<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 17, 1998
FILED PURSUANT TO
RULE 424(b)(2)
FILE NOS: 333-48739, 333-48739-01
PROFFITT'S CREDIT CARD MASTER TRUST
$200,000,000 CLASS A 6.00% ASSET BACKED CERTIFICATES, SERIES 1998-2
$21,500,000 CLASS B 6.15% ASSET BACKED CERTIFICATES, SERIES 1998-2
PROFFITT'S CREDIT CORPORATION PROFFITT'S, INC.
TRANSFEROR SERVICER
-------------
Each Class A 6.00% Asset Backed Certificate (collectively, the "Class A
Certificates") and each Class B 6.15% Asset Backed Certificate (collectively,
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 dated as of August 21, 1997 as amended and
supplemented (the "Pooling and Servicing Agreement"), among Proffitt's Credit
Corporation, as transferor (in such capacity, the "Transferor" or "PCC"),
Proffitt's, Inc., as servicer (the "Servicer"), and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee").
(Continued on the following page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND
PAGE 17 OF THE PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE OFFERED CERTIFICATES. THERE IS
CURRENTLY NO SECONDARY MARKET FOR THE OFFERED CERTIFICATES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP.
-------------
THE OFFERED CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL
NOT REPRESENT INTERESTS IN, OR RECOURSE OBLIGATIONS OF, PROFFITT'S, INC.,
PROFFITT'S CREDIT CORPORATION, NATIONAL BANK OF THE GREAT LAKES 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 THE PROSPECTUS OR THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate............. 99.89000% 0.30% 99.59000%
- --------------------------------------------------------------------------------
Per Class B Certificate............. 99.87000% 0.35% 99.52000%
- --------------------------------------------------------------------------------
Total............................... $221,252,050 $675,250 $220,576,800
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Plus accrued interest, if any, from May 21, 1998.
(2)Before deduction of expenses estimated to be $500,000.
-------------
The Offered 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 Offered Certificates will be delivered in book-entry form on or about May
21, 1998, through the facilities of The Depository Trust Company, Cedel Bank
societe anonyme and the Euroclear System, against payment therefor in
immediately available funds.
-------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN & CO.
UNDERWRITER OF THE CLASS B CERTIFICATES
NATIONSBANC MONTGOMERY SECURITIES LLC
-------------
The date of this Prospectus Supplement is May 14, 1998
<PAGE>
(Continued from cover)
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") from National Bank of the Great Lakes, Elmhurst, Illinois
(the "Bank") a wholly-owned subsidiary of Proffitt's, Inc. (the "Company") and
its affiliates, all monies due or to become due in payment of the Receivables,
and certain other property, as more fully described herein. Beneficial
interests in the Offered Certificates will be offered for purchase in
denominations of $1000 and integral multiples thereof (the "Offering"). The
Offered Certificates will be subject to optional early repurchase in the
discretion of the Transferor upon the satisfaction of certain conditions
described herein. In addition, a Collateral Indebtedness Interest (as defined
herein) having an initial principal amount of $24,000,000 will be issued to a
third party purchaser in a separate private offering concurrently with the
Offering and Class D Certificates (as defined herein) having an initial
principal amount of $16,000,000 will be retained by the Transferor as part of
Series 1998-2. The Collateral Indebtedness Interest and the Class D
Certificates will be subordinated to the Offered Certificates as described
herein and are not offered hereby. The Trust has previously issued three
Series of Investor Certificates which evidence undivided interests in certain
assets of the Trust which remain outstanding. In addition, from time to time
additional Series may be offered and sold in private or public offerings. Each
such future Series will evidence undivided interests in certain assets of the
Trust and may have terms significantly different from the Offered
Certificates. See "Description of the Certificates and the Pooling and
Servicing Agreement -- Optional Repurchase; Final Payment of Principal;
Termination" in the Prospectus.
Interest will accrue on the Class A Certificates at a rate of 6.00% per
annum. Interest will accrue on the Class B Certificates at a rate of 6.15% 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 June 1998 Distribution Date. Principal on the Class A Certificates is
scheduled to be paid in full on the May 2001 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 June 2001
Distribution Date, but may be paid earlier or later under certain
circumstances described herein. Principal on the Class B Certificates will not
be paid until the Class A Certificates have been paid in full. See "Maturity
Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates as
described herein. The Collateral Indebtedness Interest and the Class D
Certificates will be subordinated to the Class A Certificates and the Class B
Certificates, as described herein. The Offered Certificates, the Collateral
Indebtedness Interest and the Class D Certificates will also be entitled to
the benefits of the funds, if any, held in a Cash Collateral Account, as
described herein. See "Series Provisions -- Cash Collateral Account."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
CERTIFICATES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS,
SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF
SECURITIES IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND OTHER APPLICABLE LAWS AND REGULATIONS WITH RESPECT TO
ANYTHING DONE BY ANY PERSON IN RELATION TO SECURITIES IN FORM OR OTHERWISE
INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING."
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION WITH
RESPECT TO THE OFFERING OF THE CLASS A CERTIFICATES AND THE CLASS B
CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. SALES OF THE CLASS A CERTIFICATES AND THE CLASS B
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF SERIES TERMS............................................................................................ S-5
RISK FACTORS ...................................................................................................... S-10
Limited Credit Enhancement ................................................................................... S-10
Effect of Payment Rate on Certificate ........................................................................ S-10
Dependence on Department Stores .............................................................................. S-10
Limited Nature of Certificate Rating ......................................................................... S-10
Effect of Limited Subordination on Class B Certificates....................................................... S-11
Geographic Concentrations .................................................................................... S-11
CREDIT CARD PROGRAM................................................................................................ S-12
General ...................................................................................................... S-12
Legal Compliance ............................................................................................. S-14
Portfolio Information ........................................................................................ S-14
Credit Origination and Underwriting .......................................................................... S-16
Billing and Payments ......................................................................................... S-17
Delinquency, Collections and Losses .......................................................................... S-18
COMPOSITION OF THE TRUST PORTFOLIO................................................................................. S-21
THE ACCOUNTS ...................................................................................................... S-25
USE OF PROCEEDS ................................................................................................... S-25
MATURITY ASSUMPTIONS............................................................................................... S-25
RECEIVABLES YIELD CONSIDERATIONS................................................................................... S-27
POOL FACTORS ...................................................................................................... S-28
SERIES PROVISIONS ................................................................................................. S-29
General ...................................................................................................... S-29
Interest Payments ............................................................................................ S-30
Principal Payments ........................................................................................... S-30
Postponement of Accumulation Period .......................................................................... S-31
Cash Collateral Account ...................................................................................... S-31
Reserve Account .............................................................................................. S-32
Subordination of the Class B Certificates, the Collateral Indebtedness Interest and the Class D Certificates.. S-32
Investor Percentages and Transferor Percentage................................................................ S-33
Reallocation of Cash Flows ................................................................................... S-35
Applications of Collections .................................................................................. S-36
Example of Distributions ..................................................................................... S-45
Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge Offs............................... S-45
Allocation of Adjustment Amounts ............................................................................. S-48
Pay Out Events ............................................................................................... S-49
Servicing Compensation and Payment of Expenses................................................................ S-50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFERED CERTIFICATES................................................ S-51
General ...................................................................................................... S-51
Characterization of the Offered Certificates as Indebtedness.................................................. S-51
Treatment of the Trust ....................................................................................... S-52
Possible Classification of the Transaction as a Partnership or as an Association Taxable as a Corporation..... S-52
Taxation of Interest Income of U.S. Certificate Owners........................................................ S-53
STATE AND LOCAL TAX CONSEQUENCES................................................................................... S-53
UNDERWRITING ...................................................................................................... S-54
LEGAL MATTERS ..................................................................................................... S-56
INDEX OF KEY TERMS................................................................................................. S-57
ANNEX I -- OTHER SERIES............................................................................................ A-1
</TABLE>
S-3
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus Supplement and the
Prospectus may constitute forward-looking statements. Such forward-looking
statements may involve uncertainties and other factors that may cause the actual
results and performance of the Company, the Trust, the Accounts and the
Receivables to be materially different from future results or performance
expressed or implied by such statements. Cautionary statements regarding the
risks associated with such forward-looking statements include, without
limitation, those statements included under "Risk Factors" and elsewhere herein
or incorporated by reference herein or contained in the Prospectus or
incorporated by reference therein. Among others, factors that could adversely
affect actual results and performance include the following: 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 trade areas; competition among department and
specialty stores and other retailers, including general merchandise stores, mail
order retailers and off-price and discount stores; changes in merchandise mixes,
site selection and related traffic and demographic patterns; the Company's
identification and implementation of best practices; the Company's ability to
determine and implement appropriate merchandising strategies, merchandise flow,
and inventory turnover levels; realization of planned synergies and cost savings
in the Company's existing operations and in recent and future acquisitions; the
Company's ability to integrate recent and future acquisitions; and any adverse
effects of the Year 2000 problem on the Company, especially as a result of such
problems at third parties with which the Company does business. See "Risk
Factors" herein and "Risk Factors -- Forward-Looking Statements" in the
Prospectus.
S-4
<PAGE>
SUMMARY OF SERIES TERMS
The following summary sets forth and defines specific terms of the
Class A Certificates and the Class B Certificates offered hereby, but is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus Supplement and the Prospectus. Reference is made
to the Glossary in this Prospectus Supplement and the Index of Terms in the
Prospectus for the location herein and therein of certain capitalized terms.
Certain capitalized terms used but not defined herein have the meaning assigned
thereto in the Prospectus.
Title of Securities .................. $200,000,000 aggregate principal amount
of Class A 6.00% Asset Backed
Certificates, Series 1998-2 and
$21,500,000 aggregate principal amount
of Class B 6.15% Asset Backed
Certificates, Series 1998-2.
Class A Initial Investor Amount ...... $200,000,000
Class B Initial Investor Amount ...... $21,500,000
Class A Certificate Rate ............. 6.00% per annum, calculated on the basis
of a 360- day year consisting of twelve,
30-day months.
Class B Certificate Rate ............. 6.15% per annum, calculated on the basis
of a 360- day year consisting of twelve,
30-day months.
Series 1998-2 ........................ The Offered Certificates will be issued
pursuant to the Pooling and Servicing
Agreement as amended, and as
supplemented by the Series 1998-2
Supplement (the "Series 1998-2
Supplement") (hereinafter, the term
"Pooling and Servicing Agreement" unless
the context requires otherwise, refers
to the Pooling and Servicing Agreement
as amended, and as supplemented by the
Series 1998-2 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 1998-2
(the Offered Certificates, the
Collateral Indebtedness Interest and the
Class D Certificates are collectively
referred to as the "Series 1998-2
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 1998-2 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.
As used in this Prospectus Supplement,
the term "Certificateholders" refers to
registered holders of the Offered
Certificates, the term "Class A
Certificateholders" refers to registered
holders of the Class A Certificates, the
term "Class B Certificateholders" refers
to registered holders of the Class B
Certificates, the term "Collateral
Indebtedness Holder" refers to the
holder of the Collateral Indebtedness
Interest and the term "Class D
Certificateholders" refers to holders of
the Class D Certificates.
Distribution Dates ................... The 15th day of each month (or, if any
such 15th day is not a business day, the
next succeeding business day),
commencing June 15, 1998.
S-5
<PAGE>
Class A Expected Payment Date ........ The May 2001 Distribution Date.
Class B Expected Payment Date ........ The June 2001 Distribution Date.
Collateral Initial Investor Amount ... $24,000,000
Class D Initial Investor Amount ...... $16,000,000
Series Cut-Off Date .................. May 1, 1998.
Series Closing Date .................. May 21, 1998.
Stated Series Termination Date ....... The September 2004 Distribution Date.
Registration, Clearance and
Settlement ........................... The Offered Certificates initially will
be represented by global Series 1998-2
Certificates registered in the name of
Cede, as the nominee of DTC (in the
United States), or the Cedel Bank
societe anonyme ("Cedel") or Euroclear
(in Europe). Certificate Owners may
elect to hold their Certificates through
any of DTC (in the United States), or
Cedel or Euroclear (in Europe).
Transfers within DTC, Cedel or
Euroclear, as the case may be, will be
made in accordance with the usual rules
and operating procedures of the relevant
system as described in the Prospectus.
Servicing Fee ........................ An amount equal to one-twelfth (1/12th)
of the product of 2% per annum and the
Adjusted Investor Amount (the "Investor
Monthly Servicing Fee"). The Servicer
will pay the Subservicers for their
respective servicing activities from the
Investor Monthly Servicing Fee See
"Series Provisions -- Applications of
Collections" and "-- Servicing
Compensation and Payment of Expenses."
Receivables .......................... The aggregate amount of Receivables in
the Accounts as of May 1, 1998 was
$718,338,715, of which $691,491,406 were
Principal Receivables and $26,847,309
were Finance Charge Receivables.
Revolving Period and Accumulation
Periods .............................. Unless a Pay Out Event occurs, 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 April 2000 Monthly Period. Subject
to the conditions set forth under
"Series Provisions -- Postponement of
Accumulation Period," the day on which
the Revolving Period is scheduled to end
and the Accumulation Period commences
may be delayed to no later than the
close of business on the last day of the
March 2001 Monthly Period. Unless a Pay
Out Event has occurred, (i) the "Class A
Accumulation Period" will commence at
the close of business on the last day of
the Revolving Period and end on the
earliest of (a) the commencement of the
Rapid Amortization Period, (b) the
payment in full to the Class A
Certificateholders of the Class A
Investor Amount or (c) the Stated Series
Termination Date, and (ii) the "Class B
Accumulation Period" will commence on
the Distribution Date on which the Class
A Investor Amount is paid in full or, if
the Class A Investor Amount is paid in
full on the Class A Expected Payment
Date, at the close of business on the
Class A Expected
S-6
<PAGE>
Payment Date, and end on the earliest of
(a) the commencement of the Rapid
Amortization Period, (b) the payment in
full to the Class B Certificateholders
of the Class B Investor Amount or (c)
the Stated Series Termination Date.
Principal Payments ................... No principal will be payable to the
Class A Certificateholders until the
Class A Expected Payment Date or, upon
the occurrence of a Pay Out Event, the
first Distribution Date with respect to
the Rapid Amortization Period. No
principal will be payable to the Class B
Certificateholders until the Class B
Expected Payment Date or, upon the
occurrence of a Pay Out Event, until the
Class A Investor Amount is paid in full
(the "Class B Principal Commencement
Date"). No principal will be payable to
the Class B Certificateholders until the
Class A Certificates have been paid in
full. For the period beginning on the
Series 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 Certificates and the Pooling and
Servicing Agreement -- Pay Out Events"
herein and in the Prospectus 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.
Subordination of the Class B
Certificates, the Collateral
Indebtedness Interest and the
Class D Certificates ................. The Class B Certificates, the Collateral
Indebtedness Interest and the Class D
Certificates will be subordinated as
described herein, to the extent
necessary to fund certain payments with
respect to the Class A Certificates. In
addition, the Collateral Indebtedness
Interest and the Class D Certificates
will be subordinated as described
herein, to the extent necessary to fund
certain payments with respect to the
Class B Certificates. If the amount held
in the Cash Collateral Account is zero
and the Collateral Indebtedness Amount
and the Class D Investor Amount are
reduced to zero, the Class B
Certificateholders will bear directly
the credit and other risks associated
with their undivided interest in the
Trust, including losses that would
otherwise be borne by the Class A
Certificateholders. In addition, if the
Class B Investor Amount is reduced to
zero, the Class A Certificateholders
will bear directly the credit and other
risks associated with their undivided
interest in the Trust. To the extent the
Class B Investor Amount or the Class A
Investor Amount is reduced, the
percentage of Collections of Finance
Charge Receivables allocable to the
Class B Certificateholders and the Class
A Certificateholders, respectively, with
respect to subsequent Monthly Periods,
will be reduced. Moreover, to the extent
the amount of such reduction in the
Class B Investor Amount or the Class A
Investor Amount is not reimbursed, the
amount of principal
S-7
<PAGE>
distributable to the Class B
Certificateholders and the Class A
Certificateholders, respectively, will
be reduced. See "Risk Factors;" "Series
Provisions -- Investor Percentages and
Transferor Percentage" and "--
Subordination of the Class B
Certificates, the Collateral
Indebtedness Interest and the Class D
Certificates."
Amounts Available as Enhancement ..... On each Distribution Date, the amount of
enhancement available to the
Certificateholders will equal the lesser
of (i) the sum of the Collateral
Indebtedness Amount, the Class D
Investor Amount and the amount, if any,
held in the Cash Collateral Account
(collectively, the "Available
Enhancement Amount") and (ii) the
Required Enhancement Amount. The
"Required Enhancement Amount" means,
with respect to any Distribution Date,
subject to certain limitations more
fully described herein, the product of
the Adjusted Investor Amount and 15%,
but not less than $7,845,000; provided,
however, that if a Pay Out Event occurs,
then the Required Enhancement Amount
shall equal the Required Enhancement
Amount on the Distribution Date
immediately preceding the occurrence of
such Pay Out Event. If on any
Distribution Date, the Available
Enhancement Amount (after giving effect
to any issuance of additional Class D
Certificates on such Distribution Date,
which issuance will be at the sole
option of the Transferor and subject to
the satisfaction of certain conditions)
is less than the Required Enhancement
Amount, certain Excess Spread and Shared
Excess Finance Charge Collections
allocable to Series 1998-2, to the
extent available, will be used to
increase the Available Enhancement
Amount to the extent of such shortfall.
If on any Distribution Date, the
Available Enhancement Amount exceeds the
Required Enhancement Amount, the
Available Cash Collateral Amount or the
Collateral Indebtedness Amount may be
reduced by the amount of such excess in
accordance with the Loan Agreement and,
accordingly, if so applied, would not be
available to the Certificateholders. The
Required Enhancement Amount may be
reduced upon receipt of notice from the
Rating Agencies rating the Offered
Certificates that a reduction of the
Required Enhancement Amount will not
result in the reduction of the ratings
of the Offered Certificates.
Cash Collateral Account .............. A Cash Collateral Account (the "Cash
Collateral Account") will be held in the
name of the Trustee for the benefit of
the Series 1998-2 Certificateholders.
The balance of the Cash Collateral
Account (the "Available Cash Collateral
Amount") initially will be zero and will
increase thereafter, subject to the
availability of Excess Spread and Shared
Excess Finance Charge Collections
allocable to Series 1998-2, 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 "Series
Provisions -- Cash Collateral Account."
Optional Repurchase .................. The Class A Certificates and the Class B
Certificates will be subject to optional
repurchase by the Transferor on any
Distribution Date on or after the
Distribution Date on which the sum of
the Class A Adjusted Investor Amount,
the Class B Adjusted Investor Amount,
the Collateral Indebtedness Amount and
the amount of the Class D Investor
Amount held by parties other than the
Transferor or any of its affiliates, is
less than or equal to 10% of the sum of
the Class A
S-8
<PAGE>
Investor Amount on the Series Closing
Date, the Class B Investor Amount on the
Series Closing Date, the Collateral
Indebtedness Amount on the Series
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 Series
Closing Date. The repurchase price of
the Offered Certificates will be equal
to the Adjusted Investor Amount thereof
plus accrued and unpaid interest
thereon. See "Description of the
Certificates and the Pooling and
Servicing Agreement -- Optional
Repurchase; Final Payment of Principal;
Termination" in the Prospectus.
Previously Issued Series ............. The Trust has previously issued three
Series of investor certificates in Group
One which are currently outstanding. See
"Annex I -- Other Series" for a summary
of the terms of the other Series of
those outstanding certificates.
Additional Series are expected to be
issued from time to time by the Trust.
See "Risk Factors -- Issuance of
Additional Series; Master Trust
Considerations" in the Prospectus.
ERISA Considerations ................. The Class A Certificates may be eligible
for purchase by Benefit Plans. The Class
B Certificates are not expected to be
eligible for purchase by Benefit Plans.
See "ERISA Considerations" in the
Prospectus.
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 "Series
Provisions -- Subordination of the Class
B Certificates, the Collateral
Indebtedness Interest and the Class D
Certificates." See also "Risk Factors --
Limited Nature of Certificate Rating" in
the Prospectus.
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
"Series Provisions -- Subordination of
the Class B Certificates, the Collateral
Indebtedness Interest and the Class D
Certificates." See also "Risk Factors --
Limited Nature of Certificate Rating" in
the Prospectus.
Risk Factors ......................... See "Risk Factors" beginning on page
S-10 hereof and on page 17 of the
Prospectus for a discussion of certain
factors that should be considered by
prospective purchasers of the Offered
Certificates.
S-9
<PAGE>
RISK FACTORS
Potential investors should consider, among other things, the following
risk factors and the Risk Factors beginning on page 17 of the Prospectus in
connection with the purchase of Certificates.
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 Subservicers, 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 Subservicers, the Trustee or any
affiliate thereof to satisfy any payment obligations with respect to any of the
Certificates.
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
Bank's 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 Bank's 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"
herein and in the Prospectus and "Risk Factors" in the Prospectus.
DEPENDENCE ON DEPARTMENT STORES
There can be no assurance that Receivables will continue to be
generated through Department Store sales at the same rate as in prior years. If
adequate levels of Receivables are not produced, a Payout Event will occur. The
occurrence of a Pay Out Event will result in the commencement of the Rapid
Amortization Period. During the Rapid Amortization Period, collections of
Principal Receivables allocated to the Investor Amount will be applied to reduce
the Class A Investor Amount and after such amount has been reduced to zero, to
reduce the Class B Investor Amount. The Class A Investor Amount and the Class B
Investor Amount may be reduced to zero prior to, or on or after the respective
Class A Expected Payment Date and Class B Expected Payment Date. The reduction
of the Class A Investor Amount and the Class B Investor Amount prior to the
Class A Expected Payment Date or the Class B Expected Payment Date, as the case
may be, means that a holder will not receive the benefit of the Certificate Rate
for the period of time originally expected on the amount of such reduction.
There can be no assurance that the holder will be able to reinvest the proceeds
at a similar rate of return and at a similar risk level. An early repayment
could benefit a holder who acquired a Class A Certificate or Class B Certificate
at a discount and harm a holder who acquired a Class A Certificate or Class B
Certificate at a premium. See "Risk Factors -- Dependence on the Company's
Department Stores and Competition" in the Prospectus.
LIMITED NATURE OF CERTIFICATE RATING
It is a condition to issuance of the Class A Certificates that they be
rated in the highest rating category by at least two Rating Agencies. It is a
condition to issuance of the Class B Certificates that they be rated in one of
the three highest rating categories by at least two Rating Agencies. The
ratings address the likelihood of full payment of principal and interest of the
Offered Certificates, in the case of principal, by the Stated Series
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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 paid on the Class A Expected Payment Date or that
the Class B Certificates will be paid on the Class B Expected Payment Date.
These ratings are not recommendations to purchase, hold or sell the Offered
Certificates, as such ratings do not comment as to the market price of the
Offered Certificates or their suitability for a particular investor. There is no
assurance that either rating will remain in effect for any given period of time
or that either rating will not be lowered or withdrawn by the applicable Rating
Agency, if, in its judgment, circumstances so warrant.
There can be no assurance as to whether any nationally recognized
statistical rating agency not requested to rate the Offered Certificates will
nonetheless issue a rating with respect to either class of the Offered
Certificates, and if so, what such rating may be. A rating assigned to either
Class A Certificates or Class B Certificates by such a rating agency that has
not been requested by the Transferor to do so may be lower than the ratings
assigned by the Rating Agencies pursuant to the Transferor's request.
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 "Series Provisions" herein and
"Description of the Certificates and the Pooling and Servicing Agreement" in the
Prospectus.
Further, in the event of a sale of the Receivables due to a Pay Out
Event, the portion of the net proceeds of such sale allocable to pay principal
of the Offered Certificates will first be used to pay principal amounts due to
the Class A Certificateholders and any remainder will be used to pay amounts due
to the Class B Certificateholders, thereby causing a loss to Class B
Certificateholders if such remainder is insufficient to pay the Class B
Certificateholders in full. If the Collateral Indebtedness Amount is reduced to
zero, the Class B Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust. See "Description
of the Certificates and the Pooling and Servicing Agreement" and "Series
Provisions -- Principal Payments" and -- "Pay Out Events" herein.
GEOGRAPHIC CONCENTRATIONS
The Company operates over 230 stores in 24 states. Unlike certain of
the Company's competitors that operate nationally, each Department Store has a
regional focus. Proffitt's has 24 stores in six states. Parisian has 40 stores
in eight states. McRae's has 31 stores in four states. Herberger's has 37
stores in 10 states. Younkers has 50 stores in seven states, and CPS has 55
stores (including four furniture stores) in four states. Receivables in the
Trust Portfolio that originated from sales charged on Accounts at stores located
in Illinois, Alabama and Wisconsin represent approximately 27.0%, 18.0% and
11.2%, respectively, of the total Receivables outstanding in the Trust Portfolio
at March 31, 1998. Such geographic concentration will subject the Trust
Portfolio to the economic, legal and other conditions present in such states.
Economic trends and other factors in any of these states, particularly in
Illinois, Alabama and Wisconsin, could adversely affect collections of
Receivables, the generation of new Receivables and payment rates. See
"Composition of the Trust Portfolio -- Geographic Distribution."
Herberger's only recently began offering proprietary credit cards, and
as it expands its program, and if other department stores are added by the
Company by acquisition or the establishment of new stores, the
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percentages of Accounts and Receivables attributable to other states could
increase, thereby potentially reducing or shifting existing concentration
levels. "See "--Social, Legal and Economic Factors" and "Credit Card Program."
CREDIT CARD PROGRAM
GENERAL
On February 2, 1998, the Company indirectly acquired the Bank, a
national credit card bank, as a result of the merger of Carson Pirie Scott & Co.
("CPS") with a wholly owned subsidiary of the Company. The Bank has been
issuing proprietary credit cards for CPS since February 1996. Immediately
following the acquisition of CPS, the Company contributed all of the credit card
accounts of Proffitt's, Inc. (including the Younkers division), Parisian, Inc.,
McRae's, Inc. and G.R. Herberger's, Inc. (collectively, the "Initial Sellers"),
to the Bank and the Bank assumed the rights and obligations of each of the
Initial Sellers with respect to the Accounts and under the Receivables Purchase
Agreements between each of the Initial Sellers and PCC (hereinafter any
reference to the "Sellers" or to a "Seller" shall be deemed to be a reference to
the Bank).
The Bank issues proprietary credit cards (credit cards usable at the
respective Department Stores) to customers of the Company's Proffitt's, McRae's,
Younkers, Herberger's, Parisian, Carson Pirie Scott, Boston Store and Bergner's
Department Stores (collectively, the "Department Stores"). The Department
Stores use the Bank's respective proprietary credit card programs to help
stimulate sales, generate brand loyalty, and to collect valuable marketing
information. The Bank administers each program under standardized guidelines
that maintain control over the credit underwriting and collections processes.
The Bank's ownership of the credit card accounts is expected to create
efficiencies and cost savings, and increase revenue by, among other things (i)
allowing for greater standardization of terms for customers of all the
Department Stores, (ii) permitting the assessment of uniform interest rates
(including other charges and fees), and (iii) allowing for future flexibility
and potential income generation through various other programs.
Currently, the Bank's proprietary credit card programs for customers
of the Proffitt's, McRae's, Herberger's, Younkers and Parisian department stores
(collectively, the "Proffitt's Credit Card Program") are administered from the
Company's credit card service center located in Jackson, Mississippi, under a
service agreement with the Bank. The Bank's proprietary credit card programs
for customers of the Carson Pirie Scott, Boston Store and Bergner's department
stores (collectively, the "Carson Credit Card Program") are currently managed by
the credit card service center located in Elmhurst, Illinois under a service
agreement with the Bank. The credit card service centers are referred to
individually and collectively as the "Credit Service Center." Approximately
42.6% of the Company's consolidated net sales in calendar year 1997 were charged
to the Bank's credit cards. Frequent use of the Bank's proprietary credit cards
by Department Store 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 the Bank's proprietary credit cardholders 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.
Each Department Store seeks to expand the number and use of the Bank's
proprietary credit cards by, among other things, providing incentives to sales
associates to open "instant credit" accounts with the Bank. This generally
takes approximately three minutes using automated voice response units and other
systems that provide rapid credit checks. Also, customers who open accounts are
entitled to certain discounts on initial and subsequent purchases.
The Bank has an aggregate of approximately 4.9 million credit card
accounts outstanding that have been active in the last 12 months, of which
approximately 2.9 million accounts have been active within the last six months.
The Bank's credit card accounts are monitored and administered through the
Vision 21 systems operated by the Credit Service Center. All credit card
servicing, credit granting, administration and collection functions not
performed directly by the Bank, are conducted centrally by the respective Credit
Service Center. Vision 21 is a fully automated system, obtained from a third
party vendor, that has been modified to meet the Company's needs.
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The Bank believes that it takes appropriate steps to reduce losses on its credit
card programs. For instance, the Bank conducts periodic portfolio reviews on all
active cardholders (typically semi-annually) and utilizes the results generally
by adjusting credit limits.
Proffitt's. The Company operates 24 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
88,000 gross square feet and approximately $156 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 31
department stores located in Mississippi, Alabama, Florida and Louisiana, 27 of
which are located in Mississippi and Alabama. McRae's stores average
approximately 108,000 gross square feet and approximately $170 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.
Younkers. Younkers, which was acquired on February 3, 1996, is a
leading fashion department store that operates 50 stores located in Iowa,
Wisconsin, Michigan, Nebraska, Illinois, Minnesota and South Dakota. Younkers
stores average approximately 97,000 gross square feet and approximately $153 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. On May 6, 1998,
the Company added the Younkers proprietary credit card receivables to the Trust
through the issuance of Series 1998-1. Additional credit card accounts for
Younkers customers will be added to the Trust as Automatic Additional Accounts
upon satisfaction of the conditions described under "Description of the
Certificates and the Pooling and Servicing Agreement -- Addition of Accounts" in
the Prospectus.
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 110,000 gross square feet and
approximately $218 in net sales per square foot of selling space. Parisian's
stores are generally anchor stores in enclosed regional and premium malls.
Parisian carries an assortment of 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 Parisian's product offerings and specialty department store image
are distinct and allow for the successful coexistence of these stores.
Herberger's. Herberger's, which was acquired on February 1, 1997,
operates 37 department stores located in 10 states throughout the Midwest and
Great Plains states, including Minnesota, Wisconsin, Montana, Nebraska,
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North Dakota, South Dakota, Iowa, Illinois, Colorado and Wyoming. Herberger's
stores average approximately 62,000 gross square feet and approximately $156 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 with
populations ranging in size from approximately 50,000 to 300,000 people,
although certain stores are in larger trade areas where Herberger's believes it
successfully fulfills the customer's desire for a "neighborhood" department
store. Beginning May 15, 1997, a proprietary credit card account has been
offered to Herberger's customers. Based on experience in its other chains, the
Company believes that the Bank's offering proprietary credit cards to
Herberger's customers will increase sales, improve customer loyalty and generate
additional finance charge income.
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. Herberger's is headquartered in St. Cloud, Minnesota.
Carson Pirie Scott. CPS, which the Company acquired on January 31,
1998, is a leading regional department store also offering moderate to better
brand name and private label fashion apparel, accessories, cosmetics, shoes,
home textiles, home furnishings and furniture in selected locations. The mix of
merchandise emphasizes moderate through better goods and is targeted at the
traditional and contemporary fashion customer. CPS's 51 department stores and
four furniture stores operate under the names of Carson Pirie Scott, Boston
Store, and Bergner's, and are located in Illinois, Wisconsin, Indiana and
Minnesota. Each of these trade names has strong regional recognition and an
operating history of approximately 100 years. CPS believes that it is the
largest or second largest traditional department store retailer in terms of
sales in each of the greater Chicago, Milwaukee and central Illinois regions.
Carson Pirie Scott stores are primarily located in the Chicago area, the Boston
Stores are primarily located in Wisconsin, and the Bergner's stores are
primarily located in central Illinois. CPS's stores are primarily located in
mid-sized to larger metropolitan areas and are in leading regional malls.
Twenty-eight of the department stores are located in the greater Chicago area.
CPS also operates four free-standing furniture stores in Illinois and Wisconsin.
On February 2, 1998, the Company added to the Trust receivables from the credit
card accounts issued by the Bank for customers of CPS. Additional credit card
accounts for CPS customers will be added to the Trust as Automatic Additional
Accounts upon satisfaction of the conditions described under "Description of the
Certificates and the Pooling and Servicing Agreement -- Addition of Accounts" in
the Prospectus.
The Company continually evaluates possible acquisitions of department
store chains and individual department stores, and new stores may be opened for
the Department Stores. The Bank may acquire or offer credit card programs to
customers of such stores, and as a result, additional receivables may be added
to the Trust, either as Automatic Additional Accounts, or if above a certain
volume or if the accounts or receivables are otherwise not eligible for addition
as Automatic Additional Accounts, as Additional Accounts, subject to the Rating
Agency Condition and other conditions described herein and in the related
Prospectus. See also "Description of the Certificates and the Pooling and
Servicing Agreement -- Addition of Accounts" in the Prospectus.
LEGAL COMPLIANCE
As a national bank, the Bank is regulated, supervised and examined by
the Office of the Comptroller of the Currency ("OCC"). OCC examinations
include, among other items, a detailed review of underwriting policies and
procedures, compliance with Truth-in-Lending, credit reporting community
reinvestment and other legal requirements, collections policies and procedures,
charge off and reaging policies, adequacy of financial reporting, adequacy of
management reporting, funds custody, and a review of the adequacy of the system
of internal controls. Such examinations are not for the benefit of the
Certificateholders or other holders of securities.
PORTFOLIO INFORMATION
All information below regarding the credit card accounts relates to
the aggregate portfolio of proprietary credit cards generated by the Bank for
use by Department Stores customers (collectively, the "Trust Portfolio").
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Therefore, the assets of the Trust as of the Series Closing Date will generally
consist of virtually all of the Receivables in the Accounts at the Series Cut-
Off Date, plus Receivables in new Accounts originated by the Bank from the
Series Cut-Off Date through the Series Closing Date. After the Series Closing
Date, the Trust will also include all Receivables in Additional Accounts
(including Additional Accounts that may be contributed in connection with
Automatic Additional Accounts), less Receivables in Removed Accounts.
The following table shows Receivables outstanding in the Trust
Portfolio for the periods presented. Amounts and percentages in the following
tables may not add to the totals because of rounding. There can be no assurance
that the Receivables outstanding in the future will be similar to the historical
experience set forth below. See "The Accounts."
RECEIVABLES OUTSTANDING
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1998 1997 1997 1996(2) 1995(2)
<S> <C> <C> <C> <C> <C>
Receivables Outstanding(1) $ 705,802 $ 650,263 $ 836,766 $ 726,991 $ 701,177
Number of Accounts(3) 2,241,199 2,101,587 2,555,513 1,598,291 1,644,245
</TABLE>
- ------------------------
(1) Receivables typically decrease from December to March due to payments of
holiday purchases.
(2) For CPS, the number of Accounts is not available for the periods specified.
(3) Excludes Accounts with zero balances.
Receivables in the Trust Portfolio are created by purchases of
merchandise and services (including, without limitation, travel agency services,
dining room charges and alterations) from the Department Stores. Accordingly,
the Trust depends on the Department Stores and their ability to generate sales
charged to the Bank's proprietary credit cards. 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 the Bank's proprietary credit cards rather than
other payment methods.
The Department Stores offer Bank credit cardholders, a variety of
incentives to use such 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 is no assurance that the Department Stores' credit card sales in
the future will be similar to the historical experience set forth below.
DEPARTMENT STORES' SALES BY FORM OF PAYMENT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE 12 MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
1998 1997(1) 1997(1) 1996(1)(2) 1995(1)(2)
<S> <C> <C> <C> <C> <C>
Bank Credit Card Accounts 42.31% 41.25% 42.58% 41.74% 43.03%
Other Credit Cards 26.25 27.18 26.62 27.03 25.58
Cash, Check or Other 31.44 31.57 30.80 31.22 31.40
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Does not include percentages for Younkers for the 12 months ended December
1995 and 1996 and for the month of January 1997.
(2) Does not include percentages for Proffitt's for the 12 months ended
December 1995 and for the month of January 1996.
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CREDIT ORIGINATION AND UNDERWRITING
Each of the Bank's credit card accounts is governed by a written
agreement containing the terms and conditions of the account. Pursuant to such
agreements, the Bank reserves the right to change or terminate any term,
condition, service or feature of the account (including, among others,
increasing or decreasing finance charges, other charges or minimum payments).
Credit card accounts for Department Store customers are created through three
principal programs:
New Account Programs
1. In-Store "Instant Credit Application." The Bank offers instant credit
to customers at the time of a purchase in the Department Stores. Excluding
accounts obtained through new store promotions described below and accounts
obtained from the initial offering of the proprietary credit card for
Herberger's customers in May 1997, approximately 75% of the Bank's new accounts
were generated through in-store instant credit applications in 1997. Sales
associates are encouraged through various incentives and promotional events to
help customers to establish instant credit accounts with the Bank. To open an
instant credit account, the customer completes the instant credit application at
the point of sale and must have a valid picture identification. On receipt of
the necessary information, the sales associate relays the information to the
applicable Credit Service Center over the telephone. This information is keyed
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 the Bank's 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 applicable
Credit Service Center. When received, the application is reviewed for
completeness. The application is keyed 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 the Bank's policy rules are passed, 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 and also, in the case of the Carson Credit Card Program, for existing
markets. To obtain potential new account holders, the Bank provides the credit
bureaus with minimum criteria for potential account holders in the targeted
area. The lists generated by the credit bureaus are compared by computer against
the Bank's existing account holders to eliminate duplications. All qualifying
names are sent a marketing package which includes information about the relevant
Department Store and the Bank's credit card program, plus the new location to be
opened, if applicable, 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 mail-in application. The Bank generally also uses other
pre-screen criteria in reviewing the credit bureau databases for solicitation
candidates, such as major derogatories and excessive credit lines. Following
changes to the Fair Credit Act ("FCA") enacted in 1997, the Bank generally post-
screens the higher-risk individuals who respond to solicitations. "Post-
screening" means a review of a recent credit report (obtained subsequent to the
pre-screening) for evidence of credit deterioration. Under the FCA, the credit
offer can be rescinded for cause. Management believes this has resulted in
improved credit quality for accounts originated through pre-approved
solicitations.
Post-Approval Account Monitoring. No automatic adjustment to a cardholder's
credit limit is made during the initial six months from account activation.
Ongoing monitoring of the Proffitt's Credit Card Program's customers' credit
limits is done through the use of the credit bureau generated risk scores in
connection with the Credit Service Center's periodic portfolio reviews.
Portfolio reviews are executed semi-annually or quarterly based on need as
determined by the Credit Service 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
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maintained in the Bank'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.
The Carson Credit Card Program uses three behavior scoring models for
account monitoring. These models generate behavioral scores for every active
account each billing cycle, based on each account's historical performance and
profile. Generally, behavioral scoring entails examining an account's historical
payment patterns, delinquencies, utilization rates, and other factors in order
to assess the probability of future payment. One of the models is used to
maintain credit limits on the Carson Credit Card Program's accounts. During the
cycle billing process, the credit limit may be raised or lowered based on the
behavioral score and the current delinquency status of the account. Only current
accounts, accounts with credit bureau risk scores meeting an acceptable risk
hurdle, and accounts passing portfolio review through behavioral scoring,
qualify for limit increases, and at least six months must have elapsed since the
last increase. All active accounts are rescored semi-annually.
Automatic Over Limit Authorization. When customers of the Proffitt's
Credit Card Program 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 will evaluate the following factors: (i) credit bureau risk score;
(ii) length of time the account has been active; and/or (iii)
delinquency/payment history; (iv) a new credit report with an updated risk
score.
The Carson Credit Card Program uses an automatic on-line process to
determine whether to increase a customer's credit limit if the current credit
limit is insufficient to accommodate a point of sale transaction amount. An on-
line table contains an action code (decline, refer or approve) based on
behavioral score ranges. If the action code is "approve," the system may
increase the limit on-line subject to maximum increase and/or maximum limit
amounts by behavioral score range. Only current accounts qualify for automatic
on-line limit increases and at least six months must have elapsed since the last
limit increase for the account. The Credit Service Center's system provides for
automatic override criteria by store, which allows a credit manager or
supervisor to automatically approve transactions under specified dollar amounts
(set by the store) to improve customer service levels during high volume
periods. Accounts with certain negative block or warning codes or delinquency
levels are excluded from the override process. Overrides are used for no more
than 1% of the system operation time.
Deactivation/Cancellation of Accounts. Credit card accounts can be
deactivated at the request of the account holder. An account is automatically
deactivated if it has no balance, and remains unused, for 36 consecutive months.
A deactivated account is removed from the Bank's mailing list and cannot be used
by the account holder. If an account is deactivated solely due to non-use, it
can generally be reactivated if the account holder presents his/her credit card
together 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 an account holder cannot produce his/her credit card or if
the deactivation occurred for a reason other than non-use, then the account
holder must reapply for credit through one of the normal credit origination
programs described above.
BILLING AND PAYMENTS
Generally, the Bank uses approximately eight billing cycles within a
month. Each cycle is assigned, on a random basis, an approximately equal number
of accounts.
Account holders are given a grace period of approximately 25 to 30
days, depending on the respective credit card program, after each billing cycle
closes. Generally, the Bank assesses interest charges on an account based upon
the average daily balance outstanding on the account during a monthly billing
cycle. However, no
S-17
<PAGE>
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 generally
imposed on all purchases from the date of purchase to the date of repayment. The
annual percentage rate charged by the Bank ranges from 19.8% to 21.6%.
Credit card account holders are generally charged $25.00 if a check is
dishonored after the second presentment. A late charge is assessed for each
month that a minimum payment is not made timely. No annual fees, transaction-
related or over limit service fees are imposed currently.
The minimum monthly payment that account holders must make under the
standard credit card programs offered by the Bank to customers of the
Proffitt's, McRae's, Herberger's and Younkers department stores is the greater
of 7.5% of the account balance or $10.00. The credit card accounts offered by
the Bank to customers of Parisian offer a no-interest payment option or an
interest-bearing payment option. The minimum payment for the no-interest
payment option is the greater of 25% of the ending balance or $25, and for the
interest bearing option is the greater of 7.5% of the ending balance or $10.
The Carson Credit Card Program requires a minimum payment of the greater of 5%
of the ending balance or $10. Payments by account holders are applied first to
interest and other charges or fees, and then to purchases in the order made.
Each such minimum payment specified in this paragraph is referred to herein as a
"qualified minimum payment."
Under the china, silver and crystal plans offered by the Bank to the
customers of the Proffitt's, McRae's, Herberger's and Younkers Department
Stores, account holders can purchase such merchandise over $150 on an
installment basis with no finance charges for a period of 24 months. The
monthly payment under such plans is the greater of 5% of the highest balance in
existence since the account last had a zero balance, or $20. Under the major
purchase plans for the Department Stores, the account holder has the option to
pay one-third of the highest balance for three consecutive months without
incurring finance charges.
The Bank offers cardholders of the Carson Credit Card Program a
"Convenient Installment Plan" which gives the option to pay one-third of the
highest balance for three consecutive months and incur no finance charges. The
Bank also offers cardholders of the Carson Credit Card Program two "Zero
Interest Plans" for three or 12 months, respectively. No finance charge is
assessed unless the account becomes past due. Under the three-month plan, a
minimum purchase of $100 is required, and the customer is required to pay the
greater of one-third of the highest plan balance in existence since the plan
last had a zero balance, or $33, each month. Under the 12-month plan, a minimum
purchase of $250 is required, and the customer must pay the highest of one-
twelfth (1/12th) of the highest balance in existence since the plan last had a
zero balance, or $20, each month. Approximately 90% of the deferred billings
offered by the Bank to cardholders under the Carson Credit Card Program consist
of the zero interest plans.
