<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROFFITT'S CREDIT CARD MASTER TRUST
(In which the Certificates represent undivided interests)
PROFFITT'S CREDIT CORPORATION
(Originator of the Trust described herein)
---------------------
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<S> <C> <C>
NEVADA 6189 86-0852332
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
PROFFITT'S CREDIT CORPORATION
P.O. BOX 20080
JACKSON, MISSISSIPPI 39289
(601) 968-4400
(Name, address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)
BRIAN J. MARTIN, ESQ.
PROFFITT'S CREDIT CORPORATION
P.O. BOX 20080
JACKSON, MISSISSIPPI 39289
(601) 968-4400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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RALPH F. MACDONALD, III, ESQ. RICHARD S. FORTUNATO, ESQ.
ALSTON & BIRD LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE ATLANTIC CENTER 919 THIRD AVENUE
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10022
ATLANTA, GEORGIA 30309-3424 (212) 735-3000
(404) 881-7000 (212) 735-2000 (FAX)
(404) 881-7777 (FAX)
</TABLE>
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Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) CERTIFICATE PRICE(1) REGISTRATION FEE
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Asset Backed Certificates,
Series 1997-2.............. $1,000,000 100% $1,000,000 $303.00
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</TABLE>
(1) Estimated solely for purposes of calculating the filing fee pursuant to Rule
457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED , 1997
PROFFITT'S CREDIT CARD MASTER TRUST
$ % SERIES 1997-2 CLASS A ASSET BACKED CERTIFICATES
$ % SERIES 1997-2 CLASS B ASSET BACKED CERTIFICATES
PROFFITT'S CREDIT CORPORATION PROFFITT'S, INC.
TRANSFEROR SERVICER
---------------------
Each Class A Asset Backed Certificate (collectively, the "Class A
Certificates") and each Class B 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 ,
as trustee, dated as of , 1997. In addition, a Collateral Indebtedness
Interest having an initial principal amount of $ and Class D Certificates
having an initial principal amount of $ (each as defined herein) will be
issued as part of Series 1997-2 and will be subordinated to the Offered
Certificates as described herein. The Collateral Indebtedness Interest and the
Class D Certificates 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 Transferor has offered and sold, and from time to time may offer and sell,
other Series that evidence undivided interests in certain assets of the Trust,
which may have terms significantly different from the Offered Certificates. The
issuance of such other Series may affect the amount or timing of payments on the
Offered Certificates. The Transferor will own 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. 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 % per
annum. Interest will accrue on the Class B Certificates at a rate of % 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
1997 Distribution Date. Principal on the Class A Certificates is
scheduled to be paid in full on the 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
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."
(Continued on the following page)
THERE CURRENTLY IS NO MARKET FOR THE OFFERED CERTIFICATES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE 11,
WHICH INCLUDES INFORMATION ABOUT THE TRANSFER OF THE RECEIVABLES, THE
COMMINGLING OF COLLECTIONS, THE EFFECTS OF THE INSOLVENCY OF PCC OR PROFFITT'S,
INC. OR ITS SUBSIDIARIES, CONSUMER LAWS AND LITIGATION, DEBTOR RELIEF LAWS AND
THE DEPENDENCE OF PCC ON PROFFITT'S, INC. AND ITS DEPARTMENT STORES.
---------------------
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
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Per Class A Certificate.................. 100.00% 0. % $
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Per Class B Certificate.................. 100.00% 0. % $
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Total.................................... $ $ $
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(1) Plus accrued interest, if any, from , 1997.
(2) Before deduction of expenses estimated to be $ .
---------------------
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 , 1997, through the
facilities of The Depository Trust Company.
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UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
UNDERWRITER OF THE CLASS B CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
</TABLE>
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, 1997
<PAGE> 3
(Continued from cover)
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."
Application will be made to list the Class A Certificates and the Class B
Certificates on the Luxembourg Stock Exchange.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
CERTIFICATES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
OFFERED CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
---------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual 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 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. PCC is not required
and does not intend to send any of its financial reports to Certificateholders
or to the owners of beneficial interests in the Certificates ("Certificate
Owners"). The Servicer will file with the Securities and Exchange Commission
(the "Commission") with respect to the Trust the periodic reports of the
Servicer, as are required under the Securities Exchange Act of 1934, 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 -- Book-Entry Registration," "-- Reports to
Certificateholders" and "-- Evidence as to Compliance."
AVAILABLE INFORMATION
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
ii
<PAGE> 4
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 for purposes of the Securities Act of 1933, as
amended (the "Securities Act") and the Exchange Act. 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") and the Trust, and 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" 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 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.
iii
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 11
CREDIT CARD PROGRAM......................................... 19
General................................................... 19
Department Stores......................................... 19
Proprietary Credit Cards.................................. 20
Proposed Credit Card Bank................................. 21
Portfolio Information..................................... 21
Credit Origination and Underwriting....................... 22
Billing and Payments...................................... 24
Delinquency, Collections and Losses....................... 25
COMPOSITION OF THE DESIGNATED PORTFOLIO..................... 27
General................................................... 27
Geographic Distribution................................... 29
THE ACCOUNTS................................................ 30
THE TRUST................................................... 30
PCC......................................................... 31
THE COMPANY................................................. 31
USE OF PROCEEDS............................................. 31
MATURITY ASSUMPTIONS........................................ 31
RECEIVABLES YIELD CONSIDERATIONS............................ 33
POOL FACTORS................................................ 34
DESCRIPTION OF THE SERIES 1997-2 CERTIFICATES AND THE
POOLING AND SERVICING AGREEMENT........................... 34
General................................................... 35
Interest Payments......................................... 36
Principal Payments........................................ 36
Postponement of Accumulation Period....................... 37
Transfer of Receivables................................... 37
Representations and Warranties............................ 38
Addition of Accounts...................................... 40
Removal of Accounts....................................... 42
Discount Option Receivables............................... 42
Collection and Other Servicing Procedures................. 42
Collection and Reserve Accounts........................... 43
Cash Collateral Account................................... 44
Excess Funding Account.................................... 44
Subordination of the Class B Certificates, the Collateral
Indebtedness Interest and the Class D Certificates..... 45
Investor Percentages and Transferor Percentage............ 45
Reallocation of Cash Flows................................ 48
Applications of Collections............................... 50
Collateral Amortization Period............................ 54
Example of Distributions.................................. 57
Paired Series............................................. 57
Allocation of Investor Default Amount; Adjustment Amounts;
Investor Charge Offs................................... 58
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iv
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Allocation of Adjustment Amounts.......................... 60
Optional Repurchase; Final Payment of Principal;
Termination............................................ 61
Shared Principal Collections.............................. 62
Shared Excess Finance Charge Collections.................. 62
Pay Out Events............................................ 63
Servicing Compensation and Payment of Expenses............ 64
Certain Matters Regarding the Servicer.................... 64
Servicer Default.......................................... 65
Reports to Certificateholders............................. 66
Issuance of New Series.................................... 67
Evidence as to Compliance................................. 67
Amendments................................................ 68
Amendments to the Pooling and Servicing Agreement Relating
to FASIT Election...................................... 69
List of Certificateholders................................ 69
The Trustee............................................... 69
Book-Entry Registration................................... 70
Definitive Certificates................................... 71
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENTS.......... 71
Sale or Transfer of Receivables........................... 72
Representations and Warranties............................ 72
Certain Covenants......................................... 73
Termination............................................... 74
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................... 74
Transfer of Receivables................................... 74
Certain Matters Relating to Bankruptcy or Insolvency...... 75
Consumer and Debtor Protection Laws, Proposed Legislation
and Recent Litigation.................................. 76
Dilution.................................................. 77
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... 77
General................................................... 77
Characterization of the Certificates as Indebtedness...... 78
Treatment of the Trust.................................... 78
Possible Classification of the Transaction as a
Partnership or as an Association Taxable as a
Corporation............................................ 78
Taxation of Interest Income of Certificateholders......... 80
Sale of a Certificate..................................... 80
Recent Legislation........................................ 80
Foreign Investors......................................... 80
Backup Withholding........................................ 81
STATE AND LOCAL TAX CONSEQUENCES............................ 82
ERISA CONSIDERATIONS........................................ 82
UNDERWRITING................................................ 85
LEGAL MATTERS............................................... 85
INDEX OF KEY TERMS.......................................... 86
ANNEX I -- SERIES PREVIOUSLY ISSUED......................... 90
</TABLE>
v
<PAGE> 7
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. See "Index of Key
Terms" at the conclusion of the Prospectus.
Type of Securities......... $ aggregate principal amount of Class A
Asset Backed Certificates, Series 1997-2 (the
"Class A Certificates") and $ aggregate
principal amount of Class B 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 was formed for the purpose of holding the
Receivables and to provide for the issuance of 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") was formed pursuant to a master pooling
and servicing agreement, dated as of ,
1997 (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
, as trustee (in such capacity, the
"Trustee"). The Trust, as a master trust, has
previously issued one other Series of certificates,
the Series 1997-1 Variable Funding Certificates,
which will be outstanding as of the Closing Date,
and may issue additional Series from time to time,
each pursuant to a series supplement to the Pooling
and Servicing Agreement (each, a "Series
Supplement" or "Supplement"). See "Annex I" for a
description of certain terms of the previously
issued Series.
The Offered Certificates are part of Series 1997-2
of the Trust ("Series 1997-2"). Series 1997-2 is
part of Group One. 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
Agree-
1
<PAGE> 8
ment," 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 holders of the
Offered Certificates, the term "Class A
Certificateholders" refers to holders of the Class
A Certificates, the term "Class B
Certificateholders" refers to 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"). See
"Description of the Certificates -- 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 hereafter add to, originate
and sell receivables to the Trust (herein, such
initial and future sellers are referred to as the
"Sellers").
Transferor................. PCC, the originator of the Trust and the Transferor
of the Receivables, 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 (the "Investor Monthly Service Fee")
from the Trust, from which it will pay the
Subservicer's fees.
2
<PAGE> 9
Trust Assets............... The property of the Trust includes and will include
receivables (the "Receivables") arising under
certain consumer revolving credit card accounts
(the "Accounts") created by the Sellers, including
any additional accounts following their designation
as such (the "Additional Accounts") and any
automatic additional accounts (the "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 (excluding
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 is currently
designating 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, 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
Certificate represents the right to payments of
interest at the specified Certificate Rate. Each
Class A Certificate represents the right to receive
payments of (i) interest at the rate of % per
annum (the "Class A Certificate Rate"), accruing
from , 1997 (the "Closing Date") and
(ii) principal scheduled to be paid in full on the
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
as defined in the Pooling and Servicing Agreement
(the "Rapid Amortization Period.")
Each Class B Certificate represents the right to
receive payments of (i) interest at the rate of
% per annum (the "Class B Certificate Rate"),
accruing from the Closing Date and (ii) principal
scheduled to be paid in full on the
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 Principal
Receivables represented by the Class A Certificates
(the "Class A Investor Amount") initially will
equal $ (the "Class A Initial Investor
Amount") and will decline as principal with respect
to the Class A Certificates is deposited in the
Principal Account (or, without duplication, paid to
the Class A Certificateholders) or as Class A
Investor Charge Offs occur.
The aggregate undivided interest in the Principal
Receivables represented by the Class B Certificates
(the "Class B Investor Amount") initially will
equal $ (the "Class B Initial Investor
Amount") and will decline as principal with respect
to the Class B Certificates is deposited in the
Principal Account (or, without duplication, paid to
the Class B Certificateholders), as collections of
Principal Receivables
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<PAGE> 10
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 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 the portion
of Finance Charge Receivables and Net Recoveries,
if any, collected during the preceding month
allocable to the Investor Amount, plus any Shared
Excess Finance Charge Collections allocable to the
various Investor Amounts, plus drawings from the
Cash Collateral Account plus Reallocated Principal
Collections ("Available Finance Charge
Collections"). The term "Net Recoveries" means,
with respect to any Monthly Period, the excess, if
any, of Recoveries collected during such month over
the aggregate amount of Receivables in Defaulted
Accounts charged off during such Monthly Period.
Principal payments with respect to the Certificates
will be funded from collections of Principal
Receivables.
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 nominee of
DTC. 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 -- 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 (the "Principal
Receivables"). The Receivables will also include
"Finance Charge Receivables," which consist of 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"). If
the Transferor exercises its Discount Option, 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 ,
1997 was
4
<PAGE> 11
$ , comprised of $ of Principal
Receivables and $ of Finance Charge
Receivables. The Finance Charge Receivables will
not affect the Investor Amount or the Transferor
Amount, which are determined on the basis of the
amount of Principal Receivables in the Trust. 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
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 "Designated 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 total
collections in respect of the entire Designated
Portfolio allocable to the Accounts, and may
further 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 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. Such
allocations are provisional only and will be
adjusted on each Determination Date to reflect
actual collections in respect of the Accounts for
the preceding Monthly Period.
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 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 Investor Amount (the "Servicing
Fee"), from which it will pay the Subservicer for
its servicing activities. The portions of the
Servicing Fee allocable to the Class A Investor
Amount, the Class B Investor Amount, the Collateral
Indebtedness Amount and the Class D Investor Amount
shall be equal to the product of (a) the Servicing
Fee and (b) the Class A Floating Percentage, Class
B Floating Percentage, Collateral Floating
Percentage and Class D Floating Percentage,
respectively, each divided by the Investor Floating
Percentage. See "Description of the Series 1997-2
Certificates and the
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<PAGE> 12
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 $ .
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 $ .
Interest on the 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 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
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 ends
and the Accumulation Period commences may be
delayed to no later than the close of business on
the last day of the Monthly
Period. Unless a Pay Out Event has occurred, (i)
the Class A Accumulation Period (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 (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
6
<PAGE> 13
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.
Right to Adjust Principal
Receivables Allocation
Formula.................. During the Accumulation Period, the Investor
Percentage of Principal Receivables may be reset at
the option of the Transferor (and any such reset
Investor Percentage will apply in any Rapid
Amortization Period following the Accumulation
Period) to a fixed percentage, subject to certain
minimum and maximum amounts. The Investor
Percentage with respect to the allocation of
Principal Receivables during the Rapid Amortization
Period will remain fixed at the then existing
Investor Percentage and may not be reset.
Adjustments to this percentage may result in lower
allocations of principal to the Offered
Certificates than would have occurred in the
absence of an exercise of the reset option. See
"Description of the Series 1997-2 Certificates and
the Pooling and Servicing Agreement."
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. 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 Certificate-
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<PAGE> 14
holders, 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 remaining undivided interest in the assets of
the Trust and the Excess Funding Account not
represented by the Series 1997-2 Certificates or
any other Series (the "Transferor Amount"). 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
Receivables from Removed Accounts are added to 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
Invested Amount and the amount, if any, on deposit
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
Investor Amount and %, but not less than
$ ; 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. With respect to
any Distribution Date, if 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 will be deposited in the
Cash Collateral Account to the extent of such
shortfall which will increase the Available
Enhancement Amount. If on any Distribution
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<PAGE> 15
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, may 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 rating 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 and the
Collateral Indebtedness Holder. 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 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 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"), and pay to the
holder of the Exchangeable Transferor Certificate
collections in respect of Principal Receivables.
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 after
the Investor Amount is reduced to an amount less
than or equal to 10% of the Initial Investor
Amount, if certain conditions set forth in the
Pooling and Servicing Agreement are met. The
repurchase price of the Offered Certificates will
be equal to the 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."
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<PAGE> 16
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 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."
10
<PAGE> 17
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. The Transferor has taken and
will take all actions as are required under applicable law to perfect the
Trust's interest in the Receivables and 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).
Nevertheless, if the transfer of the Receivables to the Trust is deemed to
create a security interest therein under the UCC, a tax or government lien on
property of the Servicer 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.
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
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<PAGE> 18
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 Transferor's or
Seller's bankruptcy estate under Section 541 of the U.S. Bankruptcy Code (Title
11, United States Code), as amended (the "Bankruptcy Code"). If the Transferor
or any Seller should become a debtor subject to a Bankruptcy Code proceeding
subsequent to such transfer, the Receivables and related proceeds would not be
available to creditors of the Transferor or the Seller.
Notwithstanding the foregoing, if the Company or an individual 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 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 Receivables free and clear of any lien
of any third party, except for such tax and other nonconsensual
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<PAGE> 19
government liens. 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. 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 "The Company's 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
purchases. No interest is charged on such a deferred Receivable for up to 90
days. An increase in the
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"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."
