recent acquisition of any equity interest in the
Trust, 25% or more of the value of any class of equity interests in the Trust is
held by benefit plan investors. In performing the percentage calculation, the
value of equity interests held by a person (other than a benefit plan investor)
that has discretionary authority or control with respect to the assets of the
Trust or any person that provides investment advice for a fee (direct or
indirect) with respect to such assets or any affiliate of such persons (as
defined in the Final Regulations) is disregarded. Thus, if such persons purchase
Certificates, the 25% threshold will decrease. For purposes of the Final
Regulation, a "benefit plan investor" includes any employee benefit plan within
the meaning of Section 3(3) of ERISA (whether or not it is subject to ERISA), a
plan described in Section 4975(e)(1) of the Code, and any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity.
It is not anticipated that the 25% threshold will be monitored.
Furthermore, because the Offered Certificates are transferable, it is possible
that the 25% threshold will be exceeded at some time in the future. Finally, it
is not anticipated that interests in the Series 1997-2 Certificates will meet
the criteria of publicly-offered securities as set forth above. The underwriters
do not expect (although no assurances can be given) that interests in the
Offered Certificates will be held by at least 100 investors independent of the
issuer and one another on the Closing Date, that there will be no restrictions
imposed on the transfer of interests in the Series 1997-2 Certificates, and that
interests in the Series 1997-2 Certificates will be sold as part of an offering
pursuant to an effective registration statement under the Securities Act and
then will be timely registered under the Exchange Act.
If interests in the Offered Certificates fail to meet the criteria of
publicly-offered securities and the equity participation by benefit plan
investors is significant, the Trust's assets will be deemed to include assets of
Benefit Plans that are Certificateholders. Consequently, transactions involving
the Trust and parties in interest or disqualified persons with respect to such
Benefit Plans might be prohibited under Section 406 of ERISA and Section 4975 of
the Code unless an exemption is applicable. In addition, the Transferor or any
underwriter of the Series 1997-2 Certificates may be considered to be a party in
interest, disqualified person or fiduciary with respect to an investing Benefit
Plan. Accordingly, an investment by a Benefit Plan in Series 1997-2 Certificates
may be a prohibited transaction under ERISA and the Code unless such investment
is subject to a statutory or administrative exemption. Thus, for example, if a
participant in any Benefit Plan is a cardholder of one of the Accounts, under
DOL interpretations the purchase of interests in Series 1997-2 Certificates by
such Benefit Plan could constitute a prohibited transaction.
There are five class exemptions issued by the DOL that could apply in such
event: (i) DOL Prohibited Transaction Exemption 84-14 (Class Exemption for Plan
Asset Transactions Determined by Independent Qualified Professional Asset
Managers), (ii) 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), (iii) 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts), (iv) 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts) and, (v) 96-23 (Class Exemption for Certain Transactions Determined by
In-House Asset Managers). There is no assurance that these exemptions, even if
all of the conditions specified therein are satisfied, or any other exemption
will apply to all transactions involving the Trust's assets.
If any Series 1997-2 Certificates are treated as equity interests in a
partnership, a Benefit Plan could have its share of income from the partnership
treated as "unrelated business taxable income" under the Code and thus taxable
to the Benefit Plan. Furthermore, if any Series 1997-2 Certificates were treated
as equity interests in a partnership in which other interests were debt, all or
part of a tax-exempt investor's share of income from the Series 1997-2
Certificates that were treated as equity probably would be treated under the
Code as unrelated debt-financed income taxable to the investor as unrelated
business taxable income.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of interests in Series 1997-2 Certificates should consult their own
counsel as to whether the acquisition of such Series 1997-2 Certificates would
be a prohibited transaction, whether the assets of the Trust which are
represented by such
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interests would be considered plan assets, and whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
Series 1997-2 Certificates is appropriate for the Benefit Plan taking into
account the overall investment policy of the Benefit Plan and the composition of
the Benefit Plan's investment portfolio. In addition, fiduciaries should
consider the consequences that would apply if the Trust's assets were considered
plan assets, the applicability of exemptive relief from the prohibited
transaction rules, and, whether all conditions for such exemptive relief would
be satisfied.