From time to time, the Bank offers deferred billing promotions to
cardholders under the Proffitt's Credit Card Program. 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 cardholder 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 credit authorization system,
which reduces the customer's available credit limit accordingly. Total deferred
receivables of approximately $2.5 million were outstanding as of March 31, 1998,
but this amount varies with seasonal changes in Receivables outstanding.
DELINQUENCY, COLLECTIONS AND LOSSES
For the Proffitt's Credit Card Program, the Credit Service Center
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
S-18
<PAGE>
customer that they will be unable to use their credit card account until payment
is made. The account enters the collection system at this point and is scheduled
for collection department action 10 days later (i.e., the 40th day past due).
When an account ages to 40 days past due, a reminder letter is mailed to the
customer. Accounts between 40 and 119 days past due are worked randomly by
collectors over the telephone using a predictive autodialer system. When the
account is 60 days past due, (i) a stronger message appears on the customer's
statement and (ii) a third-party collection letter is sent to the customer
notifying the customer that additional purchases are not permitted to be
charged. As an account becomes 120 days past due the account is assigned to a
late stage collector for stronger collection efforts, including (i) skip tracing
(using credit bureau sources, address and neighbor information and cross-
reference directory searches), (ii) customized customer demand notices, (iii)
specialized phone-based collection techniques, including predictive autodialing,
and (iv) selective utilization of collection agencies and attorneys.
Delinquent accounts are removed from the collection queue and returned
to current status if three consecutive qualified minimum payments or, in the
case of the programs operated on behalf of the Proffitt's, McRae's, Herberger's,
Parisian and Younkers department stores, three payments 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 Bank 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 Credit Service Center measures delinquency for the Carson Credit
Program by the number of days an account is past due, and accounts are moved
into the collection queue based on contractual delinquency. Payments and credits
are applied to the account, and the new age of delinquency and past due amount
is calculated. Accounts aged 1 to 29 days past due are considered delinquent and
will have a reminder printed on the statement when the account becomes one
payment past due; the account will also receive a dunning notice mid-month if it
is still delinquent at that time. Accounts are placed in collection status at 30
days past due (i.e., two payments have been missed). The collection status is
not removed until the account cures to less than 30 days past due. Certain
accounts aged 1-29 days past due are selected for collection activity based on
behavioral score and balance. While accounts are in collection status, all sales
will be referred to credit authorization for review (aged 30-89 days past due)
or declined (aged 90 days or greater past due). Authorization of sales will be
withheld unless proof of payment of the minimum amount due (past due amount plus
current due amount) is forthcoming. Accounts aged up to 89 days past due are
handled by early stage collectors. Accounts aged 90 days past due or greater are
assigned to late stage collectors by billing cycle. Customer contact is made by
telephone and a series of letters, based on the severity of delinquency.
Contacts on collection accounts with balances under $50 are made via letters
that are sent automatically by the collection system. The monthly billing
statements contain collection messages, which become progressively stronger as
the delinquency becomes more severe. Detailed skip tracing is accomplished using
credit bureau services, Fast Data phone, address and neighbor search (both batch
and on-line) and cross reference directory search.
Under the Carson Credit Card Program, delinquent accounts will be
automatically cured if the account holder makes a 15% payment in a three-month
time frame in any combination of amounts.
Receivables generally are charged off if a minimum payment has not
been received prior to the eighth billing date. Losses may be recognized earlier
if an account is determined to be uncollectible, if the cardholder is deceased
or if the cardholder has filed for bankruptcy. In certain instances, losses may
not be recognized on accounts that satisfy the charge off criteria set forth
above if the Credit Service Center believes that the account will be paid.
Under the Carson Credit Card Program, accounts with a valid telephone
number that have been written off are retained in-house for 60 days and are
handled by the recovery department. Accounts for which no payments
S-19
<PAGE>
have been received for 90 days are placed with attorneys and collection
agencies. Legal actions are initiated if all other collection activities fail
and if the circumstances warrant.
The Bank's credit evaluation, servicing and charge off policies and
Collections practices may change at any time as dictated by the Bank's business
judgment and applicable law.
The following table sets forth the loss experience with respect to the
credit card accounts in the Trust Portfolio for each of the periods shown. There
can be no assurance that future loss experience for the Receivables will be
similar to the historical experience set forth below. See "Risk Factors" herein
and in the Prospectus.
LOSS EXPERIENCE OF THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE 12 MONTHS ENDED
MARCH 31, DECEMBER 31,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Average Principal
Receivables(1) $717,568 $661,507 $666,684 $606,051 $600,036
Total Principal Charge Offs(2) 7,607 7,452 28,994 28,739 25,569
Recoveries(3) 2,184 2,058 7,955 8,341 6,833
Net Principal Charge Offs 5,424 5,394 21,039 20,398 18,736
Net Principal Charge Offs
Percentage(4) 3.02% 3.26% 3.16% 3.37% 3.12%
</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) Excludes Younkers data for 1995.
(4) The percentages for the three months ended March 31, 1998 and 1997 are
annualized figures, which are not necessarily indicative of results that
may be realized for the entire year.
The following tables set forth the delinquency experience with respect
to payments by cardholders that were 31 days or more past due for each of the
periods shown for the Trust Portfolio. Because delinquencies are affected by a
number of factors, including competitive and general economic conditions and
consumer debt levels, there can be no assurance that the delinquency experience
for the Receivables in the future will be similar to the historical experience
set forth below.
S-20
<PAGE>
HISTORICAL DELINQUENCIES
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31,
1998 1997 1997
PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
<S> <C> <C> <C> <C> <C> <C>
Current(1) $678,590 96.14% $621,761 95.62% $809,038 96.69%
31 to 60 days
delinquent 9,951 1.41 13,053 2.01 10,886 1.30
61 to 90 days
delinquent 5,850 0.83 5,981 0.92 5,431 0.65
Over 91 days
delinquent 11,411 1.62 9,468 1.46 11,411 1.36
------ ---- ----- ---- ------ ----
Total Delinquent $ 27,212 3.86% $ 28,502 4.38% $ 27,728 3.31%
-------- ---- -------- ---- --------- ------
Total Receivables $705,802 100.00% $650,263 100.00% $ 836,766 100.00%
======== ====== ======== ====== ========= ======
<CAPTION>
AS OF DECEMBER 31,
1996 1995(2)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
<S> <C> <C> <C> <C>
Current(1)
31 to 60 days $696,515 95.81% $559,941 95.35%
delinquent 14,999 2.06 13,888 2.37
61 to 90 days
delinquent 5,559 0.76 4,989 0.85
Over 91 days
delinquent 9,917 1.36 8,423 1.43
----- ---- ----- ----
Total
Delinquent $ 30,476 4.19% $ 27,301 4.65%
-------- ---- -------- ----
Total
Receivables $726,991 100.00% $587,242 100.00%
======== ====== ======== ======
</TABLE>
- ------------------------
(1) Includes both current Accounts and Accounts that are less than 31 days past
due as well as Accounts with credit balances.
(2) Yonkers' delinquencies are not available for the December 31, 1995 period.
The Trust Portfolio's net principal charge offs and delinquencies at any
time reflect, among other factors, the overall credit quality of the
cardholders, the seasoning of the accounts, the success of the Bank's collection
efforts and general economic conditions. Newly originated accounts generally
exhibit higher delinquencies and losses than seasoned accounts, beginning
approximately six months from issuance, and stabilize within approximately two
to three years. The Bank believes that this tendency has not had a material
impact on the Trust Portfolio given the moderate growth historically exhibited
by the Trust Portfolio. In addition, the Bank believes that the trends exhibited
in the Trust Portfolio (of moderately increasing delinquencies) are consistent
with general economic conditions in the United States, particularly the
nationwide rise in consumer loan delinquencies. The Bank utilizes its
underwriting procedures and risk management policies to establish and maintain
its Accounts while promoting the sale of the Company's merchandise within the
context of acceptable risk characteristics (including delinquencies and losses)
and the Bank's safety and soundness. See "--Credit Origination and Underwiring"
herein and "Description of the Certificates and the Pooling and Servicing
Agreement -- Addition of Accounts" in the Prospectus.
COMPOSITION OF THE TRUST PORTFOLIO
General
The information describing the Trust Portfolio reflects its composition as
of the dates shown. There can be no assurance that the composition and
performance of the Trust Portfolio in the future will be similar to the
historical experience reflected below. Amounts and percentages in the following
tables may not add to the totals because of rounding.
S-21
<PAGE>
COMPOSITION OF ACCOUNTS
BY AGE
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNTS(1) ACCOUNTS OUTSTANDING OUTSTANDING
Under 6 months 452,168 9.31% $ 43,254 6.13%
6 months to 1 year 806,137 16.60 67,736 9.60
1-2 years 424,015 8.73 47,881 6.78
2-3 years 417,290 8.59 60,112 8.52
3 years and older 2,756,290 56.76 486,820 68.97
--------- ------ -------- ------
Total 4,855,900 100.00% $705,802 100.00%
========= ======= ======== =======
- --------------------------
(1) Includes all Accounts with activity during the preceding 12 months.
COMPOSITION OF THE TRUST PORTFOLIO
BY ACCOUNT BALANCE
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNTS(1) ACCOUNTS(1) OUTSTANDING OUTSTANDING
No Balance(2) 2,614,701 53.85% $ -- 0.00%
$0.01 to $500.00 1,674,719 34.49 276,333 39.15
$500.01 to $1,000.00 299,776 6.17 209,304 29.65
$1,000.01 to $2,000.00 108,873 2.24 145,886 20.67
$2,000.01 to $3,000.00 19,103 0.39 45,645 6.47
$3,000.01 to $4,000.00 5,023 0.10 17,107 2.42
$4,000.01 to 5,000.00 1,707 0.04 7,551 1.07
$5,000.00+ 1,261 0.03 9,478 1.34
Credit balance(3) 130,737 2.69 (5,503) (0.78)
--------- ------ -------- ------
Total 4,855,900 100.00% $705,802 100.00%
========= ======= ======== =======
- --------------------------
(1) Includes all Accounts with activity during the preceding 12 months.
(2) Accounts currently having no outstanding balance are included, as
Receivables may be generated in such Accounts in the future.
(3) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently
having an outstanding credit balance are included, as Receivables may be
generated in such Accounts in the future.
S-22
<PAGE>
COMPOSITION OF THE TRUST PORTFOLIO
BY CREDIT LIMIT
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
PERCENTAGE PERCENTAGE
OF TOTAL AGGREGATE OF TOTAL
NUMBER OF NUMBER OF CREDIT AGGREGATE
CREDIT LIMIT ACCOUNTS(1)(3) ACCOUNTS LIMIT(3) CREDIT LIMIT
Zero 139,720 3.18% $ -- 0.00%
$0.01 - $600.00 534,682 12.17 213,068 2.11
$600.01 - $1,000.00 473,262 10.77 392,899 3.89
$1,000.01 - 2,000.00 1,368,918 31.15 1,968,028 19.49
$2,000.01 - 3,000.00 619,173 14.09 1,463,417 14.49
$3,000.01 - 4,000.00 123,212 2.80 418,403 4.14
$4,000.01 - 5,000.00(2) 1,094,955 24.92 5,380,349 53.28
$5,000.01 or more 40,424 0.92 261,875 2.59
--------- ------ ----------- ------
Total 4,394,346 100.00% $10,098,039 100.00%
========= ======= =========== =======
- ------------------
(1) Includes all Accounts with activity during the preceding 12 months.
(2) The concentration of Accounts in the $4,000.01 - $5,000.00 credit limit
range is due to the fact that this is the highest credit limit assigned
without special exceptions.
(3) Excludes 461,554 Accounts from the Carson Credit Card Program that had zero
balances.
COMPOSITION OF THE TRUST PORTFOLIO
BY PAYMENT STATUS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS(1) ACCOUNTS OUTSTANDING OUTSTANDING
Current(2) 2,174,116 97.01% $678,590 96.14%
31 to 60 days delinquent 30,227 1.35 9,951 1.41
61 to 90 days delinquent 13,280 0.59 5,850 0.83
Over 91 days delinquent 23,576 1.05 11,411 1.62
--------- ------ -------- ------
Total 2,241,199 100.00% $705,802 100.00%
========= ======= ======== =======
- --------------------
(1) Includes all Accounts with balances.
(2) Includes both current Accounts and Accounts that are less than 31 days past
due as well as Accounts with credit balances.
GEOGRAPHIC DISTRIBUTION
Except for the states listed below, no state accounted for more than 5% of
the number of active aggregate credit card accounts in the Trust Portfolio or 5%
of the Receivables outstanding in the Trust Portfolio as of March 31, 1998.
S-23
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE TRUST PORTFOLIO
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
STATE ACCOUNTS(1) ACCOUNTS OUTSTANDING OUTSTANDING
Illinois 1,277,693 26.31% $190,712 27.02%
Alabama 599,293 12.34 126,665 17.95
Wisconsin 678,152 13.97 79,070 11.20
Mississippi 278,434 5.73 64,188 9.09
Iowa 300,827 6.20 44,451 6.30
Tennessee 252,054 5.19 42,384 6.01
Other 1,469,447 30.26 158,332 22.43
--------- ------ -------- ------
Total 4,855,900 100.00% $705,802 100.00%
========= ======= ======== =======
- -----------------------
(1) Includes Accounts with activity during the preceding 12 months.
Illinois, the sixth most populous state, experienced population growth of
approximately 4% from 1990 to 1997, slower than the national average of
approximately 7.6% for the same period. According to the United States Census
Bureau, the State's median household income of $39,554 was 111% of the national
median. Manufacturing has been a mainstay of the Illinois economy, and the State
is the nation's fifth largest exporter. Competition from southern states and
Mexico has slowed the growth of industrial development recently, and Asia's
current problems have adversely affected the State, especially the industrial
machinery and electronics businesses. Exports account for approximately 6% of
the State's gross output, and approximately 12% of exports have been sold to
those Asian countries most affected by economic difficulties, with Japan and
China accounting for an additional 12%. The Bureau of Labor Statistics reports
that the seasonally adjusted unemployment rate for the State declined from 4.8%
in February 1997 to 4.6% in February 1998. At the same time, the national
average unemployment declined from 5.3% to 4.6%. Similarly, the number of jobs
has increased in Illinois, but at a slower rate than the national average.
Chicago, Illinois is the Midwest's financial center, as well as a national
distribution and transportation hub.
Alabama's population grew an estimated 6.9% from 1990 to 1997. The
unemployment rate in Alabama dropped from 4.6% in March 1997 to 3.6% in March
1998. Median household income in constant 1994 dollars declined from $27,235 in
1990 to $25,991 in 1995, the latter amount being approximately 76% of the
national average. The Company believes that it is among the 10 largest employers
in Alabama. Historically, Alabama's economy and employment levels have been
adversely affected by cyclical downturns, especially in the mining, metal
manufacturing and fabrication, forest products and textile industries, although
growth in service businesses and other economic diversification in recent years
may reduce such economic risks. Cut-backs in the space program and changes in
other federal spending in Alabama have also had adverse effects in the past.
Wisconsin's population grew approximately 5.6% from 1990 to 1997. As a
result, Wisconsin dropped from the sixteenth to the eighteenth most populous
state. According to seasonally adjusted data from the U.S. Bureau of Labor
Statistics, unemployment in Wisconsin has trended downward from 3.9% in January
1995 to 3.1% in April 1998. In constant 1994 dollars, median household income
rose from $38,810 in 1990 to $40,995 in 1995, moving the State's ranking from
nineteenth to fifth. During the same period, the nation's median household
income declined slightly. Wisconsin's top five industries are dairy products,
motor vehicles, paper, meat products and small engines. Motor vehicles and paper
are cyclical industries, and the State's economy may be affected by downturns in
those areas.
S-24
<PAGE>
THE ACCOUNTS
The Receivables in the Accounts as of March 31, 1998 included $25,923,000
of Finance Charge Receivables and $679,879,000 of Principal Receivables (which
amounts include overdue Finance Charge Receivables and overdue Principal
Receivables, respectively). As of March 31, 1998, there were approximately 4.9
million Accounts which had an average total principal receivables balance of
$310 and an average credit limit of $2,300. As of March 31, 1998, the average
total principal receivables balance in the Accounts as a percentage of the
average credit limit with respect to the Accounts was approximately 6.9%. The
Accounts were selected from the Trust Portfolio in the manner described in the
Prospectus under "The Accounts."
USE OF PROCEEDS
Net proceeds from the sale of the Series 1998-2 Certificates in the amount
of the Initial Investor Amount less offering expenses, will be paid to PCC. PCC
will use such net proceeds to pay down approximately $220,076,000 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 of principal until the
Class A Certificates have been paid in full. See "Description of the
Certificates and the Pooling and Servicing Agreement -- Pay Out Events" and
"Risk Factors -- Effect of Payment Rate on Certificates" in the Prospectus.
Assuming that the Rapid Amortization Period has not commenced, during the
Accumulation Period a portion of the Collections in respect of the Receivables
equal to the product of (i) the Investor Percentage with respect to Collections
of Principal Receivables and (ii) Collections in respect of Principal
Receivables received during such Monthly Period will be deposited in the
Principal Account. Such amount to be deposited is limited to the applicable
Controlled Accumulation Amount (equal to $16,666,667 and $21,500,000 with
respect to the Class A Accumulation Period and Class B Accumulation Period,
respectively), subject to adjustment during the Class A Accumulation Period
based on the calculated Accumulation Period Length beginning with the first
Distribution Date of the Accumulation Period and ending when the amount held in
the Principal Account is sufficient to pay the Class A Investor Amount in full.
In addition, any existing Deficit Controlled Accumulation Amount will be
deposited into the Principal Account. Amounts held in the Principal Account will
be paid to the Class A Certificateholders on the Class A Expected Payment Date
and to the Class B Certificateholders on the Class B Expected Payment Date,
respectively, or in each case, the first Distribution Date during the Rapid
Amortization Period, if earlier. A decline in the rate of cardholder reborrowing
together with a decline in the rate of establishing new Accounts during the
Accumulation Period could extend the time of repayment of principal to the
Certificateholders, resulting in a longer term exposure to loss and liquidity
concerns by holders of the Offered Certificates.
Should a Pay Out Event occur and the Rapid Amortization Period begin,
Available Principal Collections distributable or to be deposited with respect to
the Class A Investor Amount or the Class B Investor Amount will no longer be
limited to the Controlled Accumulation Amount. Instead, Available Principal
Collections will be distributed monthly in their entirety on each Distribution
Date to the Certificateholders, beginning with the Distribution Date in the
month following the commencement of the Rapid Amortization Period. The Class B
Investor Amount will generally begin amortizing only after the Class A Investor
Amount is paid in full, the Collateral Indebtedness Amount will generally begin
amortizing only after the Class B Investor Amount is paid in full and the Class
D Investor Amount will begin amortizing only after the Collateral Indebtedness
Amount is paid in full. Allocations based upon an Investor Percentage with a
fixed numerator during the Rapid Amortization Period may result in greater
distributions of principal to Certificateholders than would be the case if an
Investor
S-25
<PAGE>
Percentage with a floating numerator were used to determine the percentage of
Collections distributed in respect of the Investor Amount. The Offered
Certificates are also subject to an optional repurchase by the Transferor on any
Distribution Date on or after the Distribution Date on which the sum of the
Class A Adjusted Investor Amount, the Class B Adjusted Investor Amount, the
Collateral Indebtedness Amount and the amount of the Class D Investor Amount
held by parties other than the Transferor or any of its affiliates is less than
or equal to 10% of the sum of the Class A Investor Amount on the Series Closing
Date, the Class B Investor Amount on the Series Closing Date, the Collateral
Indebtedness Amount on the Series Closing Date and the highest amount of the
Class D Investor Amount held by parties other than the Transferor or any of its
affiliates since the Closing Date. See "Description of the Certificates and the
Pooling and Servicing Agreement -- Optional Repurchase; Final Payment of
Principal; Termination" in the Prospectus.
The Transferor may, at or after the time the Accumulation Period
commences for Series 1998-2, cause the Trust to issue another Series as a Paired
Series with respect to Series 1998-2 to be used to finance the increase in the
Transferor Interest caused by the accumulation of principal in the Principal
Account with respect to Series 1998-2. No assurances can be given as to whether
such other series will be issued and, if issued, the terms thereof, since the
terms of the Certificates may vary from the terms of such other series, the pay
out events with respect to such other series may vary from the Pay Out Events
with respect to Series 1998-2 and may include pay out events which are unrelated
to the status of the Transferor or the Receivables, such as pay out events
related to the continued availability and rating of certain providers of credit
enhancement with respect to such series. If a pay out event does occur with
respect to any such Paired Series prior to the payment in full of the
Certificates, the final payment of principal to the Certificateholders may be
delayed. If a pay out event occurs with respect to the Paired Series when
Series 1998-2 is in the Accumulation Period, the percentage used for allocating
Collections of Principal Receivables for Series 1998-2 and for the Paired Series
may be reset as specified herein. See "Series Provisions -- Investor
Percentages and Transferor Percentage" and "Description of the Certificates and
the Pooling and Servicing Agreement -- Paired Series" in the Prospectus.
Principal payments on the Offered Certificates will begin prior to
their respective expected payment dates in the event of a Pay Out Event. Pay
Out Events may be caused, by among other things, a decrease in Portfolio Yield
or an inability to generate sufficient new Receivables. A reduction in
Portfolio Yield may result from reductions in Collections of Finance Charge
Receivables or an increase in charge offs. A reduction in Collections of
Finance Charge Receivables may occur as a result of increased delinquencies, or
as a result of increased payments of principal being made by cardholders on a
monthly basis. Such increased payments would result in lower Finance Charges
being assessed. A decline in the rate of reborrowing or a decline in the rate
of establishing new Accounts would also contribute to a reduction in the
creation and collection of Finance Charge Receivables. The Offered Certificates
will be paid after their respective expected payment dates if sufficient
Principal Receivables are not collected during the Accumulation Period. A
reduction in Collections of Principal Receivables may occur due to a reduction
in payment rates.
Although it is anticipated that principal payments will be made to
Class A Certificateholders and to the Class B Certificateholders on the Class A
Expected Payment Date and on the Class B Expected Payment Date, respectively, no
assurance can be given in that regard. The ability of the Trust to make such
payments depends on the payment rates on the Receivables, the amount of
outstanding Receivables from time to time, delinquencies, the rate of charge
offs on the Receivables, the potential issuance by the Trust of additional
Series and the availability of Shared Principal Collections. The Transferor
cannot predict, and no assurance can be given as to, any of the foregoing. Thus
no assurance can be given as to the actual rate of payment of principal of the
Offered Certificates. See "Credit Card Program" and "Composition of the Trust
Portfolio." See also "Risk Factors" in the Prospectus.
The following table sets forth the highest and lowest credit card
account holder monthly payment rates for the Trust Portfolio during any month in
the periods shown and the average account holder monthly payment rates for all
months during the periods shown, in each case calculated as a percentage of the
total opening monthly credit card account balances during the periods shown.
Payments shown in the table include amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts. There can be no assurance that monthly payment rates in the future
will be similar to this historical experience. See "Risk Factors" herein and
"Risk Factors" in the Prospectus.
S-26
<PAGE>
ACCOUNT HOLDER MONTHLY PAYMENT RATES(1)
TRUST PORTFOLIO
FOR THE THREE MONTHS FOR THE 12 MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
1998 1997 1997 1996 1995
Lowest Month 19.39% 20.42% 19.67% 20.61% 22.04%
Highest Month 22.46% 23.26% 23.26% 24.62% 26.01%
Monthly Average 21.13% 21.68% 20.94% 21.94% 23.32%
- --------------------
(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 account holders. 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 Controlled Accumulation Amount, or a Pay Out Event may
occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the beginning of the
Accumulation Period to the final Distribution Date with respect to the Offered
Certificates will equal the expected number of months. The amount of outstanding
Receivables and the rates of payments, delinquencies, charge 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 account holder monthly payment rate experience will
be similar to historical experience.
RECEIVABLES YIELD CONSIDERATIONS
The yield for active credit card accounts in the Trust Portfolio for each
of the periods shown is set forth in the following table. The historical yield
figures in the table are calculated on an as-billed basis. Collections on
Receivables included in the Trust will be on a cash collection basis and may not
reflect the historical yield experience in the table. Revenues from Finance
Charges and fees will be affected by numerous factors, including the rates of
the Finance Charges on Principal Receivables, the amount of other fees paid by
account holders, the percentage of account holders who pay off their balances in
full each month or who have the benefit of a deferred billing or interest free
option and thus do not incur monthly periodic charges on purchases, and changes
in delinquency rates. There can be no assurance that the yield in the future
will be similar to the historical experience set forth below. See "Risk Factors"
in the Prospectus.
S-27
<PAGE>
PORTFOLIO YIELD
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE 12 MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Average Receivables(1) $728,074 $671,163 $676,140 $614,739 $609,537
Billed Finance Charges and
Fees, Unadjusted $29,080 $26,207 $101,583 $93,867 $88,796
Portfolio Yield, Unadjusted 15.98% 15.62% 15.02% 15.27% 14.57%
Discount Option Receivable
Collections (2% Discount
Percentage)(2)(3) $9,177 $8,547 $31,319 $30,209 $30,819
Portfolio Yield, Discount
Adjusted(2)(4) 21.02% 20.71% 19.66% 20.18% 19.62%
</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 three months ended March 31, 1998 and 1997 are
annualized figures, which are not necessarily indicative of results that
may be realized for the entire year.
(3) The term "unadjusted" represents the Portfolio Yield without the inclusion
of Discount Option Receivable Collections.
(4) Represents the historical Portfolio Yield adjusted to reflect the inclusion
of Discount Option Receivable Collections and a Discount Percentage of 2%
for all periods indicated. See "Risk Factors -- Effect of Discount Option"
in the Prospectus for a description of the risk factors associated with the
Discount Option.
POOL FACTORS
The "Class A Pool Factor," the "Class B Pool Factor," the "Collateral Pool
Factor" and the "Class D Pool Factor" are each a seven-digit decimal, which the
Servicer will compute monthly, expressing as of each Record Date, the Class A
Investor Amount as a proportion of the Class A Investor Amount as of the Series
Closing Date, the Class B Investor Amount as a proportion of the Class B
Investor Amount as of the Series Closing Date, the Collateral Indebtedness
Amount as a proportion of the Collateral Indebtedness Amount as of the Series
Closing Date or the Class D Investor Amount as a proportion of the Class D
Investor Amount as of the Series Closing Date, respectively. On the Series
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 "Series
Provisions -- Allocation of Investor Default Amount; Adjustment Amounts;
Investor Charge Offs."
Pursuant to the Pooling and Servicing Agreement, monthly reports concerning
the Investor Amount, the Adjusted Investor Amount, the Pool Factors and various
other items of information will be made available to the Certificateholders. See
"Description of the Certificates and the Pooling and Servicing Agreement --
Book-Entry Registration" and "-- Reports to Certificateholders" in the
Prospectus.
S-28
<PAGE>
SERIES PROVISIONS
GENERAL
The Series 1998-2 Certificates will be issued pursuant to the Pooling
and Servicing Agreement and a Supplement thereto relating to the Series 1998-2
Certificates (the "Series 1998-2 Supplement"). The Series 1998-2 Certificates
will consist of four Classes, the Class A Certificates, the Class B
Certificates, the Class D Certificates and the Class comprising the Collateral
Indebtedness Interest. Reference should be made to the Prospectus for
additional information concerning the Pooling and Servicing Agreement.
The Series 1998-2 Certificates will represent undivided interests in
the Trust, including an interest in all payments on the Receivables in the Trust
based upon the applicable Investor Percentage. Each Offered Certificate
represents the right to receive monthly payments of interest at one-twelfth
(1/12th) of the applicable Certificate Rate and payments of principal at the
respective maturity dates or during the Rapid Amortization Period funded from
Collections of Finance Charge Receivables, Net Recoveries and Principal
Receivables, respectively, allocated to the Investor Amount. See "-- Investor
Percentages and Transferor Percentage;" "-- Applications of Collections" and "--
Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge
Offs."
The Transferor will initially own the interest not represented by the
Series 1998-2 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, (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, and (iii) the approval of
certain holders of Certificates of unrated Series or Classes of Certificates.
See "-- Investor Percentages and Transferor Percentage."
During the Revolving Period, the Investor Amount will remain constant
except in certain limited circumstances. The amount of Principal Receivables in
the Trust, however, will vary as new Principal Receivables are added to the
Trust and others are paid or removed. The Transferor Amount will fluctuate,
therefore, to reflect the changes in the amount of the Principal Receivables in
the Trust. During the Accumulation Period, all or a portion of the Collections
of Principal Receivables allocable to the entire Investor Amount will be
deposited in the Principal Account until the relevant Expected Payment Date or
the commencement of the Rapid Amortization Period. During the Rapid
Amortization Period, the Investor Amount will decline as payments of Principal
Receivables allocated to the Investor Amount are collected and distributed
monthly to the Certificateholders on the applicable payment dates. As a result,
the Transferor Amount during the Accumulation Period or a Rapid Amortization
Period may generally increase relative to the Investor Amount to reflect the
reductions in the Investor Amount and will also change to reflect the variations
in the amount of Principal Receivables in the Trust or the amount held in the
Excess Funding Account. See "-- Allocation of Investor Default Amount;
Adjustment Amounts; Investor Charge Offs."
The 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 "Description of the
Certificates and the Pooling and Servicing Agreement -- Definitive Certificates"
in the Prospectus. Unless and until Definitive Certificates are issued under
the limited circumstances described therein, all references herein to actions by
Certificateholders shall refer to actions taken by
S-29
<PAGE>
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
"Description of the Certificates and the Pooling and Servicing Agreement --
Book-Entry Registration" and "-- Definitive Certificates" in the Prospectus.
On the Series 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 1998-2
Certificates. On the Series 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
second day preceding the Series Closing Date.
INTEREST PAYMENTS
Interest will accrue on the Offered Certificates from the Series
Closing Date. Beginning with the month following the month in which such
accrual date occurs, interest at one-twelfth of the Certificate Rate will be
paid on the Distribution Date in each month to the Certificateholders in whose
names the Offered Certificates were registered at the close of business on the
Record Date. Interest will be distributed on the June 1998 Distribution Date,
and on each Distribution Date thereafter. Interest due on any Distribution Date
will be calculated on the amount of the Investor Amount as of the preceding
Record Date (plus any prior interest deficiency) or, in the case of the initial
Distribution Date, on the amount of the Investor Amount on the Series Closing
Date. Interest will be prorated for the actual number of days in the first
accrual period. Interest will be calculated on the basis of a 360-day year
comprised of twelve 30-day months, with each accrual period constituting a
single month. Interest payments on any Distribution Date will be generally
funded from Available Finance Charge Collections.
PRINCIPAL PAYMENTS
During the Revolving Period, which begins on the Series Closing Date
and ends on the close of business on the last day of the Monthly Period
preceding the commencement of the Accumulation Period or, if earlier, the day
the Rapid Amortization Period begins, principal payments will be made to the
holder of the Exchangeable Transferor Certificate, allocated to other series of
certificates, applied as Reallocated Principal Collections, if required, or
deposited in the Excess Funding Account rather than deposited to the Principal
Account or paid to the Certificateholders. Under certain circumstances, the
commencement of the Accumulation Period may be postponed by the Transferor. On
or prior to the Distribution Date occurring 12 months prior to the Class A
Expected Payment Date, the Transferor shall designate the number of Monthly
Periods in the Accumulation Period and the commencement date of the Accumulation
Period. In the absence of such a designation, the Accumulation Period will
commence at the close of business on the last day of the April 2000 Monthly
Period.
During the Accumulation Period, a portion of Available Principal
Collections will be deposited in the Principal Account on each Distribution
Date. During the Rapid Amortization Period, which would begin upon the
occurrence of a Pay Out Event, any amounts held in the Principal Account will be
allocated first to the Class A Certificateholders, with the balance, if any, to
the Class B Certificateholders to the extent of their respective Investor
Amounts, and thereafter Available Principal Collections will be paid to the
Certificateholders on each Distribution Date. The Class A Investor Amount will
be equal to the Class A Initial Investor Amount minus the aggregate amount of
principal payments paid to the Class A Certificateholders and minus the amount
of Class A Investor Charge Offs which have not been reimbursed, plus the
aggregate amount of reductions of the Series Adjustment Amounts allocable to the
Class A Certificates. The Class A Adjusted Investor Amount is equal to the
Class A Investor Amount minus the amount held in the Principal Account on behalf
of the Class A Certificateholders. The first principal payment will be made to
the Principal Account or to the Certificateholders, as the case may be,
beginning on the first Distribution Date following the month in which either the
Accumulation Period or the Rapid Amortization Period commences. If a Rapid
Amortization Period does not commence, principal payments will be funded from
the amounts held in the Principal Account. The Class B Investor Amount
S-30
<PAGE>
will be equal to the Class B Initial Investor Amount minus the aggregate amount
of principal payments paid to the Class B Certificateholders minus any Class B
Subordinated Principal Collections applied for the benefit of the Class A
Certificates minus the amount of the unreimbursed Class B Investor Charge Offs
and reallocations of the Class B Investor Amount to the Class A Investor Amount
to cover the Class A Allocable Amount and plus the aggregate amount of
reductions of the Series Adjustment Amounts allocable to the Class B
Certificates. The Class B Adjusted Investor Amount is equal to the Class B
Investor Amount minus, prior to the payment in full of the Class A Investor
Amount, the excess of the Principal Account Balance over the Class A Investor
Amount, and after the payment in full of the Class A Investor Amount, the
Principal Account Balance, if any (but not less than zero). On the Class A
Expected Payment Date, amounts held in the Principal Account will be distributed
to holders of the Class A Certificates, and on the Class B Expected Payment
Date, amounts held 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 Holder.
See "-- Investor Percentages and Transferor Percentage;" and "-- Applications of
Collections." See also "Description of the Certificates and the Pooling and
Servicing Agreement -- Pay Out Events" in the Prospectus.
POSTPONEMENT OF ACCUMULATION PERIOD
The Accumulation Period is scheduled to commence at the close of
business on the last day of the April 2000 Monthly Period. Upon written notice
to the Trustee, the Transferor may elect to postpone the commencement of the
Accumulation Period and extend the length of the Revolving Period, subject to
certain conditions, including those set forth below. The Transferor may make
such election only if the Accumulation Period Length (determined as described
below) is less than 12 months. On each Determination Date, until the
Accumulation Period begins, the Servicer will determine the "Accumulation Period
Length," which is the number of months expected to be required to fund the
Principal Account up to the Class A Initial Investor Amount no later than the
Class A Expected Payment Date, based on (a) the monthly Collections of Principal
Receivables expected to be distributable to the certificateholders of all series
(excluding certain other series), assuming a principal payment rate no greater
than the lowest monthly principal payment rate on the Receivables for the
preceding 12 months and (b) the amount of principal expected to be distributable
to certificateholders of all series (excluding certain other series) which are
not expected to be in their revolving periods during the Accumulation Period.
If the Accumulation Period Length is less than 12 months, the Transferor may, at
its option, postpone the commencement of the Accumulation Period such that the
number of months included in the Accumulation Period will be equal to or exceed
the Accumulation Period Length. The effect of the foregoing calculation is to
permit the reduction of the length of the Accumulation Period based on the
investor amounts of certain other series which are scheduled to be in their
revolving periods during the Accumulation Period and on increases in the
principal payment rate occurring after the Series Closing Date. The length of
the Accumulation Period will never be less than one month nor greater than 12
months.
CASH COLLATERAL ACCOUNT
The Cash Collateral Account will be a segregated trust account
established with a Qualified Institution which will be held for the benefit of
the Class A Certificateholders, the Class B Certificateholders, the Collateral
Indebtedness Interest Holder and the Class D Certificateholders, as their
interests appear in the Series 1998-2 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 1998-2 Supplement). The
purpose of the Loan Agreement is to govern the terms and conditions of the
purchase of the Collateral Indebtedness Interest by the Collateral Indebtedness
Holder. Funds held in the Cash Collateral Account will be invested in Permitted
Investments. On each Distribution Date, all interest and earnings (net of
losses and investment expenses) received during the preceding Monthly Period on
funds in the Cash Collateral Account will be allocable to the Excess Spread.
The Available Cash Collateral Amount initially will be zero and will
increase thereafter (i) to the extent the Transferor elects to deposit Excess
Spread and Shared Excess Finance Charge Collections in the Cash Collateral
Account (ii) to the extent Excess Spread and Shared Excess Finance Charge
Collections allocable to
S-31
<PAGE>
Series 1998-2 are required to be deposited in the Cash Collateral Account
pursuant to the Loan Agreement and (iii) to the extent the Available Enhancement
Amount is less than the Required Enhancement Amount, Excess Spread and Shared
Finance Charge Collections allocable to Series 1998-2 will be deposited therein.
On each Distribution Date, one or more withdrawals may be made from
the Cash Collateral Account in an amount up to the amount therein to fund, in
order of priority, the Class A Required Amount, the Class B Required Amount and
the Collateral Required Amount.
At the Servicer's option, on each Distribution Date, if the Cash
Enhancement Surplus, after giving effect to all deposits to, and withdrawals
from, the Cash Collateral Account and all payments of principal to Series 1998-2
Certificateholders with respect to such Distribution Date, is greater than zero,
the Servicer or the Trustee, acting pursuant to the Servicer's instructions,
will withdraw from the Cash Collateral Account, and pay to the Transferor, an
amount equal to such Cash Enhancement Surplus.
"Cash Enhancement Surplus" means, as of any Determination Date, the
lesser of (a) the Enhancement Surplus and (b) the excess of the amount held in
and available to be withdrawn from the Cash Collateral Account over the Required
Cash Collateral Amount.
"Enhancement Surplus" means, with respect to any Distribution Date,
the sum of the amount held in and available to be withdrawn from the Cash
Collateral Account, the Collateral Indebtedness Amount and the Class D Investor
Amount, over the Required Enhancement Amount.
RESERVE ACCOUNT
The Servicer will establish and maintain, or cause to be established
or maintained, a "Reserve Account" with a Qualified Institution in the Trustee's
name as a segregated trust account and for the benefit of the holders of the
Certificates. As described in "-- Applications of Collections," after the
Reserve Account Funding Date but prior to the termination of the Reserve
Account, a portion of the amounts held in the Collection Account will be applied
to fund the Reserve Account. During the Accumulation Period, the Trustee will
withdraw an amount equal to the lesser of the amount held in the Reserve Account
and the difference between (a) the product of amounts held in the Principal
Account and the interest rates applicable to the Offered Certificates and (b)
investment income on the Principal Account, and deposit such amount in the
Collection Account. Amounts on deposit in the Reserve Account in excess of the
amounts required to be maintained therein from time to time will be distributed
to the Transferor.
The "Reserve Account Funding Date" will be the Distribution Date with
respect to the Monthly Period which commences three months prior to the
commencement of the Class A Accumulation Period (or earlier, under certain
circumstances relating to the yield on the Receivables).
SUBORDINATION OF THE CLASS B CERTIFICATES, THE COLLATERAL INDEBTEDNESS INTEREST
AND THE CLASS D CERTIFICATES
The Class B Certificates, the Collateral Indebtedness Interest and the
Class D Certificates will be subordinated to the extent necessary to fund
certain payments with respect to the Class A Certificates. In addition, the
Collateral Indebtedness Interest and the Class D Certificates will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain Collections of Principal Receivables
otherwise allocable to the Class B Certificateholders ("Class B Subordinated
Principal Collections") may be reallocated to the Class A Certificateholders and
the Class B Investor Amount may be reduced. Similarly, certain Collections of
Principal Receivables allocable to the Class D Certificates and the Collateral
Indebtedness Interest may be reallocated to the Class A Certificateholders and
the Class B Certificateholders, and the Class D Investor Amount and the
Collateral Indebtedness Amount may be reduced as a result. To the extent the
Class B Investor Amount is reduced, the percentage of Collections of Finance
Charge Receivables allocated to the Class B Certificateholders in subsequent
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Investor Amount is not reimbursed, the amount of
principal distributable to the Class B
S-32
<PAGE>
Certificateholders will be reduced. See "-- Investor Percentages and Transferor
Percentage," "-- Reallocation of Cash Flows," and "-- Applications of
Collections."
INVESTOR PERCENTAGES AND TRANSFEROR PERCENTAGE
The Investor Percentage (the "Investor Percentage") will be calculated
as follows:
Principal Receivables during Revolving Period, Finance Charge
Receivables (other than during the Rapid Amortization Period) and Allocable
Amounts. With respect to (A) Principal Receivables during any Monthly Period
during the Revolving Period, (B) Finance Charge Receivables during any Monthly
Period other than during a Rapid Amortization Period, and (C) the Allocable
Amounts during any Monthly Period, the percentage equivalent of a fraction the
numerator of which is equal to the Adjusted Investor Amount as of the last day
of the immediately preceding Monthly Period (or the Initial Investor Amount, in
the case of the first Monthly Period applicable to Series 1998-2) and the
denominator of which is the greater of (i) the sum of the aggregate Principal
Receivables in the Trust and the Excess Funding Amount, in each case at the
close of business on the last day of the immediately preceding Monthly Period
and (ii) the sum of the numerators used to calculate the applicable investor
percentages with respect to Principal Receivables, Finance Charge Receivables or
the Allocable Amounts, as applicable, for all Series outstanding as of the date
on which such determination is being made.
Finance Charge Receivables during the Rapid Amortization Period. With
respect to Finance Charge Receivables (and any other amounts treated as Finance
Charge Receivables) during any Monthly Period during a Rapid Amortization
Period, the percentage equivalent of a fraction the numerator of which is equal
to the Adjusted Investor Amount as of the last day of the Revolving Period and
the denominator of which is the greater of (i) the sum of the aggregate
Principal Receivables in the Trust and the Excess Funding Amount, in each case
at the close of business on the last day of the immediately preceding Monthly
Period and (ii) the sum of the numerators used to calculate the investor
percentages with respect to Finance Charge Receivables for all Series
outstanding as of the date on which such determination is being made.
Principal Receivables during the Accumulation Period and the Rapid
Amortization Period. With respect to Principal Receivables during any Monthly
Period during the Accumulation Period or the Rapid Amortization Period, the
percentage equivalent of a fraction the numerator of which is equal to the
Adjusted Investor Amount as of the last day of the Revolving Period and the
denominator of which is the greater of (i) the sum of the aggregate Principal
Receivables in the Trust and the Excess Funding Amount, in each case at the
close of business on the last day of the immediately preceding Monthly Period
and (ii) the sum of the numerators used to calculate the investor percentages
with respect to Principal Receivables for all series outstanding as of the date
on which such determination in being made; provided, however, that during an
Accumulation Period if the Series 1998-2 Certificates are paired with a Paired
Series and a Rapid Amortization Period commences for such Paired Series, the
Transferor may, by written notice to the Trustee and Servicer, designate a
different numerator to be used to determine such percentage.
As used herein, the following terms have the meanings indicated:
"Adjusted Investor Amount" shall mean, as of any date of
determination, an amount equal to the sum of the Class A Adjusted Investor
Amount, the Class B Adjusted Investor Amount, the Collateral Indebtedness Amount
and the Class D Investor Amount, in each case as of such date.