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
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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 Distribution Date which occurs in
(the "Scheduled Series 1997-2 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 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
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<PAGE> 22
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, inasmuch 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 of the Offered 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
persons acquiring a beneficial interest in the Offered Certificates (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. 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 -- 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 Defaults," " -- 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 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
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<PAGE> 23
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 to the Trustee 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 impact 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. See "-- Limited Nature of Certificate Rating" and
"Description of the Series 1997-2 Certificates and the Pooling and Servicing
Agreement."
EFFECT OF DISCOUNT OPTION
Pursuant to the Pooling and Servicing Agreement, the Transferor has
designated 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. 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
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<PAGE> 24
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 39 stores
in 10 states. Economic trends in any of these states, particularly Alabama,
Mississippi, Georgia and Tennessee, could adversely affect collections of
Receivables, the generation of new Receivables and payment rates. 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 Receivables attributable to other states could increase,
thereby potentially reducing or shifting existing concentration levels. See
"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 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."
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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.
Prior to this offering, the initial Sellers sold substantially all their
Receivables to the Transferor, and the Transferor sold such Receivables to the
Trust, and the Trust conveyed an undivided interest in such Receivables pursuant
to the Pooling and Servicing Agreement, the Series 1997-1 Supplement thereto and
the related Variable Funding Certificates, Series 1997-1. See "Underwriting."
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 Alcoa, Tennessee.
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.
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
39 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.
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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. The Herberger's proprietary credit card program is administered from the
Company's central credit card services center located in Jackson, Mississippi
(the "Credit Services Center").
Younkers. Younkers, which was acquired on February 3, 1996, is a leading
fashion department store that operates 48 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.
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). Approximately 46.1% of the Company's net sales in fiscal 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
20
<PAGE> 27
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.
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
VISA and MasterCards. 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 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.
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 "Designated Portfolio"),
not just the Accounts. 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, 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.
Receivables outstanding on credit card accounts in the Designated 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
DESIGNATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30, AS OF DECEMBER 31,
-------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Receivables Outstanding(1)....... $283,608 $283,013 $ 331,635 $ 323,050 $308,271
Number of Accounts(2)............ 946,584 974,963 1,065,399 1,063,322 859,629
</TABLE>
- ---------------
(1) Receivables typically decrease from December to April 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 Designated 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
21
<PAGE> 28
through one or more subsidiaries, the Designated 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 FOUR MONTHS FOR THE 12 MONTHS
ENDED APRIL 30, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995(1) 1994(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Private Label Credit Card Sales..... $252,198 $247,838 $854,010 $844,558 $810,961
</TABLE>
- ---------------
(1) Not including Proffitt's.
SELLERS' SALES BY FORM OF PAYMENT
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS ENDED FOR THE 12 MONTHS ENDED
APRIL 30, DECEMBER 31,
------------- -------------------------
1997 1996 1996 1995(1) 1994(1)
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Department Stores' Credit Card Accounts.............. 47.15% 48.45% 47.33% 50.13% 51.36%
Other Credit Cards................................... 24.43 23.40 24.00 21.99 19.60
Cash, Check or Other................................. 28.42 28.15 28.67 27.88 29.04
</TABLE>
- ---------------
(1) 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,
22
<PAGE> 29
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 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
23
<PAGE> 30
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 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.
24
<PAGE> 31
Payments by account holders are applied first to interest and other charges or
fees, and then to purchases in the order made.
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. 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 qualifying payments of 7.5% each or
aggregating 22.5% 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 no later than the
seventh month after the customer has failed to make a qualifying minimum payment
on a delinquent account. The Company may
25
<PAGE> 32
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'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.
The following table sets forth the loss experience with respect to the
credit card accounts in the Designated 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 DESIGNATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS FOR THE 12 MONTHS
ENDED APRIL 30, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Principal Receivables(1)........................... $292,842 $285,271 $277,619 $266,101 $249,064
Total Principal Charge Offs(2)............................. 4,005 3,143 10,731 8,667 7,134
Recoveries................................................. 848 773 2,166 2,060 1,899
Net Principal Charge Offs.................................. 3,157 2,370 8,565 6,606 5,235
Net Principal Charge Offs Percentage(3).................... 3.23% 2.49% 3.09% 2.48% 2.10%
</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 four months ended April 30, 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 Designated 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
DESIGNATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30, 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)
----------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current(1)............ $272,201 95.40% $277,922 96.06% $319,503 96.05% $311,923
31 to 60 days
delinquent.......... 6,719 2.35 5,849 2.02 6,972 2.10 6,658
61 to 90 days
delinquent.......... 2,098 0.74 1,893 0.65 2,230 0.67 1,994
Over 91 days
delinquent.......... 4,307 1.51 3,667 1.27 3,940 1.18 3,726
Total
Delinquent...... 13,125 4.60 11,409 3.94 13,141 3.95 12,378
-------- ------ -------- ------ -------- ------ --------
Total
Receivables..... $285,326 100.00% $289,331 100.00% $332,644 100.00% $324,301
======== ====== ======== ====== ======== ====== ========
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1995 1994(1)
------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF
TOTAL RECEIVABLES TOTAL
RECEIVABLES (2)(3)(4) RECEIVABLES
------------- ----------- -------------
<S> <C> <C> <C>
Current(1)............ 96.18% $233,158 95.80%
31 to 60 days
delinquent.......... 2.05 6,475 2.66
61 to 90 days
delinquent.......... 0.61 1,437 0.59
Over 91 days
delinquent.......... 1.15 2,311 0.95
Total
Delinquent...... 3.82 10,223 4.20
------ -------- ------
Total
Receivables..... 100.00% $243,381 100.00%
====== ======== ======
</TABLE>
- ---------------
(1) 1994 data as of January 31, 1995.
(2) Includes both current accounts and accounts that are less than 31 days past
due.
(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.
26
<PAGE> 33
COMPOSITION OF THE DESIGNATED PORTFOLIO
GENERAL
The information describing the Designated Portfolio reflects its
composition as of the dates shown. There can be no assurance that the
composition and performance of the Designated Portfolio in the future will be
similar to the historical experience reflected below.
COMPOSITION OF ACCOUNTS
BY AGE
AS OF MAY 23, 1997(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
NUMBER OF RECEIVABLES RECEIVABLES
NUMBER OF ACCOUNTS(2) ACCOUNTS OUTSTANDING OUTSTANDING
--------------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Under 6 months........................ 166,225 9.26% $ 13,582,618 4.82%
6 months to 1 year.................... 203,845 11.35 21,641,581 7.69
1-2 years............................. 327,901 18.26 42,799,271 15.20
2-3 years............................. 219,125 12.20 31,974,834 11.36
3 years and older..................... 878,702 48.93 171,586,306 60.94
--------- ------ --------------- ------
Total......................... 1,795,798 100.00% $281,584,608.91 100.00%
========= ====== =============== ======
</TABLE>
- ---------------
(1) For Parisian, the Number of Accounts and Receivables Outstanding are
compiled from data as of each billing cycle date during April 1997. All
other Accounts and Receivables are as of May 23, 1997.
(2) Includes only active Accounts.
COMPOSITION OF THE DESIGNATED PORTFOLIO
BY ACCOUNT BALANCE
AS OF MAY 23, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS(1)(2) NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------- -------------- ------------------- ------------ -------------------
<S> <C> <C> <C> <C>
No Balance(3).................................. 828,809 46.16% $ -- 0.00%
$0.01 to $500.00............................... 762,106 42.44 92,306,025 32.79
$500.01 to $1,000.00........................... 122,077 6.80 78,043,745 27.72
$1,000.01 to $2,000.00......................... 35,828 2.00 68,421,592 24.30
$2,000.01 to $3,000.00......................... 5,093 0.28 23,408,477 8.32
$3,000.01 to $4,000.00......................... 1,187 0.07 13,552,648 4.81
$4,000.01 to 5,000.00.......................... 390 0.02 4,846,060 1.72
$5,000.00+..................................... 266 0.01 2,642,825 0.94
Credit balance(4).............................. 39,911 2.22 (1,705,748) (0.61)
--------- ------ ------------ -------
Total.................................. 1,795,667 100.00% $281,515,625 100.00%
========= ====== ============ =======
</TABLE>
- ---------------
(1) Includes all Accounts other than Accounts which have been charged off.
(2) For Parisian, the Number of Accounts and Receivables Outstanding are
compiled from data as of each billing cycle date during April 1997. All
other Accounts and Receivables are as of May 23, 1997.
(3) Accounts currently having no outstanding balance are included, because
Receivables may be generated in such Accounts in the future.
(4) 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.
27
<PAGE> 34
COMPOSITION OF THE DESIGNATED PORTFOLIO
BY CREDIT LIMIT
AS OF MAY 23, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER AGGREGATE TOTAL RECEIVABLES
CREDIT LIMIT ACCOUNTS(1)(2) OF ACCOUNTS CREDIT LIMIT OUTSTANDING(2)
- ------------ -------------- ------------------ -------------- -------------------
<S> <C> <C> <C> <C>
Zero............................ 51,920 2.89% $ -- -- %
$0.01 - $600.00................. 459,946 25.61 202,124,521 6.56
$600.01 - $1,000.00............. 352,898 19.65 314,595,487 10.20
$1,000.01 - 2,000.00............ 521,609 29.05 780,001,392 25.30
$2,000.01 - 3,000.00............ 97,605 5.44 252,380,167 8.19
$3,000.01 - 4,000.00............ 11,264 0.63 40,190,888 1.30
$4,000.01 - 5,000.00(3)......... 298,091 16.60 1,475,561,725 47.86
$5,000.01 or more............... 2,334 0.13 18,053,925 0.59
--------- ------- -------------- -------
Total................. 1,795,667 100.00% $3,082,908,105 100.00%
========= ======= ============== =======
</TABLE>
- ---------------
(1) Includes all Accounts other than Accounts which have been charged off.
(2) For Parisian, the Number of Accounts and Receivables Outstanding are
compiled from data as of each billing cycle date during April 1997. All
other Accounts and Receivables are as of May 23, 1997.
(3) 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.
COMPOSITION OF THE DESIGNATED PORTFOLIO
BY PAYMENT STATUS
AS OF APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS(1)(2) NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING(2)
- -------------- -------------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Current(3).......................... 910,578 96.20% $272,201 95.40%
31 to 60 days delinquent............ 18,639 1.97 6,719 2.35
61 to 90 days delinquent............ 6,050 0.64 2,098 0.74
Over 91 days delinquent............. 11,317 1.20 4,307 1.51
------- ------- -------- -------
Total..................... 946,584 100.00% $285,326 100.00%
======= ======= ======== =======
</TABLE>
- ---------------
(1) Includes only Accounts with outstanding balances for Parisian and only
Accounts with outstanding debit balances for the other Sellers.
(2) For Parisian, the Number of Accounts and Receivables Outstanding are
compiled from data as of each billing cycle date during April 1997. All
other Accounts and Receivables are as of April 30, 1997.
(3) Includes all Accounts that are current or less than 31 days past due.
28
<PAGE> 35
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 Designated
Portfolio or 5% of the Receivables outstanding in the Designated Portfolio as of
May 31, 1997.
GEOGRAPHIC DISTRIBUTION OF THE DESIGNATED PORTFOLIO
AS OF MAY 23, 1997(1)
<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.............................. 564,172 31.42% $112,051,739 39.80%
Mississippi.......................... 253,186 14.10 51,286,613 18.22
Tennessee............................ 245,442 13.67 36,971,522 13.13
Georgia.............................. 165,624 9.22 25,807,953 9.17
Florida.............................. 109,307 6.09 13,853,647 4.92
Virginia............................. 106,549 5.93 6,824,748 2.42
Other................................ 351,387 19.57 34,719,403 12.33
--------- ------- ------------ -------
Total...................... 1,795,667 100.00% $281,515,625 100.00%
========= ======= ============ =======
</TABLE>
- ---------------
(1) For Parisian, the Number of Accounts and Receivables Outstanding are
compiled from data as of each billing cycle date during April 1997. All
other Accounts and Receivables are as of May 23, 1997.
29
<PAGE> 36
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. Additional
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 accounts relating to acquired businesses have been and may in
the future be added as Automatic 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 and the Receivables will
include all amounts payable by accountholders under such Accounts. As a result
some of the Accounts will be recently solicited, unseasoned accounts (e.g.
Receivables generated by Herberger's). See "Credit Card Program."
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 sellers hereafter included as Sellers) generally will be included
automatically as Accounts on an ongoing basis. 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
$ , of which $ ( % of the Receivables) were Principal
Receivables and $ ( % of the Receivables) were Finance Charge
Receivables. See "Description of the Series 1997-2 Certificates and the Pooling
and Servicing Agreement -- Investor Percentage and Transferor Percentage."
THE TRUST
The Trust was formed in accordance with the laws of the State of New York
pursuant to the Pooling and Servicing Agreement. The Trust was 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 had
no assets or obligations. The Trust will not engage in any business activity,
other than as described herein, but rather will 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 "Annex I -- Series Previously Issued."
30
<PAGE> 37
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 3455 Highway
80 West, Jackson, Mississippi 39209, and its telephone number is (601) 968-4400.
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 $ before deduction of
expenses, will be paid to the Transferor. The Transferor will use such funds to
pay down a portion of the outstanding principal amount of the Series 1997-1
Variable Funding Certificates.
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 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 the Investor Fixed Percentage with respect to
collections of Principal Receivables and 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 Class A
Accumulation Amount (equal to one-twelfth ( 1/12th) of the Class A Investor
Amount as of the beginning of the Accumulation Period), subject to adjustment
based on the calculated Accumulation Period Length beginning with the first
Distribution Date of the Accumulation Period and ending when the
31
<PAGE> 38
amount on deposit in the Principal Funding Account is sufficient to pay the
Class A Investor Amount in full, and the Class B Accumulation Amount (equal to
one-half ( 1/2) of the Class B Investor Amount as of the beginning of the
Accumulation Period) beginning with the first Distribution Date following the
payment in full of the Class A Investor Amount and ending when the amount on
deposit in the Principal Account is sufficient to pay the Class B Investor
Amount in full. In addition, any existing Deficit Accumulation Amount will be
deposited into the Principal Account. The term "Deficit Accumulation Amount"
means, on the Closing Date, zero and, on any Distribution Date, the excess, if
any, of the amount determined under the second sentence of this paragraph over
the amount determined under the first sentence of this paragraph. 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.
Should a Pay Out Event occur and the Rapid Amortization Period begin,
collections of Principal Receivables 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 Class A Accumulation Amount or to the Class B
Accumulation Amount. Instead, collections of Principal Receivables allocated to
the Investor Amount 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 begin amortizing only after the Class A
Investor Amount is paid in full, the Collateral Indebtedness Amount will 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 the fixed percentage during the
Rapid Amortization Period may result in greater distributions of principal to
Certificateholders than would be the case if a floating percentage 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 if the current Investor Amount is 10% or less of the Initial
Investor Amount. See "Description of the Series 1997-2 Certificates and the
Pooling and Servicing Agreement -- Optional Repurchase; Final Payment of
Principal; Termination."
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 Receivables. A reduction in Portfolio Yield may
result from reductions in collections of Finance Charge Receivables or an
increase in charge offs. 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 Designated Portfolio."
The following table sets forth the highest and lowest credit card
accountholder monthly payment rates for the Designated 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
32
<PAGE> 39
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)
DESIGNATED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS FOR THE 12 MONTHS
ENDED APRIL 30, 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 22.47 22.76 24.69 23.79
Monthly Average.................................... 22.07 21.94 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 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 Class A Accumulation Amount, Class B 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 Designated 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
33
<PAGE> 40
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
DESIGNATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS FOR THE 12 MONTHS
ENDED APRIL 30, ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Receivables(1).............. $296,712 $288,906 $281,184 $269,306 $254,142
Billed Finance Charges and Fees..... $ 14,804 $ 13,865 $ 40,959 $ 38,302 $ 36,015
Portfolio Yield(2).................. 14.97% 14.40% 14.57% 14.22% 14.17%
</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 four months ended April 30, 1997 and 1996 are
annualized figures, which are not necessarily indicative of results that may
be realized for the entire year.
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 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 Pool Factors and various other items of information
will be made available to the Certificateholders. In addition, on or before
December 31 of each year, beginning in 1997, 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 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.