In addition, insurance companies considering the purchase of the Series
1997-2 Certificates using assets of a general account should consult their own
employee benefits counsel or other appropriate counsel with respect to the
effect of the Small Business Job Protection Act of 1996 which added a new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the DOL is required to issue final regulations (the "General
Account Regulations") not later than December 31, 1997 with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are intended to
provide guidance on which assets held by the insurer constitute "plan assets"
for purposes of the fiduciary responsibility provisions of ERISA and Section
4975 of the Code. The plan asset status of insurance company separate accounts
is unaffected by new Section 401(c) of ERISA, and separate account assets
continue to be treated as the plan assets of any such plan invested in a
separate account.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Offered Certificates (the "Underwriting Agreement"), the
Transferor has agreed to sell to the underwriters named below (the
"Underwriters"), and the Underwriters have severally agreed to purchase from the
Transferor, the principal amount of Offered Certificates set forth opposite
their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CLASS A
UNDERWRITERS CERTIFICATES
- ------------ ----------------
<S> <C>
NationsBanc Capital Markets, Inc............................ $ 60,000,000
BancAmerica Securities, Inc................................. 60,000,000
J.P. Morgan Securities Inc.................................. 60,000,000
------------
$180,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CLASS B
CERTIFICATES
----------------
<S> <C>
NationsBanc Capital Markets, Inc............................ $ 20,000,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any of the Certificates are purchased.
The Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof and to certain dealers at
such price less concessions not in excess of 0.20% of the principal amount of
the Class A Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.15% of the principal amount of the Class
A Certificates to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriters.
The Underwriter of the Class B Certificates proposes initially to offer the
Class B Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
0.275% of the principal amount of the Class B Certificates. The Underwriter may
allow, and such dealers may reallow, concessions not in excess of 0.20% of the
principal amount of the Class B Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Underwriter.
The Transferor and Proffitt's, Inc. will indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
In addition to the underwriting discount to be paid to the Underwriters as
set forth on the cover page hereto, the Transferor has agreed to reimburse the
Underwriters for their reasonable out-of-pocket costs and expenses incurred in
connection with the offering, including the reasonable fees and disbursements of
Underwriters' counsel.
Until the distribution of the Offered Certificates is completed, the rules
of the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Offered Certificates. As an exception
to these rules, the Underwriters are permitted to engage in over-allotment
transactions, stabilizing transactions, syndicate coverage transactions and
penalty bids with respect to the Offered Certificates in accordance with
Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Offered Certificates as long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Offered Certificates in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit the Underwriters to reclaim a selling concession from a syndicate member
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when the Offered Certificates originally sold by such syndicate member are
purchased in a syndicate covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Offered
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Transferor nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Transferor nor any of the Underwriters
represent that any of the Underwriters will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without notice.
Each Underwriter has represented and agreed that (i) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or who is a person to whom
the document may otherwise lawfully be issued or passed on, (ii) it has complied
and will comply with all applicable provisions of the Financial Services Act
1986 with respect to anything done by it in relation to the Certificates in,
from or otherwise involving the United Kingdom and (iii) if that Underwriter is
an authorized person under the Financial Services Act 1986, it has only promoted
and will only promote (as that term is defined in Regulation 1.02 of the
Financial Services (Promotion of Unregulated Schemes) Regulations 1991) to any
person in the United Kingdom the scheme described herein if that person is of a
kind described either in Section 76(2) of the Financial Services Act 1986 or in
Regulation 1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may in the future engage in commercial banking
and investment banking and other transactions with the Company and its
affiliates. NationsBank of Texas, N.A., which is an affiliate of NCMI is agent
bank and a lender to the Company and certain of its affiliates under a $400
million amended and restated credit facility (the "Credit Facility"). Morgan
Guaranty Trust Company of New York, an affiliate of J. P. Morgan Securities Inc.
and J.P. Morgan & Co., and Bank of America Illinois, an affiliate of BancAmerica
Securities, Inc., are lenders under the Credit Facility. NationsBank, N.A.,
another affiliate of NCMI, is the agent for a multi-seller, asset-backed
commercial paper conduit which will be repaid from the proceeds of the sale of
the Series 1997-1 and Series 1997-2 Certificates. Such conduit, together with
another multi-seller, asset-backed commercial paper conduit for which Bank of
America, N.T.S.A. is agent, are expected to be purchasers of the Series 1997-1
Certificates. Bank of America, N.T.S.A., Bank of America Illinois and
BancAmerica Securities, Inc. are affiliates. See "Use of Proceeds."