"Class A Investor Amount" means, on any date of determination, an
amount equal to (a) the Class A Initial Investor Amount, minus (b) the aggregate
amount of principal payments made to the Class A Certificateholders prior to
such date, minus (c) the excess, if any, of the aggregate amount of Class A
Investor Charge Offs for all prior Distribution Dates over the sum of the
aggregate amount of reimbursed Class A Investor Charge Offs and, without
duplication, the aggregate amount of reductions of the Series Adjustment Amount
allocable to the Class A Certificates) plus the aggregate amount of reductions
of the Series Adjustment Amounts allocable to the Class A Certificates;
provided, however, that the Class A Investor Amount may not be reduced below
zero.
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"Class A Adjusted Investor Amount" means, on any date of determination
while the Class A Certificates are outstanding, an amount equal to the Class A
Investor Amount minus the amount, if any, of funds held in the Principal Account
(the "Principal Account Balance") (but not less than zero).
"Class A Investor Percentage" shall be calculated by substituting the
Class A Adjusted Investor Amount and the Class A Initial Investor Amount in all
references to the Adjusted Investor Amount and the Initial Investor Amount,
respectively, in the definition of Investor Percentage.
"Class B Investor Amount" means, on any date of determination, an
amount equal to (a) the Class B Initial Investor Amount, minus (b) the aggregate
amount of principal payments made to the Class B Certificateholders prior to
such date, minus (c) the aggregate amount of Class B Investor Charge Offs for
all prior Distribution Dates, minus (d) the amount of Class B Subordinated
Principal Collections used to make payments in respect of the Class A
Certificates on all prior Distribution Dates, minus (e) an amount equal to the
amount by which the Class B Investor Amount has been reduced on all prior
Distribution Dates in respect of the Class A Allocable Amount, plus (f) the sum
of the amount of Excess Spread and Shared Excess Finance Charge Collections
allocated and available on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e)
and, without duplication, the aggregate amount of the reductions of the Series
Adjustment Amount allocable to the Class B Investor Amount; provided, however,
that the Class B Investor Amount may not be reduced below zero.
"Class B Adjusted Investor Amount" shall mean, on any date of
determination, an amount equal to the Class B Investor Amount minus, prior to
the payment in full of the Class A Investor Amount, the excess of the Principal
Account Balance over the Class A Investor Amount, and after the payment in full
of the Class A Investor Amount, the Principal Account Balance, if any (but not
less than zero).
"Class B Investor Percentage" shall be calculated by substituting the
Class B Adjusted Investor Amount and the Class B Initial Investor Amount in all
references to the Adjusted Investor Amount and the Initial Investor Amount
respectively, in the definition of Investor Percentage.
"Collateral Indebtedness Amount" means, on any date of determination,
an amount equal to (a) the initial Collateral Indebtedness Amount equal to
$24,000,000, minus (b) the aggregate amount of principal payments made to the
Collateral Indebtedness Holder on or prior to such date, minus (c) the amount of
Collateral Subordinated Principal Collections used to make payments in respect
of the Offered Certificates on all prior Distribution Dates that have resulted
in a reduction of the Collateral Indebtedness Amount, minus (d) an amount equal
to the amount by which the Collateral Indebtedness Amount has been reduced on
all prior Distribution Dates in respect of the Class A Allocable Amount, the
Class B Allocable Amount and the Collateral Allocable Amount, plus (e) the sum
of the amount of Excess Spread and Shared Excess Finance Charge Collections
allocated and available on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) and,
without duplication, reductions of the Series Adjustment Amount allocable to the
Collateral Indebtedness Interest; provided, however, that the Collateral
Indebtedness Amount may not be reduced below zero.
"Collateral Investor Percentage" shall be calculated by substituting
the Collateral Indebtedness Amount and the Collateral Initial Indebtedness
Amount in all references to the Adjusted Investor Amount and the Initial
Investor Amount, respectively, in the definition of Investor Percentage.
"Class D Investor Amount" means, on any date of determination, an
amount equal to (a) the initial Class D Investor Amount equal to $16,000,000
(plus the initial principal amount of any additional Class D Certificates issued
during the Revolving Period, at the sole option of the Transferor), minus (b)
the aggregate amount of principal payments made to the Class D
Certificateholders prior to such date, minus (c) the amount of Class D
Subordinated Principal Collections used to make payments in respect of the
Offered Certificates and the Collateral Indebtedness Interest on all prior
Distribution Dates, minus (d) an amount 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
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sum of the amount of Excess Spread and Shared Excess Finance Charge Collections
allocated and available on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) and,
without duplication, the aggregate amount of the reductions of the Series
Adjustment Amount allocable to the Class D Investor Amount; provided, however,
that the Class D Investor Amount may not be reduced below zero.
"Class D Investor Percentage" shall be calculated by substituting the
Class D Investor Amount and the Class D Initial Investor Amount in all
references to the Adjusted Investor Amount and the Initial Investor Amount,
respectively, in the definition of Investor Percentage.
"Class D Subordinated Principal Collections" means, with respect to
any Monthly Period, an amount equal to the product of (i) the applicable Class D
Investor Percentage with respect to Collections of Principal Receivables and
(ii) the aggregate amount of Collections of Principal Receivables for such
Monthly Period.
"Collateral Subordinated Principal Collections" means, with respect to
any Monthly Period, an amount equal to the product of (i) the applicable
Collateral Investor Percentage with respect to Collections of Principal
Receivables and (ii) the aggregate amount of Collections of Principal
Receivables for such Monthly Period.
The Transferor Percentage will be equal to 100% minus the sum of the
investor percentages for all Series outstanding.
As described above, during the Revolving Period, the Investor
Percentage applied when allocating Collections on Principal Receivables is
expected to vary from month to month because the Investor Amount as a percentage
of the total amount of Principal Receivables in the Trust will fluctuate from
day to day. During the Rapid Amortization Period, the amount of Collections on
Principal Receivables allocated to the Investor Amount each day will be
determined by reference to a percentage based on the Investor Amount on the last
day of the Revolving Period.
REALLOCATION OF CASH FLOWS
On each Determination Date, the Servicer will determine the amount
(the "Class A Required Amount"), if any, by which (a) the sum of (i) Class A
Monthly Interest for such Distribution Date, (ii) any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, (iii) any Class A Additional Interest for the immediately
following Distribution Date and any Class A Additional Interest previously due
but not paid to the Class A Certificateholders on a prior Distribution Date,
(iv) the Class A Allocable Amount, if any, for such Distribution Date and (v) if
Proffitt's is no longer the Servicer, the Class A Servicing Fee for the related
Distribution Date and any unpaid Class A Servicing Fee for a prior Distribution
Date exceeds (b) the Class A Available Funds for the preceding Monthly Period.
If the Class A Required Amount is greater than zero, Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-2 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, the Collateral Indebtedness Amount, the Class B
Investor Amount, and the Class A Investor Amount may be reduced. See "--
Allocation of Investor Default Amount; Adjustment Amount; Investor Charge Offs."
On each Determination Date, the Servicer will determine the amount
(the "Class B Required Amount"), if any, equal to the sum of (a) the amount, if
any, by which the sum of (i) Class B Monthly Interest for the
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immediately following Distribution Date, (ii) any Class B Monthly Interest
previously due but not paid to the Class B Certificateholders on a prior
Distribution Date, (iii) any Class B Additional Interest for the following
Distribution Date and any Class B Additional Interest previously due but not
paid to the Class B Certificateholders on a prior Distribution Date and (iv) if
Proffitt's is no longer the Servicer, the Class B Servicing Fee for the related
Distribution Date and any unpaid Class B Servicing Fee for a prior Distribution
Date exceeds the Class B Available Funds for the preceding Monthly Period and
(b) the amount, if any, by which the Class B Allocable Amount, if any, for such
Distribution Date exceeds the amount of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-2 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 1998-2 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, the
Collateral Indebtedness Amount and the Class B Investor Amount may be reduced.
See "-- Allocation of Investor Default Amount; Adjustment Amounts; Investor
Charge Offs."
On each Determination Date, the Servicer will determine the amount
(the "Collateral Required Amount"), if any, equal to the sum of (a) the amount,
if any by which the sum of (i) Collateral Monthly Interest for the immediately
following Distribution Date, (ii) any Collateral Monthly Interest previously due
but not paid to the Collateral Indebtedness Holder on a prior Distribution Date,
(iii) any Collateral Additional Interest for such Distribution Date and any
Collateral Additional Interest previously due but not paid to the Collateral
Indebtedness Holder on a prior Distribution Date and (iv) if Proffitt's is no
longer the Servicer, the Collateral Servicing Fee for such Distribution Date and
any unpaid Collateral Servicing Fee for a prior Distribution Date exceeds the
Collateral Available Funds and Excess Spread and Shared Excess Finance Charge
Collections with respect to the preceding Monthly Period available to make
payments with respect thereto and (b) the amount, if any, by which the
Collateral Allocable Amount, if any, for such Distribution Date exceeds the
amount of Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1998-2 available on such Distribution Date as specified in clause (h)
under "-- Applications of Collections -- Excess Spread; Shared Excess Finance
Charge Collections." If the Collateral Required Amount is greater than zero,
available Excess Spread and Shared Excess Finance Charge Collections and
amounts, if any, held in the Cash Collateral Account not required to fund the
Class A Required Amount or the Class B Required Amount or pay certain other
amounts will then be used to fund the remaining Collateral Required Amount. If
such Excess Spread and Shared Excess Finance Charge Collections and amounts, if
any, available in the Cash Collateral Account are insufficient to fund the
Collateral Required Amount, then Reallocated Principal Collections allocable to
the Class D Certificates and not required to fund the Class A Required Amount or
the Class B Required Amount and other than Class B Subordinated Principal
Collections or Collateral Subordinated Principal Collections will be used to
fund the remaining Collateral Required Amount. If such Reallocated Principal
Collections with respect to the related Monthly Period are insufficient to fund
the remaining Collateral Required Amount, then the Class D Investor Amount and
the Collateral Indebtedness Amount may be reduced. See "-- Allocation of
Investor Default Amount; Adjustment Amounts; Investor Charge Offs."
APPLICATIONS OF COLLECTIONS
During the Revolving Period, so long as the Available Enhancement
Amount is not less than the Required Enhancement Amount, Collections of
Principal Receivables allocable to Series 1998-2 with respect to each Monthly
Period are not required to be deposited into the Collection Account on a daily
basis during such Monthly Period; provided, however, that in the event that the
Minimum Transferor Amount exceeds the Transferor Amount
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on any date, such Collections of Principal Receivables shall be deposited into
the Excess Funding Account until the Transferor Amount equals the Minimum
Transferor Amount. During the Accumulation Period, after an amount of
Collections of Principal Receivables allocable to Series 1998-2 equal to the
Controlled Deposit Amount with respect to each Monthly Period has been deposited
into the Collection Account, and so long as the Available Enhancement Amount is
not less than the Required Enhancement Amount, Collections of Principal
Receivables allocable to Series 1998-2 with respect to each Monthly Period need
not be deposited into the Collection Account on a daily basis during such
Monthly Period; provided, however, that in the event that the Minimum Transferor
Amount exceeds the Transferor Amount on any date, such Collections of Principal
Receivables shall be deposited into the Excess Funding Account until the
Transferor Amount equals the Minimum Transferor Amount.
The Servicer may make deposits into the Collection Account and the
Excess Funding Account on any date, net of amounts payable to the Transferor
from such accounts on such date.
Allocations
The Servicer will allocate among Series 1998-2, 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 1998-2 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 the Monthly Period immediately preceding such
Distribution Date will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to Class A Certificateholders on a prior
Distribution Date at a rate equal to the Class A Certificate Rate plus 2%
per annum ("Class A Additional Interest"), will be distributed to the Class
A Certificateholders;
(ii) if Proffitt's is no longer the Servicer, an amount equal to
the Class A Servicing Fee for such Distribution Date, plus the amount of
any Class A Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the Servicer;
(iii) an amount equal to the Class A Allocable Amount, if any,
for such Distribution Date will be treated as a portion of Available
Principal Collections for such Distribution Date as described under "--
Payments of Principal;" and
(iv) the balance, if any, will constitute Excess Spread and will
be allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections."
(B) On each Distribution Date, an amount equal to the Class B
Available Funds with respect to such Distribution Date will be distributed in
the following priority:
(i) an amount equal to Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Monthly Interest
previously due but not paid to the Class B Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to Class B Certificateholders on a prior
Distribution Date at a rate equal to the Class B Certificate
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Rate plus 2% per annum ("Class B Additional Interest"), will be distributed
to the Class B Certificateholders;
(ii) if Proffitt's 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 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 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."
"Available Principal Collections" means, with respect to any
Distribution Date, an amount equal to (a) the applicable Investor Percentage of
Collections of Principal Receivables for the related Monthly Period, plus (b)
amounts designated as Available Principal Collections as described under
"Applications of Collections -- Excess Spread; Shared Excess Finance Charge
Collections," minus (c) any applied Reallocated Principal Collections for the
related Monthly Period, plus (d) Shared Principal Collections allocated to
Series 1998-2.
"Class A Available Funds" means, with respect to any Monthly Period,
an amount equal to the sum of (i) the applicable Class A Investor Percentage of
Collections of Finance Charge Receivables with respect to such Monthly Period
plus any other amounts that are to be treated as Collections of Finance Charge
Receivables, (ii) if such Monthly Period immediately precedes a Distribution
Date that occurs prior to the Class B Principal Commencement Date, the earnings
(net of losses and investment expenses), if any, earned on the Principal Account
with respect to such Monthly Period, (iii) the amount, if any, to be withdrawn
from the Reserve Account and included in Class A Available Funds pursuant to the
Series 1998-2 Supplement with respect to such Distribution Date and (iv) the
amount of investment earnings (net of losses and investment expenses), if any,
on amounts held in the Reserve Account required to be included in Class A
Available Funds pursuant to the Series 1998-2 Supplement with respect to such
Distribution Date.
"Class A Monthly Interest" means, with respect to any Distribution
Date, an amount equal to one-twelfth (1/12th) of the product of (i) the Class A
Certificate Rate and (ii) the outstanding principal amount of the Class A
Certificates as of the preceding Record Date; provided, however, with respect to
the first Distribution Date, Class A Monthly Interest will be equal to $800,000.
"Class B Available Funds" means, with respect to any Monthly Period,
an amount equal to the sum of (i) the applicable Class B Investor Percentage of
Collections of Finance Charge Receivables with respect to such
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Monthly Period plus any other amounts that are to be treated as Collections of
Finance Charge Receivables, (ii) if such Monthly Period immediately precedes a
Distribution Date that occurs on or after the Class B Principal Commencement
Date, the earnings (net of losses and investment expenses), if any, earned on
the Principal Account with respect to such Monthly Period, (iii) the amount, if
any, to be withdrawn from the Reserve Account and included in Class B Available
Funds pursuant to the Series 1998-2 Supplement with respect to such Distribution
Date and (iv) the amount of investment earnings (net of losses and investment
expenses), if any, on amounts in the Reserve Account required to be included in
Class B Available Funds pursuant to the Series 1998-2 Supplement with respect to
such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution
Date, an amount equal to one-twelfth (1/12th) of the product of (i) the Class B
Certificate Rate and (ii) the outstanding principal amount of the Class B
Certificates as of the preceding Record Date; provided, however, with respect to
the first Distribution Date, Class B Monthly Interest will be equal to $88,150.
"Collateral Available Funds" means, with respect to any Monthly
Period, an amount equal to the applicable Collateral Investor Percentage of the
Collections of Finance Charge Receivables with respect to such Monthly Period
and any other amounts that are to be treated as Collections of Finance Charge
Receivables.
"Class D Available Funds" means, with respect to any Monthly Period,
an amount equal to the applicable Class D Investor Percentage of the Collections
of Finance Charge Receivables with respect to such Monthly Period and any other
amounts that are to be treated as Collections of Finance Charge Receivables.
"Class D Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) the Class D Certificate Rate for the
related interest accrual period, (ii) the outstanding principal amount of the
Class D Certificates as of the preceding Record Date (or, in the case of the
first Distribution Date, as of the Closing Date) and (iii) a fraction, the
numerator of which is the actual number of days in the related interest accrual
period and the denominator of which is 360.
"Class D Certificate Rate" means a rate equal to LIBOR plus 1.00% per
annum, or a lesser rate.
"Collateral Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) an amount equal to the product of
the Collateral Indebtedness Amount as of the preceding Record Date (or, in the
case of the first Distribution Date, as of the Closing Date) and the Collateral
Rate for the related Interest Period plus, in the event of any Collateral
Indebtedness Charge Offs in the related Monthly Period, an amount equal to the
product of the Collateral Indebtedness Charge Offs during such Monthly Period
and the Collateral Alternative Rate and (ii) a fraction, the numerator of which
is the actual number of days in the related Interest Period and the denominator
of which is 360.
"Collateral Rate" means a rate equal to LIBOR plus 1.00% per annum, or
such lesser rate that is designated pursuant to the Loan Agreement.
"Collateral Alternative Rate" means a rate equal to the sum of 1% and
the greater of (a) the prime rate of interest as determined by the agent to the
Collateral Indebtedness Holder and (b) the overnight federal funds rate quoted
by such agent for deposit plus one-quarter of one percent (1/4 of 1%).
"Excess Spread" 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.
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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 1998-2 with respect to the related
Monthly Period to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Distribution Date will be used to fund any deficiency pursuant
to clauses (A)(i), (ii) and (iii) above under "-- Payment of Interest, Fees and
Other Items," in that order of priority;
(b) an amount equal to the aggregate amount of Class A Investor Charge
Offs which have not been previously reimbursed will be treated as a portion of
Available Principal Collections for such Distribution Date as described
under "-- Payments of Principal;"
(c) an amount up to the Class B Required Amount, if any, with respect
to such Distribution Date will be used to fund any deficiency pursuant to
clauses (B)(i) and (ii) above under "-- Payment of Interest, Fees and Other
Items," in that order of priority;
(d) an amount equal to any remaining portion of the Class B Required
Amount for such Distribution Date will be treated as a portion of Available
Principal Collections for such Distribution Date as described under "-- Payments
of Principal;"
(e) an amount equal to unreimbursed reductions of the Class B Investor
Amount, if any, due to: (i) Class B Investor Charge Offs; (ii) allocations of
Reallocated Principal Collections for the benefit of the Class A Certificates on
all prior Distribution Dates that have resulted in a reduction of the Class B
Investor Amount; or (iii) reallocations of the Class B Investor Amount to the
Class A Investor Amount as a result of unreimbursed Class A Allocable Amounts
will each be treated as a portion of Available Principal Collections for such
Distribution Date as described under "-- Payments of Principal;"
(f) an amount equal to Collateral Monthly Interest for such
Distribution Date, plus the amount of Collateral Monthly Interest previously due
but not paid to the Collateral Indebtedness Holder on a prior Distribution Date,
plus any additional interest with respect to interest amounts that were due but
not paid to the Collateral Indebtedness Holder on a prior Distribution Date at a
rate equal to the Collateral Alternative Rate ("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
Offered Certificates on all prior Distribution Dates that have resulted in a
reduction of the Collateral Indebtedness Amount and (iii) reallocations of the
Collateral Indebtedness Amount to the Class A Investor or the Class B Investor
Amount as a result of unreimbursed Class A Allocable Amounts or unreimbursed
Class B Allocable Amounts, respectively, will be treated as a portion of
Available Principal Collections for such Distribution Date as described
under "-- Payments of Principal;"
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(j) an amount equal to the greater of (i) the excess, if any, of the
Required Cash Collateral Amount over the Available Cash Collateral Amount and
(ii) the excess, if any, of the Required Enhancement Amount over the Available
Enhancement Amount, (without giving effect to any deposit made on such date
under the Pooling and Servicing Agreement) will be deposited into the Cash
Collateral Account;
(k) an amount equal to the Class D Allocable Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payments of
Principal;"
(l) an amount equal to unreimbursed reductions of the Class D Investor
Amount, if any, due to: (i) Class D Investor Charge Offs; (ii) allocations of
Reallocated Principal Collections that have resulted in the reduction of Class D
Investor Amount and (iii) reallocations of the Class D Investor Amount to the
Class A Investor Amount, the Class B Investor Amount or the Collateral
Indebtedness Amount as a result of unreimbursed Class A Allocable Amounts,
unreimbursed Class B Allocable Amounts or unreimbursed Collateral Allocable
Amounts, respectively, will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payments of
Principal;"
(m) an amount equal to the excess, if any, of the Required Reserve
Account Amount over the amount held in the Reserve Account will be deposited
into the Reserve Account;
(n) an amount equal to the aggregate of any other amounts (generally
indemnities and costs of reimbursements) then due to the Collateral Indebtedness
Holder pursuant to the Loan Agreement will be applied in accordance with the
Loan Agreement;
(o) an amount equal to Class D Monthly Interest for such Distribution
Date, plus the amount of Class D Monthly Interest previously due but not paid to
the Class D Certificateholders on a prior Distribution Date, plus any additional
interest with respect to interest amounts that were due but not paid to the
Class D Certificateholders on a prior Distribution Date at a rate equal to the
Class D Certificate Rate plus 2% per annum ("Class D Additional Interest") will
be distributed to the Class D Certificateholders;
(p) an amount equal to the Class D Servicing Fee for such Distribution
Date (or, if Proffitt's, Inc. is no longer the Servicer, the portion of the
Class D Servicing Fee for such Distribution Date remaining unpaid), plus the
amount of any Class D Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the Servicer; and
(q) the balance, if any, will constitute "Shared Excess Finance Charge
Collections" with respect to Group One to be applied with respect to other
Series in Group One.
"Required Cash Collateral Amount" means the amount specified as such
in the Loan Agreement or such higher amount designated by the Transferor.
"Required Reserve Account Amount" means the amount specified as such
in the Series 1998-2 Supplement, which shall be zero prior to the Reserve
Account Funding Date, and thereafter shall not be less than 1.50% of the Class A
Investor Amount without satisfaction of the Rating Agency Condition and
Enhancement Provider consent.
Collateral Amortization Period
During the period beginning on the earlier of (i) payment in full of
the Class B Investor Amount and (ii) any date selected by the Servicer if the
Available Enhancement Amount exceeds the Required Enhancement Amount as of the
related Determination Date, and ending upon the earlier of (a) the payment in
full of the Collateral Indebtedness Amount, (b) the reduction of the Collateral
Indebtedness Amount to an amount whereby the Available Enhancement Amount is
equal to the Required Enhancement Amount if the Collateral Amortization Period
arises pursuant to clause (ii) above, (c) the onset of the Rapid Amortization
Period, if the Class A Investor
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Amount and Class B Investor Amount have not been paid in full or (d) the Series
1998-2 Termination Date (the "Collateral Amortization Period"), certain
Collections of Principal Receivables allocated to the Investor Amount will be
distributed monthly, subject to the limitations described below, to the holders
of the Collateral Indebtedness Interest on each Distribution Date beginning with
the first Distribution Date with respect to the Collateral Amortization Period.
A Collateral Amortization Period may occur more than once prior to the payment
in full of the Class B Investor Amount if the Collateral Amortization Period
arises as described in clause (ii) above.
The amount of Collections of Principal Receivables to be distributed
to the Collateral Indebtedness Holder on any Distribution Date during the
Collateral Amortization Period (the "Enhancement Distribution Amount") will be
calculated as follows:
(A) in order to reduce the Available Enhancement Amount to the
Required Enhancement Amount as of the related Determination Date and provided
that a Pay Out Event has not occurred while Class A Certificates and Class B
Certificates remain outstanding, the Enhancement Distribution Amount shall be
equal to the lesser of (x) Available Principal Collections (after any
allocations to meet any Class A Certificate or Class B Certificate principal
amortization obligations and after any reallocations required to pay the Class A
Required Amount and/or the Class B Required Amount) and (y) the amount necessary
to reduce the Available Enhancement Amount to the Required Enhancement Amount as
of the related Determination Date;
(B) after the Class B Investor Amount is paid in full, the Enhancement
Distribution Amount shall be equal to the Available Principal Collections for
such Monthly Period; and
(C) upon the occurrence of a Pay Out Event, the Enhancement
Distribution Amount shall equal zero until the Class B Investor Amount is paid
in full, after which time the Enhancement Distribution Amount will be calculated
as described in clause (B) above.
Payments of Principal
On each Distribution Date, the Trustee, acting pursuant to the
Servicer's instructions, will distribute Available Principal Collections in the
following priority:
(A) On each Distribution Date with respect to the Revolving Period,
all such Available Principal Collections, less any portion thereof allocated at
the option of the Transferor as part of Collateral Monthly Principal or Class D
Monthly Principal to make a payment with respect to the Collateral Indebtedness
Interest or the Class D Investor Amount (subject to maintaining the Required
Enhancement Amount and subject to any other restrictions specified in the Loan
Agreement), will be treated as Shared Principal Collections with respect to
other Series and applied as described under "-- Shared Principal Collections;"
and
(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;
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(iii) an amount equal to Collateral Monthly Principal for such
Distribution Date will be applied in accordance with the Loan Agreement;
(iv) an amount equal to Class D Monthly Principal for such
Distribution Date will be distributed to the Class D Certificateholders;
and
(v) the balance, if any, will be treated as Shared Principal
Collections with respect to other Series in Group One and applied as
described under "-- Shared Principal Collections."
"Class A Monthly Principal" with respect to any Distribution Date
relating to the Accumulation Period or the Rapid Amortization Period will equal
the least of (i) the Available Principal Collections held in the Collection
Account with respect to such Distribution Date, (ii) for each Distribution Date
with respect to the Accumulation Period prior to the Class A Expected Payment
Date, the Controlled Deposit Amount for such Distribution Date, and (iii) the
Class A Adjusted Investor Amount on such Distribution Date.
"Class B Monthly Principal" with respect to any Distribution Date
relating to the Accumulation Period or the Rapid Amortization Period, after the
Class A Certificates have been paid in full, will equal the least of (i) the
Available Principal Collections held in the Collection Account with respect to
such Distribution Date (minus the portion of such Available Principal
Collections applied to any Class A Monthly Principal on such Distribution Date),
(ii) for each Distribution Date with respect to the Accumulation Period prior to
the Class B Expected Payment Date, the Controlled Deposit Amount for such
Distribution Date, and (iii) the Class B Adjusted Investor Amount on such
Distribution Date.
"Collateral Monthly Principal" with respect to any Distribution Date
prior to the payment in full of the Class B Certificates will equal the lesser
of (i) the Available Principal Collections held in the Collection Account with
respect to such Distribution Date (minus the portion of such Available Principal
Collections applied to any Class A Monthly Principal or Class B Monthly
Principal on such Distribution Date) and (ii) the Enhancement Surplus on such
Distribution Date (after giving effect to any increase in the amount held in the
Cash Collateral Account or increase in the Class D Investor Amount on such
Distribution Date), provided that the Transferor shall have elected to pay such
Collateral Monthly Principal, and with respect to each Distribution Date
beginning with the Distribution Date on which the Class B Certificates have been
paid in full, the lesser of (x) the Available Principal Collections on deposit
in the Collection Account with respect to such Distribution Date (minus the
amount of such Available Principal Collections applied to any Class A Monthly
Principal or Class B Monthly Principal on such Distribution Date) and (y) the
Collateral Indebtedness Amount on such Distribution Date.
"Class D Monthly Principal" with respect to any Distribution Date
after the Collateral Indebtedness Interest has been paid in full, or prior
thereto subject to the requirements of the Loan Agreement (and provided that
such distribution would not require the Transferor to designate a Minimum
Transferor Interest Percentage pursuant to the Series 1998-2 Supplement), will
equal the least of (i) the Available Principal Collections held in the
Collection Account with respect to such Distribution Date (minus the portion of
such Available Principal Collections applied to any Class A Monthly Principal,
Class B Monthly Principal or Collateral Monthly Principal on such Distribution
Date), (ii) the Enhancement Surplus on such Distribution Date and (iii) the
Class D Investor Amount on such Distribution Date.
"Controlled Accumulation Amount" means (a) for any Distribution Date
with respect to the Class A Accumulation Period, $16,666,667; provided, however,
if the Accumulation Period Length is determined to be less than 12 months, the
Controlled Accumulation Amount with respect to the Class A Certificates shall be
equal to (i) the product of (x) the Class A Initial Investor Amount and (y) the
Accumulation Period Factor for such Monthly Period divided by (ii) the Required
Accumulation Factor Number and (b) for any Distribution Date with respect to the
Class B Accumulation Period, $21,500,000.
"Accumulation Period Factor" means, for each Monthly Period, a
fraction, the numerator of which is equal to the sum of the initial investor
amounts of all outstanding Series, and the denominator of which is equal to the
sum of (a) the Initial Investor Amount (plus the aggregate initial principal
amount of any additional Class D
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Certificates), (b) the initial investor amounts (or other applicable amounts) of
all outstanding Series (other than Series 1998-2) which are not expected to be
in their revolving periods during such Monthly Period and (c) the initial
investor amounts (or other applicable amounts) of all other outstanding Series
which are not allocating Shared Principal Collections to other Series and are
expected to be in their revolving periods during such Monthly Period.
"Required Accumulation Factor Number" is a fraction, rounded upwards
to the nearest whole number, the numerator of which is one and the denominator
of which is equal to the lowest monthly principal payment rate on the Accounts
for the 12 months preceding the date of such calculation (or any lower monthly
principal payment rate selected by the Servicer at its option in its sole
discretion), expressed as a decimal.
"Controlled Deposit Amount" means, for any Distribution Date with
respect to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.
"Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the applicable Controlled
Accumulation Amount for such Distribution Date over the amount deposited into
the Principal Account as Class A Monthly Principal or Class B Monthly Principal,
as the case may be, for such Distribution Date, and (b) on each subsequent
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the applicable Controlled Deposit
Amount for such subsequent Distribution Date over the amount deposited into the
Principal Account as Class A Monthly Principal or Class B Monthly Principal, as
the case may be, for such subsequent Distribution Date.
"Available Enhancement Amount" means, with respect to any Distribution
Date, the sum of the amount on deposit in the Cash Collateral Account (after
giving effect to deposits or withdrawals from the Cash Collateral Account on
such Distribution Date), the Collateral Indebtedness Amount and the Class D
Investor Amount. The Available Enhancement Amount may be reduced on any
Distribution Date, subject to the requirements of the Series 1998-2 Supplement,
to the extent the Available Enhancement Amount as of the preceding Determination
Date exceeds the Required Enhancement Amount, provided that a Pay Out Event has
not occurred. Such reduction of the Available Enhancement Amount may be effected
via either a reduction of the Available Cash Collateral Amount or the Collateral
Indebtedness Amount or the Class D Investor Amount.
"Required Enhancement Amount" means, with respect to any Distribution
Date, an amount equal to the product of the Adjusted Investor Amount (after
giving effect to all reductions thereof to be made on such Distribution Date)
and 15%, but not less than $7,845,000; provided, however, that (i) if a Pay Out
Event occurs, then the Required Enhancement Amount shall equal the Required
Enhancement Amount on the Distribution Date immediately preceding such Pay Out
Event, (ii) in no event shall the Required Enhancement Amount exceed the sum of
the Class A Adjusted Investor Amount and the Class B Adjusted Investor Amount on
such date and (iii) the Required Enhancement Amount may be reduced without the
consent of the Series 1998-2 Certificateholders if (x) the Transferor shall have
received written notice from each Rating Agency that such reduction will not
result in the reduction or withdrawal of the then current rating of the Offered
Certificates, (y) the Transferor shall have delivered to the Trustee an
officer's certificate to the effect that, based on the facts known to such
officer at such time, in the reasonable belief of the Transferor, such reduction
will not cause a Pay Out Event, or an event that, after the giving of notice or
the lapse of time, would constitute a Pay Out Event, to occur with respect to
Series 1998-2 and (z) the Transferor shall have delivered an opinion of counsel,
addressed to the Trustee, to the effect that such reduction will not (a)
adversely affect the tax characterization as debt of certificates of any
outstanding Series or Class with respect to which an opinion of counsel was
delivered at the time of their issuance that such certificates would be
characterized as debt, (b) cause the Trust to be classified, for Federal income
tax purposes, as an association (or publicly traded partnership) taxable as a
corporation and (c) cause or constitute an event in which gain or loss would be
recognized by any Certificateholder.
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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:
May 1 - May 31................................Monthly Period
May 31...........................................Record Date
June 10...................................Determination Date
June 12........................................Transfer Date
June 15....................................Distribution Date
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
"Description of the Certificates and the Pooling and Servicing Agreement --
Book-Entry Registration" and "-- Definitive Certificates" in the Prospectus.
ALLOCATION OF INVESTOR DEFAULT AMOUNT; ADJUSTMENT AMOUNTS; INVESTOR CHARGE OFFS
"Defaulted Receivables" for any Monthly Period are Principal
Receivables in Accounts which were charged off as uncollectible in such Monthly
Period ("Defaulted Accounts"). Receivables in an Account will be considered
charged off for the purposes of the Pooling and Servicing Agreement on the date
on which such Account is charged off in accordance with the usual and customary
servicing procedures of the Servicer, but in any event no later than 30 days
after receipt of notice by the Servicer that the related obligor has died or has
become the subject of a bankruptcy petition. The default amount (the "Default
Amount") for any Monthly Period will be an amount (not less than zero) equal to
(a) the amount of the Principal Receivables that were charged off in such
Monthly Period less (b) the amount of Recoveries received by the Servicer with
respect to Defaulted Accounts during such Monthly Period.
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Investor
Percentage applicable to Allocable Amounts with respect to such Monthly Period
and (ii) the Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class A Certificateholders (the "Class A
Investor Default Amount") on each Distribution Date in an amount equal to the
product of (i) the Class A Investor Percentage applicable during the related
Monthly Period and (ii) the Default Amount for such Monthly Period. A portion
of the Investor Default Amount will be allocated to the Class B
Certificateholders (the "Class B Investor Default Amount") on each Distribution
Date in an amount equal to the product of (i) the Class B Investor Percentage
applicable during the related Monthly Period and (ii) the Default Amount for
such Monthly Period. A portion of the Investor Default Amount will be allocated
to the Collateral Indebtedness Holder (the "Collateral Default Amount") on each
Distribution Date in an amount equal to the product of (i) the Collateral
Investor Percentage applicable during the related Monthly Period and (ii) the
Default Amount for such Monthly Period. A portion of the Investor Default
Amount will be allocated to the Class D Certificateholders (the "Class D
Investor Default Amount") on each Distribution Date in an amount equal to the
product of (i) the Class D Investor Percentage applicable during the related
Monthly Period and (ii) the Default Amount of such Monthly Period.
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On each Determination Date, the Servicer will also calculate the
Series Adjustment Amount, as described below under "-- Allocation of Adjustment
Amounts." A portion of the Series Adjustment Amount will be allocated to the
Class A Certificateholders (the "Class A Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class A
Adjusted Investor Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Class B Certificateholders (the "Class B Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class B
Adjusted Investor Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Collateral Indebtedness Holder (the "Collateral Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Collateral
Indebtedness Amount and the denominator of which is the Adjusted Investor
Amount, each as of the last day of the Monthly Period preceding the related
Monthly Period. A portion of the Series Adjustment Amount will be allocated to
the Class D Certificateholders (the "Class D Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-2 with respect to the related Monthly Period and (ii) the
percentage equivalent of a fraction the numerator of which is the Class D
Investor Amount and the denominator of which is the Adjusted Investor Amount,
each as of the last day of the Monthly Period preceding the related Monthly
Period.
The sum of the Class A Investor Default Amount and the Class A
Adjustment Amount with respect to a Distribution Date is referred to as the
"Class A Allocable Amount." The sum of the Class B Investor Default Amount and
the Class B Adjustment Amount with respect to a Distribution Date is referred to
as the "Class B Allocable Amount." The sum of the Collateral Default Amount and
the Collateral Adjustment Amount with respect to a Distribution Date is referred
to as the "Collateral Allocable Amount." The sum of the Class D Investor
Default Amount and the Class D Adjustment Amount with respect to a Distribution
Date is referred to as the "Class D Allocable Amount." The sum of the Class A
Allocable Amount, the Class B Allocable Amount, the Collateral Allocable Amount
and the Class D Allocable Amount equals the "Allocable Amount."
An amount equal to the Class A Allocable Amount for each Monthly
Period will be funded with Class A Available Funds, Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-2, amounts, if any,
held in the Cash Collateral Account and Reallocated Principal Collections
applied as described above in "-- Applications of Collections -- Payment of
Interest, Fees and Other Items" and "-- Reallocation of Cash Flows." An amount
equal to the Class B Allocable Amount for each Monthly Period will be funded
with Class B Available Funds, Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1998-2, amounts, if any, held in the Cash
Collateral Account and Reallocated Principal Collections applied as described
above in "-- Applications of Collections -- Payment of Interest, Fees and Other
Items" and "-- Reallocation of Cash Flows."
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-2, amounts, if any, in the Cash
Collateral Account and Reallocated Principal Collections, then the Class D
Investor Amount will be reduced by the amount of such excess, but not by more
than the excess of the Class A Allocable Amount for such Distribution Date over
the amount of Excess Spread and Shared Excess Finance Charge Collections, the
amount withdrawn from the Cash Collateral Account and the amount of Reallocated
Principal Collections used to fund the Class A Allocable Amount for such
Distribution Date. In the event that such reduction would cause the Class D
Investor Amount to be a negative number, the Class D Investor Amount will be
reduced to zero, and the Collateral Indebtedness Amount will be reduced by the
amount by which the Class D Investor Amount would have been reduced below zero,
but not by more than the excess, if any, of the Class A Allocable Amount for
such Distribution Date over the amount of such reduction, if any, of the Class D
Investor Amount with respect to such Distribution Date and the amount of Excess
Spread and Shared Excess Finance Charge Collections, the amount withdrawn
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from the Cash Collateral Account and the amount of Reallocated Principal
Collections used to fund the Class A Allocable Amount for such Distribution
Date. In the event that such reduction would cause the Collateral Indebtedness
Amount to be a negative number, the Collateral Indebtedness Amount will be
reduced to zero and the Class B Investor Amount will be reduced by the amount by
which the Collateral Indebtedness Amount would have been reduced below zero, but
not by more than the excess, if any, of the Class A Allocable Amount for such
Distribution Date over the aggregate amount of the reductions, if any, of the
Collateral Indebtedness Amount and the Class D Investor Amount with respect to
such Distribution Date and the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class A
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class B Investor Amount to be a negative number, the Class B
Investor Amount will be reduced to zero, and the Class A Investor Amount will be
reduced by the amount by which the Class B Investor Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Allocable Amount for such Distribution Date over the aggregate amount of the
reductions, if any, of the Class D Investor Amount, the Collateral Indebtedness
Amount and the Class B Investor Amount for such Distribution Date and the amount
of Excess Spread and Shared Excess Finance Charge Collections, the amount
withdrawn from the Cash Collateral Account and the amount of Reallocated
Principal Collections used to fund the Class A Investor Allocable Amount for
such Distribution Date (a "Class A Investor Charge Off"), which will have the
effect of slowing or reducing the return of principal to the Class A
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 1998-2 and available for such purpose as
described above in "-- Applications of Collections -- Excess Spread; Shared
Excess Finance Charge Collections." In addition, to the extent that such
reduction is due to the allocation of Series Adjustment Amounts, such reduction
may be reimbursed as a result of deposits in the Excess Funding Account,
increases in the amount of Principal Receivables in the Trust or certain
decreases in the aggregate Investor Amount of the Trust.
On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-2 not required to pay the Class A
Required Amount or reimburse Class A Investor Charge Offs, amounts, if any, in
the Cash Collateral Account not required to pay the Class A Required Amount and
Reallocated Principal Collections (exclusive of the portion of Reallocated
Principal Collections arising from the Class B Investor Amount's allocation of
Collections of Principal Receivables) not required to pay the Class A Required
Amount, then the Class D Investor Amount will be reduced by the amount of such
excess, but not by more than the excess of the Class B Allocable Amount for such
Distribution Date over the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class B
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class D Investor Amount to be a negative number, the Class D
Investor Amount remaining after any reduction for the benefit of the Class A
Certificates will be reduced to zero, and the Collateral Indebtedness Amount
remaining after any reduction for the benefit of the Class A Certificates will
be reduced by the amount by which the Class D Investor Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class B
Allocable Amount for such Distribution Date over the amount of the reductions,
if any, of the Class D Investor Amount with respect to such Distribution Date
and the amount of Excess Spread and Shared Excess Finance Charge Collections,
the amount withdrawn from the Cash Collateral Account and the amount of
Reallocated Principal Collections used to fund the Class B Allocable Amount for
such Distribution Date. In the event that such reduction would cause the
Collateral Indebtedness Amount to be a negative number, the Collateral
Indebtedness Amount will be reduced to zero, and the Class B Investor Amount
will be reduced by the amount by which the Collateral Indebtedness Amount would
have been reduced below zero, but not by more than the excess, if any, of the
Class B Allocable Amount for such Distribution Date over the aggregate amount of
the reductions, if any, of the Collateral Indebtedness Amount and the Class D
Investor Amount with respect to such Distribution Date and the amount of Excess
Spread and Shared Excess Finance Charge Collections, the amount withdrawn from
the Cash Collateral Account and the amount of Reallocated Principal Collections
used to fund the Class B Allocable Amount for such Distribution Date (a "Class B
Investor Charge Off"), which will have the effect of slowing or reducing the
return of principal to the Class B Certificateholders. If the Class B Investor
Amount has been reduced by the amount of any Class B Investor Charge Offs, it
will thereafter be increased on any Distribution Date (but not
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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 1998-2 and available for such purpose as described above in "--
Applications of Collections -- Excess Spread; Shared Excess Finance Charge
Collections." In addition, to the extent that such reduction is due to the
allocation of Series Adjustment Amounts, such reduction may be reimbursed as a
result of deposits in the Excess Funding Account, increases in the amount of
Principal Receivables in the Trust or certain decreases in the aggregate
Investor Amount of the Trust.
On each Distribution Date, if the Collateral Required Amount for such
Distribution Date exceeds the amounts, if any, in the Cash Collateral Account
not required to pay the Class A Required Amount or the Class B Required Amount
or to pay certain other amounts and Reallocated Principal Collections (exclusive
of the portion of Reallocated Principal Collections arising from the Class B
Certificates' or the Collateral Indebtedness Amount's allocation of Collections
of Principal Receivables) not required to pay the Class A Required Amount or the
Class B Required Amount, then the Class D Investor Amount remaining after any
reduction for the benefit of the Class A Certificates or the Class B
Certificates will be reduced by the amount of such excess, but not by more than
the Collateral Allocable Amount for such Distribution Date. In the event that
such reduction would cause the Class D Investor Amount to be a negative number,
the Class D Investor Amount will be reduced to zero, and the Collateral
Indebtedness Amount will be reduced by the amount by which the Class D Investor
Amount would have been reduced below zero (a "Collateral Indebtedness Charge
Off").
On each Distribution Date, if the Class D Allocable Amount exceeds the
amount of Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1998-2 available on such Distribution Date as specified in clause (k)
under "-- Applications of Collections -- Excess Spread; Shared Excess Finance
Charge Collections" above, then the Class D Investor Amount will be reduced (but
not below zero) by the amount of such excess (a "Class D Investor Charge Off").