34
<PAGE> 41
GENERAL
The Series 1997-2 Certificates will represent undivided interests in the
Trust, including an interest in floating percentages of all payments on the
Receivables in the Trust during the Revolving Period, a fixed percentage,
subject to monthly adjustment by the Servicer, of all payments in respect of
Principal Receivables during the Accumulation Period, a fixed percentage of all
payments in respect of Principal Receivables during the Rapid Amortization
Period, a floating percentage of payments in respect of Finance Charge
Receivables in the Trust during the Revolving Period and the Accumulation
Period, and a fixed percentage of all payments in respect of Finance Charge
Receivables during the Rapid Amortization Period (collectively, the "Investor
Percentage"). The Investor Amount at any time will be equal to the initial face
amount of the Series 1997-2 Certificates minus the amount of principal payments
deposited to the Principal Account or, without duplication, paid to the
Certificateholders, and minus the amount of Investor Charge Offs which have not
been reimbursed. 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, Recoveries and Principal Receivables, respectively, allocated to
the Investor Amount. See "-- Investor Percentage 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."
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 Final 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 on deposit in
the Excess Funding Account. See "-- Allocation of Investor Default Amount;
Adjustment Amounts; Investor Charge Offs."
The property 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 for any Receivables, all proceeds and products of all of the foregoing,
and all monies on deposit in certain bank accounts of the Trust. 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
35
<PAGE> 42
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 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 Certificates were
registered at the close of business on the Record Date. Interest will be
distributed on the , 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 (without reduction for amounts
held in the Principal Account) as of the preceding Distribution Date (plus any
prior interest deficiency) or, in the case of the initial Distribution Date, on
the amount of the Investor Amount on the 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 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
or deposited in the Excess Funding Account rather than deposited to the
Principal Account or paid to the Certificateholders. 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, this Accumulation Period will commence on
, .
Under current payment rates, sufficient collections of Principal
Receivables would collect in the Principal Account to repay each of the Class A
Certificates and the Class B Certificates within six months after the
commencement of the Accumulation Period. During the Accumulation Period,
principal 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
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the Class A Certificateholders, with the balance, if any, to the Class B
Certificateholders to the extent of their respective Investor Amounts, and
thereafter collections of Principal Receivables allocated to the Investor Amount
will be paid to the Certificateholders on each Distribution Date. The Class A
Investor Amount will be equal to the initial face amount of the Class A
Certificates minus the aggregate amount of principal payments paid to the Class
A Certificateholders or, without duplication, deposited to the Principal Account
on behalf of the Class A Certificates and minus the amount of Class A Investor
Charge Offs which have not been reimbursed. 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 initial face amount of the Class B Certificates minus the
aggregate amount of principal payments paid to the Class B Certificateholders
or, without duplication, deposited to the Principal Account on behalf of the
Class B Certificates and 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 as a result of unreimbursed Class A Allocable Amounts. 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 Percentage 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 Monthly Period. Upon written notice to the
Trustee, the Servicer 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 Servicer may make such election
only if the Accumulation 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 Servicer 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
invested 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 , 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. The Transferor, at its
option, may terminate or suspend the automatic inclusion of such Additional
Accounts at any time. In the future, the
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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. 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."
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 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 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
is charged off as uncollectible or the Trust's rights into or under such
Receivable or its proceeds are impaired, then, unless such
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breach is cured within 90 days of the Transferor's receipt of written notice of
such breach from the Trustee or the Servicer, 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. Notwithstanding the foregoing, in the event of a breach of the
representation and warranty with respect to each Receivable then existing having
been conveyed to the Trust free and clear of any lien of any person, corporation
or other entity claiming through or under the Transferor or its affiliates,
other than certain tax liens for taxes not then due or which the Transferor is
contesting in good faith, the Transferor's interest 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 the Series 1997-2 Supplement and in material compliance with all
requirements of law applicable to the Transferor, 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 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.
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 Principal Receivables within 90 days of such notice.
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 the Principal Account on such Transfer Date plus an
amount equal to all accrued but unpaid interest on all Series at the applicable
Certificate Rates, plus certain amounts payable to providers of credit
enhancement ("Enhancement Providers"), if any, plus an amount equal to all
interest accrued but
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unpaid on the Series 1997-2 Certificates at the applicable Certificate Rates
through such Distribution Date, less any amount on deposit in the Collection
Account in respect of such retransfer. 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 available to the Trustee or the
Certificateholders.
An "Eligible Account" means, as of the date of its selection, each Account
(a) which is in existence and owned by the Transferor, and payable in United
States Dollars, (b) the Obligor on which has provided, as its initial 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) has
not been charged off in accordance with the Servicer's Credit Card Guidelines,
(e) which was originated or acquired by or on behalf of a Seller (each, an
"Eligible Originator"), (d) which has not been identified in the Transferor or
Servicer's computer files as having been cancelled due to the Obligor's
bankruptcy or death, and (e) 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.
An "Eligible Receivable" means each Receivable (a) which has arisen under
an Eligible Account, (b) which was created in compliance, in all material
respects, with all applicable requirements of law pursuant to a credit card
account agreement which complies in all material respects, with all requirements
of applicable law, (c) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations with, any governmental
authority required to be obtained, effected or given by the Eligible Originator
or 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, effected or given and are in full force and effect as of such
date of creation, (d) as to which, immediately prior to the transfer of such
Receivables to the Trust by the Transferor, the Transferor had good 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 is the legal, valid
and binding payment obligation of the obligor thereon (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 affecting the enforcement of
creditors' rights in general ("Debtor Relief Laws") and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity), (f) which constitutes an "account," a
"general intangible" or "chattel paper" under and as defined in Article 9 of the
UCC as then in effect in the State of New York, (g) which, at the time of
transfer to the Trust, has not been waived or modified except for a Receivable
which has been waived or modified as permitted in accordance with the Eligible
Originator's Credit Card Guidelines, (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 its
obligations required to be satisfied by such time and (j) as to which the
Transferor has done nothing, as of the date of its Transfer, to impair the
rights of Trustee therein.
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 to transfer to the Trust all Receivables in such
Additional
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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 aggregate Principal Receivables is less than the Minimum Aggregate Principal
Receivables (which shall be the initial investor amount of each Series required
by the Pooling and Servicing Agreement, unless otherwise specified in the
applicable Series Supplement), 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.
Except as provided in the following paragraph, 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, (ii) each Additional Account shall be an
Eligible Account, (iii) if the Transferor is not obligated to designate
Additional Accounts as described above and the addition of such Additional
Accounts (a) would not cause the quotient of the sum of (x) the sum of the
Annual Net Account Additions after giving effect to such addition plus the
related Base Amount divided by (y) the related Base Amount, to exceed 1.20, or
(b) would not cause the quotient of (x) the sum of the Quarterly Net Account
Additions after giving effect to such addition plus the related Base Amount
divided by (y) the related Base Amount, to exceed 1.15, (iv) the Transferor
shall give the Trustee an executed transfer agreement together with a list of
such Additional Accounts, (v) the Transferor shall represent and warrant that
each Additional Account is an Eligible Account and selection procedures believed
by the Transferor not to be materially adverse to the interests of the
Certificateholders were used in selecting such Additional Accounts, (vi) 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, (vii)
the Transferor shall deliver an officer's certificate confirming the items
specified in clauses (ii), (iii), (iv), (v) and (vi) above, (viii) 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 and (ix) 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 to the Trustee a letter confirming that such addition will not
adversely affect the rating of the Certificates. The Transferor will deliver to
the Trustee a computer file, microfiche or written list of all such included
Accounts.
Additional 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 not be permitted under clause (iii) of the first sentence of the
preceding paragraph 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. 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.
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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 to 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 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 to the Trustee a letter confirming that such removal
will not cause the reduction or withdrawal of such Rating Agency's rating of any
certificates of any Series, (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 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 105% of the Minimum Transferor Amount (or,
if the Minimum Transferor Amount is zero, 5% of the Minimum Aggregate Principal
Receivables), 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. The Trustee will transfer back
to the Transferor all Receivables in specified Accounts, without complying with
the conditions specified above, in the limited circumstances described in
"-- Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge
Offs."
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, elect (the
"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. The Transferor must
provide 30 days' prior written notice to the Servicer, the Trustee, and each
Rating Agency of any such increase, reduction or elimination, and such increase,
reduction or elimination will become effective on the date specified therein
only if (a) the Transferor has delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at the time, the Transferor reasonably believes that such increase, reduction or
elimination will not 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 and (b) if such
designation would cause the Discount Percentage to be less than 1% or more than
3%, the Seller, the Servicer and the Trustee shall have received written notice
from each Rating Agency that such increase, reduction or elimination will not
result in a reduction or withdrawal of the ratings of any outstanding rated
Series. On the date of processing of any collections during the time the
Discount Option is in effect, collections in an amount equal to the product of
(i) a fraction the numerator of which is the amount of Discount Option
Receivables and the denominator of which is the amount of all of the Principal
Receivables (including Discount Option Receivables) at the end of the prior
Monthly Period and (ii) collections of Receivables that arise in the Accounts
during such time that otherwise would be Principal Receivables, will be deemed
collections of Finance Charge Receivables and will be applied accordingly.
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
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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 Series 1997-2 Certificates. The
Servicer will also establish a "Principal Account" (a segregated demand deposit
account established with a "Qualified Institution," defined generally as a
depository institution or trust company, organized under the laws of the United
States or any state thereof, which at all times has a rating of P-1 by Moody's
Investors Service, Inc. ("Moody's") and of A-1+ by Standard & Poor's Ratings
Group ("Standard & Poor's", and together with Moody's, the "Rating Agency") in
the case of the certificates of deposit, short-term deposits or commercial
paper, or a rating from the applicable Rating Agency of Aaa or AAA, as
applicable, in the case of its long-term unsecured debt obligations, and which
is a member of the Federal Deposit Insurance Corporation. Notwithstanding the
preceding sentence, any institution, the appointment of which will not result in
a notice of a reduction or withdrawal of a rating on any certificates of any
Series with respect to which it is a Rating Agency (the "Rating Agency
Condition"), will be a Qualified Institution.
All payments to Certificateholders will be paid solely out of the amounts
in the Collection Account and Principal Account. Funds in the Collection and
Principal Accounts 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
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 rating
in the highest rating category 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. 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
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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
require 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 held for the benefit of the Class A
Certificateholders, the Class B Certificateholders and the holder of the
Collateral Indebtedness Interest, 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). 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 balance of the Cash Collateral Account (i.e., the "Available Cash
Collateral Amount") initially will be zero and will increase thereafter (i) to
the extent the Transferor elects, subject to the condition that the Rating
Agencies rating the Offered Certificates do not reduce such ratings, to apply
collections or Principal Receivables to decrease the Collateral Indebtedness
Amount, and (ii) to the extent Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1997-2 are required to be deposited therein
pursuant to the Loan Agreement.
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.
On each Distribution Date, if the Available Enhancement Amount is less than
the Required Enhancement Amount, the Servicer or the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1997-2 (to the extent available as
described below under "-- Application of Collections" and "-- Shared Excess
Finance Charge Collections") to increase the amount on deposit in the Cash
Collateral Account to the extent of such shortfall.
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 an 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 Certificateholders 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 Certificateholders (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, any
funds held in the Excess Funding Account will be released and treated as Shared
Principal Collections to the extent needed to cover Principal Payments due to or
for the benefit of such Series.
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Funds in the Excess Funding Account shall be invested by the Trustee, at
the direction of the Servicer, in Permitted Investments. Any earnings (net of
losses and investment expenses) 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 as a result and the Class D Investor Amount and
the Collateral Indebtedness Amount may be reduced. 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 Due
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.
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 Principal Receivables and Finance Charge Receivables and the amount
of collections allocable to the Accounts. For each Business Day in each Monthly
Period, the amount of collections allocated to Finance Charge Receivables for
all Accounts shall be an amount equal to the quotient of the amount of Finance
Charges actually assessed on all Accounts in the immediately preceding Monthly
Period divided by the number of Business Days in such Monthly Period. For the
purpose of allocating collections, the Servicer may estimate the amount of
collections allocable to the Accounts by using a fraction the numerator of which
is the Principal Receivables (without reduction for Discount Option Receivables)
as of the last day of the preceding Monthly Period and the denominator of which
is the amount of aggregate principal receivables in the entire Company credit
card portfolio as of such day. The Servicer may, however, adopt another method
to effect such allocations which the Servicer in good faith believes will more
accurately reflect the actual amount of Finance Charge Receivables and Principal
Receivables collected or the amount of collections allocable to the Accounts as
the case may be. All estimates of collections of Finance Charge Receivables will
be binding for all purposes on the Certificateholders, the Trustee and the
Transferor. Such allocations of collections to the Accounts are provisional only
and will be adjusted on each Determination Date to reflect actual collections in
respect of the Accounts.
The Investor Percentage will be calculated as follows:
Finance Charge Receivables (other than during the Rapid Amortization
Period) and Allocable Amounts. When used with respect to Finance Charge
Receivables (other than during the Rapid Amortization Period) and Allocable
Amounts at all times, the percentage equivalent of a fraction, (i) the
numerator of which shall be the Investor Amount on the last day of the
preceding Monthly Period (or on the Closing Date for the first Monthly
Period after the Closing Date), and (ii) the denominator of which shall be
the greater of (x) the sum of Principal Receivables and the amount on
deposit in the Excess Funding Account as of the end of such day and (y) the
sum of the numerators used to calculate the investor percentages with
respect to Finance Charge Receivables (other than during the Rapid
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Amortization Period) and allocable amounts for all Series outstanding as of
such date of determination (such percentage, the "Investor Floating
Percentage"). When used with respect to Finance Charge Receivables (other
than during the Rapid Amortization Period) and Allocable Amounts at all
times, the "Class A Floating Percentage", the "Class B Floating
Percentage", the "Collateral Floating Percentage", and the "Class D
Floating Percentage" shall each be calculated by substituting the Class A
Investor Amount, the Class B Investor Amount, the Collateral Indebtedness
Amount, and the Class D Investor Amount, respectively, each as of the last
day of the prior Monthly Period, in clause (i) above.
Finance Charge Receivables during the Rapid Amortization Period. When
used with respect to Finance Charge Receivables during the Rapid
Amortization Period, the percentage equivalent of a fraction (i) the
numerator of which shall be the Investor Amount as of the end of the day on
the last day of the Revolving Period and (ii) the denominator of which
shall be the greater of (x) the sum of Principal Receivables and the amount
held in the Excess Funding Account as of the end of the last day of the
preceding Monthly Period and (y) the sum of the numerators used to
calculate the investor percentages with respect to Finance Charge
Receivables for all Series outstanding as of such date of determination.
With respect to Finance Charge Receivables during the Rapid Amortization
Period, the "Class A Fixed Percentage", the "Class B Fixed Percentage", the
"Collateral Fixed Percentage", and the "Class D Fixed Percentage" shall
each be calculated by substituting the Class A Investor Amount, the Class B
Investor Amount, the Collateral Indebtedness Amount, and the Class D
Investor Amount, respectively, each as of the last day of the Revolving
Period, in clause (i) above.
Principal Receivables during the Revolving Period. When used with
respect to Principal Receivables during the Revolving Period, the
percentage equivalent of a fraction (i) the numerator of which shall be the
Investor Amount on the last day of the preceding Monthly Period (or on the
Closing Date for the first Monthly Period after the Closing Date), and (ii)
the denominator of which shall be the greater of (x) the sum of Principal
Receivables and the amount held in the Excess Funding Account as of the end
of such day and (y) the sum of the numerators used to calculate the
Investor Floating Percentages with respect to Principal Receivables for all
Series outstanding as of such date of determination (such percentage, the
"Investor Floating Percentage"). When used with respect to Principal
Receivables during the Revolving Period, the "Class A Floating Percentage",
the "Class B Floating Percentage", the "Collateral Floating Percentage",
and the "Class D Floating Percentage" shall each be calculated by
substituting the Class A Investor Amount, the Class B Investor Amount, the
Collateral Indebtedness Amount, and the Class D Investor Amount,
respectively, each as of the last day of the prior Monthly Period, in
clause (i) above.
Principal Receivables during the Accumulation Period and the Rapid
Amortization Period. When used with respect to Principal Receivables
during the Accumulation Period and the Rapid Amortization Period, the
percentage equivalent of a fraction, (i) the numerator of which shall be
the Investor Amount as of the end of the last day of the Revolving Period,
and (ii) the denominator of which shall be the greater of (x) the sum of
Principal Receivables and the amount held in the Excess Funding Account as
of the end of the last day of the preceding Monthly Period and (y) the sum
of the numerators used to calculate the investor percentages with respect
to Principal Receivables for all Series outstanding as of such date of
determination (such percentage, the "Investor Fixed Percentage"); provided,
however, that during the Accumulation Period, (A) the Investor Fixed
Percentage of Principal Receivables may be reset by and at the option of
the Servicer (and any such reset Investor Fixed Percentage will also apply
in any Rapid Amortization Period) for each Monthly Period to a fixed
percentage, which shall not be greater than the fraction described above
and shall not be less than the greater of (i) a fraction, (I) the numerator
of which shall be the Investor Amount on the last day of the preceding
Monthly Period, and (II) the denominator of which shall be the greater of
(x) the sum of Principal Receivables and the amount held in the Excess
Funding Account as of the end of such day and (y) the sum of the numerators
used to calculate the investor percentages with respect to Principal
Receivables for all Series outstanding as of such date of determination and
(ii) a fraction that when multiplied by the amount of collections allocable
to Principal Receivables for the preceding Monthly Period will equal 110%
of the sum of Class A Accumulation Amount and Class B Accumulation Amount
for such preceding Monthly Period,
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and (B) 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 the Servicer,
designate a different numerator to be used to determine such percentage.