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Certificates
and the federal income tax consequences of such issuance will be passed upon for
the Company and the Transferor by Alston & Bird LLP, Atlanta, Georgia. Certain
legal matters relating to the issuance of the Offered Certificates will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
96
<PAGE> 101
INDEX OF KEY TERMS
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Accounts........................... cover/3
Accumulation Period................ 7
Accumulation Period Factor......... 62
Accumulation Period Length......... 43
Additional Account Cut-Off Date.... 44
Additional Accounts................ 3
Adjusted Investor Amount........... 53
Adjustment......................... 86
Aggregate Automatic Addition
Limit............................ 46
Aggregate Investor Amount.......... 45
Allocable Amount................... 65
Automatic Additional Accounts...... 43
Available Cash Collateral Amount... 9
Available Enhancement Amount....... 9/62
Available Finance Charge
Collections...................... 4
Available Principal Collections.... 57
Bankruptcy Code.................... 13
Base Rate.......................... 70
Benefit Plans...................... 92
Cash Collateral Account............ 9
Cash Enhancement Surplus........... 50
Cede............................... ii
Cedel.............................. 5
Cedel Participants................. 78
Certificate Owners................. ii
Certificate Rate................... 2
Certificateholders................. 2
Certificates....................... 2
Class A Accumulation Period........ 7
Class A Additional Interest........ 56
Class A Adjusted Investor Amount... 52
Class A Adjustment Amount.......... 64
Class A Allocable Amount........... 65
Class A Available Funds............ 57
Class A Certificate Rate........... 3
Class A Certificateholders......... 2
Class A Certificates............... cover/1
Class A Expected Payment Date...... 3
Class A Initial Investor Amount.... 4
Class A Investor Amount............ 4/51
Class A Investor Charge Off........ 65
Class A Investor Default Amount.... 64
Class A Investor Percentage........ 52
Class A Monthly Interest........... 57
Class A Monthly Principal.......... 61
Class A Pool Factor................ 39
Class A Required Amount............ 53
Class A Servicing Fee.............. 71
Class B Accumulation Period........ 7
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Class B Additional Interest........ 56
Class B Adjusted Investor Amount... 52
Class B Adjustment Amount.......... 64
Class B Allocable Amount........... 65
Class B Available Funds............ 57
Class B Certificate Rate........... 3
Class B Certificateholders......... 2
Class B Certificates............... cover/1
Class B Expected Payment Date...... 4
Class B Initial Investor Amount.... 4
Class B Investor Amount............ 4/52
Class B Investor Charge Off........ 66
Class B Investor Default Amount.... 64
Class B Investor Percentage........ 52
Class B Monthly Interest........... 57
Class B Monthly Principal.......... 61
Class B Pool Factor................ 39
Class B Principal Commencement
Date............................. 7
Class B Required Amount............ 54
Class B Servicing Fee.............. 71
Class B Subordinated Principal
Collections...................... 50
Class D Additional Interest........ 59
Class D Adjustment Amount.......... 64
Class D Allocable Amount........... 65
Class D Available Funds............ 57
Class D Certificate Rate........... 58
Class D Certificateholders......... 2
Class D Certificates............... 2
Class D Investor Amount............ 52
Class D Investor Charge Off........ 67
Class D Investor Default Amount.... 64
Class D Investor Percentage........ 53
Class D Monthly Interest........... 58
Class D Monthly Principal.......... 61
Class D Pool Factor................ 39
Class D Servicing Fee.............. 71
Class D Subordinated Principal
Collections...................... 53
Closing Date....................... 3
Code............................... 10
Collateral Additional Interest..... 59
Collateral Adjustment Amount....... 64
Collateral Allocable Amount........ 65
Collateral Alternative Rate........ 58
Collateral Amortization Period..... 60
Collateral Available Funds......... 57
Collateral Default Amount.......... 64
Collateral Indebtedness Amount..... 52
</TABLE>
97
<PAGE> 102
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Collateral Indebtedness Charge
Off.............................. 67
Collateral Indebtedness Holder..... 2
Collateral Indebtedness Interest... 2
Collateral Investor Percentage..... 52
Collateral Monthly Interest........ 58
Collateral Monthly Principal....... 61
Collateral Pool Factor............. 39
Collateral Rate.................... 58
Collateral Required Amount......... 54
Collateral Servicing Fee........... 71
Collateral Subordinated Principal
Collections...................... 53