ALLOCATION OF ADJUSTMENT AMOUNTS
The Minimum Transferor Interest Percentage applicable to Series 1998-2
will initially be zero; provided, however, that (a) the Transferor may, at its
option and in its sole discretion, designate a higher percentage as the Minimum
Transferor Interest Percentage so long as, after giving effect to such
designation and any repurchase of Certificates or designation of Additional
Accounts, the Transferor Amount equals or exceeds the Minimum Transferor Amount
and (b) if on any Distribution Date during the Revolving Period (after giving
effect to all distributions and adjustments to be made on such Distribution
Date), the portion of the Class D Investor Amount owned by the Transferor is
less than 2% of the Investor Amount and the Minimum Transferor Interest
Percentage is then less than 2%, the Transferor will be required, on or before
the last day of the second Monthly Period following the Monthly Period in which
such Distribution Date occurs (unless the portion of the Class D Investor Amount
owned by the Transferor then equals or exceeds 2% of the Investor Amount), to
(i) repurchase or otherwise repay certificates (to the extent permitted) or
designate Additional Accounts to the extent necessary to permit the designation
of a Minimum Transferor Interest Percentage of 2% without causing the Transferor
Amount to be less than the Minimum Transferor Amount and (ii) upon compliance
with clause (i), designate 2% as the Minimum Transferor Interest Percentage. In
the event that the Transferor has designated a Minimum Transferor Interest
Percentage in excess of 0%, the Transferor may, during the Revolving Period,
designate a lower percentage (not less than 0%) if the portion of Class D
Investor Amount owned by the Transferor as a percentage of the Investor Amount
averaged over the three Distribution Dates preceding such designation (after
giving effect to all distributions and adjustments made on each such
Distribution Date) equals or exceeds 4%; provided, however, such lower
percentage may not be less than 2% if the portion of Class D Investor Amount
owned by the Transferor as a percentage of the Investor Amount on the
Distribution Date preceding such designation (after giving effect to all
distributions and adjustments made on such Distribution Date) does not equal or
exceed 2%. The "Minimum Transferor Amount" will generally be equal to the
product of the aggregate adjusted investor amount for all Series outstanding and
the applicable Minimum Transferor Interest Percentage.
If as a result of an Adjustment (i) the Principal Receivables plus the
Excess Funding Account balance is less than (ii) the aggregate investor amount
of all Series (after giving effect to any required transfer of Receivables in
Additional Accounts to the Trust and any amounts deposited in the Excess Funding
Account), and the
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Transferor fails to make any payment required by the Pooling and Servicing
Agreement in respect thereof, then the amount of such deficiency will be
allocated among all Series based on their respective Investor Percentages (a
"Series Adjustment Amount"). The Series Adjustment Amount, as applicable to
Series 1998-2, will be allocated as described above under "--Allocation of
Investor Default Amount; Adjustment Amounts; Investor Charge Offs." A Series
Adjustment Amount will be reduced and the investor amount increased to the
extent that allocations of Excess Spread and Shared Excess Finance Charge
Collections covers the Series Adjustment Amount, the amount of Principal
Receivables in the Trust increases, certificates are repaid, amounts are
deposited in the Excess Funding Account or the Transferor subsequently makes a
payment allocable to Series 1998-2 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 an Adjustment and not as Defaulted Receivables.
PAY OUT EVENTS
The Revolving Period will continue through and include the last day of
the April 2000 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 events specified in the Pooling
and Servicing Agreement, and described in the Prospectus under "Description of
the Certificates and the Pooling and Servicing Agreement -- Pay Out Events,"
together with the following events applicable to Series 1998-2:
(a) 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 1998-2 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 1998-2 Supplement, which
failure has a material adverse effect on the holders of the 1998-2
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 1998-2 Certificates
representing not less than 50% of the Investor Amount, and continues to
materially and adversely affect the holders of the Series 1998-2
Certificates for such period; or
(b) any representation or warranty made by the Transferor in the
Pooling and Servicing Agreement or the Series 1998-2 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 1998-2 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 1998-2 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
(c) the average of the Portfolio Yields for any three consecutive
Monthly Periods is a rate which is less than the average Base Rate for such
three consecutive Monthly Periods; or
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(d) failure to pay the Class A Investor Amount on the Class A Expected
Payment Date or failure to pay the Class B Investor Amount on the Class B
Expected Payment Date; or
(e) the Transferor shall fail to designate, or be unable to designate,
Additional Accounts the Receivables of which will be Eligible Receivables,
as required by the Pooling and Servicing Agreement, and such failure shall
continue for a period of five business days; or
(f) any Servicer Default shall occur which would have a material
adverse effect on the holders of the Series 1998-2 Certificates; or
(g) the Available Enhancement Amount shall be less than the Required
Enhancement Amount for three consecutive Monthly Periods;
then (x) in the case of any such event described in clauses (a), (b) or (f)
above, after the applicable grace period set forth in such subparagraphs, either
the Trustee or holders of Series 1998-2 Certificates representing more than 50%
of the Investor Amount, by written notice then given in writing to the
Transferor and the Servicer (and to the Trustee if given by the holders of
Series 1998-2 Certificates) may declare that a Pay Out Event has occurred with
respect to only the Series 1998-2 Certificates as of the date of such notice,
and (y) in the case of any such event described in clauses (c), (d), (e) or (g)
above, a Pay Out Event with respect to only the Series 1998-2 Certificates will
be deemed to have occurred, without any notice or other action, immediately upon
the occurrence of such event.
"Portfolio Yield" means with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is (x)
the sum of (i) the amount of collections of Finance Charge Receivables and
Shared Excess Finance Charge Collections allocated to the Series 1998-2
Certificates for such Monthly Period, (ii) the amount of investments earnings
(net of investment expenses and losses), if any, on the Principal Account and
Reserve Account balances, (iii) interest and earnings (net of investment
expenses and losses, if any) on amounts held in the Cash Collateral Account and
included as Excess Spread pursuant to the Pooling and Servicing Agreement and
(iv) the amount of funds withdrawn from the Reserve Account less (v) an amount
equal to the Default Amount allocable to the Series 1998-2 Certificates for such
Monthly Period, and the denominator of which is (y) the Investor Amount as of
the last day of the preceding Monthly Period.
"Base Rate" means with respect to any Monthly Period, the sum of (i)
the annualized percentage equivalent of a fraction, the numerator of which is
the sum of the Class A Monthly Interest, Class B Monthly Interest, Collateral
Monthly Interest and Class D Monthly Interest payable on the Series 1998-2
Certificates on the following Distribution Date and the denominator of which is
the Investor Amount as of the last day of the preceding Monthly Period and (ii)
the product of (a) 2% per annum and (b) a fraction, the numerator of which is
the Adjusted Investor Amount and the denominator of which is the Investor
Amount, in each case determined as of the last day of the preceding Monthly
Period.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Investor Monthly Servicing Fee allocable to each
class of Certificates will be calculated as follows: (i) the share of such fee
allocable to the Class A Certificates (the "Class A Servicing Fee") with respect
to any Distribution Date shall be equal to one-twelfth (1/12th) of the product
of (a) 2% (the "Servicing Fee Percentage") and (b) the Class A Adjusted Investor
Amount; provided, however, with respect to the first Distribution Date, the
Class A Servicing Fee shall be equal to $266,667, (ii) the share of such fee
allocable to the Class B Certificates (the "Class B Servicing Fee") with respect
to any Distribution Date shall be equal to one-twelfth (1/12th) of the product
of (a) the Servicing Fee Percentage and (b) the Class B Adjusted Investor
Amount; provided, however, with respect to the first Distribution Date, the
Class B Servicing Fee shall be equal to $28,667, (iii) the share of such fee
allocable to the Collateral Indebtedness Interest (the "Collateral Servicing
Fee") with respect to any Distribution Date shall be equal to one-twelfth
(1/12th) of the product of (a) the Servicing Fee Percentage and (b) the
Collateral Indebtedness Amount; provided, however, with respect to the first
Distribution Date, the Collateral Servicing Fee shall be equal to $32,000, and
(iv) the share of such fee allocable to the Class D
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Certificates (the "Class D Servicing Fee") with respect to any Distribution Date
shall be equal to one-twelfth (1/12th) of the product of (a) the Servicing Fee
Percentage and (b) the Class D Investor Amount; provided, however, with respect
to the first Distribution Date, the Class D Servicing Fee shall be equal to
$21,333.
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(s), if any.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFERED CERTIFICATES
GENERAL
The following discussion, summarizing the material anticipated Federal
income tax aspects of the purchase, ownership and disposition of the Offered
Certificates, is based upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the 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, and such changes could
modify or adversely affect the tax consequences summarized below. This
discussion is qualified by, and should be read together with, "Certain Federal
Income Tax Consequences" in the Prospectus.
Unless otherwise indicated, this summary deals only with U.S.
Certificate Owners who hold Offered Certificates as capital assets. The
discussion generally describes the tax consequences of Offered Certificates that
are issued in registered form, have all payments denominated in U.S. Dollars and
have a term that exceeds one year. Moreover, the discussion assumes that the
interest formula for the Offered Certificates meets the requirements for
"qualified stated interest" under Treasury regulations (the "OID Regulations")
relating to original issue discount ("OID"), and that any OID on the Offered
Certificates (i.e., any excess of the principal amount of the Offered
Certificates over their issue price) does not exceed a de minimis amount (i.e.,
1/4% of the principal amount multiplied by the number or full years until
maturity), all within the meaning of the OID Regulations. The Company believes
these assumptions will be met with regard to the Offered Certificates.
CHARACTERIZATION OF THE OFFERED 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 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 an Offered Certificate, will be deemed to agree to treat the
Offered Certificate as indebtedness of PCC 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 Pooling and Servicing 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. It is the
opinion of Special Tax Counsel that although no transaction closely comparable
to that contemplated herein has been the subject of any
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Treasury regulation, revenue ruling or judicial decision, the Offered
Certificates will be properly characterized as indebtedness for Federal income
tax purposes. Except as otherwise expressly indicated, the following discussion
assumes that the Offered Certificates are properly treated as debt obligations
of the Transferor 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
It is the opinion of Special Tax Counsel that the Trust will not be
subject to Federal income tax, and that (i) if the Trust is viewed as a
collateral arrangement for debt issued directly by the Transferor and any other
holders of equity interests in the Trust, then the Trust will be disregarded for
Federal income tax purposes, and (ii) if the Trust is viewed as a separate
entity issuing its own debt and owned by the Transferor and any other holders of
equity interests in the Trust, then the Trust would be a partnership for Federal
income tax purposes rather than an association (or publicly traded partnership)
taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
It is possible that the IRS could assert that, for purposes of the
Code, some or all of the Offered Certificates are not debt obligations for
Federal income tax purposes and that the proper classification of the legal
relationship between the Transferor, any other holders of equity interests in
the Trust, and the Certificate Owners 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 2% 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 in subsequent years
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.
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 become a publicly
traded partnership, because certain of the actions necessary to comply with such
exceptions are not fully within the control of the Transferor.
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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 holders 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.
Since Special Tax Counsel has advised 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 Pooling and Servicing Agreement, an interest in
the Trust is issued or sold that is intended to be classified as an interest in
a partnership).
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
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 more than a de
minimis amount and, accordingly, interest thereon will be includable in income
by U.S. 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 an Offered 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 Offered Certificates. 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 U.S. Certificate Owner 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 holder who purchases an Offered Certificate at a premium may elect
to amortize and deduct this premium over the remaining term of the Offered
Certificate in accordance with rules set forth in Section 171 of the Code.
Non-U.S. Certificate Owners should consider the discussion in the
Prospectus under "Certain Federal Income Tax Consequences -- Non-U.S.
Certificate Owners."
STATE AND LOCAL TAX CONSEQUENCES
An investment in the Certificates will have state and local tax
consequences, which will depend in part upon the tax laws of jurisdictions where
the Certificateholders reside or are doing business. Certain Illinois and
Mississippi tax implications of an investment in the Certificates are described
below. As each state's tax laws vary, the tax consequences arising to the
Certificateholders under the laws of other jurisdictions in which they are not
already subject to tax are not discussed in this summary. Potential investors
should consult their own tax advisors as to the state and local tax consequences
on an investment in the Certificates with respect to their particular
circumstances.
Certain activities to be undertaken by the Servicers on behalf of the
Trust pursuant to the Agreement will take place in Illinois and Mississippi.
The discussion of the Illinois and Mississippi tax consequences set forth below
is based upon current provisions of the Illinois and Mississippi statutes and
regulations promulgated thereunder, and any applicable judicial or ruling
authority, all of which are subject to change, with possible
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retroactive effect. No ruling on any of the issues discussed below will be
sought from any Illinois or Mississippi taxing authority.
If the Trust is not treated as a separate entity subject to tax and
the Certificates are treated as indebtedness of PCC for Federal income tax
purposes, this same treatment should apply for Mississippi and Illinois income
tax purposes. Accordingly, if the Certificates are treated as debt instruments
in Illinois and Mississippi, the Certificateholders not otherwise subject to
income tax in these states would not be subject to the tax solely because of
their ownership of the 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 are not treated as debt but
are considered interests in a partnership for Federal income tax purposes, the
same treatment should apply for both Illinois and Mississippi income tax
purposes, and the Illinois Department of Revenue or the Mississippi State Tax
Commission could view the Trust as doing business in Illinois or Mississippi
respectively. In this circumstance, the Trust would not be an entity subject to
income taxation in Mississippi. In Illinois, however, the Trust would not be
subject at the entity level to the income tax, but would be subject at the
entity level to the Illinois Replacement Tax at a rate of 1.5% of its income
allocated or apportioned to Illinois, less certain deductions. In both Illinois
and Mississippi, the Trust's items of income and deduction would be passed
through pro rata to both resident and nonresident partners, who would be
responsible for any income tax imposed at the partner level. Consequently,
nonresident individual partners and corporate partners not otherwise doing
business in Illinois or Mississippi could be required to file income tax returns
in Illinois or Mississippi and pay income tax in these states on their pro rata
distributive share of the Trust's income attributable to Illinois or
Mississippi. In this situation, Certificateholders not otherwise subject to tax
in Illinois or Mississippi could become subject to tax in these states solely
because of their ownership of the Certificates considered to be partnership
interests.
Moreover, if the Certificates are instead treated as ownership
interests in either a publicly traded partnership taxable as a corporation or an
entity classified as an association taxable as a corporation for Federal income
tax purposes, the same treatment should apply for both Illinois and Mississippi
tax purposes, and the entity would be subject to the income tax in these states.
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. Nonetheless, if corporate treatment were to apply,
Certificateholders not otherwise subject to income tax in Illinois or
Mississippi should not become subject to the tax on distributions from the Trust
solely because of their ownership of the Certificates.
The Company has agreed in the Pooling and Servicing Agreement to
indemnify and hold harmless the Certificateholders, the Certificate Owners, and
the Trustee against any loss, liability, expense, damage or injury (net of any
benefit realized), that are suffered or sustained by the Certificateholders, the
Certificate Owners and the Trustee against any loss, liability, expense, damage
or injury (net of any benefit realized), that are suffered or sustained by the
Trust, the Trustee or any Certificate Owner or Certificateholder as a result of,
and to the extent that, the State of Illinois (or its taxing authority)
determines that the Trust is a partnership and that the Illinois Replacement Tax
is applicable to the Trust and, as a consequence, any Illinois Replacement Tax
(including any interest or penalties with respect thereto or arising from a
failure to comply therewith) are required to be paid by the Trust, the
Certificate Owners or the Certificateholders. The foregoing indemnity shall
terminate upon delivery to the Trustee of evidence of, among other things, any
repeal or modification of the Illinois Replacement Tax by the State of Illinois
(or its taxing authority) which would make it no longer potentially applicable
to the Trust, the Trustee or any Certificate Owner or Certificateholder (in
their capacities as such) or the occurrence of certain other events having a
similar effect.
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
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(the "Underwriters"), and the Underwriters have severally agreed to purchase
from the Transferor, the principal amount of Offered Certificates set forth
opposite their respective names below:
PRINCIPAL AMOUNT
OF CLASS A
UNDERWRITERS CERTIFICATES
NationsBanc Montgomery Securities LLC..................$ 66,668,000
BancAmerica Robertson Stephens......................... 66,666,000
J.P. Morgan Securities Inc............................. 66,666,000
-----------
$200,000,000
===========
PRINCIPAL AMOUNT
OF CLASS B
UNDERWRITER CERTIFICATES
NationsBanc Montgomery Securities LLC..................$ 21,500,000
===========
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any of the Certificates are purchased.
The Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof and to certain dealers at
such price less concessions not in excess of 0.20% of the principal amount of
the Class A Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.175% of the principal amount of the
Class A Certificates to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriters.
The Underwriter of the Class B Certificates proposes initially to offer the
Class B Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
0.225% of the principal amount of the Class B Certificates. The Underwriter may
allow, and such dealers may reallow, concessions not in excess of 0.20% of the
principal amount of the Class B Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Underwriter.
The Transferor and Proffitt's will indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
In addition to the underwriting discount to be paid to the Underwriters as
set forth on the cover page hereto, the Transferor has agreed to reimburse the
Underwriters for their reasonable out-of-pocket costs and expenses incurred in
connection with the offering, including the reasonable fees and disbursements of
Underwriters' counsel.
Until the distribution of the Offered Certificates is completed, the rules
of the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Offered Certificates. As an exception
to these rules, the Underwriters are permitted to engage in over-allotment
transactions, stabilizing transactions, syndicate coverage transactions and
penalty bids with respect to the Offered Certificates in accordance with
Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Offered Certificates as long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Offered Certificates in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit the Underwriters to reclaim a selling concession from a syndicate member
when the Offered Certificates originally sold by such syndicate member are
purchased in a syndicate covering transaction.
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Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Offered
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Transferor nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Transferor nor any of the Underwriters
represent that any of the Underwriters will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without notice.
Each Underwriter has represented and agreed that (i) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Certificates to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or who is a person to
whom the document may otherwise lawfully be issued or passed on, (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Certificates in, from or otherwise involving the United Kingdom and (iii) if
that Underwriter is an authorized person under the Financial Services Act 1986,
it has only promoted and will only promote (as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991) to any person in the United Kingdom the scheme described
herein if that person is of a kind described either in Section 76(2) of the
Financial Services Act 1986 or in Regulation 1.04 of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991.
In the ordinary course of their respective businesses, the
Underwriters and their affiliates have engaged and may in the future engage in
commercial banking and investment banking and other transactions with the
Company and its affiliates. NationsBank, N.A., which is an affiliate of
NationsBanc Montgomery Securities LLC ("NMS"), is agent bank and a lender to the
Company and certain of its affiliates under a $600 million amended and restated
credit facility (the "Credit Facility"). Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan Securities Inc. and J.P. Morgan & Co., and
Bank of America Illinois, an affiliate of BancAmerica Robertson Stephens, are
lenders under the Credit Facility. NationsBank, N.A. is also the agent for a
multi-seller, asset-backed commercial paper conduit which, together with another
multi-seller, asset-backed commercial paper conduit for which Bank of America,
N.T.S.A. is agent, were purchasers of the Series 1997-1 Variable Funding
Certificates. Bank of America, N.T.S.A., Bank of America Illinois and
BancAmerica Robertson Stephens are affiliates.
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.
S-56
<PAGE>
INDEX OF KEY TERMS
PAGE
----
Accounts.....................................................................S-2
Accumulation Period..........................................................S-6
Accumulation Period Factor..................................................S-43
Accumulation Period Length..................................................S-31
Adjusted Investor Amount....................................................S-33
Allocable Amount............................................................S-46
Available Cash Collateral Amount.............................................S-8
Available Enhancement Amount...........................................S-8, S-44
Available Principal Collections.............................................S-38
Bank.........................................................................S-2
Base Rate...................................................................S-50
Carson Credit Card Program..................................................S-12
Cash Collateral Account......................................................S-8
Cash Enhancement Surplus....................................................S-32
Cedel........................................................................S-6
Certificateholders...........................................................S-5
Certificates.................................................................S-5
Class A Accumulation Period..................................................S-6
Class A Additional Interest.................................................S-37
Class A Adjusted Investor Amount............................................S-34
Class A Adjustment Amount...................................................S-46
Class A Allocable Amount....................................................S-46
Class A Available Funds.....................................................S-38
Class A Certificateholders...................................................S-5
Class A Certificates.........................................................S-1
Class A Investor Amount.....................................................S-33
Class A Investor Charge Off.................................................S-47
Class A Investor Default Amount.............................................S-45
Class A Investor Percentage.................................................S-34
Class A Monthly Interest....................................................S-38
Class A Monthly Principal...................................................S-43
Class A Pool Factor.........................................................S-28
Class A Required Amount.....................................................S-35
Class A Servicing Fee.......................................................S-50
Class B Accumulation Period..................................................S-6
Class B Additional Interest.................................................S-38
Class B Adjusted Investor Amount............................................S-34
Class B Adjustment Amount...................................................S-46
Class B Allocable Amount....................................................S-46
Class B Available Funds.....................................................S-38
Class B Certificateholders...................................................S-5
Class B Certificates.........................................................S-1
Class B Investor Amount.....................................................S-34
Class B Investor Charge Off.................................................S-47
Class B Investor Default Amount.............................................S-45
Class B Investor Percentage.................................................S-34
Class B Monthly Interest....................................................S-39
Class B Monthly Principal...................................................S-43
Class B Pool Factor.........................................................S-28
Class B Principal Commencement Date..........................................S-7
Class B Required Amount.....................................................S-35
S-57
<PAGE>
Class B Servicing Fee.......................................................S-50
Class B Subordinated Principal Collections..................................S-32
Class D Additional Interest.................................................S-41
Class D Adjustment Amount...................................................S-46
Class D Allocable Amount....................................................S-46
Class D Available Funds.....................................................S-39
Class D Certificate Rate....................................................S-39
Class D Certificateholders...................................................S-5
Class D Certificates.........................................................S-5
Class D Investor Amount.....................................................S-34
Class D Investor Charge Off.................................................S-48
Class D Investor Default Amount.............................................S-45
Class D Investor Percentage.................................................S-35
Class D Monthly Interest....................................................S-39
Class D Monthly Principal...................................................S-43
Class D Pool Factor.........................................................S-28
Class D Servicing Fee.......................................................S-51
Class D Subordinated Principal Collections..................................S-35
Code........................................................................S-51
Collateral Additional Interest..............................................S-40
Collateral Adjustment Amount................................................S-46
Collateral Allocable Amount.................................................S-46
Collateral Alternative Rate.................................................S-39
Collateral Amortization Period..............................................S-42
Collateral Available Funds..................................................S-39
Collateral Default Amount...................................................S-45
Collateral Indebtedness Amount..............................................S-34
Collateral Indebtedness Charge Off..........................................S-48
Collateral Indebtedness Holder...............................................S-5
Collateral Indebtedness Interest.............................................S-5
Collateral Investor Percentage..............................................S-34
Collateral Monthly Interest.................................................S-39
Collateral Monthly Principal................................................S-43
Collateral Pool Factor......................................................S-28
Collateral Rate.............................................................S-39
Collateral Required Amount..................................................S-36
Collateral Servicing Fee....................................................S-50
Collateral Subordinated Principal Collections...............................S-35
Company......................................................................S-2
Controlled Accumulation Amount..............................................S-43
Controlled Deposit Amount...................................................S-44
Convenient Installment Plan.................................................S-18
CPS.........................................................................S-12
Credit Facility.............................................................S-56
Credit Service Center.......................................................S-12
Default Amount..............................................................S-45
Defaulted Accounts..........................................................S-45
Defaulted Receivables.......................................................S-45
Deficit Controlled Accumulation Amount......................................S-44
Department Stores...........................................................S-12
Determination Date..........................................................S-45
Distribution Date............................................................S-2
Enhancement Distribution Amount.............................................S-42
Enhancement Surplus.........................................................S-32
S-58
<PAGE>
Excess Spread...............................................................S-39
FCA.........................................................................S-16
Initial Sellers.............................................................S-12
Investor Default Amount.....................................................S-45
Investor Monthly Servicing Fee...............................................S-6
Investor Percentage.........................................................S-33
IRS.........................................................................S-51
Loan Agreement..............................................................S-31
Minimum Transferor Amount...................................................S-48
NMS.........................................................................S-56
OCC.........................................................................S-14
Offered Certificates.........................................................S-1
Offering.....................................................................S-2
OID.........................................................................S-51
OID Regulations.............................................................S-51
Pay Out Event...............................................................S-49
PCC..........................................................................S-1
Pool Factors................................................................S-28
Pooling and Servicing Agreement.........................................S-1, S-5
Portfolio Yield.............................................................S-50
Principal Account Balance...................................................S-34
Proffitt's Credit Card Program..............................................S-12
Reallocated Principal Collections...........................................S-35
Receivables..................................................................S-2
Required Accumulation Factor Number.........................................S-44
Required Cash Collateral Amount.............................................S-41
Required Enhancement Amount............................................S-8, S-44
Required Reserve Account Amount.............................................S-41
Reserve Account.............................................................S-32
Reserve Account Funding Date................................................S-32
Revolving Period.............................................................S-6
Series 1998-2 Certificates...................................................S-5
Series 1998-2 Supplement...............................................S-5, S-29
Series Adjustment Amount....................................................S-49
Servicer.....................................................................S-1
Servicing Fee Percentage....................................................S-50
Shared Excess Finance Charge Collections....................................S-41
Special Tax Counsel.........................................................S-51
Transfer Date...............................................................S-45
Transferor...................................................................S-1
Transferor Percentage.......................................................S-29
Trust........................................................................S-1
Trust Portfolio.............................................................S-14
Trustee......................................................................S-1
Underwriters................................................................S-55
Underwriting Agreement......................................................S-54
S-59
<PAGE>
ANNEX I
OTHER SERIES
The following table sets forth the principal characteristics of the Class
A-1 and Class A-2 Variable Funding Certificates of Series 1997-1, the Class A
and Class B Certificates of Series 1997-2, and the Class A and Class B
Certificates of Series 1998-1, the only Series heretofore issued by the Trust
and currently outstanding. For more specific information with respect to any
Series, any prospective investor should contact the Servicer at (205) 940-4000.
The Servicer will provide, without charge, to any prospective purchaser of the
Offered Certificates, a copy of the Prospectus, Prospectus Supplement, if
applicable, and Series Supplement (without exhibits) for any publicly issued
Series.
<TABLE>
1. Class A-1 and Class A-2 Variable Funding Certificates, Series 1997-1.
<S> <C>
Group.................................................................. One
Class A-1 and Class A-2 Maximum Investor Amount........................ $400,000,000
Expected Class A-1 and Class A-2 Maximum Investor Amount
immediately following the Closing Date................................ $200,000,000
Class A-1 and Class A-2 Certificate Rate............................... Floating (uncapped)
Credit Enhancement..................................................... Subordination
Series Closing Date.................................................... August 21, 1997
Series Termination Date................................................ November 27, 2002
2. Class A and Class B Asset Backed Certificates, Series 1997-2
Group.................................................................. One
Class A Initial Investor Amount........................................ $180,000,000
Class B Initial Investor Amount........................................ $20,000,000
Class A Certificate Rate............................................... 6.50%
Class B Certificate Rate............................................... 6.69%
Class A Expected Payment Date.......................................... August 2002 Distribution Date
Class B Expected Payment Date.......................................... September 2002 Distribution Date
Credit Enhancement..................................................... Subordination
Series Closing Date.................................................... August 21, 1997
Series Termination Date................................................ December 15, 2005
3. Class A and Class B Asset Backed Certificates, Series 1998-1
Group.................................................................. One
Class A Initial Investor Amount........................................ $67,000,000
Class B Initial Investor Amount........................................ $8,000,000
Class A Certificate Rate............................................... 6.43%
Class B Certificate Rate............................................... 6.61%
Class A Expected Payment Date.......................................... June 2000 Distribution Date
Class B Expected Payment Date.......................................... June 2000 Distribution Date
Credit Enhancement..................................................... Subordination
Series Closing Date.................................................... June 13,1995/May 6, 1998
</TABLE>
A-1
<PAGE>
PROSPECTUS
PROFFITT'S CREDIT CARD MASTER TRUST
ASSET BACKED CERTIFICATES
PROFFITT'S CREDIT CORPORATION PROFFITT'S, INC.
TRANSFEROR SERVICER
The Asset Backed Certificates (collectively, the "Certificates") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
The Certificates of each Series will represent undivided interests in the
Proffitt's Credit Card Master Trust (the "Trust"). The Trust has been formed
pursuant to a Master Pooling and Servicing Agreement dated as of August 21,
1997, as amended, among Proffitt's Credit Corporation, a Nevada corporation,
as transferor ("PCC" or the "Transferor"), Proffitt's, Inc., a Tennessee
corporation, as servicer (the "Servicer"), and Norwest Bank Minnesota,
National Association, a national banking association, as trustee (the
"Trustee"). The property of the Trust includes receivables (the "Receivables")
generated from time to time in a portfolio (the "Trust Portfolio") of consumer
revolving credit card accounts (the "Accounts"), all monies due or to become
due in payment of the Receivables and certain other property, as more fully
described herein and, with respect to any Series offered hereby, in the
related Prospectus Supplement. PCC owns the remaining undivided interest in
the Trust not represented by outstanding Series issued by the Trust. Such
remaining interest is evidenced by the Exchangeable Transferor Certificate.
Proffitt's, Inc. services the Receivables and McRae's, Inc. ("McRae's") and
Carson Pirie Scott & Co. ("CPS"), both of which are wholly owned subsidiaries
of the Servicer, act as the initial subservicers (the "Subservicers") for the
Receivables.
Each Series will consist of one or more classes of Certificates (each, a
"Class"), one or more of which may be fixed rate Certificates, floating rate
Certificates or other types of Certificates, as specified in the related
Prospectus Supplement. Each Certificate will represent an undivided interest
in the Trust, and the interest of the Certificateholders of each Class or
Series will include the right to receive a varying percentage of each month's
Collections at the time, in the manner and to the extent described herein and,
with respect to any Series offered hereby, in the related Prospectus
Supplement. Interest and principal payments with respect to each Series
offered hereby will be made as specified in the related Prospectus Supplement.
One or more Classes of a Series offered hereby may be entitled to the benefits
of a cash collateral account or guaranty, letter of credit, surety bond,
insurance policy or other form of enhancement as specified in the Prospectus
Supplement relating to such Series. In addition, any Series offered hereby may
include one or more Classes or other interests in the Trust which are
subordinated in right and priority to payment of principal of, and/or interest
on, one or more other Classes of such Series or another Series, in each case
to the extent described in the related Prospectus Supplement. Each Series of
Certificates or Class thereof offered hereby will be rated in one of the four
highest rating categories by at least one nationally recognized statistical
rating organization.
While the specific terms of any Series in respect of which this Prospectus
is being delivered will be described in the related Prospectus Supplement, the
terms of such Series will not be subject to prior review by, or consent of,
the holders of the Certificates of any previously issued Series.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 17. BENEFIT PLAN INVESTORS SHOULD
CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET FORTH IN "ERISA
CONSIDERATIONS."
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF PROFFITT'S CREDIT
CORPORATION, NATIONAL BANK OF THE GREAT LAKES, PROFFITT'S, INC. 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.
Certificates may be sold by PCC directly to purchasers, through agents
designated from time to time, through underwriting syndicates led by one or
more managing underwriters or through one or more underwriters acting alone.
If underwriters or agents are involved in the offering of the Certificates of
any Series offered hereby, the name of the managing underwriter or
underwriters or agents will be set forth in the related Prospectus Supplement.
If an underwriter, agent or dealer is involved in the offering of the
Certificates of any Series offered hereby, the underwriter's discount, agent's
commission or dealer's purchase price will be set forth in, or may be
calculated from, the related Prospectus Supplement, and the net proceeds to
PCC from such offering will be the public offering price of such Certificates
less such discount in the case of an underwriter, the purchase price of such
Certificates less such commission in the case of an agent or the purchase
price of such Certificates in the case of a dealer, and less, in each case,
the other expenses of PCC associated with the issuance and distribution of
such Certificates. Any underwriter of the Certificates will be indemnified by
PCC against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Plan of Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE CERTIFICATES OF
ANY SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
The date of this Prospectus is April 17, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series will, among other
things, set forth with respect to such Series: (a) the initial aggregate
principal amount of each Class of such Series; (b) the interest rate (or method
for determining it) of each Class of such Series; (c) certain information
concerning the Receivables allocated to such Series; (d) the expected date or
dates on which the principal amount of the Certificates will be paid to holders
of the Certificates (the "Certificateholders"); (e) the extent to which any
Class of such Series or any other Series is subordinated to any other Class of
such Series or any other Series; (f) the identity of each Class of floating rate
Certificates and fixed rate Certificates included in such Series, if any, or
such other type of Class of Certificates; (g) the Distribution Dates for the
respective Classes; (h) relevant financial information with respect to the
Receivables; (i) additional information with respect to any Enhancement relating
to such Series; and (j) the plan of distribution of such Series.
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. The Transferor 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") such periodic reports with respect to the Trust 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 Certificates and the Pooling and Servicing Agreement --
Book-Entry Registration."
AVAILABLE INFORMATION
The Transferor has filed a Registration Statement under the Securities
Act of 1933, as amended (the "Securities Act"), with the Commission on behalf of
the Trust with respect to the Certificates offered hereby. 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.
In addition, the Commission maintains a public access site on the Internet
through a World Wide Web site at which reports, information statements and other
information, including all electronic filings, regarding the Transferor may be
viewed. The Internet address of such World Wide Web site is 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 Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. Any statement
contained herein or in a document deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in any other subsequently filed document
which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus.
-i-
<PAGE>
The Servicer will provide without charge to each person, including any
Certificate Owner, to whom a copy of this Prospectus is delivered, on the
written or oral request of any such person, a copy of any of or all the
documents incorporated by reference herein (other than exhibits to such
documents). Written requests for such copies should be directed to Proffitt's,
Inc., 750 Lakeshore Parkway, Birmingham, Alabama 35211. Telephone requests for
such copies should be directed to (205) 940-4000.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements. Such forward-looking statements may involve
uncertainties and other factors that may cause the actual results and
performance of Proffitt's, Inc. (together with its subsidiaries, the "Company"),
the Trust, the Accounts and the Receivables to be materially different from
future results or performance expressed or implied by such statements.
Cautionary statements regarding the risks associated with such forward-looking
statements include, without limitation, those statements included under "Risk
Factors" and elsewhere herein or incorporated by reference herein or contained
in the Prospectus Supplement or incorporated by reference therein. Among
others, factors that could adversely affect actual results and performance
include the following: 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 and other
retailers, including general merchandise stores, mail order retailers and off-
price and discount stores; changes in merchandise mixes, site selection and
related traffic and demographic patterns; the Company's identification and
implementation of best practices; the Company's ability to determine and
implement appropriate merchandising strategies, merchandise flow, and inventory
turnover levels; realization of planned synergies and cost savings in the
Company's existing operations and in recent and future acquisitions; the
Company's ability to integrate recent and future acquisitions; and any adverse
effects of the Year 2000 problem on the Company, especially as a result of such
problems at third parties with which the Company does business. See "Risk
Factors -- Forward-Looking Statements."
-ii-
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................................... 1
RISK FACTORS............................................................... 17
Limited Liquidity..................................................... 17
Non-Recourse Obligation............................................... 17
Transfer of Receivables............................................... 17
Commingling of Collections............................................ 17
Bankruptcy and Insolvency Risks....................................... 18
Effects of Consumer and Debtor Protection Laws on Collectibility of
Receivables.......................................................... 19
Effect of Payment Rate on Certificates................................ 20
Effects of Convenience Use and Special Deferrals...................... 20
Ability to Change Terms of the Receivables............................ 20
Dependence on the Company's Department Stores; Competition............ 21
Competition from Other Credit and Payment Sources..................... 22
Social, Legal and Economic Factors.................................... 22
Effect of Limited Subordination....................................... 22
Issuance of Additional Series; Master Trust Considerations............ 22
Absence of Control on Certain Voting Matters.......................... 23
Effects of Prepayment Distinctions among Classes...................... 23
Effect on Certain Pre-Funded Series of Ability to Generate Additional
Receivables.......................................................... 23
Basis Risk............................................................ 24
Addition of Trust Assets.............................................. 24
Limited Nature of Certificate Rating.................................. 24
Limited Credit Enhancement............................................ 24
Effect of Discount Option............................................. 25
Book-Entry Registration............................................... 25
Geographic Concentrations............................................. 26
General Economic Conditions; Seasonality.............................. 26
Integration of Acquired Companies..................................... 26
Forward-Looking Statements............................................ 26
CREDIT CARD PROGRAM........................................................ 27
THE ACCOUNTS............................................................... 27
THE TRUST.................................................................. 28
MATURITY ASSUMPTIONS....................................................... 28
USE OF PROCEEDS............................................................ 29
THE COMPANY................................................................ 29
PCC........................................................................ 30
DESCRIPTION OF THE CERTIFICATES AND THE POOLING AND SERVICING AGREEMENT.... 30
General............................................................... 30
Book-Entry Registration............................................... 31
Definitive Certificates............................................... 34
Interest Payments..................................................... 35
Principal Payments.................................................... 35
Transfer of Receivables............................................... 35
Exchanges............................................................. 36
Representations and Warranties........................................ 37
Addition of Accounts.................................................. 39
Removal of Accounts................................................... 41
Discount Option Receivables........................................... 41
Collection and Other Servicing Procedures............................. 42
Collection and Principal Accounts..................................... 42
Funding Period........................................................ 43
-iii-
<PAGE>
Investor Percentage and Transferor Percentage......................... 44
Application of Collections............................................ 44
Shared Principal Collections.......................................... 45
Excess Funding Account................................................ 45
Shared Excess Finance Charge Collections.............................. 46
Paired Series......................................................... 46
Allocation of Investor Default Amount; Adjustment Amounts; Investor
Charge Offs.......................................................... 47
Allocation of Adjustment Amounts...................................... 48
Defeasance............................................................ 48
Optional Repurchase; Final Payment of Principal; Termination.......... 48
Pay Out Events........................................................ 49
Servicing Compensation and Payment of Expenses........................ 50
Certain Matters Regarding the Servicer................................ 50
Servicer Default...................................................... 51
Reports to Certificateholders......................................... 52
Amendments............................................................ 53
Indemnification....................................................... 54
Amendments to the Pooling and Servicing Agreement Relating to FASIT
Election............................................................. 55
List of Certificateholders............................................ 55
The Trustee........................................................... 55
ENHANCEMENT................................................................ 56
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES................................... 58
Transfer of Receivables............................................... 58
Certain Matters Relating to Bankruptcy or Insolvency.................. 59
Certain Matters Relating to Receivership.............................. 60
Consumer and Debtor Protection Laws, Recent and Proposed Legislation.. 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 62
STATE AND LOCAL TAX CONSEQUENCES........................................... 67
ERISA CONSIDERATIONS....................................................... 67
PLAN OF DISTRIBUTION....................................................... 69
LEGAL MATTERS.............................................................. 70
INDEX OF TERMS FOR PROSPECTUS.............................................. 71
ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES...... I-1
-iv-
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the
accompanying Prospectus Supplement. Certain capitalized terms used in this
summary are defined elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. A listing of the pages on which some of such terms are
defined is found in the "Index of Terms for Prospectus." Unless the context
requires otherwise, capitalized terms used in this Prospectus and in the
accompanying Prospectus Supplement refer only to the particular Series being
offered by such Prospectus Supplement.
Type of Securities............. Asset Backed Certificates (the "Certificates")
evidencing undivided ownership interests in the
assets of the Proffitt's Credit Card Master
Trust (the "Trust") may be issued from time to
time in one or more series (each, a "Series")
which will consist of one or more classes of
Certificates (each, a "Class").
Trust.......................... The Trust was formed pursuant to a Master
Pooling and Servicing Agreement dated as of
August 21, 1997 (as amended and supplemented
the "Pooling and Servicing Agreement") among
Proffitt's Credit Corporation, as transferor
(in such capacity, and with any other entity,
including any successor or assign identified in
a Prospectus Supplement, the "Transferor"),
Proffitt's, Inc., as servicer (in such
capacity, the "Servicer"), and Norwest Bank
Minnesota, National Association, a national
banking association, as trustee (the
"Trustee"). The Trust has been created as a
master trust under which one or more Series may
be issued pursuant to a series supplement to
the Pooling and Servicing Agreement (a "Series
Supplement"). Any Series issued by the Trust
may or may not be a Series offered pursuant to
this Prospectus. Each Prospectus Supplement
will identify all then outstanding Series
previously issued by the Trust.
Trust Assets................... The property of the Trust includes and will
include Receivables arising under consumer
revolving credit card accounts (the "Accounts")
selected by the Transferor from the portfolio
of consumer revolving credit card accounts
owned or acquired by National Bank of the Great
Lakes, a national banking association located
in Elmhurst, Illinois (the "Bank"), and all
monies due or to become due in payment of the
Receivables, all Recoveries, collections on
Receivables ("Collections"), all other proceeds
of the Receivables and proceeds of credit
insurance policies relating to the Receivables,
all monies held in certain accounts of the
Trust (including investment earnings on such
amounts unless otherwise specified in the
related Prospectus Supplement), and any
Enhancement with respect to any particular
Series or Class, as described in the related
Prospectus Supplement. The Accounts will
initially consist of accounts established under
private label credit card programs owned by the
Bank and operated for customers of the
department stores now or hereafter owned or
operated by
-1-
<PAGE>
Proffitt's, Inc. and its subsidiaries described
in the Prospectus Supplement (collectively, the
"Department Stores"). The term "Enhancement"
means, with respect to any Series or Class
thereof, any letter of credit, guaranteed rate
agreement, maturity guaranty, liquidity
facility, cash collateral account, cash
collateral guaranty, collateral indebtedness
amount, collateral interest, surety bond,
insurance policy, interest rate cap agreement,
interest rate swap agreement, spread account,
reserve account or other similar arrangement
for the benefit of the Certificateholders of
such Series or Class. Enhancement may also take
the form of subordination of one or more
Classes of a Series or other interests in the
Trust to any other Class or Classes of a Series
or a cross-support feature which requires
Collections of one Series to be paid as
principal or interest or both with respect to
another Series.
At the time of formation of the Trust, the
Transferor conveyed to the Trustee all
Receivables existing under certain Accounts
owned by the Transferor as of July 31, 1997
(the "Initial Cut-Off Date") based on criteria
provided in the Pooling and Servicing Agreement
and all Receivables arising under such Accounts
from time to time thereafter until termination
of the Trust. In addition, the Pooling and
Servicing Agreement provides that the
Transferor may from time to time (subject to
certain limitations and conditions), and in
some circumstances will be obligated to,
designate additional eligible revolving credit
card accounts to be included as Accounts
("Additional Accounts"), the Receivables of
which will be included in the Trust. On
February 2, 1998, the Receivables generated by
the Accounts owned by the Bank and maintained
for customers of the Carson Pirie Scott, Boston
Store and Bergner's Department Stores were
conveyed by the Transferor to the Trustee,
pursuant to the terms of the Assignment No. 1
of Receivables in Additional Accounts dated as
of February 2, 1998 between the Transferor and
the Trustee. The Transferor may also, at its
option, designate eligible revolving credit
card accounts to be included automatically as
Accounts upon their creation ("Automatic
Additional Accounts"). See "-- The
Receivables" and "Description of the
Certificates and the Pooling and Servicing
Agreement -- Addition of Accounts."
Securities Offered............. Each Series will represent an undivided
interest in the assets of the Trust. 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"), which may be fixed,
floating or another type of rate and (ii)
payments of principal during or at the end of
the Controlled Amortization Period, Principal
-2-
<PAGE>
Amortization Period, Accumulation Period, Rapid
Amortization Period or other type of
amortization period (each, an "Amortization
Period"), all as specified in the related
Prospectus Supplement.
Each Series will consist of one or more
Classes, one or more of which may be Senior
Certificates ("Senior Certificates") and one or
more of which may be Subordinated Certificates
("Subordinated Certificates"). Each Class of a
Series may evidence the right to receive a
specified portion of each distribution of
principal or interest or both. The
Certificates of a Class may also differ from
Certificates of other Classes of the same
Series in, among other things, the amounts
allocated to principal payments, priority of
payments, payment dates, maturity, interest
rate computation, and availability and form of
Enhancement. A Series may also include other
interests in the Trust, which may be held by
Enhancement Providers or others.