With respect to Principal Receivables during the Accumulation Period and
the Rapid Amortization Period, the "Class A Fixed Percentage", the "Class B
Fixed Percentage", the "Collateral Fixed Percentage", and the "Class D
Fixed Percentage" shall each be calculated by substituting the Class A
Investor Amount, the Class B Investor Amount, the Collateral Indebtedness
Amount, and the Class D Investor Amount, respectively, each as of the last
day of the prior Revolving Period, in each clause (i) and clause (A)(i)(I)
above.
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 amount held in
the Principal Account on such date, minus (c) the aggregate amount of principal
payments made to the Class A Certificateholders prior to such date, minus (d)
the excess, if any, of the aggregate amount of Class A Investor Charge Offs for
all prior Distribution Dates over the sum of the aggregate amount of reimbursed
Class A Investor Charge Offs and, without duplication, 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 B Investor Amount" means, on any date of determination, an amount
equal to (a) the Class B Initial Investor Amount, minus (b) after the Class A
Investor Amount has been paid in full, the amount held in the Principal Account
on such date, minus (c) the aggregate amount of principal payments made to the
Class B Certificateholders prior to such date, minus (d) the aggregate amount of
Class B Investor Charge Offs for all prior Distribution Dates, minus (e) 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 (f)
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 (g) 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 (d), (e) and (f) and, without duplication, reductions of the Series
Adjustment Amount allocable to the Class B Certificates; provided, however, that
the Class B Investor Amount may not be reduced below zero.
"Collateral Indebtedness Amount" means, on any date of determination, an
amount equal to (a) the initial Collateral Indebtedness Amount equal to
$ , 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
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, 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.
"Class D Investor Amount" means, on any date of determination, an amount
equal to (a) the initial Class D Investor Amount equal to $ (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 Reallocated Principal Collections
used to make payments in respect of the Certificates and the Collateral
Indebtedness Interest on all prior Distribution Dates, minus (d) an amount 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
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deducted pursuant to the foregoing clauses (c) and (d) and, without duplication,
reductions of the Series Adjustment Amount allocable to the Class D
Certificates; provided, however, that the Class D Investor Amount may not be
reduced below zero.
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 Accumulation Period, the Investor Percentage will be fixed as of the
last day of the Revolving Period but can be reset as of the end of each month at
the Servicer's option to a fraction which shall not be greater than the Investor
Percentage that would otherwise be in effect in the absence of such a reset.
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 fixed percentage which will be equal to the Investor Percentage
with respect to Principal Receivables on the last day of the Revolving Period,
subject to any permitted reset of the Investor Percentage during the
Accumulation Period.
REALLOCATION OF CASH FLOWS
On or before each Distribution 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 such 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 such Distribution Date
and any unpaid Class A Servicing Fee for a prior Distribution Date exceeds (b)
the Class A Available Funds for the related 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 D Investor Amount will be reduced by the amount of such insufficiency (but
not by more than 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. 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. 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. Any such reduction in the Class A Investor Amount will
have the effect of slowing or reducing the return of principal and interest to
the Class A Certificateholders. In such case, the Class A Certificateholders
will bear directly the credit and other risks associated with their undivided
interest in the Trust. See "-- Allocation of Investor Default Amount; Adjustment
Amount; Investor Charge Offs".
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On or before each Distribution Date, the Servicer will determine the amount
(the "Class B Required Amount"), if any, by which (a) the sum of (i) Class B
Monthly Interest for such 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 such 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 such Distribution
Date and any unpaid Class B Servicing Fee for a prior Distribution Date exceeds
(b) the Class B Available Funds for the related Monthly Period, plus 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 D Investor Amount remaining after any adjustments made
thereto for the benefit of Class A Certificateholders will be reduced by the
amount of such insufficiency (but not by more than 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
will be reduced to zero, and the Collateral Indebtedness Amount remaining after
any adjustments made thereto for the benefit of Class A Certificateholders will
be reduced by the amount by which the Class D Investor Amount would have been
reduced below zero. 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, and the Class B Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust. See "-- Allocation
of Investor Default Amount; Adjustment Amount; Investor Charge Offs".
Reductions of the Class A Investor Amount or Class B Investor Amount will
thereafter be reimbursed and the Class A Investor Amount or Class B Investor
Amount, as applicable, increased to the extent of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1997-2 available for such
purposes on each Distribution Date. In addition, to the extent that such
reductions are due to the allocation of Series Adjustment Amounts, such
reductions 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 invested amount of the Trust. See
"-- Applications of Collections".
On or before each Distribution Date, the Servicer will determine the amount
(the "Collateral Required Amount"), if any, by which (a) the sum of (i)
Collateral Monthly Interest for such 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 (b) the Collateral Available Funds and Excess
Spread and Shared Excess Finance Charge Collections for the related Monthly
Period available to make payments with respect thereto, plus 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
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in clause (h) under "-- Application of Collections -- Excess Spread; Shared
Excess Finance Charge Collections". If the Collateral 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 the Class B
Required Amount or reimburse Class A Investor Charge Offs or Class B Investor
Charge Offs or pay certain other amounts will be used to fund the Collateral
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 Collateral Required Amount,
amounts, if any, on deposit 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, 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 will then 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 Class D Investor Amount remaining after any
adjustments made thereto for the benefit of Class A Certificateholders or Class
B Certificateholders will be reduced by the amount of such insufficiency (but
not by more than the Collateral 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.
APPLICATIONS OF COLLECTIONS
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.
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 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".
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(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".
(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 Class A Floating Percentage or Class A Fixed
Percentage, as applicable, of collections of Finance Charge Receivables with
respect to such Monthly Period, (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 Distribution Date, (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, if any, 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 the product of (i) the Class A Certificate Rate for the related
Interest Period, (ii) the outstanding principal amount of the Class A
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 Period and the
denominator of which is 360.
"Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (i) the Class B Floating Percentage or the Class B
Fixed Percentage, as applicable, of collections of Finance Charge Receivables
with respect to such Monthly Period, (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 Distribution
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<PAGE> 58
Date, (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, if any, 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 the product of (i) the Class B Certificate Rate for the related
Interest Period, (ii) the outstanding principal amount of the Class B
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 Period and the
denominator of which is 360.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the Collateral Floating Percentage or the Collateral Fixed
Percentage, as applicable, 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 in accordance with the Pooling and
Servicing Agreement).
"Class D Available Funds" means, with respect to any Monthly Period, an
amount equal to the Class D Floating Percentage or the Class D Fixed Percentage,
as applicable, 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 in accordance with the Pooling and Servicing
Agreement).
"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.
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) 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 collections of Principal Receivables;
(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 Distribution Date, plus any additional interest with respect to
interest amounts that were due but not paid
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<PAGE> 59
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 Collection of Principal Receivables allocated to the
Certificates.
(j) an amount equal to the excess, if any, of the Required Cash
Collateral Amount over the Available Cash Collateral Amount (without giving
effect to any deposit made on such date under the Agreement) will be
deposited into the Cash Collateral Account;
(k) 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;
(l) 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;
(m) 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";
(n) an amount equal to unreimbursed reductions of the Class D Investor
Amount, if any, due to: (i) Class D Investor Charge Offs; (ii) 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 Collections of Principal
Receivables;
(o) an amount equal to the aggregate of any other amounts then due to
the Collateral Indebtedness Holder pursuant to the Loan Agreement will be
applied in accordance with the Loan Agreement;
(p) an amount equal to the excess, if any, of the Required Reserve
Account Amount over the amount on deposit in the Reserve Account will be
deposited into the Reserve Account; and
(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.
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"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 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 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) the Collateral Rate for the related
Interest Period, (ii) the outstanding principal amount of the Collateral
Indebtedness Interest 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 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 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 as of the end of the prior Monthly Period exceeds
the Required Enhancement Amount as of the end of the prior Monthly Period, 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 at least 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 end of the prior Monthly Period 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) collections of Principal
Receivables allocated to the Investor Amount during the preceding Monthly
Period (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 as of the end of the prior Monthly Period to the Required
Enhancement Amount as of the end of the prior Monthly Period;
(B) after the Class B Investor Amount is paid in full, the Enhancement
Distribution Amount shall be equal to the collections of Principal
Receivables allocated to the Investor Amount during the preceding 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.
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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 Invested 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
(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 and applied as described under
"-- Shared Principal Collections".
"Class A Monthly Principal" with respect to any Distribution Date relating
to the Accumulation Period, 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, the Class A Accumulation Amount for such
Distribution Date, and (iii) the Class A Investor Amount on such Distribution
Date.
"Class B Monthly Principal" with respect to any Distribution Date relating
to the Accumulation Period, 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, the Class B
Accumulation Amount for such Distribution Date, and (iii) the Class B 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 on deposit 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, provided that the Transferor shall have elected to pay such
Collateral Monthly Principal, and with respect to each Distribution Date
beginning with the
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Distribution Date on which the Class B Certificates have been paid in full, the
lesser of (i) the Available Principal Collections on deposit 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 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, 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 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.
"Class A Accumulation Amount" means for any Distribution Date with respect
to the Class A Accumulation Period, equal to one-twelfth ( 1/12th)of the Class A
Investor Amount as of the beginning of the Accumulation Period.
"Class B Accumulation Amount" means for any Distribution Date with respect
to the Class B Accumulation Period, an amount equal to one-half ( 1/2)of the
Class B Investor Amount as of the beginning of the Accumulation Period.
"Controlled Deposit Amount" means, for any Distribution Date with respect
to the Accumulation Period, an amount equal to the sum of the Class A
Accumulation Amount and the Class B 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 Class A Accumulation Amount or
Class B Accumulation Amount, as applicable 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 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.
"Required Enhancement Amount" means, with respect to any Distribution Date,
an amount equal to the product of the Investor Amount and %, but not less
than $ ; provided, however, that (i) if a Rapid Amortization Event
occurs, then the Required Enhancement Amount shall equal the Required
Enhancement Amount on the Distribution Date immediately preceding such Rapid
Amortization Event, (ii) in no event shall the Required Enhancement Amount
exceed the sum of the Class A Investor Amount and the Class B Investor Amount on
such date and (iii) the Required Enhancement Amount may be reduced without the
consent of the 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 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 Rapid Amortization Event, or an event that, after the giving of
notice or the
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lapse of time, would constitute a Rapid Amortization Event, to occur with
respect to Series 1997-2 and (z) the Transferor shall have delivered an opinion
of counsel, acceptable 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>
July 1 - July 30......................... Monthly Period
July 31.................................. Record Date
August 11................................ Determination Date
August 14................................ Transfer Date
August 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 (each a
"Paired Series"). Each 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 invested 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 invested 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 conditions described above under
"-- General." 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 used to
determine the Investor Percentage applicable to collections with respect to
Principal Receivables may be reduced upon the commencement of a Rapid
Amortization Period with respect to a Paired Series and a corresponding increase
in the numerator used to determine the Investor Percentage applicable to
collections of Principal Receivables for the Paired Series would be effected.
See "Maturity Assumptions."
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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 the earlier of (i)
the last day of the seventh calendar month after which the customer has failed
to make a qualifying minimum payment on a delinquent Account and (ii) 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. A portion of all
Defaulted Receivables (the "Investor Default Amount") will be allocated to the
Investor Amount for each Distribution Date in an amount equal to the product of
(a) the Investor Percentage applicable during the immediately preceding Monthly
Period and (b) the Default Amount for 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 Floating
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 Floating 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 Floating 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 Floating 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
Floating 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 as of the
end of the related Monthly Period and (ii) the percentage equivalent of a
fraction the numerator of which is the Class A Investor Amount and the
denominator of which is the 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 as of end of the related Monthly
Period and (ii) the percentage equivalent of a fraction the numerator of which
is the Class B Investor Amount and the denominator of which is the 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 as of the end of 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 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 as of the end of the related
Monthly Period and (ii) the
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percentage equivalent of a fraction the numerator of which is the Class D
Investor Amount and the denominator of which is the 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 "-- Application 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
"-- Application 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 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. 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. 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
(a "Class A Investor Charge Off"), which will have the effect of slowing or
reducing the return of principal to the Class A Certificateholders. 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 "-- Application 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 Class B Allocable Amount for such Distribution
Date. In the event that such reduction would cause the Class D
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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. 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 (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 "-- Application 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 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 the Class B Required Amount, to reimburse Class A Investor
Charge Offs or Class B Investor Charge Offs or to pay certain other amounts,
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 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 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.
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 "-- Application 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.
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, 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 Class D Investor Amount 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 Class D Investor Amount 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
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excess of 0%, the Transferor may, during the Revolving Period, designate a lower
percentage (not less than 0%) if the Class D Investor Amount 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, that such
lower percentage may not be less than 2% if the Class D Investor Amount 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 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 in the proportion that each Series' investor
amount bears to the aggregate investor amounts for all Series outstanding (a
"Series Adjustment Amount"). The Series Adjustment Amount will be allocated as
described above under "-- Allocation of Investor Default Amount; Adjustment
Amount; 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 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 Ineligible Receivables 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 Investor Amount, the Class B 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 Investor Amount plus the amount held in the Principal Account,
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 Distribution Date which occurs in , 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 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
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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 other amounts will not result in a reduction in the Invested
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. 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.
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PAY OUT EVENTS
As described above, the Revolving Period will continue through and include
the last day of the 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 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 Yield 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 (not including amounts
in the Principal Account) on the Class A Expected Final Distribution Date
or failure to pay the Class B Investor Amount (not including amounts in the
Principal Account) on the Class B Expected Final Distribution Date; or
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(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 5 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;
then (i) 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 as of the date of such notice, and (ii) in the case of any such
event described in clauses (a), (b), (e), (f) or (g) above, a Pay Out Event
shall occur without any notice or other action.
"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 and (iii) the amount of funds withdrawn from the Reserve Account less
(iv) an amount equal to the amount of Defaulted Receivables allocable to the
Series 1997-2 Certificates for such Monthly Period, and the denominator of which
is the Investor Amount plus the amount held in the Principal Account as of the
last day of the Monthly Period.
"Base Rate" means the sum of (i) the annualized percentage equivalent of a
fraction, the numerator of which is the aggregate amount of interest payable on
the Series 1997-2 Certificates on the following Distribution Date and the
denominator of which is the Investor Amount plus the amount on deposit in the
Principal Account as of the last day of such Monthly Period and (ii) the product
of (a) 2% percent per annum and (b) a fraction, the numerator of which is the
Investor Amount as of the last day of the prior Monthly Period and the
denominator of which is the Initial Investor Amount.
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 each Monthly Period will be equal to one-twelfth
( 1/12th) of the product of 2% and the 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 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 performance of
its duties is no longer permissible under applicable law. 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 obligation 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 from
and against any loss, liability, expense, damage or injury suffered or
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sustained by them and arising out of the activities of the Trust or the Trustee
for which the Servicer is responsible pursuant to the Pooling and Servicing
Agreement; provided, however, that the Servicer shall not indemnify (a) the
Transferor, the Trust, 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.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below) that has not been
remedied, either the Trustee or the Certificateholders evidencing undivided
interests aggregating more than 50% of the principal amount of outstanding
certificates of each Series, by written notice to the Servicer (and to the
Trustee, if given by the Certificateholders), 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 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
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successor Servicer for servicing compensation not in excess of the Servicing
Fee. 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 retransfer of all of
the Receivables. The deposit amount of such a retransfer 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 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;
(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 (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 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
enhancement), and which continues to be incorrect 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 or 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.