Collection Account................. 10
Commission......................... ii
Company............................ iii/1
Controlled Accumulation Amount..... 62
Controlled Deposit Amount.......... 62
Cooperative........................ 79
Credit Card Guidelines............. 15
Credit Facility.................... 96
Credit Services Center............. 22
Cut-Off Date....................... 43
Debtor Relief Laws................. 34
Default Amount..................... 64
Defaulted Accounts................. 64
Defaulted Receivables.............. 64
Deficit Controlled Accumulation
Amount........................... 62
Definitive Certificates............ 79
Department Stores.................. 1
Depositaries....................... 77
Determination Date................. 63
Discount Option.................... 18
Discount Option Receivable
Collections...................... 48
Discount Option Receivables........ 47
Discount Percentage................ 47
Distribution Date.................. ii
DOL................................ 92
DTC................................ ii
DTC Rules.......................... 78
Eligible Account................... 34
Eligible Originator................ 3
Eligible Receivable................ 34
Enhancement Distribution Amount.... 60
Enhancement Provider............... 47
Enhancement Surplus................ 50
ERISA.............................. 10
Euroclear.......................... 79
Euroclear Operator................. 79
Euroclear Participants............. 79
Excess Funding Account............. 50
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Excess Spread...................... 58
Exchange........................... 74
Exchange Act....................... iii
Exchangeable Transferor
Certificate...................... 9
FASIT.............................. 76/89
Final Regulation................... 92
Finance Charge Receivables......... 5
Finance Charges.................... 5
Foreign Investor................... 89
General Account Regulations........ 94
Group.............................. 69
Group One.......................... 2
Herberger's........................ 1
Indirect Participants.............. 77
Ineligible Receivable.............. 44
Initial Investor Amount............ 2
Investor Amount.................... 2
Investor Default Amount............ 64
Investor Monthly Servicing Fee..... 6
Investor Percentage................ 51
IRS................................ 87
Loan Agreement..................... 49
McRae's............................ 1
Minimum Aggregate Principal
Receivables...................... 46
Minimum Transferor Amount.......... 67
Minimum Transferor Interest
Percentage....................... 67
Monthly Period..................... 4
Monthly Servicer Report............ 74
Moody's............................ 48
NCMI............................... 36
Net Recoveries..................... 4
Obligor............................ 34
Offered Certificates............... cover/1
Offering........................... cover
OID................................ 87
OID Regulations.................... 87
over limit charges................. 26
Paired Series...................... 7/63
Parisian........................... 1
Participants....................... 17
Pay Out Event...................... 69
Paying Agent....................... 49
Payment Date Statement............. 74
PCC................................ cover/1
Permitted Investments.............. 48
Pool Factors....................... 40
Pooling and Servicing Agreement.... cover/1
Portfolio Yield.................... 70
Principal Account.................. 48
</TABLE>
98
<PAGE> 103
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Principal Account Balance.......... 52
Principal Receivables.............. 5
Principal Shortfalls............... 68
Proffitt's......................... 1
Proposed Regulations............... 90
Qualified Institution.............. 48
qualified minimum payment.......... 27
Rapid Amortization Period.......... 3
Rating Agency...................... 48
Rating Agency Condition............ 72
Reallocated Principal
Collections...................... 53
Receivables........................ cover/3
Receivables Purchase Agreements.... 6
Record Date........................ 5
Recoveries......................... 4
Registration Statement............. iii
Relevant UCC State................. 35
Removed Accounts................... 47
Required Accumulation Factor
Number........................... 9/62
Required Cash Collateral Amount.... 60
Required Enhancement Amount........ 62
Required Reserve Account Amount.... 60
Reserve Account.................... 49
Reserve Account Funding Date....... 49
Revolving Period................... 6
Securities Act..................... iii
Sellers............................ 3
Selling Subsidiaries............... 80
Series............................. 1
Series 1997-1 Variable Funding
Certificates..................... 1