The assets of the Trust will be allocated among
the Certificateholders of each Series, the
holder of the Exchangeable Transferor
Certificate and, in certain circumstances,
Enhancement Providers. The interest of the
Certificateholders of a Series in Receivables
is based on the aggregate amount of Principal
Receivables in the Trust and amounts held in
the Excess Funding Account, if any, allocated
to such Series (the "Investor Amount"). The
interest of the holder of the Exchangeable
Transferor Certificate in Receivables is
referred to herein as the Transferor Amount and
is based on the aggregate amount of Principal
Receivables in the Trust and amounts held in
the Excess Funding Account, if any, not
allocated to the Certificateholders or any
Enhancement Provider (the "Transferor Amount").
See "Description of the Certificates and the
Pooling and Servicing Agreement -- General."
The Certificateholders of each Series will have
the right to receive (but only to the extent
needed to make required payments under the
Pooling and Servicing Agreement and related
Series Supplement and subject to any
reallocation of such amounts if the related
Series Supplement so provides) varying
percentages of the Collections of Finance
Charge Receivables and Principal Receivables
for each month and will be allocated a varying
percentage of the amount of Receivables in
Accounts that are written off as uncollectible
("Defaulted Accounts") for such month (each
such percentage, an "Investor Percentage").
The related Prospectus Supplement will specify
the Investor Percentages with respect to the
allocation of Collections of Principal
Receivables, Finance Charge Receivables and
Receivables in Defaulted Accounts during the
Revolving
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<PAGE>
Period and any Amortization Period. If the
Certificates of a Series offered hereby include
more than one Class, or if a Series includes an
interest held by an Enhancement Provider, the
assets of the Trust allocable to such Series
may be further allocated among each Class in
such Series and the interest held by the
Enhancement Provider as described in the
related Prospectus Supplement. See "Description
of the Certificates and the Pooling and
Servicing Agreement -- Investor Percentage and
Transferor Percentage."
The Certificates of each Series will represent
interests in the Trust only and will not
represent interests in or recourse obligations
of PCC, Proffitt's, the Bank or any of their
affiliates. 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 (the "FDIC") or any other
governmental agency.
Receivables.................... The Receivables consist of amounts charged by
cardholders to purchase or obtain merchandise
and other services and/or cash advances or to
finance credit insurance premiums related to
the Accounts (such amount, less the Discount
Option Receivables, the "Principal
Receivables"). The Receivables also include
"Finance Charge Receivables" which consist of
(i) the related periodic finance charges and
any amounts charged to the Accounts in respect
of late fees, over limit fees, returned check
fees or other fees and charges (collectively,
the "Finance Charges"); and (ii) the Discount
Option Receivables. An amount equal to the
product of the Discount Percentage and the
amount of Receivables arising in the Accounts
on and after the date the Discount Option is
exercised that otherwise would be Principal
Receivables will be treated as Finance Charge
Receivables. In addition, if MasterCard(R) or
VISA(R)* credit card accounts are included in
the Accounts at any time and if so specified in
the related Prospectus Supplement, certain
interchange fees ("Interchange") attributed to
cardholder charges in the Accounts may be
allocated to a Series or any Class thereof and
treated as Collections of Finance Charge
Receivables for purposes of such Series or
Class thereof or may be applied in such other
manner as described in the related Prospectus
Supplement. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Discount Option Receivables."
- ------------------------
* MasterCard(R) and VISA(R) are registered trademarks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
-4-
<PAGE>
During the term of the Trust, all new
Receivables arising in the Accounts will be
transferred automatically to the Trust by the
Transferor. The total amount of Receivables in
the Trust fluctuates from day to day, because
the amount of new Receivables arising in the
Accounts and the amount of payments collected
on existing Receivables usually differ each
day.
Pursuant to the Pooling and Servicing
Agreement, the Transferor has the right
(subject to certain limitations and
conditions), and in some circumstances will be
obligated, to designate Additional Accounts and
to convey to the Trust all of the Receivables
in the Additional Accounts, whether such
Receivables are then existing or thereafter
created. The Transferor also has the right to
designate eligible revolving credit card
accounts to be included automatically as
Automatic Additional Accounts upon their
creation. See "Description of the Certificates
and the Pooling and Servicing Agreement --
Addition of Accounts."
Pursuant to the Pooling and Servicing
Agreement, the Transferor has the right
(subject to limitations and conditions) to
designate Accounts and to accept the
reconveyance of all of the Receivables in such
Accounts (the "Removed Accounts"), whether such
Receivables are then existing or thereafter
created. See "Description of the Certificates
and the Pooling and Servicing Agreement --
Removal of Accounts."
Under the Pooling and Servicing Agreement, the
Servicer may estimate the amount of Collections
with respect to the Accounts to be allocated
between Principal Receivables and Finance
Charge Receivables. For each Monthly Period,
the amount of Collections allocated to Finance
Charge Receivables for all Accounts shall be
equal to the amount of Finance Charges actually
assessed on all Accounts in the immediately
preceding Monthly Period. If the Servicer is
able to determine the actual amount of
Collections proceeds which are Collections of
Finance Charge Receivables and Collections of
Principal Receivables, the Servicer may at its
option allocate Collections in accordance with
such actual amounts.
Record Date.................... The close of business on the last business day
of the month preceding any Distribution Date
shall be the "Record Date."
Exchanges...................... The Pooling and Servicing Agreement authorizes
the Trustee to issue two types of certificates:
(i) one or more Series of Certificates which
may be in one or more Classes and which will be
transferable and have the characteristics
described below and (ii) a certificate
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<PAGE>
evidencing an undivided interest in the assets
of the Trust not allocated to the
Certificateholders or any Enhancement Provider
or other investor (the "Exchangeable Transferor
Certificate"), which initially will be held by
the Transferor and which generally will not be
transferable. Additional interests in the Trust
relating to a Series may also be issued to
Enhancement Providers or other investors. The
Pooling and Servicing Agreement also provides
that, pursuant to any one or more Series
Supplements to the Pooling and Servicing
Agreement, the Transferor may tender the
Exchangeable Transferor Certificate or, if
permitted by the applicable Series Supplement,
Certificates or other interests representing
any Series and the Exchangeable Transferor
Certificate, to the Trustee in exchange for one
or more new Series (which may include
Certificates offered hereby) and a reissued
Exchangeable Transferor Certificate (any such
tender, an "Exchange"). Under the Pooling and
Servicing Agreement, the Transferor may define,
with respect to any Series, the Principal Terms
of the Series. The Transferor may offer any
Series to the public or other investors under a
prospectus or other disclosure document (a
"Disclosure Document") in transactions either
registered under the Securities Act, or exempt
from registration thereunder, directly or
through one or more underwriters or placement
agents, in fixed-price offerings or in
negotiated transactions or otherwise. See
"Description of the Certificates and the
Pooling and Servicing Agreement -- Exchanges."
Under the Pooling and Servicing Agreement and
pursuant to a Series Supplement, an Exchange
may occur only upon delivery to the Trustee of
the following: (i) a Series Supplement
specifying the principal terms of such Series
(the "Principal Terms"), (ii) an opinion of
counsel to the effect that the Certificates of
such Series under existing law will be
characterized either as indebtedness or an
interest in a partnership (that is not taxable
as a corporation) for Federal income tax
purposes and that the issuance of such Series
will not materially adversely affect the
Federal income tax characterization of any
outstanding Series or result in the Trust being
subject to Federal or specified state taxes at
the entity level, (iii) if required by the
related Series Supplement, a form of
Enhancement and any related agreement, (iv)
written confirmation from the applicable Rating
Agency that the Exchange will not result in the
Rating Agency reducing or withdrawing its
rating on any then outstanding Series rated by
it, and (v) the existing Exchangeable
Transferor Certificate and, if applicable, the
Certificates or other interests representing
the Series to be exchanged.
Denominations.................. Unless otherwise specified in the related
Prospectus Supplement, beneficial interests in
the Certificates will
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<PAGE>
be offered for purchase in denominations of
$1,000 and integral multiples thereof.
Registration of Certificates... Unless otherwise specified in the related
Prospectus Supplement, the Certificates of each
Series offered hereby initially will be
represented by Certificates registered in the
name of Cede, as the nominee of DTC (in the
United States) or the Cedel Bank societe
anonyme ("Cedel") or Euroclear (in Europe).
Transfers within DTC, Cedel or Euroclear, as
the case may be, will be made in accordance
with the usual rules and operating procedures
of the relevant system. Cross-market transfers
between persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will
be effected by DTC through the relevant
Depositaries of Cedel or Euroclear. No
Certificate Owner will be entitled to receive a
definitive certificate representing such
person's interest, except in the event that
Definitive Certificates (as defined herein) are
issued under the limited circumstances
described herein. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Definitive Certificates."
Transferor..................... Unless otherwise designated in any Prospectus
Supplement, PCC is the Transferor of the
Receivables. PCC is a wholly owned (directly
and indirectly), limited purpose subsidiary of
Proffitt's. The principal executive offices of
PCC are located at Bank of America Center, 101
Convention Center Drive, Suite 850, Las Vegas,
Nevada 89109, telephone number (702) 380-4918.
Servicer....................... Proffitt's, Inc. ("Proffitt's") is the Servicer
of the Receivables and McRae's and CPS act as
Subservicers. The principal executive offices
of Proffitt's are located at 750 Lakeshore
Parkway, Birmingham, Alabama 35211, telephone
number (205) 940-4000. The Servicer will
receive a fee as servicing compensation from
the Trust in respect of each Series in the
amounts and at the times specified in the
related Prospectus Supplement (the "Investor
Servicing Fee"), from which it will pay the
Subservicers for their respective servicing
activities. The Investor Servicing Fee may be
payable from Finance Charge Receivables,
Interchange or other amounts as specified in
the related Prospectus Supplement. In certain
limited circumstances, Proffitt's may resign or
be removed as Servicer, in which event the
Trustee or a third-party servicer may be
appointed as successor servicer (Proffitt's, in
its capacity as servicer, or any such successor
servicer, is referred to herein as the
"Servicer"). See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Servicing Compensation and Payment
of Expenses" and "-- Certain Matters Regarding
the Servicer."
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<PAGE>
Collections.................... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Series, the Servicer will deposit all
Collections allocable to such Series (subject
to certain exceptions) in a segregated
corporate trust account (the "Collection
Account"). All amounts deposited in the
Collection Account will be allocated by the
Servicer between Collections of Principal
Receivables and Collections of Finance Charge
Receivables. If so specified in the related
Prospectus Supplement, Principal Receivables
and/or Finance Charge Receivables may otherwise
be recharacterized. All such amounts will then
be allocated in accordance with the respective
interests of the Certificateholders of such
Series or any Class thereof or any other
interest in the Trust included in such Series.
See "Description of the Certificates and the
Pooling and Servicing Agreement -- Discount
Option Receivables" and "-- Investor Percentage
and Transferor Percentage."
Excess Funding Account......... The Servicer also maintains, in the name of the
Trustee on behalf of the Trust, a segregated
trust account entitled the "Excess Funding
Account" which is held for the benefit of
Certificateholders. The Servicer may, in
writing, direct that the funds held in the
Excess Funding Account be invested, and on each
Distribution Date, all interest and other
investment earnings (net of losses and
investment expenses) shall be applied as
collections of Finance Charge Receivables with
respect to the related Monthly Period. On each
business day, to the extent the Servicer
determines that the Transferor Amount exceeds
the Minimum Transferor Amount, such excess
amount shall be paid to the holder of the
Exchangeable Transfer Certificate prior to a
Pay Out Event occurring.
Interest Payments.............. Each Series of Certificates represents an
undivided interest in the Trust, and each
Certificate offered by a Prospectus Supplement
("Offered Certificate") represents the right to
payments of interest at the Certificate Rate
specified in the related Prospectus Supplement.
Unless otherwise specified in a Prospectus
Supplement, all payments in respect of` the
Offered Certificates will be made in United
States Dollars.
Interest on each Series of Certificates or
Class thereof for each interest accrual period
(each, an "Interest Period") specified in the
related Prospectus Supplement will be
distributed in the amounts and on the dates
(which may be monthly, quarterly, semiannually
or otherwise as specified in the related
Prospectus Supplement) (each, a "Distribution
Date") specified in the related Prospectus
Supplement. Interest payments on each
Distribution Date will generally be funded from
the Collections of Finance Charge Receivables
allocated to the Investor Amount during the
preceding monthly period or periods
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<PAGE>
(each, a "Monthly Period"), as described in the
related Prospectus Supplement, and may be
funded from certain investment earnings on
funds held in certain accounts of the Trust,
from any applicable Enhancement or from other
sources specified in the related Prospectus
Supplement. If the Distribution Dates for
payment of interest for a Series or Class occur
less frequently than monthly, such Collections
or other amounts allocable to such Series or
Class may be deposited in one or more trust
accounts pending distribution to the
Certificateholders of such Series or Class, all
as described in the related Prospectus
Supplement. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Application of Collections,"
"Enhancement" and "Risk Factors -- Limited
Credit Enhancement."
Revolving Period............... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Series and any Class thereof, no principal will
be payable to Certificateholders until the
Principal Commencement Date or the Scheduled
Payment Date with respect to such Series or
Class. For the period beginning on the date of
issuance of the related Series (the "Closing
Date") and ending with the commencement of an
Amortization Period (the "Revolving Period"),
Collections of Principal Receivables otherwise
allocable to the Investor Amount will, subject
to certain limitations, be paid from the Trust
to the holder of the Exchangeable Transferor
Certificate or, under certain circumstances and
if so specified in the related Prospectus
Supplement, will be treated as Shared Principal
Collections and paid to the holders of other
Series of Certificates issued by the Trust, as
described herein and in the related Prospectus
Supplement. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Pay Out Events" for a discussion
of the events which might lead to early
termination of the Revolving Period.
Principal Payments;
Amortization Period............ The principal of the Certificates of each
Series offered hereby will be scheduled to be
paid either in installments commencing on a
Distribution Date specified in the related
Prospectus Supplement (the "Principal
Commencement Date"), in which case such Series
will have either a Controlled Amortization
Period or a Principal Amortization Period, as
described below, or on an expected date
specified in the related Prospectus Supplement
(the "Scheduled Payment Date"), in which case
such Series will have an Accumulation Period,
as described below, or in such other manner
specified in the related Prospectus Supplement
with respect to any other type of Amortization
Period. If a Series has more than one Class of
Certificates, a different method of paying
principal or determining the Principal
Commencement
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<PAGE>
Date or the Scheduled Payment Date may be
assigned to each Class. The payment of
principal with respect to the Certificates of a
Series or Class may commence earlier than the
applicable Principal Commencement Date or
Scheduled Payment Date, and the final principal
payment with respect to the Certificates of a
Series or Class may be made later than the
applicable expected payment date or Scheduled
Payment Date, if a Pay Out Event occurs and the
Rapid Amortization Period commences with
respect to such Series or Class or under
certain other circumstances described herein or
in the Prospectus Supplement. See "Description
of the Certificates and the Pooling and
Servicing Agreement -- Pay Out Events."
Controlled Amortization Period. If the Prospectus Supplement relating to a
Series so specifies, unless a Rapid
Amortization Period with respect to such Series
commences, the Certificates of such Series or
any Class thereof will have an amortization
period (the "Controlled Amortization Period")
during which Collections of Principal
Receivables allocable to such Series (and
certain other amounts if so specified in the
related Prospectus Supplement) will be used on
each Distribution Date to make principal
distributions in scheduled amounts to the
Certificateholders of such Series or any Class
of such Series then scheduled to receive such
distributions. The amount to be distributed on
any Distribution Date during the Controlled
Amortization Period will be limited to an
amount (the "Controlled Distribution Amount")
equal to an amount specified in the related
Prospectus Supplement (the "Controlled
Amortization Amount") plus the amount of any
shortfalls arising from the failure to pay the
Controlled Amortization Amount on any prior
Distribution Dates. If a Series has more than
one Class of Certificates, each Class may have
a separate Controlled Amortization Amount. In
addition, the related Prospectus Supplement may
describe certain priorities among such Classes
with respect to such distributions. The
Controlled Amortization Period will commence at
the close of business on the Principal
Commencement Date and continue until the
earliest of (a) the commencement of the Rapid
Amortization Period, (b) payment in full of the
Investor Amount of such Series or Class and (c)
the Stated Series Termination Date with respect
to such Series.
Principal Amortization Period.. If the Prospectus Supplement relating to a
Series so specifies, unless a Rapid
Amortization Period with respect to such Series
commences, the Certificates of such Series or
any Class thereof will have an amortization
period (the "Principal Amortization Period")
during which Collections of Principal
Receivables allocable to such Series (and
certain other amounts if so specified in the
related Prospectus
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<PAGE>
Supplement) will be used on each Distribution
Date to make principal distributions in the
amount of such Collections to the
Certificateholders of such Series or any Class
of such Series then scheduled to receive such
distributions. If a Series has more than one
Class of Certificates, the related Prospectus
Supplement may describe certain priorities
among such Classes with respect to such
distributions. The Principal Amortization
Period will commence at the close of business
on the Principal Commencement Date and continue
until the earliest of (a) the commencement of
the Rapid Amortization Period, (b) payment in
full of the Investor Amount of such Series or
Class and (c) the Stated Series Termination
Date with respect to such Series.
Accumulation Period............ If the Prospectus Supplement relating to a
Series so specifies, unless a Rapid
Amortization Period with respect to such Series
commences, the Certificates of such Series or
any Class thereof will have an accumulation
period (the "Accumulation Period") during which
Collections of Principal Receivables allocable
to such Series (and other amounts if so
specified in the related Prospectus Supplement)
will be deposited prior to each Distribution
Date in a trust account established for the
benefit of the Certificateholders of such
Series or Class (a "Principal Account") and
used to make principal distributions to the
Certificateholders of such Series or any Class
of such Series on the Scheduled Payment Date.
The amount to be deposited in the Principal
Account on any date may be limited to an amount
(the "Controlled Deposit Amount") equal to an
amount specified in the related Prospectus
Supplement (the "Controlled Accumulation
Amount") plus the amount of any shortfalls
arising from the failure to deposit the
Controlled Accumulation Amount into the
Principal Account with respect to any prior
Distribution Dates. If a Series has more than
one Class of Certificates, each Class may have
a separate Principal Account and Controlled
Accumulation Amount. In addition, the related
Prospectus Supplement may describe certain
priorities among such Classes with respect to
deposits of principal into such Principal
Accounts. The Accumulation Period will
commence at the close of business on a date
specified in or determined in the manner
specified in the related Prospectus Supplement
and continue until the earliest of (a) the
commencement of the Rapid Amortization Period,
(b) payment in full of the Investor Amount of
such Series or Class and (c) the Stated Series
Termination Date with respect to such Series.
Funds held in any Principal Account may be
invested in Permitted Investments or subject to
a guaranteed rate or investment agreement or
other arrangement intended to assure a
specified return on the investment of such
funds.
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<PAGE>
Investment earnings on such funds may be
applied to pay interest on the related Series
of Certificates. In order to enhance the
likelihood of payment in full of principal at
the end of an Accumulation Period with respect
to a Series of Certificates, such Series may be
subject to a principal guaranty or other
similar arrangement.
Rapid Amortization Period...... During the period from the day on which a Pay
Out Event has occurred with respect to a
Series, to the earlier of the date on which the
Investor Amount of such Series has been paid in
full or the related Stated Series Termination
Date (the "Rapid Amortization Period"), unless
otherwise provided in the related Prospectus
Supplement, Collections of Principal
Receivables allocable to the Investor Amount of
such Series (and certain other amounts if so
specified in the related Prospectus Supplement)
will be distributed as principal payments to
the Certificateholders of such Series monthly
on each Distribution Date with respect to such
Series in the manner and order of priority set
forth in the related Prospectus Supplement.
During the Rapid Amortization Period with
respect to a Series, distributions of principal
to Certificateholders will not be limited by
any Controlled Distribution Amount or
Controlled Deposit Amount. In addition, upon
the commencement of the Rapid Amortization
Period with respect to a Series, unless
otherwise specified in the related Prospectus
Supplement, any funds held in a Principal
Account with respect to such Series or any
Class thereof will be paid to the
Certificateholders of such Series or Class on
the first Distribution Date in the Rapid
Amortization Period. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Pay Out Events" for a discussion
of the events which might lead to commencement
of the Rapid Amortization Period.
Shared Excess Finance
Charge Collections............. Any Series may be included in a group of Series
(a "Group"). Subject to certain limitations
described under "Description of the
Certificates and the Pooling and Servicing
Agreement -- Shared Excess Finance Charge
Collections," Shared Excess Finance Charge
Collections, if any, with respect to a Series
included in a Group will be applied to cover
any shortfalls with respect to amounts payable
from Collections of Finance Charge Receivables
allocable to any other Series in such Group,
pro rata based upon the amount of the
shortfall, if any, with respect to each Series
in such Group. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Shared Excess Finance Charge
Collections."
Shared Principal Collections... Collections of Principal Receivables and
certain other amounts otherwise allocable to a
Series included in a Group may, as provided in
any Series Supplement, and to
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<PAGE>
the extent such Collections are not needed to
make payments to or deposits for the benefit of
the Certificateholders of such Series, be
applied to cover principal payments and
deposits to the Principal Account for any
Series in such Group which are scheduled or
permitted, and which have not been covered by
Collections of Principal Receivables and
certain other amounts. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Shared Principal Collections."
Funding Period................. The Prospectus Supplement relating to a Series
of Certificates may specify that for a period
beginning on the Closing Date and ending on a
specified date before the commencement of an
Amortization Period with respect to such Series
(the "Funding Period"), the aggregate amount of
Principal Receivables in the Trust and amounts
in the Excess Funding Account allocable to such
Series may be less than the aggregate principal
amount of the Certificates of such Series and
that the amount of such deficiency (the "Pre-
Funded Amount") will be held in a trust account
established with the Trustee for the benefit of
such Series (the "Pre-Funding Account") pending
the transfer of additional Principal
Receivables to the Trust or pending the
reduction of the Investor Amounts of other
Series. The related Prospectus Supplement will
specify the initial Investor Amount on the
Closing Date with respect to such Series, the
aggregate principal amount of such Series (the
"Full Investor Amount") and the date by which
the Investor Amount is expected to equal the
Full Investor Amount. The Investor Amount of
such Series will increase as Principal
Receivables are created or as the Investor
Amounts of other Series are reduced. The
Investor Amount may also decrease due to
Investor Charge Offs.
During the Funding Period, funds on deposit in
the Pre-Funding Account for a Series will be
withdrawn and paid to the Transferor or its
assignees to the extent of any increases in the
Investor Amount. In the event that the
Investor Amount does not for any reason equal
the Full Investor Amount by the end of the
Funding Period, any amount remaining in the
Pre-Funding Account and any additional amounts
specified in the related Prospectus Supplement
will be payable to Certificateholders of such
Series in a manner and at such time as set
forth in the related Prospectus Supplement.
If so specified in the related Prospectus
Supplement, monies in the Pre-Funding Account
with respect to any Series will be invested by
the Trustee in Permitted Investments or will be
subject to a guaranteed rate or investment
agreement or other similar arrangement, and
investment earnings and any applicable payment
under
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any such investment arrangement will be applied
to pay interest on the Certificates of such
Series.
Paired Series.................. If so specified in the related Prospectus
Supplement, a Series of Certificates may be
paired with another Series (a "Paired Series").
The Prospectus Supplement for such Series and
the Prospectus Supplement for the Paired
Series will each specify the relationship
between the Series.
Enhancement.................... Enhancement with respect to a Series or any
Class thereof may be provided as specified in
the related Prospectus Supplement.
The type, characteristics and amount of the
Enhancement will be determined based on several
factors, including the characteristics of the
Receivables and Accounts underlying or
comprising the Trust Portfolio as of the
Closing Date with respect to any Series, and
will be established on the basis of the
requirements of each Rating Agency rating the
Certificates of such Series. If so specified
in the related Prospectus Supplement, any such
Enhancement will apply only in the event of
certain types of losses and the protection
against losses provided by such Enhancement
will be limited. The terms of Enhancement, if
any, with respect to a Series, and the
conditions under which such Enhancement may be
increased, reduced or replaced, will be
described in the related Prospectus Supplement.
See "Enhancement" and "Risk Factors -- Limited
Nature of Certificate Rating."
Optional Repurchase............ With respect to each Series of Certificates,
the Investor Amount of such Series will be
subject to optional repurchase by the
Transferor on any Distribution Date after such
Investor Amount is reduced to an amount less
than or equal to 10% of the initial Investor
Amount (the "Initial Investor Amount"), or such
other amount specified in the related
Prospectus Supplement, if certain conditions
set forth in the Pooling and Servicing
Agreement are met. Unless otherwise specified
in the related Prospectus Supplement, the
repurchase price will be equal to the Investor
Amount of such Series plus accrued and unpaid
interest thereon. See "Description of the
Certificates and the Pooling and Servicing
Agreement -- Optional Repurchase; Final Payment
of Principal; Termination."
Defeasance..................... The Transferor may, at its option and subject
to the conditions specified in "Description of
the Certificates and the Pooling and Servicing
Agreement -- Defeasance," terminate its
substantive obligations in respect of a Series
or all Series (the "Defeased Series") by
irrevocably depositing with the Trustee monies
or Permitted Investments or both sufficient to
pay and
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discharge all remaining scheduled interest and
principal payments on all Defeased Series on
the dates scheduled for such payments and all
amounts owing to any provider of Enhancement
with respect to the Defeased Series. See
"Description of the Certificates and the
Pooling and Servicing Agreement --Defeasance."
Tax Status..................... Except to the extent otherwise specified in the
related Prospectus Supplement, Special Tax
Counsel to the Transferor will render an
opinion in connection with the issuance of each
Series that under existing law the Certificates
of such Series that are publicly offered will
be characterized as indebtedness for Federal
income tax purposes. Except to the extent
otherwise specified in the related Prospectus
Supplement, the Certificate Owners will agree
to treat the Certificates as indebtedness for
Federal, state and local income and franchise
tax purposes. See "Certain Federal Income Tax
Consequences" for additional information
concerning the application of Federal income
tax laws.
ERISA Considerations........... Under regulations issued by the Department of
Labor, the Trust's assets would not be deemed
"plan assets" of any Benefit Plan holding
interests in the Certificates of a Series if
certain conditions are met. If the Trust's
assets were deemed to be "plan assets" of a
Benefit Plan, there is uncertainty as to
whether existing exemptions from the
"prohibited transaction" rules of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code would apply to
all transactions involving the Trust's assets.
No assurance can be made with respect to any
offering of the Certificates of any Series that
the conditions which would allow the Trust
assets not to be deemed "plan assets" will be
met, although the intention of the underwriters
(but not their assurance) as to whether the
Certificates of a particular Series will be
"publicly offered securities," and therefore
eligible for an ERISA exemption, will be set
forth in the related Prospectus Supplement.
Accordingly, such acquisition could result in
excise taxes and other liabilities under ERISA
and the Code. Plan fiduciaries contemplating
purchasing interests in Certificates must
carefully determine whether the acquisition and
holding of Certificates and the operation of
the Trust would result in such excise taxes and
other liabilities to their Benefit Plan. See
"ERISA Considerations."
Certificate Rating.............. It will be a condition to the issuance of each
Series of Certificates or Class thereof offered
hereby that they be rated in one of the four
highest rating categories by at least one
nationally recognized statistical rating
organization (each such rating organization
rating any Series, a "Rating Agency"). The
rating or ratings applicable to the
Certificates of each Series or Class
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<PAGE>
thereof offered hereby will be set forth in the
related Prospectus Supplement.
A rating is not a recommendation to buy, sell
or hold securities and may be subject to
revision or withdrawal at any time by the
assigning Rating Agency. Each rating should be
evaluated independently of any other rating.
See "Risk Factors -- Limited Nature of
Certificate Rating."
Listing....................... If so specified in the Prospectus Supplement
relating to a Series, application will be made
to list the Certificates of such Series, or all
or a portion of any Class thereof, on the
Luxembourg Stock Exchange or any other
specified exchange.
Risk Factors................... See "Risk Factors" beginning on page 17 of this
Prospectus for a discussion of certain factors
that should be considered by prospective
purchasers of the Offered Certificates.
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RISK FACTORS
Potential investors should consider, among other things, the following
risk factors and any risk factors in the related Prospectus Supplement in
connection with the purchase of the Certificates.
LIMITED LIQUIDITY
It is anticipated that, to the extent permitted, the underwriters of
any Series of Certificates offered hereby will make a market in such
Certificates, but in no event will any such underwriter be under an obligation
to do so. There is no assurance that a secondary market will develop with
respect to the Certificates of any Series offered hereby, or if it does develop,
that it will provide Certificateholders with liquidity of investment or that it
will continue for the life of such Certificates.
NON-RECOURSE OBLIGATION
Certificateholders will have no recourse to any assets of any of the
Transferor, the Servicer, the Bank or any of their affiliates, in the event
payments on Certificates are not timely made. Consequently, Certificateholders
must rely solely upon payments on the Receivables and the Enhancement, if any,
applicable to the Series for the payment of principal of and interest on the
Certificates of any Series. Furthermore, under the Pooling and Servicing
Agreement, the Certificateholders have an interest in the Receivables and
Collections thereon only to the extent of the Investor Amount.
TRANSFER OF RECEIVABLES
The Transferor has represented and warranted in the Pooling and
Servicing Agreement that its 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). The Bank,
for itself and as successor to Proffitt's, Inc., Parisian, Inc., G.R.
Herberger's, Inc. and McRae's, Inc. (each, an "Initial Seller" and collectively
the "Initial Sellers"), under the Receivables Purchase Agreements between each
of the Initial Sellers and the Transferor (each a "Receivables Purchase
Agreement" and collectively, with the Receivables Purchase Agreement between the
Bank and the Transferor dated as of February 2, 1998, the "Receivables Purchase
Agreements"), has similarly represented and warranted that the Transferor's
interest in the Receivables constitutes a first priority perfected ownership
interest in the Receivables and the proceeds thereof (except for liens for local
taxes and governmental charges not due and payable or being contested in good
faith by the applicable Initial Seller or the Bank). Nevertheless, a tax or
government lien on property of an Initial Seller, the Bank 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. The Transferor, each of
the Initial Sellers and the Bank have also covenanted not to sell, pledge,
assign, transfer or grant any lien on any Receivable included in the Trust other
than to the Trust. See "Certain Legal Aspects of the Receivables -- Transfer of
Receivables," "-- Certain Matters Relating to Receivership" and "-- Certain
Matters Relating to Bankruptcy or Insolvency."
COMMINGLING OF COLLECTIONS
While Proffitt's, or an affiliate, is the Servicer, Collections held
by or on behalf of the Transferor 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 bankruptcy, insolvency, receivership or conservatorship of any
of the Initial Sellers, the Bank, the Servicer, the Subservicers 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
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maintain the credit 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 AND INSOLVENCY RISKS
Each of the Initial Sellers originally warranted, and the Bank
represents and warrants, in the applicable Receivables Purchase Agreement, that
the sale of Receivables sold or to be sold by it to the Transferor is a valid
sale of such Receivables to the Transferor, and the Transferor represents and
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. The Initial
Sellers and the Bank, and the Transferor have 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 Receivable, respectively. Each of the Initial
Sellers and the Bank intends that each transfer of Receivables by it 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 such Initial Seller's bankruptcy estate under
Section 541 of the United States Bankruptcy Code (Title 11, United States Code),
as amended (the "Bankruptcy Code"), or an asset of the Bank in the event a
receiver or conservator were appointed for the Bank. If any Initial Seller were
to become a debtor subject to a Bankruptcy Code proceeding, or the Bank were to
become subject to a receivership or conservatorship proceeding subsequent to
such transfer, the Receivables should not be available to creditors of such
Initial Seller or the Bank.
Notwithstanding the foregoing, if the Bank was placed in a
receivership or conservatorship, or an Initial Seller were to become a debtor in
a bankruptcy case, and a receiver, conservator, creditor or a trustee-in-
bankruptcy of such debtor or such debtor itself, as debtor-in-possession, were
to take the position that the sale of Receivables by such Initial Seller or the
Bank, as applicable, to the Transferor should be recharacterized as a pledge of
such Receivables to secure a borrowing of such debtor, then reductions and
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" and "-- Certain Matters Relating to Receivership."
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 any Initial Seller or the Transferor would result in
consolidation of the assets and liabilities of any Initial Seller or the
Transferor with each other or their affiliates. The Transferor also has been
organized in a manner intended to reduce the risk that it would become subject
to a bankruptcy case. If an individual Initial Seller or the Transferor were to
become a debtor in a bankruptcy case, or a receiver or conservator were
appointed for the Bank, or certain other events relating to the insolvency of an
Initial Seller, the Bank or the Transferor were to occur, causing a Pay Out
Event pursuant to the Pooling and Servicing Agreement, no new Principal
Receivables would be transferred to the Trust. If any such events were to 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), which would cause 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 were to exist, the
debtor-in-possession may have the power to prevent either the Trustee or the
Certificateholders from appointing a successor Servicer. If, notwithstanding the
foregoing, (i) the Transferor were to become a debtor in a bankruptcy
proceeding, or (ii) a court were to conclude that the assets and liabilities of
the Transferor should be consolidated with the assets and liabilities of any
Initial Seller and/or the Bank; or (iii) a creditor, a trustee-in-bankruptcy of
such debtor, or the 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" and "-- Certain Matters Relating to Receivership."
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Payments made by the Bank to the Transferor pursuant to the
Receivables Purchase Agreement in respect of repurchases of Ineligible
Receivables or in respect of Adjustments might be recoverable by a receiver or
conservator for the Bank, as applicable, from the Transferor or the
Certificateholders as an avoidable transfer, if such payments were made within
one year or other applicable period under state law prior to the commencement of
a bankruptcy case in respect of an Initial Seller.
The Bank is a national bank that is subject to regulation and
supervision by the United States Office of Comptroller of the Currency (the
"OCC"). If the Bank were to become insolvent or be in an unsound condition or if
certain other circumstances were to occur, the OCC is authorized to appoint the
FDIC as receiver. The Federal Deposit Insurance Act ("FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
sets forth certain powers that the FDIC may exercise as receiver for the Bank.
With respect to the appointment of a receiver or conservator for the Bank,
subject to certain qualifications, a valid perfected security interest of the
Trust in the Receivables should be enforceable (to the extent of the Trust's
"actual direct compensatory damages" as described below) and payments to the
Trust with respect to the Receivables (up to the amount of such damages) should
not be subject to an automatic stay of payment or to recovery by such a
conservator or receiver. If, however, the conservator or receiver were to assert
that the security interest was unperfected or unenforceable, or were to require
the Trustee to establish its right to those payments by submitting to and
completing the administrative claims procedure established under FIRREA, or the
conservator or receiver were to request a stay of judicial proceedings with
respect to the Bank as provided under FIRREA, delays in payments on the
Certificates and possible reductions in the amount of those payments could
occur. In the event of a repudiation of obligations by a conservator or
receiver, FIRREA provides that a claim for the repudiated obligation is limited
to "actual direct compensatory damages" determined as of the date of the
appointment of the conservator or receiver (which in most cases are expected to
include the outstanding principal on the Certificates plus interest accrued
thereon to the date of payment). The FDIC has not adopted a formal policy
statement on payment of principal and interest on collateralized borrowings of
banks which are repudiated. The Transferor believes that, as of the date of this
Prospectus, the general practice of the FDIC in such circumstances is to permit
the collateral to be applied to pay the principal owed plus interest at the
contract rate up to the date of payment, together with the costs of liquidation
of the collateral if provided for in the contract. In one case, however,
involving the repudiation by the Resolution Trust Corporation of certain secured
zero-coupon bonds issued by a savings association, a United States Federal
district court held that "actual direct compensatory damages" in the case of a
marketable security meant the market value of the repudiated bonds as of the
date of repudiation. If that court's view were applied to determine the Trust's
"actual direct compensatory damages" in the event a conservator or receiver of
the Bank repudiated its obligations under the Receivables Purchase Agreement or
to the Trust pursuant to the Pooling and Servicing Agreement, the amount paid to
Certificateholders could, depending upon circumstances existing on the date of
the repudiation, be less than the principal of the Certificates and the interest
accrued thereon to the date of payment. See "Certain Legal Aspects of the
Receivables -- Certain Matters Relating to Receivership."
EFFECTS OF CONSUMER AND DEBTOR PROTECTION LAWS ON COLLECTIBILITY OF RECEIVABLES
All Accounts not owned by the Bank prior to February 2, 1998 and in
existence prior to that date were contributed to the Bank at the beginning of
business on February 2, 1998. Since that time all Accounts have been owned and
administered by the Bank, and all Receivables have been originated by the Bank.
The Accounts and the Receivables are subject to numerous Federal and state
consumer protection laws that 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 the Bank's ability to maintain or improve historic levels of finance charge
income. Also, 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 providers. As a result of these developments and
other factors, there can be no assurance that there will not be any Federal or
state legislation imposing additional requirements on the making and collecting
of consumer credit or limiting finance charges or other fees or charges relating
to the Accounts.
State and local governments may attempt, and private parties are
attempting, to require out-of-state credit card issuers to comply with state and
local consumer protection laws. There can be no assurance that the Bank will
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not be named as a defendant in future lawsuits or administrative actions
challenging the terms of its credit card programs or otherwise asserting
violations of such consumer protection laws. Such lawsuits or actions, if
resolved adversely to the Bank, could have the effect of limiting the Bank's
credit card programs and could require the Bank to pay refunds and civil
penalties to cardholders. Consequently, such lawsuits or actions could have an
adverse effect on the Bank's credit card operations. One potential effect of any
such lawsuit or action involving the Bank, if successful, would be to reduce the
yield on the Trust Portfolio. If such a reduction were to occur, a Pay Out Event
with respect to one or more Series might result.
Pursuant to the Pooling and Servicing Agreement, the Transferor has
covenanted to accept retransfer from the Trust, and pursuant to the Receivables
Purchase Agreements, the Bank has agreed to repurchase from the Transferor, each
Receivable that does not comply with all requirements of applicable law at the
time it was transferred to the Trust where the related Account becomes a
Defaulted Account or the proceeds of the Receivable are impaired. Pursuant to
such agreements, the Transferor makes to the Trust, and the Bank makes to the
Transferor, certain other representations and warranties relating to the
validity and enforceability of the Receivables. If any such representation or
warranty were breached and such breach were to continue beyond the applicable
cure period, if any, the sole remedy against the Transferor would be its
obligation to accept the retransfer of such Receivables and, if applicable, the
sole remedy against the Bank would be its obligation to repurchase such
Receivables from the Transferor. See "Description of the Certificates and the
Pooling and Servicing Agreement -- Representations and Warranties" and "Certain
Legal Aspects of the Receivables -- Consumer and Debtor Protection Laws, Recent
and Proposed Legislation."
Application of Federal and state bankruptcy and Debtor Relief Laws
could affect the interests of the Certificateholders in the Receivables if such
laws were to result in any Receivables being charged off as uncollectible. See
"Description of the 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
cardholder repayments will occur. A significant decline in the amount of
Receivables generated could result in the occurrence of a Pay Out Event for one
or more Series and commencement of the Rapid Amortization Period for each such
Series. In addition, changes in periodic Finance Charges could alter the monthly
payment rates of cardholders. A significant decrease in the monthly payment rate
could slow the return or accumulation of principal during the Rapid Amortization
Period. See "Maturity Assumptions" and "-- Ability to Change Terms of the
Receivables" for a discussion of the Bank's ability to change the terms,
including interest rates and fees, on the Accounts.
EFFECTS OF CONVENIENCE USE AND SPECIAL DEFERRALS
From time to time the Bank, to encourage use of its credit cards,
offers to impose no Finance Charges on purchases made with such credit cards if
the obligor(s) on such card (each, an "Obligor") pays a specified percentage of
the entire amount due within a specified period. Also, the Bank from time to
time offers deferred billing on certain purchases. If the Obligor complies with
the terms of the deferred billing, no interest is charged on such a deferred
Receivable for up to 90 days. An increase in the "convenience use" of the 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" in the Prospectus Supplement.
ABILITY TO CHANGE TERMS OF THE RECEIVABLES
Pursuant to the Pooling and Servicing Agreement, only the Receivables
arising in the Accounts have been transferred to the Trust. As owner of the
Accounts, the Bank retains the right to determine the monthly periodic Finance
Charges and other charges and fees which will be applicable from time to time to
the Accounts, to alter the minimum monthly payment required on the Accounts and
to change various other terms with respect to the Accounts. The Bank may change
the annual percentage rate of interest and other Finance Charges which will be
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applicable from time to time to the Accounts, alter the minimum monthly payments
required on the Accounts and change any other terms with respect to the
Accounts, for various reasons, including facilitating Company sales of
merchandise and services. A decrease in the annual percentage rate 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. The Bank has agreed that, except as otherwise
required by law or as is deemed advisable by the Bank based upon a good faith
assessment, in its sole discretion of the various factors affecting the use of
the Accounts, it 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, its reasonable expectation of the Portfolio Yield (as defined
in each Series Supplement) after giving effect to such reduction would be less
than the weighted average base rates of all outstanding Series. In addition, the
Bank has agreed that, unless required by law or as is deemed advisable by the
Bank based upon a good faith assessment, in its sole discretion of the various
factors affecting the use of the Accounts, it will not reduce such annual
percentage rate if its reasonable expectation of the Portfolio Yield after
giving effect to such reduction would be less than the highest Certificate Rate
for any outstanding Series. The Bank may from time to time elect to change the
terms applicable to certain segments of the respective Department Store credit
card programs, 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 the Bank's ability to change the terms of the Accounts or the
respective 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 the Bank to take actions which would change
Account terms. See "Credit Card Program" in the Prospectus Supplement and
"Description of the Certificates and the Pooling and Servicing Agreement -- Pay
Out Events."
DEPENDENCE ON THE COMPANY'S DEPARTMENT STORES; COMPETITION
Because the Accounts (other than any VISA or MasterCard Accounts)
included in the Trust can be used for purchases of merchandise and services only
from the respective Department Stores, the Trust is completely dependent upon
sales made by the Department Stores that are charged to the Accounts. The
retailing business is highly competitive and the Department Stores compete with
other stores operating in their respective geographic areas as well as numerous
other types of retail outlets. Each of the Department Stores has many
competitors in each of its markets. The Department Stores also compete with
national and regional department stores, specialty apparel stores, general
merchandise stores, mail-order retailers, and off-price 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 Department Stores will continue to compete successfully with
such other stores or that any such competition will not have a material adverse
effect on the Company's financial condition or results of operations. In
addition, the Pooling and Servicing Agreement does not prohibit the respective
Department Stores from disposing of all or any portion of its business or
assets. See "Credit Card Program" in the Prospectus Supplement.
Many considerations enter into the competition for the consumer's
patronage, including price, quality, style, service, product mix, convenience
and credit availability and terms. There can be no assurance that the Department
Stores will continue to expand or experience sales growth at the same rate as in
prior years. In the event the Department Stores do not generate an adequate
level of Receivables, a Pay Out Event could occur.
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COMPETITION FROM OTHER CREDIT AND PAYMENT SOURCES
The Department Stores accept other credit cards in addition to the
Bank's credit cards, including American Express(R), MasterCard, VISA and the
Discover Card(R). Therefore, not all credit sales by the Department Stores will
generate Receivables. The credit card market is highly competitive and has
experienced increased advertising, targeted 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 Bank credit cards 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" in the Prospectus Supplement.
SOCIAL, LEGAL AND ECONOMIC FACTORS
Changes in credit use and payment patterns by credit card holders may
also result from a variety of social, legal and economic factors. Economic
factors, nationally and in the regions served by the Department Stores,
including inflation, prevailing interest rates and unemployment levels, may also
be reflected in increased defaults by the Bank's 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, the Bank's 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 use of the Bank's credit cards, repayment
patterns or Collections. 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 "Description of the Certificates and the Pooling and
Servicing Agreement -- Pay Out Events."