REPORTS TO CERTIFICATEHOLDERS
By each Distribution Date, the Paying Agent will forward to each
Certificateholder of record 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
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processed during the immediately preceding Monthly Period; (b) the Invested
Percentage for such Monthly Period; (c) the aggregate outstanding balance of the
Accounts which were delinquent by 31 days, 61 days and 91 days or more as of the
billing date for each such Account occurring in the Monthly Period immediately
preceding such Distribution Date; (d) the Investor Default Amount for such
Distribution Date; (e) the amount of Investor Charge-Offs and the amount of
reimbursements thereof for such Distribution Date; (f) the amount of the
Servicing Fee for such Distribution Date; (g) the aggregate amount of
Receivables in the Trust at the close of business on the last day of the Due
Period preceding such Distribution Date; (h) the Investor Amount at the close of
business on the last day of the Due Period immediately preceding such
Distribution Date; (i) whether a Rapid Amortization Event shall have occurred;
and (j) certain information relating to the floating or variable Certificate
Rates, if applicable, for the immediately preceding Due Period. The Trustee will
make such statement available to the Certificateholders or Certificate Owners
upon request.
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 March 31 of each calendar year beginning with 1998, 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
Transferor containing the information required to be contained in the regular
monthly report to 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.
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 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 tax opinion originally delivered,
(iv) the satisfaction of rating agency conditions and (v) 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 April 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 compliance with
specified sections of the Pooling and
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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 which
generated such amounts and deliver a report to the Trustee confirming that such
amounts are in agreement, 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 April 30 of each calendar year, beginning with 1998, of an annual
statement signed by an officer of the Servicer to the effect that the Servicer
has fully performed its obligations under the Pooling and Servicing Agreement
throughout the preceding year, 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, 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 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 the Certificates
evidencing undivided interests aggregating more than 50% of the investor amount
of each 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. 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 without the consent of all the related Investor Certificateholders,
(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
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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 adversely affected thereby.
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 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 "Certain 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
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 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.
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The Trustee's address is , ,
, Attention: Corporate Trust Department, telephone number ( )
- .
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC (in the United
States), 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.
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 DTC rules.
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 Invested 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.
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Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Certificates among participants of DTC, it is under no obligation
to perform or continue to perform such procedures and such procedures may be
discontinued at any time.
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 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
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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.
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 each Additional Account added from time to time to the Accounts,
as of the date of such addition each of the Sellers shall transfer such
Receivables and all Receivables thereafter created in such Accounts to the
Transferor. The purchase price of the purchased Receivables will be the unpaid
balance at the time of the sale less a fee equal to the amount determined from
time to time in accordance with the Receivables Purchase Agreement. 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 has 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 an amount equal to 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 consummate the transactions contemplated by the applicable Receivables
Purchase
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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 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 purchase price for such Ineligible
Receivable shall be the face amount of thereof, 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 process 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 for an 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.
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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.
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) and, if
such proceeding is not voluntary and is not dismissed within the time periods
provided in each Receivables Purchase Agreement, the Sellers will immediately
cease to sell or transfer Receivables to the Transferor and promptly give notice
of such event to the Transferor and to the Trustee.
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 exists 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 warrants, 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 as permitted under the Pooling and Servicing Agreement. In
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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 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 from the Sellers, forming trusts, transferring such
Receivables to such trusts 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 maintain its own
payroll and separate books of account and will maintain an office separate from
the Company or any of its affiliates, (iii) except for commingling of certain
cash when payments on Receivables are paid in the Seller's retail stores, the
Transferor will not commingle any of its money or other assets with those of the
Company or any of its affiliates, (iv) the Transferor will maintain separate
bank accounts in its own name and (v) the Transferor will not acquire
obligations or securities of, or make loans or advances to, any of its
affiliates, except for subordinated notes payable to the Sellers and arising out
of sales to and by the Transferor of Receivables.
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
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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 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, PROPOSED LEGISLATION AND RECENT LITIGATION
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
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the finance charges that may be charged on credit card balances. 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."
DILUTION
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. 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 Collection Account. Any such cash will be treated as Principal Collections.
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material anticipated Federal
income tax aspects 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 change, possibly
retroactively. 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 ADVISED 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.
The discussion assumes that the Certificates will be issued in registered
form, will have all payments denominated in U.S. dollars and will have a term
that exceeds one year. Moreover, the discussion assumes that the interest
formula for the Certificates meets the requirements for "qualified stated
interest" under
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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. If any of those assumptions are not met with regard to a
particular Series of Certificates subsequently offered, additional tax
considerations will be disclosed in the applicable Prospectus Supplement.
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
The Trust could be viewed for Federal income tax purposes either as (1) a
collateral arrangement for debt issued directly by the Transferor and any other
holders of equity interests in the Trust or (2) a separate entity issuing its
own debt and owned by the Transferor and any other holders of equity interests
in the Trust. However, in the opinion of Special Tax Counsel, in the former
event the Trust will be disregarded for Federal income tax purposes and in the
latter event the Trust would be a partnership rather than an association (or
publicly traded partnership) taxable as a corporation. Therefore, in the opinion
of Special Tax Counsel, the Trust will not be subject to Federal income tax.
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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<PAGE> 86
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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<PAGE> 87
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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<PAGE> 88
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 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
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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 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
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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 agreed to purchase from the
Transferor, the principal amount of Offered Certificates set forth opposite
their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS
--------------------------------------
CLASS A CLASS B
UNDERWRITERS CERTIFICATES CERTIFICATES TOTAL
- ------------ ------------ ------------ --------
<S> <C> <C> <C>
NationsBanc Capital Markets, Inc............................ $ $ $
</TABLE>
The Transferor has been advised by the Underwriters that they propose
initially to offer the Offered Certificates to the public at the prices set
forth on the cover page hereof, and to certain dealers at such prices less a
selling concession not in excess of the percentage set forth below for each
class of Offered Certificates. The Underwriters may allow, and such dealers may
reallow to certain other dealers, a subsequent concession not in excess of the
percentage set forth below for each class of Offered Certificates. After the
initial public offering, the public offering price and such concessions may be
changed.
<TABLE>
<CAPTION>
SELLING
CONCESSIONS REALLOWANCE
----------- -----------
<S> <C> <C>
Class A Certificates........................................
Class B Certificates........................................
</TABLE>
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. The Transferor and the Company have agreed with the
Underwriters that for a period ending 30 days from the date of this Prospectus,
not to offer for sale, sell, contract to set or otherwise dispose of, directly
or indirectly, or file a registration statement for, or announce any offering of
any securities of the Transferor, the Company or any entity controlled by either
of them or a trust formed by any of them which are substantially similar to the
Offered Certificates without the prior written consent of NationsBanc Capital
Markets, Inc., except for sales of Receivables to and by the Younkers Master
Trust which currently purchases all Younkers credit card receivables arising
under the Company's Younkers credit card.
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 NationsBanc
Capital Markets, Inc., is agent bank and a lender to the Company and certain of
its affiliates under an existing $275 million credit facility that is in the
process of being amended to increase the amount of such facility to $325-$400
million.
The Underwriting Agreement provides that the Transferor and the Company
will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act.
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.
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INDEX OF KEY TERMS
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
Accounts................... 3
Accumulation Period........ 6
Accumulation Period
Length................... 37
Additional Accounts........ 3
Additional Account Cut-Off
Date..................... 38
Aggregate Investor
Amount................... 39
Allocable Amount........... 59
Automatic Additional
Accounts................. 3
Available Cash Collateral
Amount................... 9/44
Available Enhancement
Amount................... 8/56
Available Finance Charge
Collections.............. 4
Bankruptcy Code............ 12
Base Rate.................. 64
Benefit Plans.............. 83
Cash Collateral Account.... 9
Cede....................... ii
Certificate Owners......... ii/16
Certificate Rate........... 2
Certificateholders......... 2
Certificates............... 2
Class A Accumulation
Amount................... 56
Class A Accumulation
Period................... 6
Class A Additional
Interest................. 50
Class A Adjustment Amount.. 58
Class A Allocable Amount... 59
Class A Available Funds.... 51
Class A
Certificateholders....... 2
Class A Certificate Rate... 3
Class A Certificates....... front cover/1
Class A Expected Payment
Date..................... 3
Class A Fixed Percentage... 46
Class A Floating
Percentage............... 46
Class A Initial Investor
Amount................... 3
Class A Investor Amount.... 3/47
Class A Investor Charge
Off...................... 59
Class A Investor Default
Amount................... 58
Class A Monthly Interest... 51
Class A Monthly
Principal................ 55
Class A Pool Factor........ 34
Class A Required Amount.... 48
Class B Accumulation
Amount................... 56
</TABLE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
Class B Accumulation
Period................... 6
Class B Additional
Interest................. 51
Class B Adjustment Amount.. 58
Class B Allocable Amount... 59
Class B Available Funds.... 51
Class B Certificate Rate... 3
Class B
Certificateholders....... 2
Class B Certificates....... front cover/1
Class B Investor Charge
Off...................... 60
Class B Expected Payment
Date..................... 3
Class B Fixed Percentage... 46
Class B Floating
Percentage............... 46
Class B Initial Investor
Amount................... 3
Class B Investor Amount.... 3/47
Class B Investor Charge
Off...................... 60
Class B Investor Default
Amount................... 58
Class B Monthly Interest... 52
Class B Monthly
Principal................ 55
Class B Pool Factor........ 34
Class B Principal
Commencement Date........ 7
Class B Required Amount.... 49
Class B Subordinated
Principal Collections.... 45
Class D Additional
Interest................. 53
Class D Adjustment Amount.. 58
Class D Allocable Amount... 59
Class D Available Funds.... 52
Class D Certificate Rate... 54
Class D
Certificateholders....... 2
Class D Certificates....... 2
Class D Fixed Percentage... 46
Class D Floating
Percentage............... 46
Class D Investor Amount.... 47
Class D Investor Default
Amount................... 58
Class D Monthly Interest... 54
Class D Monthly
Principal................ 56
Class D Pool Factor........ 34
Closing Date............... 3
Code....................... 9
Collateral Additional
Interest................. 53
Collateral Adjustment
Amount................... 58
Collateral Allocable
Amount................... 59
Collateral Amortization
Period................... 54
Collateral Available
Funds.................... 52
Collateral Default
Amount................... 58
Collateral Fixed
Percentage............... 46
Collateral Floating
Percentage............... 46
</TABLE>
87
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
Collateral Indebtedness
Amount................... 47
Collateral Indebtedness
Holder................... 2
Collateral Indebtedness
Interest................. 2
Collateral Monthly
Interest................. 54
Collateral Monthly
Principal................ 55
Collateral Pool Factor..... 34
Collateral Rate............ 54
Collateral Required
Amount................... 49
Collection Account......... 9
Commission................. ii
Company.................... iii/1
Controlled Deposit
Amount................... 56
Credit Card Guidelines..... 14
Credit Services Center..... 20
Cut-Off Date............... 37
Debtor Relief Laws......... 40
Default Amount............. 58
Defaulted Accounts......... 58
Defaulted Receivables...... 58
Deficit Controlled
Accumulation Amount...... 56
Definitive Certificates.... 71
Department Stores.......... 1
Designated Portfolio....... 5/21
Determination Date......... 57
Discount Option............ 42
Discount Option
Receivables.............. 42
Discount Percentage........ 42
Distribution Date.......... front cover
DOL........................ 83
DTC........................ ii
DTC Rules.................. 70
Eligible Account........... 40
Eligible Originator........ 40
Eligible Receivable........ 40
Enhancement Distribution
Amount................... 54
Enhancement Providers...... 39
ERISA...................... 9
Excess Funding Account..... 44
Excess Spread.............. 52
Exchange................... 67
Exchange Act............... ii
Exchangeable Transferor
Certificate.............. 8
FASIT...................... 69/80
Final Regulation........... 83
Finance Charge Account..... 65
Finance Charge
Receivables.............. 4
Finance Charges............ 4
Foreign Investor........... 80
</TABLE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
General Account
Regulations.............. 85
Group One.................. 90
Herberger's................ 1
Indirect Participants...... 70
Ineligible Receivable...... 39
Investor Amount............ 2
Investor Default Amount.... 58
Investor Fixed
Percentage............... 46
Investor Floating
Percentage............... 46
Investor Monthly Service
Fee...................... 3
Investor Percentage........ 35
IRS........................ 78
Loan Agreement............. 44
McRae's.................... 1
Minimum Aggregate Principal
Receivables.............. 41
Minimum Transferor Amount.. 61
Minimum Transferor Interest
Percentage............... 60
Monthly Period............. 4
Monthly Servicer Report.... 66
Moody's.................... 43
Net Recoveries............. 4
Obligor.................... 40
Offered Certificates....... front cover/1
OID........................ 78
OID Regulations............ 78
over limit charges......... 23
Paired Series.............. 57
Parisian................... 1
Participants............... 16
Pay Out Event.............. 63
Paying Agent............... 43
Payment Date Statement..... 67
PCC........................ front cover/1
Permitted Investments...... 43
Pool Factors............... 34
Pooling and Servicing
Agreement................ front cover/1
Portfolio Yield............ 64
Principal Account.......... 43
Principal Receivables...... 4
Principal Shortfalls....... 62
Proffitt's................. 1
Proposed Regulations....... 81
Qualified Institution...... 43
Rapid Amortization
Period................... 3
Rating Agency.............. 43
Rating Agency Condition.... 43
Reallocated Principal
Collections.............. 48
Receivables................ front cover/3
</TABLE>
88
<PAGE> 95
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
Receivables Purchase
Agreements............... 5
Record Date................ 4
Removed Accounts........... 42
Required Enhancement
Amount................... 8/56
Reserve Account............ 43
Reserve Account Funding
Date..................... 44
Revolving Period........... 6
Scheduled Series 1997-2
Termination Date......... 15
Securities Act............. iii
Sellers.................... 2
Selling Subsidiaries....... 71
Series 1997-2.............. 1
Series 1997-2
Certificates............. 2
Series 1997-2 Supplement... 1
Series Adjustment Amount... 61
Series Supplement.......... 1
Servicer................... front cover/1
Service Transfer........... 65
Servicer Default........... 66
</TABLE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ------------------
<S> <C>
Servicing Fee.............. 5
Shared Excess Finance
Charge Collections....... 53/62
Shared Principal
Collections.............. 62
Shortfall Amount........... 44
Special Tax Counsel........ 78
Standard & Poor's.......... 43
Stated Series Termination
Date..................... 4
Subservicer................ front cover
Supplement................. 1
Transfer Agent and
Registrar................ 71
Transfer Date.............. 57
Transferor................. front cover/1
Transferor Amount.......... 8
Transferor Interest........ 2
Transferor Percentage...... 35
Trust...................... 1
Trustee.................... 1
UCC........................ 11
Underwriters............... 86
Underwriting Agreement..... 86
</TABLE>
89
<PAGE> 96
ANNEX I -- SERIES PREVIOUSLY ISSUED
PRIOR SERIES ISSUED
The table below sets forth the principal characteristics of the one Series
heretofore issued by the Trust, the Series 1997-1, which is in the same group of
Series ("Group One") as Series 1997-2. For more specific information with
respect to any Series, any prospective investor should contact Proffitt's, Inc.
as Servicer, 3455 Highway 80 West, Jackson, Mississippi 39209; telephone number
(601) 968-4400.
SERIES 1997-1
VARIABLE FUNDING CERTIFICATES
<TABLE>
<S> <C>
Initial Investor Amount.....................................
Investor Amount as of , 1997....................
Expected Investor Amount at end of Closing Date.............
Certificate Rate............................................
Expected Final Distribution Date............................
Enhancement.................................................
</TABLE>
90
<PAGE> 97
============================================================
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....................... ii
Incorporation of Certain Documents by
Reference................................. ii
Cautionary Notice Regarding Forward-Looking
Statements................................ iii
Prospectus Summary.......................... 1
Risk Factors................................ 11
Credit Card Program......................... 19
Composition of the Designated Portfolio..... 27
The Accounts................................ 30
The Trust................................... 30
PCC......................................... 31
The Company................................. 31
Use of Proceeds............................. 31
Maturity Assumptions........................ 31
Receivables Yield Considerations............ 33
Pool Factors................................ 34
Description of the Series 1997-2
Certificates and the Pooling and Servicing
Agreement................................. 34
Description of the Receivables Purchase
Agreements................................ 71
Certain Legal Aspects of the Receivables.... 74
Certain Federal Income Tax Consequences..... 77
State and Local Tax Consequences............ 82
ERISA Considerations........................ 82
Underwriting................................ 86
Legal Matters............................... 86
Index of Key Terms.......................... 87
Annex I -- Series Previously Issued......... 90
</TABLE>
------------------------
UNTIL , 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
$ % SERIES 1997-2
CLASS A CERTIFICATES
$ % SERIES 1997-2
CLASS B CERTIFICATES
PROFFITT'S CREDIT CORPORATION
TRANSFEROR
PROFFITT'S, INC.