Series 1997-2...................... 2
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- --------
<S> <C>
Series 1997-2 Certificates......... 2
Series 1997-2 Supplement........... 2
Series Adjustment Amount........... 67
Series Supplement.................. 2
Servicer........................... cover/1
Service Transfer................... 72
Servicer Default................... 73
Servicing Fee Percentage........... 71
Shared Excess Finance Charge
Collections...................... 60/69
Shared Principal Collections....... 68
Shortfall Amount................... 50
Special Tax Counsel................ 87
Standard & Poor's.................. 48
Stated Series Termination Date..... 4
Subservicer........................ ii
Supplement......................... 2
Terms and Conditions............... 79
Transfer Agent and Registrar....... 80
Transfer Date...................... 63
Transferor......................... cover/1
Transferor Amount.................. 8
Transferor Interest................ 8
Transferor Percentage.............. 40
Trust.............................. cover/1
Trust Portfolio.................... 5/23
Trustee............................ cover/1
UCC................................ 12
Underwriters....................... 95
Underwriting Agreement............. 95
Younkers........................... 3
</TABLE>
99
<PAGE> 104
ANNEX I -- GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Proffitt's
Credit Card Master Trust Asset Backed Certificates (the "Global Securities") to
be issued in Series from time to time (each, a "Series") will be available only
in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as
Participants and Indirect Participants in DTC. As a result, Cedel and Euroclear
will hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the
A-1
<PAGE> 105
respective Depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow the credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. The payment will then
be reflected in the account of the Cedel Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debit in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use Cedel or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedel Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
A-2
<PAGE> 106
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate of non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
A-3
<PAGE> 107
============================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
INCORPORATED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, PCC, THE TRUST
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY, PCC, THE TRUST OR THE RECEIVABLES OR THE ACCOUNTS SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders............... ii
Available Information....................... iii
Incorporation of Certain Documents by
Reference................................. iii
Cautionary Notice Regarding Forward-Looking
Statements................................ iii
Prospectus Summary.......................... 1
Risk Factors................................ 12
Credit Card Program......................... 20
Composition of the Trust Portfolio.......... 30
The Accounts................................ 34
The Trust................................... 35
PCC......................................... 36
The Company................................. 36
Use of Proceeds............................. 36
Maturity Assumptions........................ 36
Receivables Yield Considerations............ 39
Pool Factors................................ 39
Description of the Series 1997-2
Certificates and the Pooling and Servicing
Agreement................................. 40
Description of the Receivables Purchase
Agreements................................ 80
Certain Legal Aspects of the Receivables.... 83
Federal Income Tax Consequences............. 86
State and Local Tax Consequences............ 91
ERISA Considerations........................ 91
Underwriting................................ 95
Legal Matters............................... 96
Index of Key Terms.......................... 97
Annex I -- Global Clearance, Settlement and
Tax Documentation Procedures.............. A-1
</TABLE>
------------------------
UNTIL NOVEMBER 12, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================================
============================================================
PROFFITT'S
CREDIT CARD MASTER TRUST
$180,000,000 CLASS A
6.50% ASSET BACKED CERTIFICATES,
SERIES 1997-2
$20,000,000 CLASS B
6.69% ASSET BACKED CERTIFICATES,
SERIES 1997-2
PROFFITT'S CREDIT CORPORATION
TRANSFEROR
PROFFITT'S, INC.
SERVICER
---------------------------
PROSPECTUS
---------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
BANCAMERICA SECURITIES, INC.
J.P. MORGAN & CO.
UNDERWRITER OF THE CLASS B CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
DATED AUGUST 14, 1997
============================================================