EFFECT OF LIMITED SUBORDINATION
With respect to Certificates of a Series having a Class or Classes of
Subordinated Certificates, unless otherwise specified in the related Prospectus
Supplement, payments of principal in respect of the Subordinated Certificates of
a Series will not commence until after the final principal payment with respect
to the Senior Certificates of such Series. In addition, if so specified in the
related Prospectus Supplement, if Collections of Finance Charge Receivables or
other amounts allocable to the Certificates of a Series are insufficient to
cover required amounts due with respect to the Senior Certificates of such
Series, the Investor Amount with respect to the Subordinated Certificates will
be reduced, resulting in a reduction of the portion of Collections of Finance
Charge Receivables allocable to the Subordinated Certificates in future periods
and a possible delay or reduction in principal and interest payments on the
Subordinated Certificates. Moreover, if so specified in the related Prospectus
Supplement, in the event of a sale of Receivables in the Trust due to the
insolvency of the Transferor or the appointment of a conservator or receiver for
the Transferor, the portion of the net proceeds of such sale allocable to pay
principal to the Certificates of a Series will be used first to pay amounts due
to the Senior Certificateholders and any remainder will be used to pay amounts
due to the Subordinated Certificateholders.
ISSUANCE OF ADDITIONAL SERIES; MASTER TRUST CONSIDERATIONS
The Trust, as a master trust, may issue additional Series from time to
time. While the Principal Terms of any Series will be specified in a Series
Supplement, the provisions of a Series Supplement and, therefore, the terms of
any additional Series, will not be subject to prior review by, or consent of,
Certificateholders of any previously issued Series. Such Principal Terms may
include methods for determining applicable Investor Percentages and allocating
Collections, provisions creating different or additional security or other
Enhancement, different Classes of Certificates (including Subordinated
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 Certificateholders having power to cause the
Transferor, the Servicer or the Trustee to take or refrain from taking certain
actions, including, without limitation, actions with respect to the exercise of
certain rights and
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remedies under the Pooling and Servicing Agreement, without regard to the
position or interest of the Certificateholders 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 the issuance of any additional Series that each
Rating Agency that has rated certificates of any outstanding Series deliver
written confirmation that such issuance will not result in any such Rating
Agency reducing or withdrawing its rating of the Certificates of any outstanding
Series. There can be no assurance, however, that the Principal Terms of any
other Series, including any Series issued from time to time hereafter, might not
have an adverse effect on the timing and amount of payments received by a
Certificateholder of any other Series or otherwise adversely affect any other
Series, even if there is no change in the rating of any outstanding Series. Such
adverse effect could result from, among other things, a change in allocations of
Collections among the various Series and the Classes thereof. Such a change
could occur, for example, if a Rapid Amortization Period were to occur with
respect to a Paired Series. See "-- Limited Nature of Certificate Rating" and
"Description of the Certificates and the Pooling and Servicing Agreement --
Paired Series" and " -- Exchanges."
ABSENCE OF CONTROL ON CERTAIN VOTING MATTERS
Subject to certain exceptions, the Certificateholders 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. However, the
Pooling and Servicing Agreement or related Series Supplement may provide that
under certain circumstances the consent or approval of the holders 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 Trust Portfolio.
Certificateholders of a Series or the provider of any Enhancement with respect
thereto may have interests which do not coincide in any way with the interests
of Certificateholders of other Series. See "Description of Certificates and the
Pooling and Servicing Agreement -- Servicer Default," "-- Amendments," "--
Representations and Warranties" and "-- Definitive Certificates."
EFFECTS OF PREPAYMENT DISTINCTIONS AMONG CLASSES
Classes of Certificates may be issued to which may be allocated the
risk of early repayment within a Series. With respect to such a Class, a
Certificateholder of such Class will be more likely to receive prepayment than
would otherwise be the case. In such event such Certificateholder will not
receive the benefit of the Certificate Rate for the period of time originally
expected on the amount of any such repayment. There can be no assurance that the
Certificateholder will be able to reinvest the proceeds at a similar rate of
return and at a similar risk level. Assuming that a Certificateholder could
identify an identical reinvestment opportunity, an early repayment could benefit
a Certificateholder who acquired a Certificate of such Class at a discount and
harm a Certificateholder who acquired a Certificate of such Class at a premium.
EFFECT ON CERTAIN PRE-FUNDED SERIES OF ABILITY TO GENERATE ADDITIONAL
RECEIVABLES
With respect to Certificates of a Series having a Class that employs a
Pre-Funding Account in anticipation of the Transferor transferring additional
Receivables to the Trust if, and to the extent that, the requisite amount of
such Receivables are not created during the Pre-Funding Period specified in the
related Prospectus Supplement, the Certificateholders of such Class will receive
the balance remaining in the Pre-Funding Account at the end of the Pre-Funding
Period as an early repayment of Certificate principal. In such event the
Certificateholder will not receive the benefit of the Certificate Rate for the
period of time originally expected on the amount of such early repayment.
See "--Dependence on the Company's Department Stores; Competition" and
"Description of
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Certificates and the Pooling and Servicing Agreement -- Funding Period." See
also "-- Effects of Prepayment Distinctions among Classes."
BASIS RISK
As of the date of this Prospectus all Accounts have fixed interest
rates. If, in the future, Accounts bear variable rates of interest, a portion of
the Accounts in the Trust may have Finance Charges set at a variable rate above
a designated prime rate, or other designated index, or at another rate. The
Certificate Rate applicable to a Series of Certificates issued by the Trust may
be based upon an index other than such prime rate or other designated index. If
there is a decline in such prime rate or other designated index which does not
coincide with a decline in the index upon which the Certificate Rate is based,
the amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as monthly interest on such Series of
Certificates and other amounts required to be funded out of Collections of
Finance Charge Receivables with respect to such Series will not be similarly
reduced.
ADDITION OF TRUST ASSETS
The Transferor expects, and in some cases will be obligated, to
designate certain Additional Accounts, the Receivables in which will be conveyed
to the Trust. Such Additional Accounts are expected to include Accounts
originated using criteria different from those which were applied to the
Accounts designated on the Initial Cut-Off Date or to previously designated
Additional Accounts, because such accounts were originated at a different date,
under different underwriting criteria or by different institutions, or represent
a separate segment of the Bank's credit card business. Consequently, there can
be no assurance that Additional Accounts designated in the future will be of the
same credit quality as previously designated Accounts. In addition, the Bank may
add Participations to the Trust. The designation of Additional Accounts and
Participations will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates and the Pooling and
Servicing Agreement -- Addition of Accounts."
LIMITED NATURE OF CERTIFICATE RATING
Any rating assigned to the Certificates of a Series or a Class by a
Rating Agency will reflect such Rating Agency's assessment of the likelihood
that Certificateholders of such Series or Class will receive the payments of
interest and principal required to be made under the Pooling and Servicing
Agreement and the related Series Supplement and will be based primarily on the
value of the Receivables in the Trust and the availability of any Enhancement
with respect to such Series or Class. However, any such rating will not, unless
otherwise specified in the related Prospectus Supplement with respect to any
Class or Series offered hereby, address the likelihood that the principal of, or
interest on, any Certificates of such Class or Series will be paid on a
scheduled date. In addition, any such rating will not address the possibility of
the occurrence of a Pay Out Event with respect to such Class or Series or the
possibility of the imposition of United States withholding tax with respect to
non-U.S. Certificateholders. The rating will not be a recommendation to
purchase, hold or sell Certificates of such Series or Class, and such rating
will not comment as to the marketability of such Certificates, any market price
or suitability for a particular investor. There can be no assurance that any
rating will remain for any given period of time or that any rating will not be
lowered or withdrawn entirely by a Rating Agency if in such Rating Agency's
judgment circumstances so warrant.
LIMITED CREDIT ENHANCEMENT
Although Enhancement may be provided with respect to a Series of
Certificates or any Class thereof, the amount available will be limited and will
be subject to certain reductions. If the amount available under any Enhancement
is reduced to zero, or if the provider of any Enhancement fails or is unable to
make the payments required thereby, Certificateholders of the Series or Class
thereof covered by such Enhancement will bear directly the credit and other
risks associated with their undivided interest in the Trust. Certificateholders
will depend solely upon payments on the Receivables for the payment of the
principal of, and interest on, their Certificates. Should any Certificates
offered by a Prospectus Supplement not be paid in full on a timely basis,
Certificateholders
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may not look to any assets of the Transferor, the Servicer, the Bank or any
affiliate thereof to satisfy any payment obligations under the Certificates. See
"Enhancement."
EFFECT OF DISCOUNT OPTION
Pursuant to the Pooling and Servicing Agreement, the Transferor has
elected to exercise its discount option (the "Discount Option") by initially
designating 2% of the amount of Receivables that otherwise would be treated as
Principal Receivables to be treated as Finance Charge Receivables. The
Transferor may, from time to time, without notice or consent of the
Certificateholders, increase, reduce or eliminate such percentage. A designation
of Principal Receivables to be treated as Finance Charge Receivables will
increase the percentage of Collections 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 (as defined in each Series Supplement) 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 occurring, 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 Servicing Fee for such period. The ability of the
Transferor to adjust the Discount Percentage to change the amount of Receivables
that otherwise would be treated as Principal Receivables to be treated as
Finance Charge Receivables is limited in certain circumstances. The Transferor
must provide 30 days' prior written notice to the Servicer, the Trustee, each
Rating Agency and, in limited circumstances, Certificateholders that are not
rated, of any such increase, reduction or elimination, and such increase,
reduction or elimination will become effective on the date specified therein
unless the Transferor reasonably believes that such increase, reduction or
elimination will at the time of its occurrence cause a Pay Out Event, or an
event which with notice or the lapse of time would constitute a Pay Out Event,
to occur with respect to any Series, provided that if such designation would
cause the Discount Percentage to be less than 1% or more than 3%, the Rating
Agency Condition must be satisfied and in limited circumstances, holders of
outstanding Certificates that are not rated must consent to such action. Any
such adjustment will be publicly disclosed by the Servicer in a Current Report
on Form 8-K filed with the Commission under the Exchange Act. See "Description
of the Certificates and the Pooling and Servicing Agreement -- Discount Option
Receivables."
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series initially will be represented by one or more
Certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Certificate Owners or their nominees. Unless
and until Definitive Certificates are issued for a Series, Certificate Owners
relating to such Series will not be recognized by the Trustee as
Certificateholders, as that term will be used in the Pooling and Servicing
Agreement. Hence, until such time, Certificate Owners will only be able to
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 and regulations creating and affecting DTC. However,
the Trustee will deliver such reports and other information to the Certificate
Owners upon request. The Monthly Servicer Report will be filed with the
Commission on a Current Report on Form 8-K and will be available to Certificate
Owners as provided under "Available Information." In addition, the ability of
Certificate Owners to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates. See "Description of the Certificates and the
Pooling and Servicing Agreement -- Book-Entry Registration" and "-- Definitive
Certificates."
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GEOGRAPHIC CONCENTRATIONS
Unlike several of the Company's competitors that operate nationally,
each Department Store has a regional focus, and most of the Department Stores
are located in the Southeast or Midwest United States. Such geographic
concentration will subject the Receivables in the Trust Portfolio to the
economic, legal and other conditions present in such areas. Economic trends and
other factors in either of these regions, as described more particularly in the
related Prospectus Supplement, could adversely affect Collections, the
generation of new Receivables and payment rates. See "Credit Card Program --
Geographic Distribution" in the Prospectus Supplement.
Herberger's only began offering proprietary credit cards in May 1997,
and as the Bank expands that program, and if the Bank offers credit cards for
other department stores, the percentages of Accounts and Receivables
attributable to other states could increase, thereby potentially reducing or
shifting existing concentration levels. See "-- Social, Legal and Economic
Factors" herein and "Credit Card Program" in the Prospectus Supplement.
GENERAL ECONOMIC CONDITIONS; SEASONALITY
The Company's future performance and the Bank's credit card portfolio
are subject to prevailing economic conditions and to all operating risks
normally incident to the retail and credit card industries. The Company
experiences seasonal fluctuations in sales and net income, with
disproportionately high levels 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 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 the Bank's credit
card portfolio. See "Credit Card Program -- Department Stores" in the Prospectus
Supplement.
FORWARD-LOOKING STATEMENTS
This Prospectus and the Prospectus Supplement contain certain forward-
looking statements concerning the Company's, the Department Stores', the Bank's
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 Department Stores, the Bank
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, and
the Company's ability to integrate recent and future acquisitions. See
"Cautionary Notice Regarding Forward-Looking Statements."
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CREDIT CARD PROGRAM
The Bank commenced operations in February 1996 as an indirect, wholly
owned subsidiary of CPS. Since that time, the Bank has owned, originated and
administered the credit card operations of CPS, including Boston Store and
Bergner's. Following the merger of CPS with a wholly owned subsidiary of
Proffitt's on January 31, 1998, Proffitt's contributed all the accounts of its
department stores to the Bank, which now owns such accounts, establishes all new
accounts and extends credit under all accounts. As of February 2, 1998, the
Bank sold all its credit card receivables to PCC pursuant to a Receivables
Purchase Agreement. PCC's activities are limited to purchasing credit card
receivables from the Bank and any other sellers, financing those purchases and
other activities directly related to such purchases and financings.
THE ACCOUNTS
The Accounts consist of all Eligible Accounts of the Bank existing as
of the close of business on February 2, 1998 and those Accounts added
thereafter. Additional Eligible Accounts originated in the normal operation of
the Bank's credit card business generally will be added on a daily basis as
Automatic Additional Accounts. In addition, subject to the provisions of the
Pooling and Servicing Agreement, certain Eligible Accounts relating to acquired
businesses may in the future be added as Additional Accounts. The Receivables
will include all amounts payable by cardholders under such Accounts which are
Eligible Receivables. As a result, some of the Accounts may be recently
solicited, unseasoned accounts. See "Credit Card Program" in the Prospectus
Supplement and "Description of the Certificates and the Pooling and Servicing
Agreement -- Representations and Warranties" herein.
An "Eligible Receivable" is a Receivable (i) which has arisen under an
Eligible Account, (ii) which was created in compliance with all applicable
requirements of law and pursuant to an agreement which complies with all
applicable requirements of law, in either case the failure to comply with which
would have a material adverse effect upon Certificateholders, (iii) with respect
to which all material consents, licenses, approvals or authorizations of, or
registrations with, any governmental authority required to be obtained or given
by any Eligible Originator or by the Transferor in connection with the creation
of such Receivable or the execution, delivery and performance by any Eligible
Originator of the related cardholder agreement have been duly obtained or given
and are in full force and effect as of such date of creation, (iv) as to which
at the time of the transfer of such Receivable to the Trust, the Trust will have
good and marketable title, free and clear of all liens (except those permitted
by the Pooling and Servicing Agreement), (v) which has been the subject of
either a valid transfer and assignment from the Transferor to the Trust of all
of the Transferor's right, title and interest therein or the grant of a first
priority perfected security interest therein (and in the proceeds thereof to the
extent set forth in Section 9-306 of the UCC), effective until the termination
of the Trust, (vi) which will at all times be the legal, valid and binding
payment obligation of the cardholder thereof enforceable against such cardholder
in accordance with its terms, subject to certain bankruptcy and equity related
exceptions, (vii) which constitutes "chattel paper," an "account" or a "general
intangible" under and as defined in Article 9 of the UCC, (viii) which, at the
time of its transfer to the Trust, has not been waived or modified except in
accordance with the Credit Card Guidelines or as permitted by the Pooling and
Servicing Agreement, (ix) which is not at the time of its transfer to the Trust
subject, to the knowledge of the Transferor or the Servicer, to any claim of
setoff, rescission, counterclaim or other defense (including the defense of
usury), other than certain bankruptcy and equity related defenses, (x) as to
which the Transferor and any originator specified in the Pooling and Servicing
Agreement (each, an "Eligible Originator") have satisfied all obligations to be
fulfilled at the time it is transferred to the Trust and (xi) as to which the
Transferor and the Eligible Originator have done nothing, at the time of its
transfer to the Trust, to impair the rights of the Trust or Certificateholders
therein. In order to qualify as an "Eligible Account," each such Account must,
as of the date of its selection, (i) be in existence and owned by any Eligible
Originator or the Transferor, (ii) be payable in United States Dollars, (iii)
not have the related credit card reported lost or stolen or be designated as
counterfeit or fraudulent, (iv) not be identified in the Transferor's computer
files as canceled or charged off due to the Obligor's bankruptcy, insolvency or
death, (v) not have the receivables in such Account written off as
uncollectible, (vi) not have the receivables in such Account assigned, pledged
or sold, (vii) have an Obligor who has provided a billing address in the United
States or its territories or possessions and (viii) not be an account with
respect to which the Transferor or any corporate affiliate of the Transferor is
the Obligor.
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The Receivables arising from the Accounts will 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 Certificates and
the Pooling and Servicing Agreement -- Addition of Accounts," to designate from
time to time additional qualifying credit card accounts of the Bank 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 Bank (including accounts
issued to customers of any stores that hereafter become Department Stores)
generally will be included automatically as Automatic Additional Accounts on an
ongoing basis, subject to the right of the Transferor in its sole discretion, to
cease such automatic additions. Further, pursuant to the Pooling and Servicing
Agreement, the Transferor has the right, subject to certain limitations and
conditions discussed under "Description of the 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
Certificates and the Pooling and Servicing Agreement -- Transfer of
Receivables."
THE TRUST
The Trust has been formed under the laws of the State of New York
pursuant to the Pooling and Servicing Agreement. The Trust will not engage in
any activity other than acquiring and holding Receivables, issuing Series of
Certificates and any related interest in the Trust and the Exchangeable
Transferor Certificate, making payments thereon and engaging in related
activities (including, with respect to any Series, obtaining any Enhancement and
entering into an Enhancement agreement relating thereto). As a consequence, the
Trust is not expected to have any need for, or sources of, additional capital
resources other than the assets of the Trust.
MATURITY ASSUMPTIONS
Unless otherwise specified in the related Prospectus Supplement,
following the Revolving Period, Collections of Principal Receivables are
expected to be distributed to the Certificateholders of such Series or any
specified Class thereof on each specified Distribution Date during the
Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Certificateholders of such Series or
any specified Class thereof during the Accumulation Period and distributed on a
Scheduled Payment Date; provided, however, that, if the Rapid Amortization
Period commences, Collections of Principal Receivables will be paid to
Certificateholders in the manner described herein and in the related Prospectus
Supplement. The related Prospectus Supplement will also specify when the
Controlled Amortization Period, the Principal Amortization Period or the
Accumulation Period, as applicable, will commence, the principal payments are
expected or available to be received or accumulated during such Controlled
Amortization Period, Principal Amortization Period or Accumulation Period or on
the Scheduled Payment Date, as applicable, the manner and priority of principal
accumulations and payments among the Classes of a Series of Certificates, the
payment rate assumptions on which such expected principal accumulations and
payments are based, and the Pay Out Events which, if any were to occur, would
lead to the commencement of a Rapid Amortization Period.
No assurance can be given, however, that the Principal Receivables
allocated to be paid to Certificateholders or the holders of any specified Class
thereof will be available for distribution or accumulation for payment to
Certificateholders on each Distribution Date during the Controlled Amortization
Period, the Principal Amortization Period or the Accumulation Period, or on the
Scheduled Payment Date, as applicable. In addition, the Transferor can give no
assurance that the payment rate assumptions for any Series will prove to be
correct. The related Prospectus Supplement will provide certain historical data
relating to payments by cardholders, total charge offs and other related
information relating to the Trust Portfolio. There can be no assurance that
future events will be consistent with such historical data.
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The amount of Collections may vary from month to month due to seasonal
variations, general economic conditions and payment habits of individual
cardholders. There can be no assurance that Collections of Principal Receivables
with respect to the Trust Portfolio, and thus the rate at which the related
Certificateholders could expect to receive or accumulate payments of principal
on their Certificates during an Amortization Period, or on any Scheduled Payment
Date, as applicable, will be similar to any historical experience set forth in a
related Prospectus Supplement. If a Pay Out Event occurs, the average life and
maturity of such Series of Certificates could be significantly reduced.
The generation and collection of Receivables will also be affected by
the operations of the Company and its subsidiaries. See "Risk Factors --
Dependence on the Company's Department Stores; Competition" and "-- Competition
from Other Credit and Payment Sources."
The actual payment rate for any Series of Certificates may be slower
than the payment rate used to determine the Controlled Accumulation Amount of
Collections of Principal Receivables scheduled or available to be distributed or
accumulated for later payment to Certificateholders of a specified Class thereof
during the Controlled Amortization Period, the Principal Amortization Period or
the Accumulation Period or on the Scheduled Payment Date, as applicable, 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 date
of issuance of such Series of Certificates to the final Distribution Date with
respect to the Certificates will equal the expected number of months. The
amount of outstanding Receivables and the rates of payments, delinquencies,
charge offs and new borrowings on the Accounts depend upon a variety of factors,
including seasonal variations, availability of other sources of credit, general
economic conditions, consumer spending and borrowing patterns. Accordingly,
there can be no assurance that future cardholder and monthly payment rate
experience will be similar to historical experience.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates offered
hereby will be paid to the Transferor. The Transferor will use such proceeds
for its general corporate purposes, including purchase of Receivables from the
Bank on a daily basis pursuant to the Receivables Purchase Agreement and to pay
down other Series.
THE COMPANY
The Company is a leading regional department store chain that, as of
the date of this Prospectus operated over 230 department stores in 24 states,
primarily in the Southeast and Midwest, and is the fourth largest traditional
department store chain in the United States. Each chain operates primarily as a
leading branded traditional department store in its communities, with Parisian
serving as a better branded specialty department store. 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
Department Store chains operates with its own merchandising 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
certain administrative and support functions to realize scale economies, to
promote a competitive cost structure and to increase margins. In addition to its
department stores, the Company also operates four furniture stores.
Under the leadership of R. Brad Martin and 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 233 stores and estimated net sales of $3.5
billion in fiscal 1997.
The Company was incorporated under the laws of the State of Tennessee
in 1919. The principal executive offices of the Company are located at 750
Lakeshore Parkway, Birmingham, Alabama 35211, and its telephone number is (205)
940-4000.
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PCC
PCC was incorporated in Nevada in January 1997, and is wholly owned,
directly and indirectly, by Proffitt's. PCC was organized for the limited
purposes of purchasing accounts receivable such as the Receivables, 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 Center, 101 Convention Center Drive, Suite 850, Las Vegas, Nevada 89109.
Its telephone number is (702) 380-4918.
DESCRIPTION OF THE CERTIFICATES AND THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued in Series. Each Series will represent
an interest in the Trust. Each Series will be issued pursuant to the Pooling
and Servicing Agreement and a related Series Supplement thereto. The Prospectus
Supplement for each Series will describe any provisions of the Pooling and
Servicing Agreement relating to such Series which may differ materially from the
Pooling and Servicing Agreement which is incorporated herein by reference. The
following summaries describe certain provisions common to each Series of
Certificates. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Pooling and Servicing Agreement and the related Series Supplement.
GENERAL
The Certificates of each Series will represent undivided interests in
certain assets of the Trust, including the right to the applicable Investor
Percentage of all cardholder payments on the Receivables in the Trust. For each
Series of Certificates, unless otherwise specified in the related Prospectus
Supplement, the Investor Amount on any date will be equal to the Initial
Investor Amount as of the related Closing Date for such Series minus the amount
of principal paid in respect of such Series prior to such date and minus the
amount of unreimbursed Investor Charge Offs with respect to such Series prior to
such date and plus the aggregate amount of reductions of the Series Adjustment
Amounts. If so specified in the Prospectus Supplement relating to any Series of
Certificates, under certain circumstances the Investor Amount may be further
adjusted by the amount of principal allocated to Certificateholders, the funds
held in any specified account, and any other amount specified in the related
Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or
more of which may be Senior Certificates and one or more of which may be
Subordinated Certificates. The Investor Amount with respect to a Series with
more than one Class will be allocated among the Classes as described in the
related Prospectus Supplement. The Certificates of a Class may differ from
Certificates of other Classes of the same Series in, among other things, the
amounts allocated to principal payments, maturity date, Certificate Rate and the
availability of Enhancement.
For each Series of Certificates, payments of interest and principal
will be made on Distribution Dates specified in the related Prospectus
Supplement, to Certificateholders in whose names the Certificates were
registered on the Record Dates specified in the related Prospectus Supplement.
Interest will be distributed to Certificateholders in the amounts, for the
periods and on the dates specified in the related Prospectus Supplement.
For each Series of Certificates, the Transferor initially will own the
Exchangeable Transferor Certificate. The Exchangeable Transferor Certificate
will represent the undivided interest in the Trust not represented by the
Certificates issued and outstanding under the Pooling and Servicing Agreement,
any other interests in the Trust relating to any Series or the rights, if any,
of any Enhancement Providers to receive payments from the Trust. The holder of
the Exchangeable Transferor Certificate will have the right to a floating
percentage (the "Transferor Percentage") of all payments on the Receivables in
the Trust.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates during the Revolving Period, the Investor
Amount will remain constant except under certain limited
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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.
The Transferor Amount will fluctuate, therefore, to reflect the changes in the
amount of the Principal Receivables in the Trust. During the Accumulation
Period, the Investor Amount of such Series will generally decline as payments of
principal are distributed or accumulated pending distribution to the
Certificateholders. As a result, the Transferor Amount will generally increase
each month during an Amortization Period for any Series to reflect the
reductions in the Investor Amount of such Series and will also change to reflect
the variations in the amount of Principal Receivables in the related Trust. The
Transferor Amount may also be reduced as the result of an Exchange. See "--
Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge Offs"
and "-- Exchanges."
The assets of the Trust will consist of the Receivables, all monies
due or to become due in respect thereof (including all Finance Charge
Receivables), all Collections, Recoveries and other proceeds of the Receivables
and proceeds of credit insurance policies, if any, relating to the Receivables,
all rights to security, if any, for any Receivables, all proceeds and products
of all of the foregoing, and all monies held in certain accounts of the Trust,
including the Collection Account, the Excess Funding Account, the Reserve
Account and the Cash Collateral Account. For purposes of this section, the term
"Receivables" shall include all the property and rights listed in the preceding
sentence. In addition, the Transferor has assigned to the Trust the
Transferor's rights relating to the Receivables under the Receivables Purchase
Agreements, pursuant to which the Receivables transferred to the Trust by the
Transferor have been and will be purchased by the Transferor from the Bank.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository") except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, beneficial interests in the Certificates
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form only. 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 each Series of Certificates. No Certificate Owner acquiring
an interest in the Certificates will be entitled to receive a certificate
representing such person's interest in the Certificates unless Definitive
Certificates are issued. Unless and until Definitive Certificates are issued
for any Series 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 (as defined below), 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 Certificates, as the case may be, for distribution to
Certificate Owners in accordance with DTC procedures. See "-- Book-Entry
Registration" and "-- Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates issued in book-entry form,
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe), which in turn hold through DTC, if
they are participants of such systems, or indirectly through organizations that
are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel
and Euroclear will hold omnibus positions on behalf of the Cedel Participants
and the Euroclear Participants, respectively, through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries (each a "Depositary" and collectively, the "Depositaries") which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
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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 Participants
and facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include the underwriters of any Series), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with the
rules and procedures of DTC (the "DTC Rules"). Transfers between Cedel
Participants and Euroclear Participants will occur in the ordinary way in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with the DTC Rules on behalf of the relevant
European international clearing system by its Depositary; however, such cross-
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits or securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Certificate Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interest in, 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" 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, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal and interest on the
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 will
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 Certificates to persons or entities that do not participate
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in the DTC system, or otherwise take actions in respect of such Certificates,
may be limited due to the lack of a physical certificate for such 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 Certificates
are credited. Additionally, DTC has advised the Transferor that it will take
such actions with respect to specified percentages of the Investor Amount only
at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose holdings include such
undivided interests.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Cedel in any of 36
currencies, including United States Dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulations by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the underwriters of any Series of Certificates.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to
hold securities for participants of the Euroclear System ("Euroclear
Participants") and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 34 currencies, including United States
Dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any Series of
Certificates. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The
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Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the Pooling and
Servicing Agreement on behalf of a Cedel Participant or a Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue
its services, the Transferor would seek an alternative depository (if available)
or cause the issuance of Definitive Certificates to affected Certificate Owners
or their nominees in the manner described under "-- Definitive Certificates."
DEFINITIVE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series 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 such Series of 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 Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificate representing the Certificates and instructions for
re-registration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling and Servicing
Agreement.
Distribution of principal and interest on the Certificates will be
made by the Trustee directly to holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement
and the related Series Supplement. Interest payments and any principal payments
on each Distribution Date will be made to Certificateholders 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
Certificateholder 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 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," 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.
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INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will
accrue from the date specified in the applicable Prospectus Supplement on the
applicable amount of the Investor Amount at the applicable Certificate Rate,
which may be a fixed, floating or other type of rate as specified in the related
Prospectus Supplement. Interest will be distributed to Certificateholders on the
Distribution Dates specified in the related Prospectus Supplement. Interest
payments on any Distribution Date will generally be funded from Collections of
Finance Charge Receivables available to be allocated to the Investor Amount
during the preceding Monthly Period or Periods, as described in the related
Prospectus Supplement, and may be funded from certain investment earnings on
funds held in certain accounts of the Trust, from any applicable Enhancement, if
necessary, or from certain other sources specified in the related Prospectus
Supplement. If the Distribution Dates for payment of interest for a Series or
Class occur less frequently than monthly, such Collections or other amounts (or
the portion thereof allocable to such Class) may be deposited in one or more
segregated trust accounts (each, an "Interest Funding Account") pending
distribution to the Certificateholders of such Series or Class, as described in
the related Prospectus Supplement. If a Series has more than one Class of
Certificates, each such Class may have a separate Interest Funding Account. The
Prospectus Supplement relating to each Series of Certificates and each Class
thereof will describe the amounts and sources of interest payments to be made
(including any penalty interest on overdue interest), the Certificate Rate, and,
for a Series or Class thereof bearing interest at a floating Certificate Rate,
the initial Certificate Rate, the dates and the manner for determining
subsequent Certificate Rates, and the formula, index or other method by which
such Certificate Rates are determined.
PRINCIPAL PAYMENTS
Unless otherwise specified in the related Prospectus Supplement,
during the Revolving Period for each Series (which begins on the Closing Date
relating to such Series and ends 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, applied as
reallocated Principal Collections, if required, or deposited in the Excess
Funding Account rather than deposited to the Principal Account or paid to
Certificateholders of such Series. Under certain circumstances, the Transferor
may postpone the commencement of the Accumulation Period, as described in the
related Prospectus Supplement. During the Controlled Amortization Period,
Principal Amortization Period or Accumulation Period, as applicable, which will
be scheduled to begin on the date specified, or determined in the manner
specified, in the related Prospectus Supplement, and during the Rapid
Amortization Period, which will begin upon the occurrence of a Pay Out Event,
principal will be paid to the Certificateholders in the amounts and on
Distribution Dates specified in the related Prospectus Supplement or will be
accumulated in a Principal Account for later distribution to Certificateholders
on the Scheduled Payment Date in the amounts specified in the related Prospectus
Supplement. Principal payments for any Series or Class thereof will be funded
from Collections of Principal Receivables received during the related Monthly
Period or Periods as specified in the related Prospectus Supplement and
allocated to such Series or Class and from certain other sources specified in
the related Prospectus Supplement. In the case of a Series with more than one
Class of Certificates, the Certificateholders of one or more Classes may receive
payments of principal at different times. The related Prospectus Supplement
will describe the manner, timing and priority of payments of principal to
Certificateholders of each Class.
Funds held in any Principal Account applicable to a Series may be
subject to a guaranteed rate or investment agreement or other arrangement
specified in the related Prospectus Supplement intended to assure a minimum rate
of return on the investment of such funds. In order to enhance the likelihood
of the payment in full of the principal amount of a Series of Certificates or
Class thereof at the end of an Accumulation Period, such Series of Certificates
or Class thereof may be subject to a principal guaranty or other similar
arrangement specified in the related Prospectus Supplement.
TRANSFER OF RECEIVABLES
The Transferor has transferred and assigned to the Trust all of its
right, title and interest in and to Receivables in certain Accounts selected
from the portfolio of consumer revolving credit card accounts owned as of
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the date of this Prospectus by the Bank, all of the Receivables created under
such Accounts and the proceeds of all of the foregoing.
In connection with the transfer of the Receivables to the Trust, the
Transferor has caused the Servicer to indicate in the records, including any
computer files of the Bank and the Transferor, that the Receivables have been
sold and transferred to the Transferor and thereupon transferred by the
Transferor to the Trust. In addition, the Transferor has provided and will
provide to the Trustee a computer file or a microfiche list containing a true
and complete list showing for each Account (i) its account number and (ii) the
amount of Receivables in such Account as of the applicable cut-off date. Except
as set forth above, the records or agreements relating to the Accounts or the
Receivables, maintained by or on behalf of the Transferor or the Servicer will
not be segregated from those relating to other credit card accounts and
receivables and the physical documentation relating to the Accounts or
Receivables will not be stamped or marked to reflect the transfer of Receivables
to the Trust. The Trustee will have reasonable access to such records and
agreements as required by applicable law or to enforce the rights of the
Certificateholders. The Transferor has filed UCC-1 financing statements in
accordance with the UCC to perfect the Trust's interest in the Receivables
meeting the requirements of applicable state law. See "Risk Factors -- Effects
of Consumer and Debtor Protection Laws on Collectibility of Receivables" and
"Certain Legal Aspects of the Receivables."
EXCHANGES
The Pooling and Servicing Agreement provides for the Trustee to issue
two types of certificates: (i) one or more Series of Certificates which are
transferable and have the characteristics described below and (ii) the
Exchangeable Transferor Certificate, a certificate which evidences the
Transferor Amount, which will be held by the Transferor and generally will not
be transferable, except as described in the related Prospectus Supplement. The
Pooling and Servicing Agreement also provides that, pursuant to any one or more
Series Supplements, the Transferor may tender the Exchangeable Transferor
Certificate, or the Exchangeable Transferor Certificate and the Certificates
evidencing any Series of Certificates, to the Trustee in exchange for one or
more newly issued Series and a reissued Exchangeable Transferor Certificate.
The Pooling and Servicing Agreement contemplates that one or more Series will be
created pursuant to Series Supplements, in which the Transferor will specify the
Principal Terms with respect to each Series, including: (i) the name or
designation of such Series, (ii) its initial principal amount (or method for
calculating such amount), (iii) its Certificate Rate (or formula for the
determination thereof), (iv) the interest payment date or dates and the date or
dates from which interest shall accrue on such Series, (v) the method for
allocating Collections and Defaulted Receivables to Certificateholders of such
transferor interest, (vi) the names of any accounts to be used by such Series
and the terms governing the operation of any such accounts, (vii) the percentage
used to calculate servicing fees, (viii) the Minimum Transferor Interest
Percentage applicable to such Series, (ix) the minimum amount of Principal
Receivables required to be maintained with respect to such Series, (x) for
certain types of Enhancement, the issuer and terms of such Enhancement with
respect to such Series, (xi) the base rate for such Series, if applicable, (xii)
the terms on which the Certificates of such Series may be repurchased at the
Transferor's option or remarketed to other investors, (xiii) the Stated Series
Termination Date, (xiv) any requirement to deposit into any account maintained
for the benefit of Certificateholders of such Series, (xv) the number of Classes
of such Series, and any other interests in the Trust relating to such Series,
and if more than one Class, the rights and priorities of each such Class, and
the rights and priorities of any holder of any related interest, (xvi) the
extent to which the Certificates of such Series will be issuable in temporary or
permanent global form (and, in such case, the Depositary for such global
certificate or certificates, the terms and conditions, if any, upon which such
global certificate may be exchanged, in whole or in part, for Definitive
Certificates, and the manner in which any interest payable on a temporary or
global certificate will be paid), (xvii) whether the Certificates of such Series
may be issued in bearer form and any limitations imposed thereon, (xviii) the
priority of any Series with respect to any other Series, if applicable, (xix)
the Group, if any, in which such Series will be included and (xx) any other
relevant terms. None of the Transferor, the Servicer, the Trustee or the Trust
is required or intends to obtain the consent of any Certificateholder to issue
any additional Series. However, as a condition of an Exchange, the Transferor
will deliver to the Trustee written confirmation that the Exchange will not
result in the applicable Rating Agency reducing or withdrawing its rating of any
outstanding Series.
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The Transferor may offer any Series of Certificates under a Disclosure
Document in offerings utilizing this Prospectus or in transactions either
registered under the Act or exempt from registration thereunder directly,
through one or more underwriters or placement agents, in fixed-price offerings
or in negotiated transactions or otherwise. Any such Series of Certificates may
be issued in fully registered or book-entry form in minimum denominations
determined by the Transferor. The Transferor intends to offer additional
Series.
The Pooling and Servicing Agreement provides that the Transferor may
perform Exchanges, and specify Principal Terms such that each Series has a
period during which amortization or accumulation of the principal amount thereof
is intended to occur which may have a different length and begin on a different
date than such period for any other Series. Further, one or more Series may be
in their Revolving Periods or Accumulation Periods while other Series are not.
Thus, certain Series may not be amortizing, while other Series are amortizing.
Each Series may have the benefits of a form of Enhancement only
available to that Series and issued by issuer(s) different from the issuers of
Enhancement with respect to any other Series. Under the Pooling and Servicing
Agreement, the Trustee will hold any such Enhancement only on behalf of the
Series to which it relates. Likewise, with respect to each such Enhancement,
the Transferor may deliver a different form of Enhancement agreement with
respect to each Series. The Pooling and Servicing Agreement also provides that
the Transferor may specify different Certificate Rates and Investor Servicing
Fees with respect to each Series. The Transferor also has the option under the
Pooling and Servicing Agreement to vary among Series the terms upon which Series
(or a particular Class within a Series) may be repurchased at the Transferor's
option or remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, or Classes within a Series may have different
priorities. There is no limit to the number of Exchanges that the Transferor
may perform under the Pooling and Servicing Agreement. The Trust will terminate
only as provided in the Pooling and Servicing Agreement.
Under the Pooling and Servicing Agreement and pursuant to a Series
Supplement, an Exchange may only occur upon the satisfaction of certain
conditions provided in the Pooling and Servicing Agreement. Under the Pooling
and Servicing Agreement, the Transferor may perform an Exchange by notifying the
Trustee at least three days in advance (the "Exchange Notice") of the date upon
which the Exchange is to occur (the "Exchange Date"). An Exchange Notice will
state the designation of any Series to be issued on the Exchange Date and, with
respect to each such Series: (i) its Initial Investor Amount and Pre-Funded
Amount, if applicable (or the method for calculating such amounts) and (ii) its
Certificate Rate or Rates (or the method for allocating interest payments or
other cash flows to such Series), if any and (iii) the applicable Enhancement,
if any, for the Certificates of such new Series. On the date of the Exchange,
the Trustee will issue any such Series only upon delivery to it of the
following: (i) a Series Supplement in form satisfactory to the Trustee signed
by the Transferor and specifying the Principal Terms of such Series, (ii) the
applicable Enhancement, if any, and the related Enhancement agreement, (iii) an
opinion of counsel to the effect that Certificates of such Series (other than
any Class required to be retained by the Transferor) will be characterized
either as indebtedness or an interest in a partnership (that is not taxable as a
corporation) under existing law for Federal income tax purposes and that the
issuance of such Series will not have a material adverse effect on the Federal
income tax characterization of any outstanding Series of Certificates that have
been the subject of a previous opinion of tax counsel or result in the Trust
being taxable as an association for Federal or applicable state tax purposes,
(iv) written confirmation from the applicable Rating Agency that the Exchange
will not result in such Rating Agency reducing or withdrawing its rating on any
outstanding Series (the "Rating Agency Condition") and (v) the existing
Exchangeable Transferor Certificate and (vi) a written certification from the
Transferor that the Transferor Amount is at least equal to the Minimum
Transferor Amount. Upon satisfaction of such conditions, the Trustee will
cancel the existing Exchangeable Transferor Certificate and the Certificates of
the exchanged Series, if applicable, and issue the new Series and new
Exchangeable Transferor Certificate.
REPRESENTATIONS AND WARRANTIES
The Transferor has made certain representations and warranties in the
Pooling and Servicing Agreement to the Trustee on behalf of the Trust to the
effect that, as to each Series and as of the date of the related Series
Supplement and the related Closing Date of such Series, among other things, (a)
it is duly incorporated, validly existing and in good standing and has the
authority to consummate the transactions contemplated by the Pooling
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and Servicing Agreement and the Receivables Purchase Agreement and (b) as of the
relevant cut-off date (or as of the related cut-off date for any such Additional
Accounts (the "Additional Account Cut-Off Date")) each Account was an Eligible
Account and no selection procedures adverse to the Investor Certificateholders
have been employed by the Transferor in selecting the Accounts. If so provided
in any Series Supplement and described in the related Prospectus Supplement, any
of these representations and warranties proves to have been incorrect in any
material respect when made, and (i) continues to be incorrect in any material
respect for 60 days after written notice of such breach is received by the
Transferor from the Trustee or by the Transferor and the Trustee from holders of
Certificates representing not less than 50% of the aggregate Investor Amounts of
all Series (the "Aggregate Investor Amount"), and (ii) as a result of which the
interests of the holders of 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 Aggregate
Investor Amount, may declare that a Pay Out Event has occurred, thereby
commencing the Rapid Amortization Period. See "-- Pay Out Events."