Servicer
---------------------------
PROSPECTUS
---------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
UNDERWRITER OF THE CLASS B CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
DATED , 1997
============================================================
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of issuance and distribution of the Asset Backed
Securities, other than underwriting discounts, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ *
National Association of Securities Dealers, Inc. Filing
Fee....................................................... --
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Printing and Engraving...................................... *
Blue Sky Fees and Expenses.................................. *
Miscellaneous............................................... 10,000
Total.............................................
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of Proffitt's Credit Corporation include the
following provisions regarding indemnification:
(a) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation, or is
or was serving at the request of the Corporation as a director (including
an Independent Director), officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless by the Corporation to the fullest extent
legally permissible under the General Corporation Law of the State of
Delaware, as amended from time to time, against all expenses, liabilities
and losses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
(b) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraph (a) of this Article
XV, or in defense of any claim, issue or matter therein, he shall be
indemnified by the Corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith without the
necessity of any action being taken by the Corporation other than the
determination, in good faith, that such defense has been successful. In all
other cases wherein indemnification is provided by this Article XV, unless
ordered by a court, indemnification shall be made by the Corporation only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct
specified in this Article XV. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or
(iii) by the holders of a majority of the shares of capital stock of the
Corporation entitled to vote thereon.
(c) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
seeking indemnification did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Entry of a
judgment by
II-1
<PAGE> 99
consent as part of a settlement shall not be deemed a final adjudication of
liability for negligence or misconduct in the performance of duty, nor of
any other issue or matter.
(d) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
finial disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount unless is
shall ultimately be determined that he is entitled to be indemnified by the
Corporation. Expenses (including attorneys' fees) incurred by other
employees or agents of the Corporation in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by
the Corporation upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(e) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Nevada Revised
Statutes Section 78 300 or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this
Section (e) shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment.
(f) The indemnification and advancement of expenses provided by this
Article XV shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in an official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits.
<TABLE>
<S> <C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Incorporation of Proffitt's Credit Corporation.
3.2 -- By-laws of Proffitt's Credit Corporation.
4.1 -- Pooling and Servicing Agreement by and between Proffitt's
Credit Corporation, as Transferor, Proffitt's Inc., as
Servicer, and , as Trustee, dated as of
, 1997.*
4.2 -- Form of Series 1997-1 Supplement, including form of Series
1997-1 Variable Funding Certificate, and certain other
related Exhibits thereto.*
5.1 -- Opinion and consent of Alston & Bird LLP with respect to
legality.*
8.1 -- Opinion and consent of Alston & Bird LLP with respect to
certain Federal income tax matters.*
23.1 -- Consent of Alston & Bird LLP (included in its opinion filed
as Exhibit 5.1).*
23.2 -- Consent of Alston & Bird LLP (included in its opinion filed
as Exhibit 8.1).*
24.1 -- Powers of Attorney (included on Page II-5 of the Prospectus
and incorporated by reference herein).
</TABLE>
- ---------------
* To be filed by amendment.
II-2
<PAGE> 100
(b) Financial Statements
All financial schedules of Proffitt's Credit Corporation, Proffitt's,
Inc. and its subsidiaries have been omitted as they are not required under
the related instructions or are inapplicable.
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;"
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise,
II-3
<PAGE> 101
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the act and will
be governed by the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Birmingham, State of Alabama, on this 4th day of June
1997.
PROFFITT'S CREDIT CORPORATION
By: /s/ DOUGLAS E. COLTHARP
------------------------------------
Name: Douglas E. Coltharp
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Douglas E. Coltharp, Donald E. Wright and James
S. Scully and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including a Registration Statement filed under Rule 462(b) of the
Securities Act of 1993, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DOUGLAS E. COLTHARP President June 4, 1997
- ----------------------------------------------------- (Principal Executive Officer)
Douglas E. Coltharp
/s/ JAMES S. SCULLY Vice President, Treasurer and June 4, 1997
- ----------------------------------------------------- Assistant Secretary
James S. Scully (Principal Financial Officer)
/s/ DONALD E. WRIGHT Senior Vice President and June 4, 1997
- ----------------------------------------------------- Assistant Secretary
Donald E. Wright (Principal Accounting Officer)
/s/ MONTE L. MILLER Director June 4, 1997
- -----------------------------------------------------
Monte L. Miller
/s/ ANDREW L. STIDD Director June 4, 1997
- -----------------------------------------------------
Andrew L. Stidd
/s/ KEVIN P. BURNS Director June 4, 1997
- -----------------------------------------------------
Kevin P. Burns
</TABLE>
II-5
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
S-K
REFERENCE
NUMBER DESCRIPTION
- --------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of Proffitt's Credit Corporation.
3.2 By-laws of Proffitt's Credit Corporation.
4.1 Pooling and Servicing Agreement by and between Proffitt's
Credit Corporation, as Transferor, Proffitt's Inc., as
Servicer, and , as Trustee, dated as of
, 1997.*
4.2 Form of Series 1997-1 Supplement, including form of Series
1997-1 Variable Funding Certificate, and certain other
related Exhibits thereto.*
5.1 Opinion and consent of Alston & Bird LLP with respect to
legality.*
8.1 Opinion and consent of Alston & Bird LLP with respect to
certain Federal income tax matters.*
23.1 Consent of Alston & Bird LLP (included in its opinion filed
as Exhibit 5.1).*
23.2 Consent of Alston & Bird LLP (included in its opinion filed
as Exhibit 8.1).*
24.1 Powers of Attorney (included on Page II-5 of the Prospectus
and incorporated by reference herein).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PROFFITT'S CREDIT CORPORATION
ARTICLE I
NAME
The name of the Corporation is Proffitt's Credit Corporation.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The name of the initial resident agent and the street address of the
initial registered office in the State of Nevada where process may be served
upon the Corporation is Schreck, Jones & Godfrey, Chartered, 600 East Charleston
Blvd., Las Vegas, Clark County, Nevada 89104. The Corporation may, from time to
time, in the manner provided by law, change the resident agent and the
registered office within the State of Nevada. The Corporation may also maintain
an office or offices for the conduct of its business, either within or without
the State of Nevada.
ARTICLE III
CORPORATE PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage exclusively in the following activities:
(a) to purchase or otherwise acquire from time to time any or all
right, title and interest in, to and under certain receivables generated by
Proffitt's, Inc., a Tennessee corporation ("Proffitt's), and/or certain
affiliates of Proffitt's from time to time in its ordinary course of business,
monies due thereunder, any related fees and charges, security interests in the
property, if any, financed thereby, and related rights (collectively,
"Receivables"), and to enter into any related agreements with third parties or
any affiliates;
<PAGE> 2
(b) to purchase, acquire, own, hold, service, process, settle, collect,
sell, securitize, assign, pledge and otherwise deal with the Receivables,
collateral securing the Receivables and any proceeds or further rights
associated with any of the foregoing and to enter into any related agreements
with third parties or any affiliates;
(c) to manage and service the Receivables pursuant to one or more
servicing agreements or other agreements (the "Agreements") to be entered into
by and among, among others, the Corporation, and any entity acting as servicer
of the Receivables;
(d) to borrow funds and issue evidences of indebtedness in respect
thereof, and to sell and assign Receivables or interests in Receivables and
issue evidences of ownership or assignment in respect thereof, in each case in
order to finance or facilitate the purchase of Receivables, and to secure such
borrowings and indebtedness, as well as obligations incurred by the Corporation
in connection therewith or in connection with such sales, assignments and
ownership, with (and pledge and grant liens on and security interests in) assets
acquired from time to time by the Corporation and by other assets and properties
which the Corporation owns from time to time or in which it otherwise has a
right, title or interest; and
(e) to engage in any activity and to exercise any powers permitted to a
corporation under the laws of the State of Nevada that are incidental to the
foregoing and necessary, convenient or advisable to accomplish the foregoing.
ARTICLE IV
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE V
CAPITAL STOCK
The total number of shares of capital stock that the Corporation shall
have authority to issue is one thousand (1,000) shares designated as Common
Stock and the par value of each such share of Common Stock is one dollar
($1.00), amounting in the aggregate to one thousand dollars ($1,000.00).
-2-
<PAGE> 3
ARTICLE VI
DENIAL OF PREEMPTIVE RIGHTS
No holder of any class of capital stock of the Corporation, whether now
or hereafter authorized, shall be entitled, as such, as a matter of right, to
subscribe for or purchase any part of any new or additional issue of capital
stock of the Corporation of any class whatsoever, or of securities convertible
into or exchangeable for capital stock of the Corporation of any class
whatsoever, whether now or hereafter authorized, or whether issued for cash
property or services.
ARTICLE VII
NO LIABILITY OF HOLDERS OF CAPITAL STOCK FOR CORPORATE DEBTS
The holders of the capital stock of the Corporation shall not be
personally liable for the payment of the Corporation's debts and the private
property of the holders of the capital stock of the Corporation shall not be
subject to the payment of debts of the Corporation to any extent whatsoever.
ARTICLE VIII
BUSINESS COMBINATIONS
The Corporation expressly elects not to be governed by Nevada Revised
Statutes Sections 78 411-78 444.
ARTICLE IX
BOARD OF DIRECTORS
The members of the governing board of the Corporation are styled as
directors. The Board of Directors of the Corporation shall consist of at least
six (6) individuals who shall be elected in such manner as shall be provided in
the Bylaws of the Corporation. At least two of the directors of the Corporation
shall be Independent Directors as set forth in Article XI. The number of
directors may be changed from time to time in such manner as shall be provided
in the Bylaws of the Corporation.
The name and post office box or street address of the directors
constituting the first Board of Directors, which shall be six (6) in number,
are:
NAME ADDRESS
Doug Coltharp 750 Lakeshore Parkway
Birmingham, Alabama 35211
-3-
<PAGE> 4
Doug Markham 3455 Highway 80 West
Jackson, Mississippi 39209-7294
John White 3455 Highway 80 West
Jackson, Mississippi 39209-7294
Monte Miller Bank of America Plaza
Suite 1100
300 South Fourth Street
Las Vegas, Nevada 89101
Andrew L. Stidd Global Securitizations
53 Wall Street
New York, New York 10005
Kevin Burns Global Securitizations
53 Wall Street
New York, New York 10005
ARTICLE X
POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized:
(a) To make, alter, amend or repeal the Bylaws, except as otherwise
expressly provided in any Bylaw adopted by the holders of the capital stock of
the Corporation entitled to vote thereon. Any Bylaw may be altered, amended or
repealed by the holders of the capital stock of the Corporation entitled to vote
thereon at any annual meeting or at any special meeting called for that purpose.
(b) To determine the use and disposition of any surplus and net profits
of the Corporation, including the determination of the amount of working capital
required, to set apart out of any of the funds of the Corporation, whether or
not available for dividends, a reserve or reserves for any proper purpose and to
abolish any such reserves in the manner in which it was created.
(c) To designate, by resolution passed by a majority of the whole Board
of Directors, one or more committees, each committee to consist of one or more
directors of the Corporation at least one of which shall be an Independent
Director (as defined in Article XI below), which, to the extent provided in the
resolution designating the committee or in the Bylaws of the Corporation, shall,
subject to the limitations prescribed by law or otherwise in these Articles of
Incorporation, have and may exercise all the
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powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require such seal. Such committee or
committees shall have such name or names as may be provided in the Bylaws of the
Corporation or as may be determined from time to time by resolution adopted by a
majority of the whole Board of Directors.
(d) To exercise, in addition to the powers and authorities hereinbefore
or by law conferred upon it, any such powers and authorities and do all such
acts and things as may be exercised or done by the Corporation, subject,
nevertheless to the provisions of the laws of the State of Nevada and of these
Articles of Incorporation and of the Bylaws of the Corporation.
ARTICLE XI
INDEPENDENT DIRECTORS
The Board of Directors of the Corporation shall at all times include at
least two Independent Directors. To the fullest extent permitted by applicable
law, including the General Corporation Law of the State of Nevada as in effect
from time to time, the Independent Directors' fiduciary duty in respect of any
decision on any matters referred to in Article XVI shall be to the Corporation
(including its creditors) rather than solely to the Corporation's shareholders.
In furtherance of the foregoing, when voting on matters subject to the vote of
the Board of Directors, including those matters specified in Article XVI,
notwithstanding that the Corporation is not then insolvent, an Independent
Director shall take into account the interests of the creditors of the
Corporations as well as the interests of the Corporation. An Independent
Director may not be removed without the appointment of a successor Independent
Director. For purposes of this Article XI, (a) "Independent" shall mean, when
used with respect to any Person, a Person who (i) is in fact independent, (ii)
does not have any direct financial interest or any material indirect financial
interest in the Corporation or in any Affiliate of the Corporation, and (iii) is
not, and has not been within the immediately preceding two years, connected as
an officer, employee, promoter, underwriter, trustee, partner, director or
person performing similar functions with the Corporation, any Affiliate of the
Corporation or any Person with a material direct or indirect financial interest
in the Corporation, (b) "Person" shall mean any individual, corporation,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing, and (c) "Affiliate" shall mean, as to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by or is under
common control with such Person. For purposes of this definition, control of a
Person shall mean the power, directly or indirectly, to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
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ARTICLE XII
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE XIII
DIRECTORS PROTECTED
(a) A director shall be fully protected in relying in good faith upon
the books of account or other records of the Corporation or statements prepared
by any of its officers or by independent public accountants or by an appraiser
selected with reasonable care by the Board of Directors as to the value and
amount of the assets, liabilities and/or net profits of the Corporation, or any
other facts pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid, or with which the
Corporation's capital stock might properly be purchased or redeemed.
(b) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for beach of fiduciary duty
as a director except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a knowing violation of
law, (iii) under Nevada Revised Statutes Section 78 300, or (iv) for any
transactions for which the director derived any improper personal benefit. No
amendment to or repeal of the provisions set forth in the preceding sentence
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
ARTICLE XIV
TRANSACTIONS WITH DIRECTORS AND OFFICERS
No contract or transaction between the Corporation and one or more of
its directors, officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereon which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if (a) the material
facts as to his relationship or interest as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or the committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum,
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or (b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by the vote of a majority of the stockholders, or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE XV
INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS
(a) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the Corporation, or
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation, or is or was serving at the
request of the Corporation as a director (including an Independent Director),
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall be indemnified and held harmless by the
Corporation to the fullest extent legally permissible under the General
Corporation Law of the State of Delaware, as amended from time to time against
all expenses, liabilities and losses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding.
(b) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (a) of this Article XV, or
in defense of any claim, issue or matter herein, he shall be indemnified by the
Corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith without the necessity of any action
being taken by the Corporation other than the determination, in good faith, that
such defense has been successful in all other cases wherein indemnification is
provided by this Article XV, unless ordered by a court, indemnification shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct specified in this Article XV. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or (ii)
by the holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon.
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(c) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Entry of a judgment by consent as part of
a settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of duty, nor of any other issue or
matter.