The Transferor has also made representations and warranties in the
Pooling and Servicing Agreement to the Trustee for the benefit of the Trust
relating to the Receivables to the effect, among other things, that (a) as of
the Cut-Off Date or the creation date (the "Creation Date"), as applicable, and
in the case of Receivables in 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 date has been transferred free and clear of
any liens, other than certain liens permitted by the Pooling and Servicing
Agreement, such as liens for taxes and governmental charges not then due or
which the Transferor is contesting in good faith, the Transferor's interests in
the Receivables as holder of the Exchangeable Transferor Certificate and the
Transferor's right to receive certain interest and investment earnings under the
Pooling and Servicing Agreement and various Series Supplements thereunder. In
the event of a breach of any representation and warranty set forth in this
paragraph, and where, as a result, any Receivable becomes a Receivable in a
Defaulted Account or the Trust's rights in, to or under such Receivable or its
proceeds are materially impaired or the proceeds of such Receivables are not
available for any reason to the Trust free and clear of liens, except those
liens described in the prior sentence, then, unless such breach is cured within
90 days or such longer period specified by the Trustee upon the request of the
Servicer (not to exceed an additional 90 days) of the earlier to occur of the
discovery of any such event by the Transferor or the Servicer or the
Transferor's or the Servicer's receipt of written notice of such breach from the
Trustee, the Transferor shall accept retransfer of such Receivable (each an
"Ineligible Receivable") on the terms and conditions set forth below; provided,
however, no such retransfer shall be required to be made with respect to such
Ineligible Receivable if, on any day within such 90-day period, the
representations and warranties with respect to such Ineligible Receivable shall
then be true and correct in all material respects as if such Ineligible
Receivable has been transferred to the Trust on such day and the related Account
is no longer a Defaulted Account and the Trust's rights with respect to such
Receivable are no longer materially impaired and the proceeds of such Receivable
are available to the Trust, free and clear of all liens. Notwithstanding the
above, in the event of a breach of the representation and warranty set forth in
clause (b) of this paragraph and either (i) such lien (1) ranks prior to the
lien created pursuant to the Pooling and Servicing Agreement, (2) arises in
favor of the United States of America or any state or any agency or
instrumentality thereof or involves taxes or liens arising under Title IV of
ERISA, or (3) has been consented to by the Transferor, or (ii) such lien is not
of the types described in clause (i) above, but, as a result of such breach or
event, such Receivable becomes a Receivable in a Defaulted Account or the
Trust's rights in, to or under such Receivable or its proceeds are materially
impaired or the proceeds of such Receivable are not available for any reason to
the Trust, free and clear of any lien except permitted as described above, the
Transferor shall immediately repurchase and the Trustee shall convey, without
recourse, all of the Trustee's right, title and interest in each such Ineligible
Receivable. The Transferor shall accept retransfer of each such Ineligible
Receivable and there shall be deducted from the aggregate amount of Principal
Receivables used to calculate the Transferor Amount, the aggregate amount of
each such Ineligible Receivable. If the exclusion of an Ineligible Receivable
from the calculation of the Transferor Amount would reduce the Transferor Amount
below the Minimum Transferor Amount (after giving effect to the addition of any
Principal Receivables to the Trust), the Transferor will be obligated to make a
deposit in the Excess Funding Account in immediately available funds in an
amount equal to the amount by which the Minimum Transferor Amount exceeds the
Transferor Amount, or designate sufficient Additional Accounts. Such deposit
will be considered a repayment in full of the Ineligible Receivable and will be
allocated as a collection in respect of Principal Receivables. The obligation of
the Transferor to accept retransfer of any Ineligible Receivable is the sole
remedy respecting any breach of the
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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 has also made representations and warranties to the
Trustee for the benefit of the Trust with respect to each Series, to the effect,
among other things, that as of the Initial Cut-Off Date or the date of the
related Series Supplement and the related Closing Date of any such Series that
(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 (i) any of the representations and warranties
described in this paragraph is either not true and correct or (ii) 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
Amount, by written notice to the Transferor (and to the Trustee and the Servicer
if given by the Certificateholders), may direct the Transferor to accept
transfer of all the Receivables within 90 days of such notice or within such
longer period as may be specified in such notice (not to exceed an additional 90
days). The Transferor will be obligated to accept transfer of such Receivables
on a Distribution Date occurring within such applicable period. Such retransfer
will not be required to be made, however, if at any time during such applicable
period the representations and warranties shall then be true and correct in all
material respects or there is no longer a material amount of such Receivables
which are not Eligible Receivables. The price for such retransfer will be equal
to the Aggregate Investor Amount at the end of the business day preceding the
Distribution Date on which the retransfer is scheduled to be made less the
amount, if any, held in any Principal Account and the Excess Funding Account on
such date of transfer plus an amount equal to all accrued but unpaid interest on
all Series at the applicable Certificate Rates through the end of the respective
Interest Period(s) of such Series, plus any Enhancement required to be paid
pursuant to any Supplement. The payment of the retransfer amount shall be made
into the Collection Account in immediately available funds, and will be
considered a prepayment in full of all such Receivables and will be paid to the
Certificateholders, and the Enhancement Providers, if any. These obligations
will constitute the sole remedy respecting a breach of the representations and
warranties set forth in this paragraph available to the Trustee or the
Certificateholders.
It is not required or anticipated that the Trustee will make any
initial or periodic general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, is required to
deliver to the Trustee on or before June 30 of each calendar year, beginning
with June 30, 1998, an opinion of counsel with respect to the validity of the
security interest of the Trust in and to the Receivables.
ADDITION OF ACCOUNTS
Subject to the conditions set forth below, the Transferor has the
right to 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 Accounts (each such date, an "Additional Account
Closing Date"), 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, then the Transferor will, under the Pooling and
Servicing Agreement, 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
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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.
In addition to or in lieu of Additional Accounts, the Transferor is
permitted to add to the Trust participations representing undivided interests in
a pool of assets primarily consisting of receivables and collections thereon
("Participations"). Participations may be evidenced by one or more certificates
of ownership issued under a separate pooling and servicing agreement or similar
agreement (each, a "Participation Agreement") entered into by the Transferor
which entitles the Certificateholder to receive percentages of Collections
generated by the pool of assets subject to such Participation Agreement from
time to time and to certain other rights and remedies specified therein.
Participations may have their own credit enhancement, pay out events, servicing
obligations and servicer defaults, all of which are likely to be enforceable by
a separate trustee under the Participation Agreement and may be different from
those specified herein. The rights and remedies of the Trust as the holder of a
Participation (and therefore the Certificateholders) will be subject to all the
terms and provisions of the related Participation Agreement. The Pooling and
Servicing Agreement may be amended to permit the addition of a Participation in
the Trust without the consent of the related Certificateholders if (i) the
Transferor delivers to the Trustee a certificate of an authorized officer to the
effect that, in the reasonable belief of the Transferor, such amendment will not
as of the date of such amendment adversely affect in any material respect the
interest of such Certificateholders, and (ii) such amendment will not result in
a withdrawal or reduction of the rating of any outstanding Series under the
Trust. To the extent required pursuant to the Securities Act, any Participations
transferred to the Trust (a) will have been (i) registered under the Securities
Act or (ii) held for at least the Rule 144(k) holding period, and (b) will be
acquired in secondary market transactions not from the Transferor or an
affiliate.
The Transferor may designate Additional Accounts or add Participations
only upon satisfaction of the following conditions: (i) the Transferor shall
give the Trustee and the Servicer at least five business days' notice of the
proposed addition which specifies the approximate amount of Receivables or
Participations to be transferred, (ii) the Transferor shall give the Trustee an
executed transfer agreement together with a list of such Additional Accounts or
Participations, (iii) the Transferor shall represent and warrant that each
Additional Account was as of the date of selection an Eligible Account, no
selection procedures believed by the Transferor to be materially adverse to the
interests of any outstanding Series of Certificates were used in selecting such
Additional Accounts, and that as of the closing date of such transfer, the
Transferor is not nor will it be made insolvent by the transfer of Receivables
in such Additional Accounts, (iv) the Transferor shall represent and warrant
that the transfer of such Additional Accounts constitutes a valid transfer to
the Trust of all right, title and interest of the Transferor in and to the
Receivables in such Additional Accounts, whether then existing or thereafter
created, and the proceeds thereof (including amounts in any of the accounts
established for the benefit of the Certificateholders) or the grant to the Trust
of a first priority perfected security interest in such Receivables (except for
certain liens permitted under the Pooling and Servicing Agreement) and the
proceeds thereof, which is effective as to each Receivable upon the transfer
thereof to the Trust, (v) the Transferor shall deliver an officer's certificate
confirming the items specified in clauses (ii), (iii) and (iv) in this
paragraph, (vi) with respect to the designation of certain Additional Accounts,
the Transferor shall deliver an opinion of counsel in respect of such addition
in the form specified in the Pooling and Servicing Agreement, (vii) with respect
to the designation of certain Additional Accounts or the addition of any
Participations, the Transferor shall notify each Rating Agency of such proposed
addition of Additional Accounts or Participations and such Rating Agency shall
have delivered a letter confirming that the Rating Agency Condition shall have
been satisfied and (viii) the Transferor shall record and file appropriate
financing statements with respect to the Participations or the Receivables then
existing and thereafter created in the Additional Accounts for the transfer of
accounts, general intangibles and chattel paper meeting the requirements of
applicable state law necessary to perfect the transfer and assignment of the
Receivables in Additional Accounts by the Transferor to the Trust, or otherwise
perfect the Trust's interests in the Participations. The Transferor will deliver
to the Trustee a computer file, microfiche or written list of all such
Additional Accounts.
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Accounts opened during the normal operation of the Bank's credit card
business shall be automatically added to the Accounts as Automatic Additional
Accounts on an ongoing basis; provided, however, that such automatic inclusion
and transfer shall not occur with respect to any such account if: (i) such
account does not qualify as an Eligible Account, (ii) the inclusion in the Trust
of the Receivables arising under such account would exceed the Aggregate
Automatic Addition Limit or (iii) the Transferor otherwise designates such
account as an account which is not to be included as an Account. The Transferor
will deliver to the Trustee on a quarterly basis, a computer file, microfiche or
written list of all such included Accounts and has recorded and filed, or will
record and file, all appropriate financing statements with respect to the
Receivables in such Automatic Additional Accounts. The Transferor, at its option
may, by providing written notice to the Trustee and the Bank, terminate or
suspend the automatic inclusion of Automatic Additional Accounts at any time.
"Aggregate Automatic Addition Limit" means (i) the number of Eligible
Accounts designated as Automatic Additional Accounts, which either (x) with
respect to any period of three consecutive Monthly Periods commencing in
January, April, July or October of a calendar year equals 15% of the sum of the
number of Accounts as of the last business day preceding the commencement of
such period and the number of Additional Accounts included as Accounts since
such business day or (y) with respect to any period of 12 consecutive Monthly
Periods, equals 20% of the sum of the number of Accounts as of the last business
day preceding the commencement of such period and the number of Additional
Accounts included as Accounts since such business day or (ii) such higher number
of Automatic Additional Accounts as to which Standard & Poor's and Moody's or
any other applicable Rating Agency rating any certificates shall consent to in
writing.
Although each Additional Account or Automatic Additional Account must
satisfy certain criteria set forth in the Pooling and Servicing Agreement at the
time of its selection, Additional Accounts and Automatic Additional Accounts may
not be of the same credit quality as the Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth below, during the Revolving
Period, the Transferor has the right to remove from the Trust all Receivables
from certain accounts which it designates as Removed Accounts and to accept the
reconveyance of all the Receivables in the Removed Accounts, without notice to
the Certificateholders, provided, however, that the Transferor shall not make
more than one such designation in any Monthly Period. The Transferor shall give
the Trustee and the Servicer notice of such removal 10 business days prior to
the date on which the Accounts are to be reassigned to the Transferor. The
Transferor shall be permitted to designate and require retransfer to it of
Receivables from Removed Accounts only upon satisfaction of the following
conditions: (i) each Rating Agency shall have delivered a letter confirming that
the Rating Agency Condition has been satisfied, (ii) the Transferor shall have
delivered or caused to be delivered to the Trustee for execution a written
retransfer agreement and a computer file, microfiche or written list containing
a true and complete list of all Removed Accounts identified by account number
and Receivables balance in such Removed Accounts; (iii) the Transferor shall
represent and warrant that no selection procedures believed by the Transferor to
be materially adverse to the interests of the Certificateholders of any
outstanding Series or any provider of Enhancement with respect to Certificates
(each an "Enhancement Provider") were used in selecting the Removed Accounts;
(iv) such removal shall not, in the reasonable belief of the Transferor, cause
the Transferor Amount to be less than the Minimum Transferor Amount, and the
aggregate amount of Principal Receivables in the Trust shall not be less than
the Minimum Aggregate Principal Receivables; (v) the removal of any Receivables
of any Removed Accounts shall not, in the reasonable belief of the Transferor,
result in a Pay Out Event; and (vi) the Transferor shall have delivered to the
Trustee an officer's certificate confirming the items set forth in clauses (i)
through (v) above.
DISCOUNT OPTION RECEIVABLES
The Transferor may at any time designate a specified percentage (the
"Discount Percentage") of the amount of Receivables arising in the Accounts on
and after the date such option is exercised that otherwise would be treated as
Principal Receivables to be treated as Finance Charge Receivables (the "Discount
Option Receivables"). The Transferor established the initial Discount
Percentage as of August 21, 1997 at 2%. The Transferor may, without notice to
or consent of the Certificateholders, from time to time, exercise its Discount
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Option to increase, reduce or eliminate (subject to the limitation described
below) the Discount Percentage for Discount Option Receivables arising in the
Accounts on and after the date of such change or to apply the Discount
Percentage to Receivables created in Accounts not previously subject to the
Discount Percentage. The Transferor must provide 30 days' prior written notice
to the Servicer, the Trustee, each Rating Agency and, in limited circumstances,
holders of Certificates that are not rated, of any such increase, reduction or
elimination, and such increase, reduction or elimination will become effective
on the date specified therein unless the Transferor reasonably believes that
such increase, reduction or elimination will at the time of its occurrence cause
a Pay Out Event, or an event which with notice or the lapse of time would
constitute a Pay Out Event, to occur with respect to any Series; provided that
if such designation would cause the Discount Percentage to be less than 1% or
more than 3%, the Rating Agency Condition must be satisfied and in limited
circumstances, holders of outstanding Certificates that are not rated must
consent to such action.
Discount Option Receivables shall be equal to, on any date of
processing, the sum of (a) the aggregate Discount Option Receivables at the end
of the prior date of processing plus (b) any new Discount Option Receivables
created on such date of processing minus (c) any Discount Option Receivable
Collections received on such date of processing. The Discount Option Receivables
created on any date of processing shall be the product of (i) the amount of
Principal Receivables created on such date of processing (without giving effect
to the deduction of the Discount Option Receivables) and (ii) the Discount
Percentage.
"Discount Option Receivable Collections" means, on any date of
processing on and after the date on which the Transferor's exercise of its
Discount Option is in effect, the product of (a) a fraction the numerator of
which is the amount of Discount Option Receivables and the denominator of which
is the sum of the Principal Receivables and the Discount Option Receivables, in
each case at the end of the prior Monthly Period, and (b) Collections of
Principal Receivables (without giving effect to Discount Option Receivables) on
such date of processing.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing and administering the Receivables in accordance with
the Servicer's policies and procedures in effect for servicing credit card
account receivables comparable to the Receivables, as such policies and
procedures may be modified from time to time by the Servicer. As of the date of
this Prospectus, the Servicer has designated its affiliates, McRae's and CPS as
Subservicers.
COLLECTION AND PRINCIPAL 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 Certificateholders of all Series then
outstanding. The Servicer will also establish a Principal Account as a
segregated trust account established with a Qualified Institution. A "Qualified
Institution" is defined generally as a (i) depository institution or trust
company, organized under the laws of the United States or any state thereof (or
any domestic branch or agency of any foreign bank), the deposits of which are
insured by the Federal Deposit Insurance Corporation, which at all times has a
rating of at least P-1 by Moody's Investors Service, Inc. ("Moody's") and of A-1
by Standard & Poor's Ratings Services ("Standard & Poor's)," in the case of the
certificates of deposit or short-term unsecured debt, or a rating from the
applicable Rating Agency of at least Aaa or AAA or the equivalent, as
applicable, in the case of its long term unsecured debt obligations, or (ii) a
depository institution, otherwise acceptable to each Rating Agency rating any
Series. Notwithstanding the foregoing, any institution which shall have
corporate trust powers (whether or not such institution takes deposits) and
which maintains the Collection Account, the Excess Funding Account, the
Principal Account or any other account maintained for the benefit of
Certificateholders of any Series as a fully segregated trust account with the
trust department of such institution shall not be required to meet the foregoing
rating requirements, and need only at all times have a long term unsecured debt
rating of at least Baa3 from Moody's so long as Moody's is a Rating Agency
rating any Series.
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All payments to Certificateholders will be paid solely out of the
amounts in the Collection Account and Principal Account. Funds in the Collection
Account and Principal Account will be invested, at the direction of the
Servicer, in "Permitted Investments," which include (i) direct obligations of,
and obligations fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of depository institutions or
trust companies, incorporated under the laws of the United States of America or
any state thereof (including the District of Columbia, and any domestic branch
or agency of any foreign bank), and which is subject to supervision and
examination by federal or state banking or depository institution authorities;
provided, however, that the commercial paper, if any, and short-term unsecured
debt obligations of such depository institution or trust company shall have, at
the time of the Trust's investment or contractual commitment to invest therein,
a credit rating from the Rating Agency in the highest investment category
granted by such Rating Agency, (iii) commercial paper having, at the time of the
Trustee's investment or contracted commitment to invest therein, a rating in the
highest investment category granted by such Rating Agency, (iv) bankers'
acceptances issued by any depository institution or trust company described in
clause (ii) above, (v) money market funds which have the highest rating from, or
have otherwise been approved in writing by the Rating Agencies, (vi) time
deposits (having maturities of not more than 30 days) or notes which are payable
on demand by an entity the commercial paper of which has a rating of the highest
investment category granted by the Rating Agencies, (vii) certain repurchase
obligations involving Permitted Investment instruments so long as the
counterparty thereto has at the time of the Trust's investment therein, a short-
term debt rating of at least A-1 or P-1, or the equivalent from the applicable
Rating Agencies and (viii) any other investments approved in writing by the
applicable Rating Agencies prior to the Trust's investment therein. For purposes
of determining the availability of funds or balances in the Collection Account,
all investment earnings on such funds shall be deemed not to be available or on
deposit until actually credited to such account. The Servicer, or a 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, which unless otherwise described in a Prospectus Supplement,
will be the Trustee, will have the revocable power to withdraw funds from the
Principal Account for the purpose of making distributions to the
Certificateholders.
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that for a Funding Period beginning on the Closing Date and ending on a
specified date before the commencement of an Amortization Period with respect to
such Series the Pre-Funded Amount, which may be up to 100% of the aggregate
principal amount of such Series, will be held in a Pre-Funding Account
established with the Trustee for the benefit of the Certificateholders of such
Series pending the transfer of additional Receivables to the Trust or the
reduction of the Investor Amounts of other Series. The related Prospectus
Supplement will specify the Initial Investor Amount with respect to such Series,
the Full Investor Amount of such Series and the date by which the Investor
Amount is expected to equal the Full Investor Amount. The Investor Amount will
increase as Receivables are delivered to the Trust or as the Investor Amounts of
other Series are reduced. The Investor Amount may also decrease due to Investor
Charge Offs as provided in the related Prospectus Supplement.
During the Funding Period, funds held in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to the Transferor to the
extent of any increases in the Investor Amount. In the event that the Investor
Amount does not for any reason equal the Full Investor Amount by the end of the
Funding Period, any amount remaining in the Pre-Funding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such time
as set forth in the related Prospectus Supplement See "Risk Factors -- Effect on
Certain Pre-Funded Series of Ability to Generate Additional Receivables."
If so specified in the related Prospectus Supplement, monies in the
Pre-Funding Account will be invested by the Trustee in Permitted Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, on each Distribution Date during the Funding Period,
investment earnings on funds in the Pre-Funding Account during the related
Monthly Period will be withdrawn from the Pre-Funding Account and deposited,
together with any applicable payment under a guaranteed rate or investment
agreement or other similar
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arrangement, into the Collection Account for distribution in respect of interest
on the Certificates of the related Series in the manner specified in the related
Prospectus Supplement.
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
The Servicer will allocate between the Investor Amount of each Series
(and between each Class of or other interest in the Trust in respect of each
Series) and the Transferor Amount and, in certain circumstances, the Enhancement
Investor Amount, all Collections of Finance Charge Receivables, all Collections
of Principal Receivables and all Receivables in Defaulted Accounts. The Servicer
will make each allocation by reference to the applicable Investor Percentage of
each Series and the Transferor Percentage in each case. The Pooling and
Servicing Agreement provides that the Servicer may estimate the amounts of
Collections that are allocable to Collections of Principal Receivables and to
Collections of Finance Charge Receivables. If the Servicer is able to determine
the actual amount of Collections proceeds which are Collections of Finance
Charge Receivables and Collections of Principal Receivables, the Servicer may at
its option allocate Collections in accordance with such actual amounts. All
estimates of Collections of Finance Charge Receivables will be binding for all
purposes on the Certificateholders, the Trustee and the Transferor.
The Prospectus Supplement relating to a Series will specify the
Investor Percentage with respect to the allocations of Collections of Principal
Receivables, Collections of Finance Charge Receivables and Receivables in
Defaulted Accounts during the Revolving Period, any Amortization Period and the
Accumulation Period, as applicable. The Investor Percentage for a Series may be
based on an amount other than the Investor Amount. In addition, for each Series
of Certificates having more than one Class, the related Prospectus Supplement
will specify the method of allocation between Classes.
The Transferor Percentage will, in all cases, be equal to 100% minus
the sum of the applicable Investor Percentages for all Series then outstanding
(the "Aggregate Investor Percentage").
APPLICATION OF COLLECTIONS
Unless otherwise specified in a Series Supplement and the related
Prospectus Supplement, and except as otherwise provided below, the Servicer will
deposit Collections into the Collection Account, no later than the second
business day (or such other day specified in the related Prospectus Supplement)
following the date of processing. As long as the Company or an affiliate of the
Company is the Servicer and no Pay Out Event relating to a Servicer Default
shall have occurred and be continuing, and either, (i) the Company or such
affiliate has and maintains a minimum short-term debt or certificate of deposit
rating of P-1 by Moody's and A-1+ by Standard & Poor's unless otherwise
specified in the related Prospectus Supplement or (ii) the Company shall have
obtained a written notice from each Rating Agency to the effect that such Rating
Agency does not intend to downgrade or withdraw its then current rating of any
outstanding Certificates of any Series, then the Servicer may make such deposits
and payments on the business day prior to each Distribution Date. As long as
Proffitt's or any affiliate is the Servicer and a Servicer Default shall not
have occurred and be continuing, the Servicer may make deposits into the
Collection Account and the Excess Funding Account net of amounts payable as of
such date to the Transferor or the Servicer from amounts held in such accounts.
Unless specified in any Series Supplement, the Servicer is not required to
deposit into the Collection Account, any Collections of Finance Charge
Receivables and Principal Receivables or any other amounts allocable to the
Exchangeable Transferor Certificate.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will apply or cause the Trustee to apply funds deposited in the
Collection Account with respect to each Distribution Date as follows:
(a) an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables will
be allocated and distributed as described in the related Prospectus Supplement;
(b) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will be paid to the holder of the
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Exchangeable Transferor Certificate, unless the Transferor Amount would be
reduced below the Minimum Transferor Amount, in which case the excess will be
deposited in the Principal Account or other specified account, or to other
amortizing Series, all as described in the related Prospectus Supplement;
(c) during the Controlled Amortization Period or Accumulation Period,
as applicable, an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Principal Receivables up to the
amount, if any, as specified in the related Prospectus Supplement will be
allocated and distributed to Certificateholders or deposited in the Principal
Account as described in the related Prospectus Supplement, provided that if
Collections of Principal Receivables exceed the principal payments which are to
be distributed to Certificateholders or deposited in the Principal Account, the
amount of such excess will be paid to the holder of the Exchangeable Transferor
Certificate, unless the Transferor Amount would be reduced below the Minimum
Transferor Amount, or to other amortizing Series, as described in the related
Prospectus Supplement; and
(d) during the Principal Amortization Period, if applicable, and the
Rapid Amortization Period, an amount equal to the applicable Investor Percentage
of the aggregate amount of such deposits in respect of Principal Receivables
will be deposited into the Principal Account or other specified account and
allocated and distributed to Certificateholders as described in the related
Prospectus Supplement.
In the case of a Series of Certificates having more than one Class,
the amounts in the Collection Account will be allocated and applied to each
Class in the manner and order of priority described in the related Prospectus
Supplement .
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 (a) 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 (b) in certain circumstances described below
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
Investor Amount of the Series to which such Collections were initially
allocated.
EXCESS FUNDING ACCOUNT
On any business day the Transferor Amount is less than 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 in a
segregated trust account (which may be a sub-account of the Collection Account)
established and maintained by the Servicer in the name of the Trustee for the
benefit of the Certificateholders of all outstanding
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Series 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, the Servicer shall determine the aggregate amount of Principal
Shortfalls, if any, with respect to each such Series that is entitled to receive
Shared Principal Collections, and the Servicer shall instruct the Trustee to
withdraw such amount up to the amount of any funds held in the Excess Funding
Account and allocate such amount among each Series as Shared Principal
Collections to the extent needed to cover principal payments due to or for the
benefit of such Series.
Funds held in the Excess Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Permitted Investments. Any
earnings (net of losses and investment expenses), if any, earned 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.
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 are included in such Group in excess of the
amounts necessary to make required payments with respect to such Series
(including payments to the provider of any related Enhancement) 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.
PAIRED SERIES
If so provided in the Prospectus Supplement relating to a Series, such
Series is subject to being paired with another Series. The Prospectus Supplement
for such Series and the Prospectus Supplement for the Paired Series will each
specify the relationship between the Series. The issuance of any Paired Series
will be subject to among other conditions, satisfaction of the Rating Agency
Condition. 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
Certificateholders of the other Series. In particular, the numerator of the
Investor Percentage with respect to allocations of Collections of Principal
Receivables may be changed upon the occurrence of a Pay Out Event with respect
to a Paired Series (provided that such numerator is not less than the Adjusted
Investor Amount as of the last day of the revolving period for such Paired
Series).
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ALLOCATION OF INVESTOR DEFAULT AMOUNT; ADJUSTMENT AMOUNTS; INVESTOR CHARGE OFFS
"Defaulted Receivables" for any Monthly Period are Principal
Receivables in Defaulted Accounts which were charged off as uncollectible in
such Monthly Period. 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 customary and usual servicing
procedures of the Servicer, but in any event no later than 30 days after receipt
of notice by the Servicer that the related Obligor has died or has become the
subject of a bankruptcy petition. The default amount (the "Default Amount") for
any Monthly Period will be an amount (not less than zero) equal to (a) the
amount of the Principal Receivables (other than Ineligible Receivables) that
were charged off in such Monthly Period less (b) the amount received by the
Servicer with respect to Defaulted Accounts during such Monthly Period
("Recoveries").
Prior to each Distribution Date, the Servicer will calculate the
Investor Default Amount for the preceding Monthly Period. 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. In the case of a Series of Certificates having more than one
Class, the Investor Default Amount will be allocated among the Classes in the
manner described in the related Prospectus Supplement. If so described in the
related Prospectus Supplement, an amount equal to the Investor Default Amount
for any Monthly Period may be paid from other amounts, including Enhancement, if
any, and may be applied to pay principal to Certificateholders, or if provided
in the related Prospectus Supplement, the holder of the Exchangeable Transferor
Certificate, as appropriate. In the case of a Series of Certificates having one
or more Classes of Subordinated Certificates, the related Prospectus Supplement
may provide that all or a portion of amounts otherwise allocable to such
Subordinated Certificates may be paid to the Senior Certificateholders to make
up any Investor Default Amount allocable to such Senior Certificateholders.
With respect to each Series of Certificates, if the amount payable on
a Distribution Date or other specified date in respect of interest on the
Certificates, the Investor Servicing Fee (unless otherwise specified in the
related Prospectus Supplement), the Investor Default Amount and other required
fees exceeds the amount held in the Collection Account available therefor
(including Shared Excess Finance Charge Collections, if applicable), available
Enhancement, if any, available reallocated Collections of Principal Receivables,
if any, and amounts available from other specified sources, then the Investor
Amount with respect to such Series will be reduced by the amount of such excess,
but not by more than the Investor Default Amount (an "Investor Charge Off").
Investor Charge Offs will be reimbursed on any Distribution Date to the extent
amounts held in the Collection Account and otherwise available therefor exceed
such interest, fees and any aggregate Investor Default Amount payable on such
date. Such reimbursement of Investor Charge Offs will result in an increase in
the Investor Amount with respect to such Series. In the case of a Series of
Certificates having more than one Class, the related Prospectus Supplement will
describe the manner and priority of allocating Investor Charge Offs and
reimbursements thereof among the Classes thereof.
If the Servicer makes a downward adjustment of the amount of any
Principal Receivable because of a rebate, refund, unauthorized charge, billing
error or certain other noncash items, or if the Servicer otherwise adjusts
downward the amount of any Principal Receivable without receiving Collections
therefor or without charging off such amount as uncollectible, or any Receivable
is discovered as having been created through a fraudulent or counterfeit charge
(each, an "Adjustment"), the Aggregate Principal Receivables and the Transferor
Amount will be reduced by the amount of such Adjustments. If, as a result of an
Adjustment, the Transferor Amount would be less than the Minimum Transferor
Amount, the Transferor shall immediately pay to the Servicer for deposit into
the Excess Funding Account, in immediately available funds, an amount equal to
the amount by which the Transferor Amount would be reduced below the Minimum
Transferor Amount (the "Adjustment Payment Obligation"). In the event the
Servicer adjusts upward the principal amount of any Receivable, the Aggregate
Principal Receivables and the Transferor Amount shall be increased by the amount
of such upward adjustment, and any unpaid Adjustment Payment Obligation shall be
reduced by the applicable amount. To the extent that such Adjustment would cause
the Transferor Amount to be less than the Minimum Transferor Amount (after
giving effect to any required transfer of Receivables in Additional Accounts to
the Trust and any amounts in the Excess Funding Account), and the Transferor
fails to make any payment required by the Pooling and Servicing
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Agreement in respect thereof, then the amount of such deficiency will be
allocated among all Series based upon their respective Investor Percentages (a
"Series Adjustment Amount") and a reduction in the Investor Amount of such
Series may occur.
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 Amount" is equal to the product of the
aggregate Adjusted Investor Amount (as defined in the Series Supplements for all
Series) for all Series outstanding and the applicable Minimum Transferor
Interest Percentage.
The Series Adjustment Amount, as applicable to any Series, will be
allocated as described in the related Prospectus Supplement for such Series. A
Series Adjustment Amount will be reduced and the Investor Amount increased to
the extent that allocations of Excess Spread (as defined in each Series
Supplement) and Shared Excess Finance Charge Collections cover 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 the Series in respect
of an Adjustment. Reductions in a Series Adjustment Amount will be allocated as
described in the related Prospectus Supplement.
DEFEASANCE
The Pooling and Servicing Agreement permits the Transferor to
terminate its substantive obligations with respect to any Series or all
outstanding Series by depositing with the Trustee, under the terms of an
irrevocable trust agreement satisfactory to the Trustee, monies Permitted
Investments, or both, sufficient to discharge and pay all remaining scheduled
interest and principal payments on such Defeased Series on the dates scheduled
for such payments and to pay all amounts owing to any Enhancement Provider with
respect to the Defeased Series. To achieve that end, the Transferor has the
right to use Collections to purchase Permitted Investments rather than
additional Receivables. Prior to its exercise of its right to substitute monies
or Permitted Investments for Receivables, the Transferor shall deliver to the
Trustee an opinion of counsel that such deposit and termination of obligations
will not have any material adverse effect on the Federal income tax
characterization of any outstanding Series of Certificates that have been the
subject of a previous opinion of tax counsel, or result in the Trust being
taxable as an association under Federal and applicable state law as a sale or
exchange by the holders of the Defeased Series and to the Servicer and the
Trustee written notice from each Rating Agency that such transaction will not
result in a withdrawal or downgrading of the rating of any outstanding Series.
In addition, the Transferor must comply with certain other requirements set
forth in the Pooling and Servicing Agreement, including requirements that the
Transferor deliver to the Trustee an opinion of counsel to the effect that the
deposit and termination of obligations will not require the Trust to register as
an "investment company" within the meaning of the Investment Company Act of
1940, as amended. The Transferor also must deliver to the Trustee and any
Enhancement Provider a certificate of an authorized officer stating that, based
on the facts known to such officer at the time, in the reasonable opinion of the
Transferor, such deposit and termination of obligations will not at the time of
its occurrence cause a Pay Out Event or an event that, after the giving of
notice or the lapse of time, would constitute a Pay Out Event to occur with
respect to any Series. If the Transferor discharges its substantive obligations
in respect of the Defeased Series, any Enhancement for the affected Series might
no longer be available to make payments with respect thereto.
OPTIONAL REPURCHASE; FINAL PAYMENT OF PRINCIPAL; TERMINATION
Any Series Supplement may permit Certificates of that Series to be
repurchased at the option of the Transferor on any Distribution Date by the
Transferor depositing into the Collection Account, an amount equal to the
Investor Amount plus accrued and unpaid interest on the Certificates and any
other amounts specified in the related Series Supplement. Such repurchase may or
may not be conditioned by the Series Supplement to instances where the Adjusted
Investor Amount held other than by the Transferor or its affiliates (and any
other amount specified in the related Series Supplement) is reduced to an amount
less than or equal to 10% (or such other
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amount specified in the related Prospectus Supplement) of the initial
outstanding principal amount of the Certificates, if certain conditions set
forth in the related Series Supplement are met.
The Certificates of each Series will be retired on the day following
the Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment to
the Transferor or otherwise. Each Prospectus Supplement will specify the final
date on which principal and interest with respect to the related Series of
Certificates will be scheduled to be distributed (the "Stated Series Termination
Date"); provided, however, that the Certificates may be subject to prior
termination as provided above. If the Investor Amount is greater than zero on
the Stated Series Termination Date, the Trustee is required to sell or cause to
be sold Receivables (in an amount up to 110% of the Adjusted Investor Amount,
any Enhancement Investor Amount of such Series, and any other amount specified
in the related Series Supplement) in the manner provided in the Pooling and
Servicing Agreement and Series Supplement and pay the net proceeds of such sale
and any Collections, in final payment of all principal of, and all accrued and
unpaid interest on, the Certificates of such Series and any other amounts
specified in the related Series Supplement, to the Certificateholders of such
Series on such Stated Series Termination Date.
Unless the Transferor instructs the Trustee otherwise, the Trust will
only terminate on the earlier to occur 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 and any Enhancement Investor
Amount plus applicable interest accrued through such Distribution Date in full
on all Series of Certificates, and (ii) the day on which the final payment of
principal is made to Certificateholders of all Series, and (iii) the expiration
of 21 years from the death of the last survivor of the descendants of George
Herbert Walker Bush, former President of the United States, living on August 21,
1997 (the "Final Termination Date"). Upon termination of the Trust and the
surrender of the Exchangeable Transferor Certificate, the Trustee shall convey
to the Transferor all right, title and interest of the Trust in and to the
Receivables and other funds of the Trust (other than amounts held in the
Principal Account maintained by the Trust for the final payment of principal and
interest to the Certificateholders).
PAY OUT EVENTS
Unless otherwise specified in the related Prospectus Supplement, as
described above, the Revolving Period will continue through the date specified
in the related Prospectus Supplement, unless a Pay Out Event occurs prior to
such date. A "Pay Out Event" occurs, unless modified by any Series Supplement,
upon the occurrence of either of the following events:
(a) The Transferor or the Company 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
the Company 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 becomes an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to a Series upon
the occurrence of any other event specified in the related Prospectus
Supplement. On the date on which a Pay Out Event is deemed to have occurred, the
Rapid Amortization Period will commence. If, because of the occurrence of a Pay
Out Event, the Rapid Amortization Period begins earlier than the scheduled
commencement of an Amortization Period or prior to a
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Scheduled Payment Date, Certificateholders will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the average
life of the Certificates.
If the Rapid Amortization Event to occur is either the insolvency of
the Transferor or the appointment of a receiver or conservator for the
Transferor, the receiver or conservator for the Transferor may have the power to
delay or prevent commencement of the Rapid Amortization Period.
In addition to the consequences of a Pay Out Event discussed above, if
the Transferor voluntarily enters liquidation or a receiver, conservator or
liquidator is appointed for the Transferor, or all or substantially all its
property or another similar event (each a "Dissolution Event") occurs, on the
day of such Dissolution Event, the Transferor will immediately cease to transfer
Receivables to the Trust and the Transferor will promptly give notice to the
Trustee of such appointment. Within 15 days of receipt of such notice, the
Trustee will publish a notice of the liquidation or the appointment stating that
the Trustee intends to sell, dispose of or otherwise liquidate the Receivables
in a commercially reasonable manner and shall so notify the Certificateholders
and any Enhancement Provider (if provided in the Series Supplement) requesting
instruction as to the disposition of the Receivables. Unless otherwise
instructed within a specified period by the holders of Certificates representing
undivided interests aggregating more than 50% of the related Investor Amounts of
each Series, the Trustee will sell, dispose of or otherwise liquidate the
Receivables in accordance with the Pooling and Servicing Agreement in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale, disposition or liquidation of the Receivables will be
treated as Collections allocable to the Certificateholders of the applicable
Series. If the Trustee is instructed not to sell a portion of the Receivables
allocable to a Series, as described above, then the Trust shall continue with
respect to such Series pursuant to the terms of the Pooling and Servicing
Agreement and the applicable Series Supplement. See "Certain Legal Aspects of
the Receivables -- Certain Matters Relating to Receivership" and " -- Certain
Matters Relating to Bankruptcy or Insolvency."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and
reimbursement for its expenses, will be the monthly servicing fee (the "Monthly
Servicing Fee"), as specified in the related Prospectus Supplement. The Monthly
Servicing Fee will be allocated among the Transferor Amount and the Investor
Amount. The Investor Servicing Fee will be equal to one-twelfth (1/12th) of the
product of the percentage designated in the applicable Series Supplement (the
"Servicing Fee Percentage") and the sum of the allocable portion of the
Transferor Amount and the Investor Amount as of the last day of the preceding
Monthly Period. The Investor 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 held in the Collection Account for the account of the
Investor Amount. See "-- Application 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 Subservicers, if any.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon determination that (i) performance
of its duties is or will become impermissible under applicable law, regulation
or order and (ii) there is no reasonable action which the Servicer could take to
make the performance of its duties permissible under such applicable law,
regulation or order. No such resignation will become effective until the Trustee
or a successor to the Servicer has assumed the Servicer's responsibilities and
obligations under the Pooling and Servicing Agreement. The Servicer may delegate
any of its servicing duties to any person or entity that agrees to conduct such
duties in accordance with the Credit Card Guidelines and the Pooling and
Servicing Agreement; however, such delegation will not relieve the Servicer of
its liability and responsibility to perform such duties in accordance with the
Pooling and Servicing Agreement.
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Any entity into which, in accordance with the Pooling and Servicing
Agreement, the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of or acquiring all or substantially all the
properties or assets of, the Servicer, upon execution of a supplement to the
Pooling and Servicing Agreement, delivery of an opinion of counsel with respect
to the compliance of the transaction with the applicable provisions of the
Pooling and Servicing Agreement and delivery of notice thereof to each Rating
Agency and the satisfaction of the Rating Agency Condition, will be the
successor to the Servicer under the Pooling and Servicing Agreement.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have notified the Transferor in writing that such action
will not result in a reduction or withdrawal of its rating of any outstanding
Series with respect to which it is a Rating Agency. The Transferor shall furnish
any such notice from the Rating Agencies to the Trustee.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below) that has not
been remedied, either the Trustee or the holders of Certificates of any Series
then outstanding evidencing undivided interests aggregating more than 50% of the
aggregate Investor Amount, by written notice to the Servicer (and to the
Trustee, if given by the holders of Certificates of any Series then
outstanding), may terminate all of the rights and obligations of the Servicer,
in its capacity as Servicer under the Pooling and Servicing Agreement, with
respect to all of the Receivables held by the Trust with respect to all Series,
and the proceeds thereof, and the Trustee shall thereafter appoint a new
Servicer (a "Service Transfer"). The rights and interests of the Transferor
under the Pooling and Servicing Agreement in the Transferor Interest will not be
affected by any Service Transfer. The Transferor shall have the right to
nominate to the Trustee a potential successor Servicer. The Trustee shall as
promptly as possible appoint the entity nominated by the Transferor if such
entity meets certain eligibility criteria set forth in the Pooling and Servicing
Agreement. If the Transferor does not nominate an entity to be successor
Servicer, the Trustee shall as promptly as possible appoint a successor
Servicer, and if no successor Servicer has been appointed by the Trustee and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all authority, power and obligations of the Servicer under the Pooling and
Servicing Agreement will pass to, and be vested in, the Trustee. Prior to any
Service Transfer, the Trustee will seek to obtain bids from potential servicers
meeting certain eligibility requirements set forth in the Pooling and Servicing
Agreement to serve as a successor Servicer for servicing compensation not in
excess of the Investor Servicing Fee plus the servicing fee allocable to the
Transferor Interest. If the Trustee is unable to obtain any bids from eligible
servicers and the Servicer delivers an officer's certificate to the effect that
it cannot in good faith cure the related Servicer Default, then the Trustee will
under certain circumstances offer the Transferor the right to accept the
reassignment of all of the Receivables. The deposit amount of such a
reassignment shall be equal to the sum of the aggregate Investor Amount (less
the aggregate principal amount held in the Excess Funding Account and any
principal funding account with respect to any Series) plus accrued and unpaid
interest on the Certificates of all Series plus certain amounts payable to
specified Enhancement Providers, if applicable.
A "Servicer Default" means any of the following events:
(i) failure by the Servicer to make any payment, transfer or
deposit, or to give instructions or notice to the Trustee to make such
payment, transfer or deposit, on the date the Servicer is required to
do so under the Pooling and Servicing Agreement or any Series
Supplement (upon expiration of a five business day grace period),
provided, however, that any such failure caused by circumstances beyond
the Servicer's control shall not constitute a Servicer Default if the
Servicer promptly remedies such failure within five business days after
receiving notice thereof or otherwise becoming aware of such failure;
(ii) failure on the part of the Servicer duly to observe or
perform any other covenants or agreements of the Servicer in the
Pooling and Servicing Agreement or any Series Supplement which has a
material adverse effect on the Certificateholders of any Series then
outstanding (without regard to the amount of any Enhancement then
available), which continues unremedied
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for a period of 60 days after written notice and which continues to
material adversely affect the rights of the Certificateholders of any
Series then outstanding for such period, or the Servicer delegates its
duties under the Pooling and Servicing Agreement, except as
specifically permitted thereunder;
(iii) any representation, warranty or certification made by the
Servicer in the Pooling and Servicing Agreement or any Series
Supplement or in any certificate delivered pursuant to the Pooling and
Servicing Agreement or any Series Supplement proves to have been
incorrect when made, which has a material adverse effect on the rights
of the Certificateholders of any Series outstanding (without regard to
the amount of any Enhancement then available), and which continues to
be incorrect in any material respect for a period of 60 days after
written notice and which continues to materially adversely affect the
rights of the Certificateholders of any Series (without regard to the
amount of Enhancement, if any 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 related to the Servicer
of all or substantially all of its property and the Servicer admitting
in writing its inability to pay its debts as they become due, filing a
petition to take advantage of an insolvency or reorganization statute,
making an assignment for the benefit of its creditors or voluntarily
suspending payment of its obligations).
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of 10 business days after the
applicable grace period or a delay in or failure of performance referred to
under clauses (ii) or (iii) for a period of 60 business days after the
applicable grace period shall not constitute a Servicer Default, if such delay
or failure could not have been prevented by the exercise of reasonable diligence
by the Servicer and such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event, the Servicer shall
not be relieved from using its best reasonable efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling and
Servicing Agreement or any Series Supplement, and the Servicer shall provide the
Trustee, the Transferor, the Certificateholders and the Enhancement Providers,
if any, applicable to any Series, with 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 the
Trustee and each Rating Agency a statement prepared by the Servicer (the
"Monthly Servicer Report") setting forth certain information with respect to the
Trust and Certificates of each Series, including: (a) the aggregate amount of
Collections of Finance Charge Receivables and the aggregate amount of
Collections of Principal Receivables processed during the immediately preceding
Monthly Period; (b) the Investor Percentage for such Monthly Period; (c) for
each Series and for each Class within any such Series, the total amount of such
distribution allocable to principal and interest, if any, (d) the aggregate
outstanding balance of the Accounts which were delinquent by 31 days, 61 days
and 91 days or more as of the close of business on the last day of the Monthly
Period immediately preceding such Distribution Date; (e) the Investor Default
Amount for the immediately preceding Monthly Period; (f) the amount of Investor
Charge Offs and the amount of reimbursements thereof for the next succeeding
Distribution Date; (g) the amount of the Investor Servicing Fee for the next
succeeding Distribution Date; (h) the aggregate amount of Receivables in the
Trust at the close of business on the last day of the Monthly Period immediately
preceding such Distribution Date; (i) the Investor Amount and the Adjusted
Investor Amount at the close of business on the last day of the Monthly Period
immediately preceding such Distribution Date; and (j) whether a Pay Out Event
has occurred.
On each Distribution Date with respect to each Series the Paying
Agent, on behalf of the Trustee, will forward to each Certificateholder of
record a statement (the "Payment Date Statement"), which may be the Monthly
Servicer Report, prepared by the Servicer setting forth the information with
respect to the Certificates of such
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Series set forth in the Monthly Servicer Report supplied to the Trustee as
described in the preceding paragraph 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 January 31 of each calendar year beginning with 1998, the
Paying Agent, on behalf of the Trustee, will furnish to each person who at any
time during the preceding calendar year was a Certificateholder of record a
statement prepared by the Servicer containing the information required to be
contained in the regular Payment Date Statement, 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 Certificateholders to prepare their tax returns.
The Pooling and Servicing Agreement further provides that on or before
June 30 of each calendar year, beginning with 1998, the Servicer will cause a
firm of independent public accountants to furnish a report covering the
preceding annual period to the effect that such firm has applied certain
procedures to certain documents and records relating to the servicing of the
Accounts, compared the information contained in the Servicer's certificates
delivered during the period covered by such report with such documents and
records and that, based upon such procedures, no matters came to the attention
of such accountants that caused them to believe that such servicing was not
conducted in all material respect in compliance with specified sections of the
Pooling and Servicing Agreement, except for such exceptions as such accountants
believe to be immaterial and such other exceptions as shall be set forth in such
report.
In addition, for each calendar year, such accountants will include as
part of their annual report, a comparison of the mathematical calculations of
the amounts contained in the monthly certificates forwarded by the Servicer
during the period covered by such report, with the Servicer's computer reports
that were the source of such amounts, and deliver a report to the Trustee
confirming that such amounts are consistent, except for such exceptions as such
accountants believe to be immaterial and such other exceptions as shall be set
forth in such report. The Trustee will make such reports available for
inspection by Certificateholders.
The Pooling and Servicing Agreement provides for delivery to the
Trustee on or before June 30 of each calendar year, beginning with 1998, of an
annual statement signed by an officer of the Servicer to the effect that to such
officer's knowledge the Servicer has fully performed its obligations under the
Pooling and Servicing Agreement throughout the preceding year, or if there has
been a default in the performance of such obligation, specifying the nature and
status of the default.
Unless Definitive Certificates are issued, all reports and statements
to Certificateholders shall be provided to DTC or its nominee, Cede, as the
registered holder of the Offered Certificates. All reports and statements
discussed above will be delivered to the Certificate Owners by DTC and the DTC
Participants in accordance with the DTC Rules and the rules and policies of the
DTC Participants. In addition, the Trustee will deliver all such reports and
statements to the Certificate Owners upon request. The Monthly Servicer Report
will also be filed with the Commission on a Current Report on Form 8-K and will
be available to Certificate Owners as provided under "Reports to
Certificateholders" and "Available Information."
AMENDMENTS
The Pooling and Servicing Agreement and any Supplement may be amended
by the Transferor, the Servicer and the Trustee, without the consent of any of
the Certificateholders, to cure any ambiguity, to revise certain exhibits and
schedules, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, to add other identifying code
numbers or other identifying characteristics to the definition of Account, or to
add any other provisions with respect to matters or questions arising under the
Pooling and
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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 any Series 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 Certificateholders
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 interest 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 Certificate 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 any outstanding Series 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 the Bank, the appointment of the Bank as
Servicer, and certain other actions related to the Bank will be deemed not to
materially and adversely affect the interests of the Certificateholders.
The Pooling and Servicing Agreement may also be amended by the
Transferor, the Servicer and the Trustee with the consent of the holders of
certificates of all Series then outstanding evidencing undivided interests
aggregating not less than 50% of the Investor Amount of all outstanding Series
adversely affected, for the purpose of adding any provisions to, changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of holders of Certificates of
any Series then outstanding. No such amendment, however, may (i) reduce in any
manner the amount of, or delay the timing of, distributions required to be made
on any Certificate of such outstanding Series without the consent of all holders
of the related Certificate, (ii) change the definition of or the manner of
calculating the Investor Amount, the Investor Percentage, the required amount of
any Enhancement or the Investor Default Amount of such Series without the
consent of each holder of Certificates adversely affected thereby or (iii)
reduce the aforesaid percentage of undivided interests the holders of which are
required to consent to any such amendment, without the consent of all
Certificateholders of all Series then outstanding. Furthermore, any such
amendment shall require prior written confirmation from the applicable Rating
Agency that the Rating Agency Condition will be met.
Promptly following the execution of any amendment to the Pooling and
Servicing Agreement or any Series Supplement, the Trustee will furnish written
notice of the substance of such amendment to each Certificateholder of all
Series (or with respect to an amendment of a Series Supplement, to the
applicable Series).
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Trust, for the benefit of Certificateholders, and the Trustee,
including its officers, directors and employees, from and against any loss,
liability, expense, damage or injury arising out of or relating to any claims,
actions or proceedings brought or asserted by third parties regarding the
activities of the Trust or the Trustee for which the Servicer is responsible
under the Pooling and Servicing Agreement or any Series Supplement; provided,
however, the Servicer shall not indemnify (a) the Transferor, the Trust, the
Trustee or their respective officers, directors, agents or employees for
liabilities opposed 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 Certificateholders, (b) the
Transferor, the Trust, the Trustee, the Certificate Owners or Certificateholders
for liabilities arising from actions taken by the Trustee at the request of the
Certificateholders, (c) the Transferor, the Trust, the Trustee, the Certificate
Owners or the Certificateholders as to any losses, claims or damages incurred in
their capacity as an investor, including, without limitation, losses incurred as
a result of Defaulted Receivables or Receivables which
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are charged off as uncollectable, or (d) the Trust, the Trustee, the Certificate
Owners or the Certificateholders for any liabilities costs or expenses 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 other tax imposed measured by income 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 may be required to the extent that the State of Illinois
(or its taxing authority) determines that the Trust is a partnership and that
the Illinois Personal Property Replacement Income Tax is applicable to the Trust
under the Illinois Income Tax Act.
The Transferor, the Servicer or any of their respective directors,
officers, employees or agents will be liable under the Pooling and Servicing
Agreement only to the extent of the obligation specifically undertaken by it in
such capacity under the Pooling and Servicing Agreement. However, none of the
Transferor, the Servicer or any of their respective directors, officers,
employees or agents will be protected against any liability which would
otherwise be imposed by reason of bad faith or gross negligence by or on behalf
of the Transferor or the Servicer in the performance of their respective duties
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 the Servicer's opinion, may expose
it to any expense or liability. The Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable for the
benefit of Certificateholders with respect to the Pooling and Servicing
Agreement and the rights and duties of the parties thereto and the interest of
the Certificateholders thereunder.
AMENDMENTS TO THE POOLING AND SERVICING AGREEMENT RELATING TO FASIT ELECTION
Each Certificateholder, by acquiring an interest in a Certificate, is
deemed to consent to any amendment to the Pooling and Servicing Agreement or any
Series 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.
LIST OF CERTIFICATEHOLDERS
Upon written request of any 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, will afford such
Certificateholders access during normal business hours to the current list of
Certificateholders of such Series for purposes of communicating with such other
Certificateholders with respect to their rights under the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement generally does not provide for any
annual or other meetings of Certificateholders.
THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee and
initial Paying Agent under the Pooling and Servicing Agreement. The Transferor,
the Servicer, each Seller and their respective affiliates have had deposit, lock
box, borrowing and similar transactions with the Trustee in the ordinary course
of business, and from time to time 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 however, any Certificates so held shall not be
entitled to participate in any decisions made or
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instructions given to the Trustee by the Certificateholders as a group. The
Trustee's address is Sixth and Marquette, Minneapolis, Minnesota 55479-0070,
Attention: Asset Backed Securities Corporate Trust Department, telephone number
(612) 667-9528.
For purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint a co-trustee or
separate trustee 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 will be conferred or imposed upon, and exercised or performed
by, the Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee will be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee, who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the 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
as provided in the Pooling and Servicing Agreement. Any resignation or removal
of the Trustee and appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor Trustee.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or
more Classes thereof. Enhancement may be in the form of the subordination of one
or more Classes of the Certificates of such Series, the establishment of a cash
collateral guaranty or account, a letter of credit, a surety bond, insurance, a
spread account, a reserve account, the use of cross-support features or another
method of Enhancement described in the related Prospectus Supplement, or any
combination of the foregoing. If so specified in the related Prospectus
Supplement, any form of Enhancement may be structured so as to be drawn upon by
more than one Class to the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of such deficiencies.
If Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions, if any, under which the amount payable
under such Enhancement may be reduced and under which such Enhancement may be
terminated or replaced and (d) any material provisions of any agreement relating
to such Enhancement. Additionally, the related Prospectus Supplement may set
forth certain information with respect to any third party Enhancement Provider,
including (i) a brief description of its principal business activities, (ii) its
principal place of business, place of incorporation and the jurisdiction under
which it is chartered or licensed to do business, (iii) if applicable, the
identity of regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (iv) its total assets, its shareholders' or
policyholders' surplus, if applicable, and other appropriate financial
information as of the date specified in the Prospectus Supplement. If so
specified in the related Prospectus Supplement, Enhancement with respect to a
Series may be available to pay principal of the Certificates of such Series
following the occurrence of certain Pay Out Events with respect to such Series.
In such event, the Enhancement Provider may have an interest in certain cash
flows in respect of the Receivables to the extent described in such Prospectus
Supplement (the "Enhancement Investor Amount").
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SUBORDINATION
If so specified in the related Prospectus Supplement, one or more
Classes of any Series will be subordinated as described in the related
Prospectus Supplement to the extent necessary to fund payments with respect to
the Senior Certificates or specified Certificates of another Series. The rights
of the holders of any such Subordinated Certificates to receive distributions of
principal and/or interest on any Distribution Date for such Series will be
subordinate in right and priority to the rights of the holders of Senior
Certificates, but only to the extent set forth in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, subordination
may apply only in the event of certain types of losses not covered by another
Enhancement. The related Prospectus Supplement will also set forth information
concerning the amount of subordination of a Class or Classes of Subordinated
Certificates of a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, and the conditions under which amounts available from
payments that would otherwise be made to holders of such Subordinated
Certificates will be distributed to holders of Senior Certificates. If
Collections otherwise distributable to holders of a Subordinated Class of a
Series will be used as support for a Class of another Series, the related
Prospectus Supplement will specify the manner and conditions for applying such a
cross-support feature.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by a guaranty (the "Cash
Collateral Guaranty") secured by the deposit of cash or certain permitted
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the Cash
Collateral Account will be the lesser of amounts held in the Cash Collateral
Account and an amount specified in the related Prospectus Supplement. The
related Prospectus Supplement will set forth the circumstances under which
payments are made to beneficiaries of the Cash Collateral Guaranty from the Cash
Collateral Account or from the Cash Collateral Account directly.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by one or more letters of
credit. A letter of credit may provide limited protection against certain losses
in addition to or in lieu of other Enhancement. The issuer of the letter of
credit (the "L/C Bank") will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available thereunder, to provide
funds under the circumstances, and subject to such conditions, as are specified
in the related Prospectus Supplement.
The maximum liability of an L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related Prospectus
Supplement of the Initial Investor Amount of a Series or a Class of such Series.
The maximum amount available at any time to be paid under a letter of credit
will be determined in the manner specified therein and described in the related
Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with
respect to a Series or one or more Classes thereof will be provided by one or
more insurance companies. Such insurance will guarantee distributions of
interest or principal with respect to such Series or Class in the manner and
amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond
will be purchased for the benefit of the holders of a Series or one or more
Classes thereof to assure distributions of interest or principal with respect to
such Series or Class in the manner and amount specified in the related
Prospectus Supplement.
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SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by the periodic deposit
of certain available excess cash flow from the Trust's assets into an account
(the "Spread Account") intended to assure the subsequent distribution of
interest or principal with respect to such Series or Class in the manner and
amount specified in the related Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by the establishment of a
reserve account (the "Reserve Account"). The Reserve Account may be funded, to
the extent provided in the related Prospectus Supplement, by an initial cash
deposit, the retention of certain periodic distributions of principal or
interest otherwise payable to one or more Classes of Certificates, including the
Subordinated Certificates, and/or the provision of a letter of credit,
guarantee, insurance policy or other form of credit or any combination thereof.
The Reserve Account will be established to assure the subsequent distribution of
interest or principal with respect to such Series or Class in the manner and
amount specified in the related Prospectus Supplement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Initial Sellers sold all their Receivables to the Transferor
pursuant to Receivables Purchase Agreements dated as of August 21, 1997. On
February 2, 1998, the Company contributed all of the Initial Sellers' Accounts
and the accounts of the Younkers division of Proffitt's to the Bank, and the
Bank assumed all obligations of the Initial Sellers under their respective
Receivables Purchase Agreements and entered into a new Receivables Purchase
Agreement with the Transferor substantially similar to the Receivables Purchase
Agreements with the Initial Sellers. For purposes of this Prospectus, the Bank
includes its predecessors in their capacity as Initial Sellers of Receivables in
Accounts.
The Bank sells, on a daily basis, all its Receivables to the
Transferor. The Transferor transfers the Receivables to the Trust. The Bank
represents and 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
the Bank in and to the Receivables, and the Transferor warrants to the Trustee
that its transfer constitutes a valid transfer to the Trust of all right, title
and interest of the Transferor in and to the Receivables, except for the
interest of the Transferor as holder of the Exchangeable Transferor Certificate.
The Transferor further warrants to the Trust that if the transfer of the
Receivables to the Trust does not constitute a valid transfer of the
Receivables, it constitutes a grant of a security interest to the Trust in and
to the Receivables. The Transferor also warrants to the Trust that, if the
transfer of Receivables to the Trust is deemed to create a security interest
under the UCC, there exists a valid and enforceable first priority perfected
security interest in the Receivables at the time of their transfer to the Trust
in favor of the Trust, and a valid and enforceable first priority perfected
security interest in the Receivables created thereafter in favor of the Trust on
and after their creation (except for certain liens permitted under the Pooling
and Servicing Agreement), in each case until termination of the Trust. For a
discussion of the Trust's rights arising from a breach of these warranties. See
"Description of the Certificates and the Pooling and Servicing Agreement --
Representations and Warranties."
The Bank represents and 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
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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 date of
a transfer of Receivables to the Trust could have an interest in such
Receivables with priority over the Trust's interest. A tax or other government
lien on property of the Bank 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,
the Bank warrants, and under the Pooling and Servicing Agreement the Transferor
warrants, that the Bank, as Seller, or the Transferor, as the case may be, has
sold or transferred the Receivables to the Transferor or the Trust, as the case
may be, free and clear of the lien of any third party except for liens permitted
under the Pooling and Servicing Agreement. In addition, each of the Bank and the
Transferor covenants that the Bank 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 of Receivables (other than the Bank) or the Transferor
were to become a debtor in a bankruptcy case, a receiver or conservator was
appointed for the Bank, or certain other events relating to the insolvency of
the Bank, any other seller of Receivables, the Bank, 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
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, each of the Servicer and the Trustee on behalf
of itself and each Certificateholder will covenant 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 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, continues to pay its debts as they become
due and does not become under capitalized. Pursuant to the Receivables Purchase
Agreement, the Bank 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 has taken steps in structuring the transactions
contemplated hereby that are intended to reduce the risk that a bankruptcy case
with respect to Proffitt's or any of its affiliates will result in consolidation
of the assets and liabilities of the Transferor with those of any of such
entities under the Bankruptcy Code. The Transferor will not engage in any
activities except purchasing Receivables and related property from the Bank,
managing and servicing such Receivables, selling and assigning Receivables and
issuing evidences of ownership or assignment in respect thereof and engaging in
activities incident to, or necessary or convenient to accomplish, the foregoing.
In addition, the Transferor's certificate of incorporation contains restrictions
requiring, among other things, that the Transferor adhere to specified operating
procedures including, without limitation (i) that at all times no less than two
members of the Board of Directors of the Transferor will be composed of
individuals who
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are not affiliated with the Company or any of its affiliates, except as members
of the Board of Directors of the Transferor, (ii) the Transferor will not incur
any indebtedness or assume or guaranty any indebtedness of any other entity,
(iii) the Transferor will maintain its own payroll and separate books of account
and corporate documents, (iv) that to the extent that the Transferor's office is
located in the offices of any affiliate, it will pay fair market rent and a fair
share of the overheads associated with such office space, (v) the Transferor
will act solely in its corporate name and through its own authorized officers
and agents, (vi) the Transferor will manage its liabilities separately from
those of any of its affiliates and will pay its own liabilities, and (vii) the
Transferor will not impermissibly commingle any of its assets with those of any
of its affiliates or any other entity and will not hold itself out as being
liable for the debts of another. Such separate business restrictions may be
waived with the unanimous consent of the Board of Directors of the Transferor.
Counsel has advised the Transferor that (i) a voluntary application
for relief under the Bankruptcy Code or any similar applicable state law with
respect to the Transferor may not lawfully be filed without the prior consent of
all directors of the Transferor, including its independent directors, (ii)
subject to certain assumptions (including the assumption that separateness and
corporate formalities are observed by the Company and the Transferor), the
assets and liabilities of the Transferor would not be substantively consolidated
with the assets and liabilities of the Company in the event of an application
for relief under the Bankruptcy Code with respect to the Company, and (iii) the
sale and transfer of Receivables by the sellers of Receivables (other than the
Bank) 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, as currently
enacted, if any of the other sellers of Receivables should become a debtor
thereunder. Such opinion is based on the law as it exists at the date hereof and
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 Initial 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 or if the court were to
rule in favor of such recharacterization, then delays and reductions in payment
of Collections to the Transferor and consequently to the Trust and delays and
reductions in payments on the Offered Certificates could occur and
Certificateholders could experience losses in their investment in the Offered
Certificates.
If, notwithstanding the structure described above, (i) the Transferor
became a debtor in a bankruptcy proceeding, or (ii) a court concluded that the
assets and liabilities of the Transferor should be consolidated with the assets
and liabilities of the Company, 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.
Payments made by the Initial Sellers (other than the Bank) 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 Initial Sellers as debtor-in-possession or by a trustee-in-
bankruptcy of any of the Initial Sellers from the Transferor or the
Certificateholders as an avoidable transfer, if such payments were made within
one year or other applicable period under state law prior to the commencement of
a bankruptcy case in respect of any of the Initial Sellers.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The FDIA, as amended by FIRREA, which became effective August 9, 1989,
sets forth certain powers that the FDIC could exercise if it were appointed as
receiver or conservator for the Bank.
To the extent that (i) the Bank has granted a security interest in the
Receivables to the Trust, (ii) that interest is validly perfected before the
Transferor's insolvency and is not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Bank or its creditors, (iii) the
Receivables Purchase Agreement is continuously maintained as a record of the
Transferor and (iv) the Receivables Purchase Agreement represents a
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bona fide and arm's length transaction undertaken for adequate consideration in
the ordinary course of business and the Trustee is not an insider or affiliate
of the Bank, such valid perfected security interest of the Trustee would be
enforceable (to the extent of the Trust's "actual direct compensatory damages")
notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, the Bank and payments to the Trust with respect to the
Receivables (up to the amount of such damages) should not be subject to recovery
by the FDIC as conservator or receiver of the Bank. If, however, the FDIC were
to assert a contrary position, or were to require the Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, delays in payments on the
Certificates and possible reductions in the amount of those payments could
occur. The FDIA does not define the term "actual direct compensatory damages."
On April 10, 1990, the Resolution Trust Corporation (the "RTC"), which
administered the resolution of failed savings associations under the FDIA and
which is no longer in existence, adopted a statement of policy with respect to
the payment of interest on collateralized borrowings. The RTC policy statement
states that interest on such borrowings will be payable at the contract rate up
to the date of the redemption or payment by the conservator, receiver, or
trustee of an amount equal to the principal owed plus the contract rate of
interest up to the date of such payment or redemption, plus any expenses of
liquidation if provided for in the contract, to the extent secured by the
collateral. In a 1993 case involving zero coupon bonds, however, a federal
district court held that the RTC was instead obligated to pay bondholders the
fair market value of repudiated bonds as of the date of repudiation. The FDIC
itself has not adopted a policy statement on payment of interest on
collateralized borrowings.
The Pooling and Servicing Agreement provides that, upon the insolvency
of the Bank or the appointment of a receiver of conservator for the Bank, the
Bank will promptly give notice thereof to the Trustee and a Pay Out Event with
respect to all Series will occur. Under the Pooling and Servicing Agreement no
new Receivables will be transferred to the Trust and, unless otherwise
instructed within a specified period by the holders of an interest in the Trust
as described under "Description of the Certificates and the Pooling and
Servicing Agreement -- Pay Out Events," or unless otherwise required by the
receiver or conservator for the Bank, the Trustee will proceed to sell, dispose
of or otherwise liquidate the Receivables in a commercially reasonable manner
and on commercially reasonable terms. The proceeds from the sale of the
Receivables would then be treated by the Trustee as Collections and would be
distributed to the Certificateholders as described in the Pooling and Servicing
Agreement. If the only Pay Out Event to occur is either the insolvency of the
Bank or the appointment of a receiver or conservator for the Bank, such receiver
or conservator may have the power to require the Transferor to continue to
purchase new Receivables and transfer such Receivables to the Trust and to
prevent the early sale, liquidation or disposition of the Receivables and the
commencement of the Rapid Amortization Period.
CONSUMER AND DEBTOR PROTECTION LAWS, RECENT AND PROPOSED LEGISLATION
The relationship between a cardholder and a credit card issuer is
extensively regulated by Federal and state consumer protection laws. With
respect to the Bank's credit cards, the most significant Federal laws are those
included in the Federal Truth-in-Lending, Equal Credit Opportunity and Fair
Credit Reporting Act, as amended. These laws require, among other things,
extension of credit without unlawful discrimination, 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.
The Trustee may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee from the Bank 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, a cardholder may be entitled to assert
such violations by way of set-off against the obligations to pay the amount of
Receivables owing. The Transferor agrees to accept from the Trust, and the Bank
agrees 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. The Transferor makes to the Trust,
and the Initial Sellers have made, and the Bank 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 Bank (as successor to
the obligations of the Initial Sellers under the Receivables
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Purchase Agreements) and any other seller of Receivables, if any, will be
obligated to repurchase such Receivables from the Transferor. See "Description
of the 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
Certificates and the Pooling and Servicing Agreement -- Allocation of Investor
Default Amount; Adjustment Amounts; Investor Charge Offs."
During recent years, there has been increased consumer awareness with
respect to the level of finance charges and fees and other practices of credit
card issuers and other consumer revolving credit loan providers which could
result in public pressure on Federal and state legislators to impose limitations
on finance charges or other fees. For example, legislation has been introduced
in the United States Congress which would limit the finance charges that may be
charged on credit card balances. In particular, on June 19, 1997, a proposal to
amend the Federal Truth-in-Lending Act was introduced in the House of
Representatives and referred to the Committee on Banking and Financial Services,
which would, among other things, prohibit the imposition of certain minimum
finance charges and other fees, prohibit certain methods of calculating finance
charges, require prior notice of any increase in the interest rate assessed with
respect to a credit card account and limit the amount of certain fees. If a
federal or state law imposing a ceiling on finance charge rates were enacted,
the Bank 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.
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 Internal Revenue
Code of 1986, as amended (the "Code"), the 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, and such
changes could modify or adversely affect the tax consequences summarized below.
This discussion does not address every aspect of the Federal income tax laws
that may be relevant to Certificate Owners of a Series in light of their
personal investment circumstances or to certain types of Certificate Owners of a
Series subject to special treatment under the Federal income tax laws (for
example and without limitation, banks and 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.
Unless otherwise indicated, this summary deals only with U.S.
Certificate Owners who hold such Certificates as capital assets. 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 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., 1/4% of the principal amount multiplied by the number or full years until
maturity), all within the meaning of the OID Regulations. If any of those
assumptions are not met with regard to a
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particular Series of Certificates, additional tax considerations will be
disclosed in the applicable Prospectus Supplement.
For purposes of this discussion, a "U.S. Certificate Owner" means a
Certificate Owner that is (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 subject to Federal income taxation regardless of its source or (iv)
a trust which is subject to the supervision of a court within the United States
and the control of a United States person as described in section 7701(a)(30) of
the Code. For purposes of this discussion, the term "non-U.S. Certificate Owner"
means a Certificate Owner other than a U.S. Certificate Owner.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Unless otherwise specified in the related Prospectus Supplement,
Alston & Bird LLP, Atlanta, Georgia, special tax counsel to the Transferor
("Special Tax Counsel") will, upon issuance of a Series of Certificates, render
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
Certificates of each Series will be indebtedness secured by the Receivables. The
Transferor agrees and each Certificateholder and Certificate Owner, by acquiring
an interest in a Certificate of a Series, will be deemed to agree to treat the
Certificates of such Series as indebtedness of PCC 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 Pooling and Servicing 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. Unless otherwise set forth in a
Prospectus Supplement, it is expected that Special Tax Counsel will express the
opinion that although no transaction closely comparable to that contemplated
herein has been the subject of any Treasury regulation, revenue ruling or
judicial decision, the Certificates will be properly characterized as
indebtedness for Federal income tax purposes. Except as otherwise expressly
indicated, the following discussion assumes that the Offered Certificates are
properly treated as debt obligations of the Transferor 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
Unless otherwise specified in the related Prospectus Supplement,
Special Tax Counsel will render an opinion that the Trust will not be subject to
Federal income tax, and that (i) if the Trust is viewed as a collateral
arrangement for debt issued directly by the Transferor and any other holders of
equity interests in the Trust, then the Trust will be disregarded for Federal
income tax purposes, and (ii) if the Trust is viewed as a separate entity
issuing its own debt and owned by the Transferor and any other holders of equity
interests in the Trust, then the Trust would be a partnership for Federal income
tax purposes rather than an association (or publicly traded partnership) taxable
as a corporation.
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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 Certificates of a Series are not debt obligations for
Federal income tax purposes and that the proper classification of the 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 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 of such Series, 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 Certificates of
such Series 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 Certificates. Furthermore, if any Certificates were treated
as equity interests in a partnership, all or a portion of such income in
subsequent years 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
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 Certificates that were treated as equity would be treated under the Code as
unrelated debt-financed income taxable to the investor.
If the Trust were treated in whole or in part as a partnership in
which some or all Certificate Owners of one or more Series 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 become a publicly traded partnership, because certain of the
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.
Since Special Tax Counsel, unless otherwise specified in the related
Prospectus Supplement, will advise that the Certificates of a Series will be
treated as indebtedness in the hands of the Certificate Owners of a Series for
Federal income tax purposes, the Transferor generally will not attempt to comply
with the Federal income tax reporting requirements that would apply if
Certificates were treated as interests in a partnership or corporation (unless,
as is permitted by the Pooling and Servicing Agreement, an interest in the Trust
is issued or sold that is intended to be classified as an interest in a
partnership).
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TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
As set forth above, it is expected that, unless otherwise specified in
a Prospectus Supplement, Special Tax Counsel will render an opinion, upon
issuance, that the Certificates of a Series will be treated as indebtedness for
Federal income tax purposes. Except as discussed below or in a Prospectus
Supplement, the Certificates will not be issued with OID and, accordingly,
interest thereon will be includable in income by U.S. 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 Certificates of a Series may also constitute "investment income"
for purposes of certain limitations of the Code concerning the deductibility of
investment interest expense.
A subsequent U.S. Certificate Owner who purchases a 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 Certificate, and for the deferral of
certain interest deductions with respect to debt incurred to acquire or carry
the market discount Certificate.
A holder who purchases a Certificate at a premium may elect to
amortize and deduct this premium over the remaining term of the Certificate in
accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE BY A U.S. CERTIFICATE OWNER
In general, a U.S. Certificate Owner will recognize gain or loss upon
the sale, exchange, redemption, or other taxable disposition of a 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 U.S. Certificate Owner's adjusted tax basis
in the 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 provided that the Certificate was held as a capital
asset, any such gain or loss will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation which may vary depending upon the holding
period of such capital assets. In addition, capital losses generally may be
used only to offset capital gains.
FASIT CONSIDERATIONS
Unless otherwise set forth in a Prospectus Supplement, it is expected
that the Series Supplement pursuant to which any Certificates are issued will
provide for an amendment to the Pooling and Servicing Agreement to permit an
election to treat the Trust as a "financial asset securitization investment
trust" (a "FASIT"). Prior to any such amendment, the Transferor will be
required to deliver to the Trustee an opinion of counsel to the effect that, for
Federal income tax purposes, (i) the issuance of FASIT regular interests will
not adversely affect the tax characterization as debt of Certificates of any
outstanding Series or Class that were characterized as debt at the time of their
issuance, (ii) following such issuance the Trust will not be deemed to be 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 Certificate Owner or the Trust. See "Description of the
Certificates and the Pooling and Servicing Agreement -- Amendments to the
Pooling and Servicing Agreement Relating to FASIT Election."
NON-U.S. CERTIFICATE OWNERS
As set forth above, it is expected that, unless otherwise specified in
a Prospectus Supplement, Special Tax Counsel will render an opinion, upon
issuance, that the Certificates of a Series will be treated as indebtedness for
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Federal income tax purposes. The following information describes the Federal
income tax treatment of non-U.S. Certificate Owners if the Certificates are
treated as indebtedness.
Interest, including OID, paid to a non-U.S. Certificate Owner will be
subject to U.S. withholding taxes at a rate of 30% unless (i) the income is
"effectively connected" with the conduct by such non-U.S. Certificate Owner 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 non-U.S. Certificate Owner
and each securities clearing organization, bank, or other financial institution
that holds the Certificates on behalf of such non-U.S. Certificate Owner 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, upon the issuance of an interest in the Trust that is treated as a
partnership interest, any holder of such interest) and is not a controlled
foreign corporation with respect to the Transferor (or the holder of such an
interest) and is not a bank whose receipt of interest on a Certificate is
described in section 881(c)(3)(A) of the Code. 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. Certificate
Owner and providing such Certificate Owner's name and address or (ii) IRS Form
1001, signed by the Certificate Owner or such Certificate Owner's agent,
claiming exemption from withholding under an applicable tax treaty; 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. Certificate
Owner.
Recently finalized Treasury regulations (the "Final Regulations")
could affect the procedures to be followed by a non-U.S. Certificate Owner in
complying with United States Federal withholding, backup withholding and
information reporting rules. The Final Regulations are not effective as of the
date of this Prospectus but generally will be effective for payments made after
December 31, 1998. Prospective investors are urged to consult their tax
advisors regarding the effect, if any, of the Final Regulations on the purchase,
ownership, and disposition of the Certificates.
If a non-U.S. Certificate Owner is engaged in a trade or business in
the United States and interest on the Certificate is effectively connected with
the conduct of such trade or business, the non-U.S. Certificate Owner, although
exempt from the withholding tax discussed above, will be subject to U.S. federal
income tax on such interest on a net income basis in the same manner as if it
were a U.S. Certificate Owner. In addition, if such holder is a foreign
corporation it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such interest will be included in such foreign
corporation's earnings and profits.
A non-U.S. Certificate Owner will not be subject to U.S. Federal
income tax on gain realized upon the sale, exchange, or redemption of a
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 non-
U.S. Certificate Owner that is an individual, such non-U.S. 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 with respect to interest
and OID above.
If the interests of the non-U.S. Certificate Owners of a Series were
reclassified as interests in a partnership (not taxable as a corporation), such
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In such event the non-U.S.
Certificate Owner of such Series 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 non-U.S. Certificate Owner 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.
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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 Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Certificates of a Series if the
Certificate Owner, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification 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 Certificate Owner of a
Series setting forth the amount of interest paid on the Certificates of such
Series 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 state tax implications of an investment in the Certificates
are described in the Prospectus Supplement. The tax consequences arising to the
Certificateholders under the laws of other jurisdictions are not discussed
herein or in the Prospectus Supplement. 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.
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 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) person 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 person 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
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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 Certificates are
equity interests for purposes of the Final Regulation, the final Regulation
contains an exception that may apply to the purchase of 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 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.
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 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 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 interest in 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).
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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 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 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 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 Certificates should consult their own counsel as to
whether the acquisition of such 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 Certificates is
appropriate for the Benefit Plan taking into account the overall investment
policy of the Benefit Plan and the composition of the Benefit Plan's investment
portfolio. In addition, fiduciaries should consider the consequences that would
apply if the Trust's assets were considered plan assets, the applicability of
exemptive relief from the prohibited transaction rules, and, whether all
conditions for such exemptive relief would be satisfied.
In addition, insurance companies considering the purchase of
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
was required to issue final 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. On December 22, 1997, the DOL issued
proposed regulations, which have not been finalized at the date of this
Prospectus but 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.
PLAN OF DISTRIBUTION
The Transferor may sell Certificates (a) through underwriters or
dealers, (b) directly to one or more purchasers, or (c) through agents. The
related Prospectus Supplement will set forth the terms of the offering of any
Certificates offered hereby, including, without limitation, the names of any
underwriters, the purchase price of such Certificates and the proceeds to the
Transferor from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Certificates of a Series
offered hereby, such Certificates will be acquired by the underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. Such Certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Unless otherwise set forth in the related Prospectus
Supplement, the obligation of the underwriters to purchase such Certificates
will be subject to certain conditions precedent, and the underwriters will be
obligated to purchase all of such Certificates if any of such Certificates are
purchased. After the initial public offering, the public offering price and
other selling terms, including discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
Certificates may also be sold directly by the Transferor or through
agents designated by the Transferor from time to time. Any agent involved in
the offer or sale of Certificates will be named, and any commissions
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payable by the Transferor to such agent will be set forth, in the related
Prospectus Supplement. Unless otherwise indicated in the related Prospectus
Supplement, any such agent will act on a "best efforts" basis for the period of
its appointment.
Any underwriters, agents or dealers participating in the distribution
of Certificates may be deemed to be underwriters, and any discounts or
commission received by them on the sale or resale of Certificates may be deemed
to be underwriting discounts and commissions, under the Securities Act. Agents
and underwriters may be entitled under agreements entered into with the
Transferor to indemnification by the Transferor and the Company against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be affiliates
or customers of, engage in transactions with, or perform services for, the
Transferor or its affiliates in the ordinary course of business.
LEGAL MATTERS
It is anticipated that certain legal matters relating to the issuance
of the Certificates of any Series 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 Certificates of a Series will be passed upon for the underwriters by the
counsel named in the Prospectus Supplement.
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INDEX OF TERMS FOR PROSPECTUS
TERM PAGE
- ---- ----
Accounts.............................................................. cover, 1
Accumulation Period................................................... 11
Additional Account Closing Date....................................... 39
Additional Account Cut Off Date....................................... 38
Additional Accounts................................................... 2
Adjustment............................................................ 47
Adjustment Payment Obligation......................................... 47
Aggregate Automatic Addition Limit.................................... 41
Aggregate Investor Amount............................................. 38
Aggregate Investor Percentage......................................... 44
Amortization Period................................................... 3
Automatic Additional Accounts......................................... 2
Bank.................................................................. 1
Bankruptcy Code....................................................... 18
Base Rate............................................................. 25
Benefit Plans......................................................... 67
Cash Collateral Account............................................... 57
Cash Collateral Guaranty.............................................. 57
Cede.................................................................. i
Cedel................................................................. 7
Cedel Participants.................................................... 33
Certificate Owners.................................................... i
Certificate Rate...................................................... 2
Certificateholders.................................................... i
Certificates.......................................................... cover, 1
Class................................................................. cover, 1
Closing Date.......................................................... 9
Code.................................................................. 62
Collection Account.................................................... 8
Collections........................................................... 1
Commission............................................................ i
Company............................................................... ii
Controlled Accumulation Amount........................................ 11
Controlled Amortization Amount........................................ 10
Controlled Amortization Period........................................ 10
Controlled Deposit Amount............................................. 11
Controlled Distribution Amount........................................ 10
Cooperative........................................................... 33
CPS................................................................... cover
Creation Date......................................................... 38
Credit Card Guidelines................................................ 21
Default Amount........................................................ 47
Defaulted Accounts.................................................... 3
Defaulted Receivables................................................. 47
Defeased Series....................................................... 14
Definitive Certificates............................................... 34
Department Stores..................................................... 2
Depositaries.......................................................... 31
Depositary............................................................ 31
Depository............................................................ 31
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Disclosure Document................................................... 6
Discount Option....................................................... 25
Discount Option Receivable Collections................................ 42
Discount Option Receivables........................................... 41
Discount Percentage................................................... 41
Dissolution Event..................................................... 50
Distribution Date..................................................... 8
DOL................................................................... 68
DTC................................................................... i
DTC Rules............................................................. 32
Eligible Account...................................................... 27
Eligible Originator................................................... 27
Eligible Receivable................................................... 27
Enhancement........................................................... 2
Enhancement Investor Amount........................................... 56
Enhancement Provider.................................................. 41
ERISA................................................................. 15
Euroclear............................................................. 33
Euroclear Operator.................................................... 33
Euroclear Participants................................................ 33
Euroclear System...................................................... 33
Excess Funding Account................................................ 8, 46
Exchange.............................................................. 6
Exchange Act.......................................................... i
Exchange Date......................................................... 37
Exchange Notice....................................................... 37
Exchangeable Transferor Certificate................................... 6
FASIT................................................................. 55, 65
FDIA.................................................................. 19
FDIC.................................................................. 4
Final Regulation...................................................... 68
Final Regulations..................................................... 66
Final Termination Date................................................ 49
Finance Charge Receivables............................................ 4
Finance Charges....................................................... 4
FIRREA................................................................ 19
Full Investor Amount.................................................. 13
Funding Period........................................................ 13
Global Securities..................................................... I-1
Group................................................................. 12
Indirect Participants................................................. 32
Ineligible Receivable................................................. 38
Initial Cut-Off Date.................................................. 2
Initial Investor Amount............................................... 14
Initial Seller, Initial Sellers....................................... 17
Interchange........................................................... 4
Interest Funding Account.............................................. 35
Interest Period....................................................... 8
Investor Amount....................................................... 3
Investor Charge Off................................................... 47
Investor Default Amount............................................... 47
Investor Percentage................................................... 3
Investor Servicing Fee................................................ 7
IRS................................................................... 63
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L/C Bank.............................................................. 57
McRae's............................................................... cover
Minimum Aggregate Principal Receivables............................... 40
Minimum Transferor Amount............................................. 48
Minimum Transferor Interest Percentage................................ 48
Monthly Period........................................................ 9
Monthly Servicer Report............................................... 52
Monthly Servicing Fee................................................. 50
Moody's............................................................... 42
non-U.S. Certificate Owner............................................ 63
Obligor............................................................... 20
OCC................................................................... 19
Offered Certificate................................................... 8
OID................................................................... 62
OID Regulations....................................................... 62
Paired Series......................................................... 14
Participants.......................................................... 25
Participation Agreement............................................... 40
Participations........................................................ 40
Pay Out Event......................................................... 49
Payment Date Statement................................................ 52
PCC................................................................... cover
Permitted Investments................................................. 1
Pooling and Servicing Agreement....................................... 1
Portfolio Yield....................................................... 21
Pre-Funded Amount..................................................... 13
Pre-Funding Account................................................... 13
Principal Account..................................................... 11
Principal Amortization Period......................................... 10
Principal Commencement Date........................................... 9
Principal Receivables................................................. 4
Principal Shortfalls.................................................. 45
Principal Terms....................................................... 6
Proffitt's............................................................ 7
Prospectus Supplement................................................. cover
Qualified Institution................................................. 42
Rapid Amortization Period............................................. 12
Rating Agency......................................................... 15
Rating Agency Condition............................................... 37, 51
Receivables........................................................... cover
Receivables Purchase Agreement, Receivables Purchase Agreements....... 17
Record Date........................................................... 5
Recoveries............................................................ 47
Removed Accounts...................................................... 5
Reserve Account....................................................... 58
Revolving Period...................................................... 9
RTC................................................................... 61
Scheduled Payment Date................................................ 9
Securities Act........................................................ i
Senior Certificates................................................... 3
Series................................................................ cover
Series Adjustment Amount.............................................. 48
Series Supplement..................................................... 1
Service Transfer...................................................... 51
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Servicer.............................................................cover, 1, 7
Servicer Default..................................................... 51
Servicing Fee Percentage............................................. 50
Shared Excess Finance Charge Collections............................. 46
Shared Principal Collections......................................... 45
Shortfall Amount..................................................... 45
Special Tax Counsel.................................................. 63
Spread Account....................................................... 58
Standard & Poor's.................................................... 42
Stated Series Termination Date....................................... 49
Subordinated Certificates............................................ 3
Subservicers......................................................... cover
Terms and Conditions................................................. 33
Transfer Agent and Registrar......................................... 34
Transferor...........................................................cover, 1
Transferor Amount.................................................... 3
Transferor Percentage................................................ 30
Trust................................................................cover, 1
Trust Portfolio...................................................... cover
Trustee..............................................................cover, 1
U.S. Certificate Owner............................................... 63
U.S. Person.......................................................... I-3
UCC.................................................................. 17
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Proffitt's Credit Card Master Trust Asset Backed Certificates (the "Global
Securities") to be issued in Series from time to time (each, a "Series") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede, as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
Participants and Indirect Participants in DTC. As a result, Cedel and Euroclear
will hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in same-
day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
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Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. Payment will then be made by the
respective Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to pre-
position funds and allow the credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the
value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although this result will depend on each
Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel
I-2
<PAGE>
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or reduced rate of non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includable in gross income for United States tax
purposes, regardless of its source.
I-3
<PAGE>
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
I-4
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR INCORPORATED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, PCC, THE
TRUST OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT, 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 INCORPO-
RATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Series Terms.................................................... S-5
Risk Factors .............................................................. S-10
Credit Card Program........................................................ S-12
Composition of the Trust Portfolio......................................... S-21
The Accounts............................................................... S-25
Use of Proceeds ........................................................... S-25
Maturity Assumptions....................................................... S-25
Receivables Yield Considerations........................................... S-27
Pool Factors .............................................................. S-28
Series Provisions.......................................................... S-29
Certain Federal Income Tax Consequences.................................... S-51
State and Local Tax Consequences........................................... S-53
Underwriting............................................................... S-54
Legal Matters.............................................................. S-56
Index of Key Terms......................................................... S-57
Annex I.................................................................... A-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement..................................................... i
Reports to Certificateholders............................................. i
Available Information..................................................... i
Incorporation of Certain Documents by Reference........................... i
Cautionary Notice Regarding Forward-Looking Statements.................... ii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 17
Credit Card Program....................................................... 27
The Accounts.............................................................. 27
The Trust................................................................. 28
Maturity Assumptions...................................................... 28
Use of Proceeds........................................................... 29
The Company............................................................... 29
PCC....................................................................... 30
Description of the Certificates and the Pooling and Servicing Agreement... 30
Enhancement............................................................... 56
Certain Legal Aspects of the Receivables.................................. 58
Certain Federal Income Tax Consequences................................... 62
State and Local Tax Consequences.......................................... 67
ERISA Considerations...................................................... 67
Plan of Distribution...................................................... 69
Legal Matters............................................................. 70
Index of Terms for Prospectus............................................. 71
Annex I................................................................... I-1
</TABLE>
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UNTIL JUNE 23, 1998, 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.
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PROFFITT'S
CREDIT CARD MASTER TRUST
$200,000,000 CLASS A
6.00% ASSET BACKED CERTIFICATES,
SERIES 1998-2
$21,500,000 CLASS B
6.15% ASSET BACKED CERTIFICATES,
SERIES 1998-2
PROFFITT'S CREDIT CORPORATION
Transferor
PROFFITT'S, INC.
Servicer
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PROSPECTUS SUPPLEMENT
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Underwriters of the Class A Certificates
----------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN & CO.
Underwriter of the Class B Certificates
---------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
DATED MAY 14, 1998
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