(d) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an understanding by or on
behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation. Expenses (including attorneys' fees) incurred by other employees or
agents or the Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the Corporation upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
(e) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Nevada Revised Statutes Section 78
300 or (iv) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Section (e) shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
(f) The indemnification and advancement of expenses provided by this
Article XV shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
ARTICLE XVI
CORPORATE RESTRICTIONS
Notwithstanding any other provision of these Articles of Incorporation
and any provision of law that otherwise so empowers the Corporation, the
Corporation shall not,
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without the affirmative vote or consent of 100% of the members of the Board of
Directors (including, in each case, the Independent Directors), do any of the
following:
(a) engage in any business or activity other than those set forth in
Article III,
(b) incur any indebtedness, or assume or guaranty any indebtedness of
any other entity, other than (i) indebtedness arising from salaries, fees and
expenses to its professional advisors and counsel, directors, officers and
employees, (ii) indebtedness in respect of servicing fees (or similar fees
relating to the processing and administration of the Receivables) incurred in
the ordinary course of the Corporation's business pursuant to agreements with
third parties or any affiliates acting as servicer of the Receivables or any
portion thereof (or acting in a similar capacity relating to the processing and
administration of the Receivables), (iii) other indebtedness not exceeding
$9,750.00 at any one time outstanding, on account of incidentals of services
supplied or furnished to the Corporation and (iv) indebtedness incurred in
connection with the acquisition of the Receivables in the ordinary course of the
Corporation's business as set forth in Article III,
(c) dissolve or liquidate or take corporate action in furtherance of
any such action,
(d) consolidate or merge with or into any other entity or convey or
transfer its properties and assets substantially as an entirety to any entity,
unless:
(i) the entity (if other than the Corporation) formed or
surviving the consolidation or merger or which acquires the
properties and assets of the Corporation is organized and
existing under the laws of any State of the United States or
the District of Columbia, expressly assumes the due and
punctual payment or performance of any and all obligations of
the Corporation and has Articles of Incorporation containing
provisions substantially identical to the provisions of
Article III, Article XI, this Article XVI and Article XVIII,
(ii) immediately after giving effect to the transaction,
no default or event of default has occurred and is continuing
under any indebtedness of the Corporation or any agreements
relating to such indebtedness, and
(iii) such action shall be authorized by the affirmative
vote of a majority of the stockholders of the Corporation
entitled to vote thereon,
(e) sell, securitize or otherwise engage in a bulk transfer of the
Receivables (without regard to whether such action otherwise would be permitted
pursuant to the preceding paragraph (d)),
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(f) delete, amend, supplement or otherwise modify in any material
respect the terms and provisions of the primary agreements relating to the
acquisition, servicing or financing of the Receivables once entered into the
ordinary course of the Corporation's business as set forth in Article III,
(g) institute proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against it,
or file a petition seeking consent to reorganization or relief under any
applicable federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Corporation or of a substantial part of its property,
or make any assignment for the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become due, or take corporate
action in furtherance of any such action,
(h) delete, amend, supplement or otherwise modify any provision of
these Articles of Incorporation,
(i) delete, amend, supplement or otherwise modify any part of Articles
II, III, IV, V or IX of the Bylaws of the Corporation, or
(j) increase or reclassify the capital stock of the Corporation or
issue any additional shares of capital stock of the Corporation.
ARTICLE XVII
RESERVATION OF RIGHT TO AMEND
ARTICLES OF INCORPORATION
Subject to the limitations set forth in Article XVI, the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation, in the manner now or hereafter prescribed by
the law of the State of Nevada, and all rights of the stockholders herein are
granted subject to this reservation.
ARTICLE XVIII
CORPORATE PROCEDURES;
MAINTENANCE OF SEPARATE BUSINESS
The Corporation shall at all times (a) to the extent the Corporation's
office is located in the offices of any affiliate of the Corporation, pay fair
market rent for its office space located in the offices of such affiliate and a
fair share of any overhead costs, (b) maintain the Corporation's books,
financial statements, accounting records and other
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corporate documents and records separate from those of an affiliate or any other
entity, (c) not commingle the Corporation's assets with those of any affiliate
or any other entity, and not hold itself out as being liable for the debts of
another, (d) maintain the Corporation's books of account and payroll (if any)
separate from those of any affiliate of the Corporation, (e) act solely in its
corporate name and through its own authorized officers and agents, invoices and
letterhead, (f) separately manage the Corporation's liabilities from those of
any of its affiliates and pay its own liabilities, including all administrative
expenses for its own separate assets, provided that the Corporation's
stockholder or other affiliates may pay certain of the organizational costs of
the Corporation, and the Corporation shall reimburse any affiliate for its
allocable portion of shared expenses paid by such affiliate, (g) pay from the
Corporation's assets all obligations and indebtedness of any kind incurred by
the Corporation, and (h) operate in such a manner that it would not be
substantively consolidated with any other entity. The Corporation shall abide by
all corporate formalities, including the maintenance of current minute books,
and the Corporation shall cause its financial statements to be prepared in
accordance with generally accepted accounting principles in a manner that
indicates the separate existence of the Corporation and its assets and
liabilities. The Corporation shall not assume the liabilities of any affiliate,
and shall not guarantee the liabilities of any affiliate. The officers and
directors of the Corporation (as appropriate) shall make decisions with respect
to the business and daily operations of Corporation independent of and not
dictated by any affiliate of the Corporation.
ARTICLE XIX
INCORPORATOR
The name and mailing address of the Incorporator signing these Articles
of Incorporation is as follows:
Name Mailing Address
Stephen M. Sullivan, Esq. 600 East Charleston Blvd.
Las Vegas, Nevada 89104.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
this 3rd day of January 1997.
/s/ Stephen M. Sullivan, Esq.
--------------------------------------------
Stephen M. Sullivan, Esq.
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EXHIBIT 3.2
BYLAWS
OF
PROFFITT'S CREDIT CORPORATION
ARTICLE I
OFFICES
Proffitt's Credit Corporation (hereinafter called the "Corporation")
may establish or discontinue, from time to time, such offices and places of
business within or without the State of Nevada as the Board of Directors may
deem proper for the conduct of the Corporation's. business. The address of the
registered office of the Corporation in the State of Nevada is 600 East
Charleston Blvd., Las Vegas, Clark County, Nevada 89104. The name of its
registered agent at that address is Shreck, Jones & Godfrey, Chartered.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the holders of shares
of stock entitled to notice thereof and to vote thereat pursuant to the
provisions of the Articles of Incorporation (the "Annual Meeting of
Stockholders") for the purpose of electing directors and transacting such other
business as may come before it shall be held in each year at such time, on such
day and at such place, within or without the State of Nevada, as shall be
designated by the Board of Directors.
SECTION 2. Special Meetings. In addition to such special meetings as
are provided for by law or by the Articles of Incorporation, special meetings of
the holders of the Corporation's stock may be called at any time by the Board of
Directors and may be held at such time, on such day and at such place, within or
without the State of Nevada, as shall be designated by the Board of Directors.
SECTION 3. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders shall be given either by
delivering a notice personally or mailing a notice to each stockholder of record
entitled to vote thereat. If mailed, the notice shall be directed to the
stockholder in a postage prepaid envelope at his address as it appears on the
stock books of the Corporation unless, prior to the time of mailing, he shall
have filed with the Secretary a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to the address
designated in such request. Notice of each meeting of stockholders shall be in
such form as is approved by the Board of Directors and shall state the purpose
or purposes for which
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the meeting is called, the date and time when and the place where it is to be
held, and shall be delivered personally or mailed not more than sixty (60) days
and not less than ten (10) days before the day of the meeting. Except as
otherwise provided by law, the business which may be transacted at any such
meeting of stockholders shall consist of and be limited to the purpose or
purposes so stated in such notice. The Secretary or an Assistant Secretary of
the Corporation shall, after giving such notice, make an affidavit stating that
notice has been given, which shall be filed with the minutes of such meeting.
SECTION 4. Waiver of Notice. Whenever notice is required to be given
under any provision of law or of the Articles of Incorporation or the Bylaws, a
waiver thereof in writing or by telegraph, cable or other form of recorded
communication, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the person attends such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of stockholders need be
specified in any waiver of notice unless so required by the Articles of
Incorporation.
SECTION 5. Organization. The President of the Corporation shall preside
at all meetings of stockholders at which he is present, and shall call such
meetings of stockholders to order and preside thereat. If the President shall be
absent from any meeting of stockholders or if there be no President, the duties
otherwise provided in this Section 5 of Article II to be performed by him at
such meeting shall be performed at such meeting by the officer described in the
last sentence of Section 6 of Article V. The Secretary of the Corporation shall
act as secretary at all meetings of the stockholders, but in his absence the
chairman of the meeting may appoint any person present to act as secretary of
the meeting.
SECTION 6. Stockholders Entitled to Vote. The Board of Directors may
fix a date not more than sixty (60) days and not less than ten (10) days prior
to the date of any meeting of stockholders, or prior to the last day on which
the consent or dissent of stockholders may be effectively expressed for any
purpose without a meeting, as a record date for the determination of the
stockholders entitled to notice of and to vote at such meeting and any
adjournment thereof, or to give such consent or express such dissent, and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to notice of, and to vote at,
such meeting and any adjournment thereof, or to give such consent or express
such dissent, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any such record date fixed as aforesaid. The
Secretary shall prepare and make, or cause to be prepared and made, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each such stockholder and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary
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business hours, for a period of at least ten (10) days prior to the meeting,
either at a place specified in the notice of the meeting, within the city where
the meeting is to be held, or, if not so specified, at the place where the
meeting is to be held. Such list shall be produced and kept at the time and
place of the meeting during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
SECTION 7. Quorum and Adjournment. Except as otherwise provided by law
or by the Articles of Incorporation, the holders of a majority of the shares of
stock entitled to vote at the meeting present in person or by proxy shall
constitute a quorum at all meetings of the stockholders. If no date is stated on
a proxy, such proxy shall be presumed to have been executed on the date of the
meeting it is to be voted. Every proxy shall be revocable at the pleasure of the
stockholder executing it, unless otherwise provided by law. In the absence of a
quorum, the holders of a majority of such shares of stock present in person or
by proxy may adjourn any meeting, from time to time, until a quorum is present.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted which might have been transacted at the meeting as originally
called. No notice of any adjourned meeting need be given other than by
announcement at the meeting that is being adjourned, provided that if the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, then a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 8. Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
capital stock present in person or by proxy and entitled to vote at the meeting.
SECTION 9. Vote of Stockholders. Except as otherwise permitted by law
or by the Articles of Incorporation or the Bylaws, all actions by stockholders
shall be taken at a stockholders' meeting. Every stockholder of record, as
determined pursuant to Section 6 of this Article II, and who is entitled to
vote, shall be entitled at every meeting of the stockholders to one vote for
every share of stock standing in his name on the books of the Corporation. Every
stockholder entitled to vote or entitled to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy duly appointed by an instrument in writing,
subscribed by such stockholder and executed not more than three (3) years prior
to the meeting, unless the instrument provides for a longer period. The
attendance at any meeting of stockholders of a stockholder who may theretofore
have given a proxy shall not have the effect of revoking such proxy unless such
stockholder shall in writing so notify the secretary of the meeting prior to the
voting of the proxy. Unless otherwise provided by law, no vote on any question
upon which a vote of the stockholders may be taken need be by written ballot
unless the chairman of the meeting shall determine that it shall be by written
ballot or the holders of a majority of the shares of stock present in person or
by proxy and entitled to participate such vote shall so demand. In a vote by
written ballot each written ballot shall state the number of shares voted and
the name of the stockholder or proxy voting. Except
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as otherwise provided by law, by the Articles of Incorporation or by Section 17
of Article III, all elections of directors and all questions shall be decided by
the vote of the holders of a majority of the shares of stock present in person
or by proxy at the meeting and entitled to vote in the election or on the
question.
SECTION 10. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by law or by the Articles of Incorporation, any action
required to be taken, or which may be taken, at any meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of shares of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares of stock entitled to vote thereon were present and voted,
provided that prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Election and Term. Except as otherwise provided by law or by
the Articles of Incorporation, and subject to the provisions of Sections 15, 16
and 17 of this Article III, directors shall be elected at the Annual Meeting of
Stockholders to serve until the next Annual Meeting of Stockholders and until
their successors are elected and qualify or until their earlier death,
resignation, retirement, disqualification or removal.
SECTION 2. Qualification. A director need not be the record or
beneficial owner of shares of capital stock of the Corporation. Acceptance of
the office of director may be expressed orally or in writing.
SECTION 3. Number. The number of directors which shall constitute the
whole board shall be six (6). The number may be decreased or increased from time
to time by amendment of this Bylaw by the Board of Directors or the
stockholders. The Board of Directors shall, at all times, include at least two
independent Directors (as defined in the Articles of Incorporation).
SECTION 4. General Powers. The business, properties and affairs of the
Corporation shall be managed by the Board of Directors, which, without limiting
the generality of the foregoing, shall have power to elect and appoint officers
of the Corporation, to appoint and direct agents, to grant general or limited
authority to officers, employees and agents of the Corporation, to make, execute
and deliver contracts and other instruments and documents in the name and on
behalf of the Corporation and over its seal, without specific authority in each
case, and, by resolution adopted by a majority of the whole Board of Directors,
to appoint committees of the Board of Directors, the membership of which may
consist of one or more directors at least one of which shall be
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an independent Director as required by the Articles of Incorporation, and which
may advise the Board of Directors with respect to any matters relating to the
conduct of the Corporation's business. In addition, the Board of Directors may
exercise all the powers of the Corporation and perform and undertake all lawful
actions and things which are not reserved to the stockholders by law or by the
Articles of Incorporation or by these Bylaws.
SECTION 5. Place of Meetings. Meetings of the Board of Directors may be
held at any place, within or without the state of Nevada, from time to time
designated by the Board of Directors.
SECTION 6. Organization Meeting. A newly elected Board of Directors
shall meet and organize, and also may transact any other business which might be
transacted at a regular meeting thereof, as soon as practicable after each
Annual Meeting of Stockholders, at the place at which such meeting of
stockholders took place, without notice of such meeting, provided a quorum of
the whole Board of Directors is present. If such a quorum is not present, such
organization meeting may be held at any other time or place which may be
specified in a notice given in the manner provided in Section 8 of this Article
III for special meetings of the Board of Directors, or in a waiver of notice
thereof.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times as may be determined by resolution of the Board of
Directors and no notice shall be required for any regular meeting. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
SECTION 8. Special Meetings; Notice and Waiver of Notice. Special
meetings of the Board of Directors shall be called by the Secretary on the
request of the President or on the request in writing of any two directors
stating the purpose or purposes of such meeting. Notice of any special meeting
shall be in the form approved by the President. Notices of special meetings
shall be mailed to each director, addressed to him at his residence or usual
place of business, no later than two (2) days before the day on which the
meeting is to be held, or shall be sent to him at such place by telefax
transmission, cable or other form of recorded communication or be delivered
personally or by telephone not later than the day before such day of meeting.
Notice of any meeting of the Board of Directors need not be given to any
director if he shall sign a written waiver thereof either before or after the
time stated therein, or if he shall attend a meeting, except when he attends
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any special meeting of the Board of Directors need be specified in any
notice or written waiver of notice unless so required by the Articles of
Incorporation or by the Bylaws. Unless limited by law, by the Articles of
Incorporation or by the Bylaws, any and all business may be transacted at any
special meeting.
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SECTION 9. Organization of Meetings. The President of the Corporation
shall preside at all meetings of the Board of Directors at which he is present.
If the President shall be absent from any meeting of the Board of Directors, the
duties otherwise provided in this Section 9 of Article III to be performed by
him at such meeting shall be performed at such meeting by the officer described
in the last sentence of Section 6 of Article V. If no such officer is present at
such meeting, one of the directors present shall be chosen by the members of the
Board of Directors present to preside at such meeting. The Secretary of the
Corporation shall act as the secretary of all meetings of the Board of
Directors, and in his absence a temporary secretary shall be appointed by the
chairman of the meeting.
SECTION 10. Quorum and Manner of Acting. Except as otherwise provided
in this Section, at every meeting of the Board of Directors two (2) directors
shall constitute a quorum. Except as otherwise provided by law or by the
Articles of Incorporation, or by Section 17 of this Article III, or by Section 1
or Section 8 of Article IV, or by Section 3 of Article V, or by Article IX, the
majority vote of the directors present at any such meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a quorum,
a majority of the directors present may adjourn any meeting, from time to time,
until a quorum is present. No notice of any adjourned meeting need be given
other than by announcement at the meeting that is being adjourned. Members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation by a member of the Board
of Directors in a meeting pursuant to this Section 10 of Article III shall
constitute his presence in person at such meeting.
SECTION 11. Voting. On any question on which the Board of Directors
shall vote, the names of those directors voting and their votes shall be entered
in the minutes of the meeting if any member of the Board of Directors so
requests at the time.
SECTION 12. Action without a Meeting. Except as otherwise provided by
law or by the Articles of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if prior to such action all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing,
including by meant. of telefax transmission and the writing or writings are
filed with the minutes or proceedings of the Board of Directors or the
committee.
SECTION 13. Dividends. Dividends upon the outstanding shares of capital
stock of the Corporation, subject to, the provisions of the statutes and of the
Articles of Incorporation, may be declared by the Board of Directors at any
annual, regular or special meeting. Dividends may be declared and paid in cash,
in property or in shares of the Corporation, or in any combination thereof.
SECTION 14. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time
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to time in their sole and absolute discretion think proper as a reserve to meet
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Board of Directors shall
think conducive to the interest of the Corporation, and the Board of Directors
may modify or abolish any such reserve in the manner in which it was created.
SECTION 15. Resignations. Any director may resign at any time upon
written notice of resignation to the Corporation. Any resignation shall be
effective immediately unless a date certain is specified for it to take affect,
in which event it shall be effective upon such date, and acceptance of any
resignation shall not be necessary to make it effective, irrespective of whether
the resignation is tendered subject to such acceptance.
SECTION 16. Removal of Directors. Any director may be removed, either
for or without cause, at any time upon recommendation of the Board of Directors,
by action of the holders of a majority of the outstanding shares of stock
entitled to vote thereon either at a meeting of the holders of such shares or,
whenever permitted by law and the Articles of Incorporation, without a meeting
by their written consents thereto, provided, however, that an Independent
Director may not be so removed without the appointment of a successor
Independent Director.
SECTION 17. Filling of Vacancies. Except as otherwise provided by law
and the Articles of Incorporation, in case of any increase in the number of
directors, or of any vacancy in the Board of Directors, the additional director
or directors may be elected, or, as the case may be, the vacancy or vacancies
may be filled, either (a) by the Board of Directors at any meeting by
affirmative vote of a majority of the remaining directors though the remaining
directors be less than the quorum provided in Section 10 of this Article III, or
by a sole remaining director, or (b) by the holders of capital stock of the
Corporation entitled to vote thereon, either at an Annual Meeting of
Stockholders or at a special meeting of such holders called for that purpose.
The directors so chosen shall hold office until the next Annual Meeting of
Stockholders and until their successors are elected and qualify or until their
earlier death, resignation, retirement, disqualification or removal.
SECTION 18. Directors' Compensation. Any or all directors may receive
such reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. The Board of Directors shall
also have power in its discretion to provide for and to pay to directors
rendering services to the Corporation not ordinarily rendered by directors as
such, special compensation appropriate to the value of such services as
determined by the Board of Directors from time to time. Nothing herein contained
shall be construed to preclude any director from serving the Corporation or any
affiliate thereof in any other capacity and receiving compensation therefor.
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ARTICLE IV
COMMITTEES
SECTION 1. Constitution and Powers. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors, appoint one or more committees of the Board of Directors consisting
of one or more directors of the Corporation at least one of which shall be an
Independent Director, which committees shall, except as otherwise provided by
law, have such powers and duties as the Board of Directors shall properly
determine; provided, however, that no such committee shall have the authority of
the Board of Directors in reference to:
(a) amending the Articles of Incorporation;
(b) adopting an agreement of merger or consolidation;
(c) recommending to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets;
(d) recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution;
(e) filing a voluntary proceeding in bankruptcy;
(f) any action requiring the affirmative vote of two-thirds (2/3) or
more of the Board of Directors; and
(g) amending the Bylaws of the Corporation.
SECTION 2. Place of Meetings. Meetings of any committee of the Board of
Directors may be held at any place, within or without the State of Nevada, as
may be designated from time to time by the Board of Directors or such committee.
SECTION 3. Meetings; Notice and Waiver of Notice. Regular meetings of
any committee of the Board of Directors shall be held at such times as may be
determined by resolution either of the Board of Directors or of such committee
and no notice shall be required for any regular meeting. Special meetings of any
committee shall be called by the secretary thereof upon the request of any
member thereof. Notice of any special meeting of any committee shall be in the
form approved by the Chairman of the Board or the President, as the case may be.
Notices of special meetings shall be mailed to each member, addressed to him at
his residence or usual place of business, not later than two (2) days before the
day on which meeting is to be held, or shall be sent to him at his place by
telefax transmission, cable or any other form of recorded communication or be
delivered personally or by telephone not later than the day before such day
meeting. Neither the business to be transacted at, nor the purpose of, any
special meeting of any committee
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need be specified in any notice or written waiver of notice unless so required
by the Articles of Incorporation or the Bylaws. Notices of any such meeting need
not be given to any member of any committee if waived by him as provided in
Section 8 of Article III, and the provisions of such Section 8 with respect to
waiver of notice of meetings of the Board of Directors shall apply to meetings
of any committee as well.
SECTION 4. Organization of Meetings. The most senior officer of the
Corporation present, if any is a member of the committee, and, if not, the
director present who has served the longest as a director, except an otherwise
expressly provided by the Board of Directors or the committee, shall preside at
all meetings of any committee. The Secretary of the Corporation, except as
otherwise expressly provided by the Board of Directors, shall act as secretary
at all meetings of any committee and in his absence a temporary secretary shall
be appointed by the chairman of the meeting.
SECTION 5. Quorum and Manner of Acting. Except with respect to a
committee consisting of one (1) director, one-third (1/3) but in no event fewer
than two (2) of the members of any committee then in office shall constitute a
quorum for the transaction of business, and the vote of a majority of those
present at any meeting at which a quorum is present shall be the act of such
committee. In the absence of a quorum, a majority of the members of any
committee present may adjourn any meeting, from time to time, until a quorum is
present. No notice of any adjourned meeting need be given other than by
announcement at the meeting that is being adjourned. The provisions of section
10 of Article III with respect to participating in a meeting of a committee of
the Board of Directors and the provisions of Section 12 of Article III with
respect to action taken by a committee of the Board of Directors without a
meeting shall apply to participation in meetings of and action taken by any
committee.
SECTION 6. Voting. On any question on which any committee shall vote,
the names of those voting and their votes shall be entered in the minutes of the
meeting if any member of such committee so requests.
SECTION 7. Records. All committees shall keep minutes of their acts and
proceedings, which shall be submitted at the next regular meeting of the Board
of Directors unless sooner submitted at an organization or special meeting of
the Board of Directors, and any action taken by the Board of Directors with
respect thereto shall be entered in the minutes of the Board of Directors.
SECTION 8. Any vacancy among the appointed members of any committee of
the Board of Directors may be filled by affirmative vote of a majority of the
whole Board of Directors.
SECTION 9. Members' Compensation. Members of all committees may receive
such reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any
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member of any committee from serving the Corporation or any affiliate thereof in
any other capacity and receiving compensation therefor.
ARTICLE V
THE OFFICERS
SECTION 1. Officers--Qualifications. The elected officers of the
Corporation shall be a President, a Secretary and a Treasurer. The Board of
Directors may elect one or more Vice Presidents and elect or appoint such other
officers as may be deemed necessary. Assistant Secretaries, Assistant Treasurers
and other officers and agents may be appointed by the Board of Directors or may
be appointed pursuant to Section 6 of this Article V.
SECTION 2. Term of Office; Vacancies. So far as is practicable, all
elected officers shall be elected at the organization meeting of the Board of
Directors in each year and, except as otherwise provided in Sections 3 and 4 of
this Article V, and subject to the provisions of Section 6 of this Article V,
shall hold office until the organization meeting of the Board of Directors in
the next subsequent year and until their respective successors are elected and
qualify or until their earlier resignation or removal. All appointed officers
shall hold office during the pleasure of the Board of Directors and the
President. If any vacancy shall occur in any office, the Board of Directors may
elect or appoint a successor to fill such vacancy for the remainder of the term.
SECTION 3. Removal of Elected Officers. Any elected officer may be
removed at any time, either for or without cause, by affirmative vote of a
majority of the whole Board of Directors, at any regular meeting or at any
special meeting called for such purpose.
SECTION 4. Resignation. Any officer may resign at any time upon written
notice of resignation to the Corporation. Any resignation shall be effective
immediately unless a date certain is specified for it to take effect, in which
event it shall be effective upon such date, and acceptance of any resignation
shall not be necessary to make it effective, irrespective of whether the
resignation is tendered subject to such acceptance.
SECTION 5. Officers Holding More Than One Office. Any officer may hold
two or more offices the duties of which can be consistently performed by the
same person.
SECTION 6. The President. The President shall be the chief operations
officer of the Corporation. He shall implement the general directives, plans and
policies and shall establish operating and administrative plans and policies and
direct and coordinate the Corporation's organizational components, within the
scope of the authority delegated to him by the Board of Directors. He shall have
the primary responsibility for continuing the separate status of the Corporation
from any affiliated corporation and the proper segregation of corporate assets
from the assets of third parties who may have possession of assets of the
Corporation. He shall have general authority to execute bonds, deeds and
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contracts in the name and on behalf of the Corporation and responsibility for
the employment or appointment of such employees, agents and officers (except
officers to be elected or appointed by the Board of Directors pursuant to
Section 1 of this Article V) as may be required to carry on the operations of
the business, and he shall have authority to fix the compensation of such
employees, agents and officers as provided in Section 11 of this Article V. He
shall have authority to suspend or to remove any employee, agent or officer
(except an officer elected or appointed by the Board of Directors pursuant to
Section 1 of this Article V) of the Corporation. The President shall also be the
chief executive officer of the Corporation. He shall direct, coordinate and
control the Corporation's business and activities and its operating expenses and
capital expenditures and shall have general authority to exercise all the powers
necessary for the chief executive officer of the Corporation, all in accordance
with basic policies established by and subject to the control of the Board of
Directors. He shall be responsible for the employment or appointment of
employees, agents and officers (except officers to be elected or appointed by
the Board of Directors pursuant to Section 1 of this Article V) as may be
required for the conduct of the business and the attainment of the objectives of
the Corporation, and he shall have authority to fix compensation as provided in
Section 11 of this Article V. He shall have authority to suspend or to remove
any employee, agent or officer (except an officer elected or appointed by the
Board of Directors pursuant to Section 1 of this Article V) of the Corporation.
He shall have general authority to execute bonds, deeds and contracts in the
name and on behalf of the Corporation. As provided in Section 5 of Article II,
he shall act as chairman at all meetings of the stockholders at which he is
present, and, as provided in Section 9 of Article III, he shall preside at all
meetings of the Board of Directors at which he is present.
In the absence of the President, his duties shall be performed and his
authority may be exercised by such officer as may have been designated by the
most senior officer of the Corporation who has made any such designation, with
the right reserved to the Board of Directors to make the designation or
supersede any designation so made.
SECTION 7. The Secretary. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and
committees thereof, and, as provided in Section 5 of Article 11 and Section 9 of
Article III, shall keep minutes of all proceedings at meetings of the
stockholders and of the Board of Directors at which he is present, as well as of
all proceedings at all meetings of committees of the Board of Directors which he
has served as secretary, and where some other person has served as secretary
thereto, the Secretary shall maintain custody of the minutes of such
proceedings. As provided in Section 2 of Article VII, he shall have charge of
the corporate seal and shall have authority to attest any and all instruments or
writings to which the same may be affixed. He shall keep and account for all
books, documents, papers and records of the Corporation, except those for which
some other officer or agent is properly accountable. He shall generally perform
all the duties usually appertaining to the office of secretary of a corporation.
In the absence of the Secretary, an Assistant Secretary, if any, or such person
as shall be designated by the President shall perform his duties.
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SECTION 8. The Treasurer. The Treasurer shall have the care and custody
of all the funds of the Corporation and shall deposit the same in such banks or
other depositories as the Board of Directors or any officer or officers, or any
officer and agent jointly, hereunto duly authorized by the Board of Directors,
shall, from time to time,, direct or approve. He shall keep a full and accurate
account of all monies received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board of Directors shall
require. Except as otherwise provided by the Board of Directors or in the
Corporation's plan of organization, he shall perform all other necessary acts
and duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of the Treasurer of a corporation. Whenever required by the Board of
Directors he shall give bonds for the faithful discharge of his duties in such
sums and with such sureties as the Board of Directors shall approve. In the
absence of the Treasurer, an Assistant Treasurer, if any, or such person as
shall be designated by the President shall perform his duties.
SECTION 9. The Vice Presidents. The several Vice Presidents, if any,
shall perform such duties and may exercise such authority as may from time to
time be conferred upon them by the Board of Directors or the President.
SECTION 10. Additional Duties and Authority. In addition to the
foregoing specifically enumerated duties and authority, the several officers of
the Corporation shall perform such other duties and may exercise such further
authority as the Board of Directors may, from time to time determine, or as may
be assigned to them by any superior officer.
SECTION 11. Compensation. Except as fixed or controlled by the Board of
Directors or otherwise, compensation of all officers and employees shall be
fixed by the President, or by other officers of the Corporation exercising
authority granted to them under the plan of organization of the Corporation.
ARTICLE VI
STOCK AND TRANSFERS OF STOCK
SECTION 1. Stock Certificates. The capital stock of the Corporation
shall be represented by certificates signed by, in the name of the Corporation
by the President or the Vice President, and the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, and sealed with the seal
of the Corporation. Such seal may be a facsimile, engraved or printed. In case
any such officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued by the Corporation, it may nevertheless be issued by the Corporation
with the same effect as if such officer had not ceased to be such at the date of
its issue. The certificate representing the capital stock of the Corporation
shall be in such form as shall be approved by the Board of Directors.
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SECTION 2. Transfers of Stock. Transfers of stock shall be made on the
books of the Corporation by the person named in the certificate, or by an
attorney lawfully constituted in writing, upon surrender and cancellation of a
certificate or certificates for a like number of shares of the same class or
series of stock, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, with such proof of the authenticity of the
signatures as the Corporation or its agents may reasonably require and with all
required stock transfer tax stamps affixed thereto and canceled or accompanied
by sufficient funds to pay such taxes.
SECTION 3. Lost Certificates. In case any certificate of stock shall be
lost, stolen or destroyed, the Board of Directors, in its discretion, or any
officer or officers thereto duly authorized by the Board of Directors, may
authorize the issuance of a substitute certificate in place of the certificate
so lost, stolen or destroyed; provided, however, that in each such case the
applicant for a substitute certificate shall furnish evidence to the
Corporation, which it determines in its discretion is satisfactory, of the loss,
theft or destruction of such certificate and of the ownership thereof, and also
such security or indemnity as may be required of it.
SECTION 4. Determination of Holders of Record for other holders of
securities entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or other securities or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date not more than sixty (60) days prior to the date of payment of such
rights or the date when any such rights in respect of any change, conversion or
exchange of stock or securities may be exercised, and in such case only holders
of record on the date so fixed shall be entitled to receive payment of such
dividend or other distribution or to receive such allotment of rights, or to
exercise such rights, notwithstanding any transfer of any stock or other
securities on the books of the Corporation after any such record date fixed as
aforesaid.
ARTICLE VII
CORPORATE SEAL
SECTION 1. There shall be a corporate seal in such form as may be
approved from time to time by the Board of Directors, although the initial seal
of the Corporation may be approved by either the incorporator or the initial
Board of Directors of the Corporation. The seal shall be affixed to such
instruments and documents as required by law and may be affixed to instruments
where not required by law at the discretion of the Board of Directors or any
officer of the Corporation.
SECTION 2. Affixing and Attesting. The seal of the Corporation shall be
in the custody of the Secretary, who shall have power to affix it to the proper
corporate instruments and documents, and who shall attest it. In his absence, it
may be affixed and
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attested by an Assistant Secretary, or by the Treasurer or an Assistant
Treasurer, or by any person or persons as may be designated by the Board of
Directors.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall get
fixed by resolution of the Board of Directors.
SECTION 2. Signatures on Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officers or agents and in such manner as, from time to
time, may be described by resolution (whether general or special) of the Board
of Directors, or may be prescribed by any officer or officers, or any officer
and agent jointly, thereto duly authorized by the Board of Directors.
SECTION 3. Reference to Article and Section Numbers and to the Bylaws
and the Certificate of Incorporation. Whenever in the Bylaws reference is made
to an Article or Section such reference is made to an Article or Section of the
Bylaws. Whenever in the Bylaws reference is made to the Bylaws, such reference
is to these Bylaws of the Corporation, as amended, and whenever reference is
made to the Articles of Incorporation such reference is to the Articles of
Incorporation of the Corporation, as amended, including all documents deemed by
the General Corporation Law of the State of Nevada to constitute a part thereof.
SECTION 4. Invalid Provisions. If any provision of these Bylaws is held
to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable; these Bylaws shall be construed and enforced
as if such illegal, invalid or unenforceable provision had never comprised a
part hereof, and the remaining provision hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision there shall be added automatically as a part
of these Bylaws a provision as similar in terms to such illegal, invalid, or
unenforceable, provision as may be possible and be legal, valid, and
enforceable.
ARTICLE IX
AMENDMENTS
Any Bylaw in Articles II, III, IV, V or IX of these Bylaws may be
adopted, amended or otherwise modified as described in Article XVI of the
Articles of Incorporation. The Bylaws (other than those in Articles II, III, IV,
and V and IX of these Bylaws) may be altered, amended, or repealed at any Annual
Meeting of Stockholders, or at any special meeting of holders of shares of stock
entitled to vote thereon, provided that
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notice of such proposed alteration, amendment or repeal be included in the
notice of meeting, by a vote of the holders of a majority of the shares of stock
present in person or by proxy at the meeting and entitled to vote thereon, or
(except as otherwise expressly provided in any Bylaw adopted by the
stockholders) by the Board of Directors at any valid meeting by affirmative vote
of a majority of the whole Board of Directors or by the written consent of all
members of the whole Board of Directors.
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