<PAGE>
Filed Pursuant to
Rule 424(b)(2)
File No: 333-48739
Prospectus Supplement to Prospectus dated April 17, 1998
Saks Credit Card Master Trust
Issuer
Saks Credit Corporation
Transferor
Saks Incorporated
Servicer
$280,000,000 Class A Floating Rate Asset Backed Certificates, Series 1999-1
$30,275,000 Class B Floating Rate Asset Backed Certificates, Series 1999-1
Consider carefully
the risk factors
beginning on page
S-15 in this
prospectus
supplement and
page 18 of the
prospectus.
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.
The certificates
will represent
interests in the
Trust only and
will not represent
interests in or
obligations of
Saks or any Saks
affiliate.
Neither the SEC nor any state securities commission has approved the
certificates or determined that this prospectus supplement or the accompanying
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Underwriters of the Class A Certificates
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Chase Securities Inc.
J.P. Morgan & Co.
Underwriter of the Class B Certificates
Banc of America Securities LLC
July 14, 1999
<TABLE>
<CAPTION>
Class A Certificates Class B Certificates
-------------------- --------------------
Principal amount $280,000,000 $30,275,000
<S> <C> <C>
Certificate rate One-month LIBOR plus One-month LIBOR plus
0.22% annually 0.43% annually
Interest paid Monthly, beginning Monthly, beginning
August 16, 1999 August 16, 1999
Expected final
distribution
date July 15, 2002 July 15, 2002
Series
termination
date December 15, 2005 December 15, 2005
Price to public,
per certificate 100.00% 100.00%
Underwriting
discount, per
certificate 0.30% 0.35%
Proceeds to
Transferor, per
certificate 99.70% 99.65%
</TABLE>
The total price to public is $310,275,000, and the total amount of the
underwriting discount is $945,962.50. The total amount of proceeds before
deduction of estimated expenses of $500,000 is $309,329,037.50.
Credit Enhancement --
. The Class B certificates are subordinated to the Class A certificates. This
subordination provides credit enhancement for the Class A certificates.
. The Trust is also issuing a collateral interest of $68,100,000. The
collateral interest will be subordinated to both the Class A certificates
and the Class B certificates and will provide credit enhancement for the
Class A and the Class B certificates.
. Only the Class A and Class B certificates are offered by this prospectus
supplement and the accompanying prospectus. This prospectus supplement may
be used to offer and sell certificates only if accompanied by the
prospectus.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two documents: (a)
this prospectus supplement, which describes the specific terms of your series
and class of certificates, and (b) the accompanying prospectus, which provides
general information, some of which may not apply to your series and class of
certificates.
If the terms of your certificates or any information varies between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents included in the accompanying prospectus set forth the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Terms for Prospectus Supplement" beginning on page S-65 of
this prospectus supplement and under the caption "Index of Terms for
Prospectus" beginning on page 73 of the accompanying prospectus.
You need to read carefully this prospectus supplement and the accompanying
prospectus to understand the structure of the securities offered.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
SERIES 1999-1 TERMS........................................................ S-4
SERIES 1999-1 SUMMARY...................................................... S-5
RISK FACTORS............................................................... S-15
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS............................. S-18
Bankruptcy Reform........................................................ S-18
Proposed FDIC Policy..................................................... S-18
CREDIT CARD PROGRAM........................................................ S-19
General.................................................................. S-19
Company Overview......................................................... S-20
Bank Regulation.......................................................... S-21
Portfolio Information.................................................... S-21
Account Origination And Underwriting..................................... S-23
Account Monitoring....................................................... S-24
Billing And Payments..................................................... S-25
Delinquency, Collections And Losses...................................... S-25
COMPOSITION OF THE TRUST PORTFOLIO......................................... S-29
General.................................................................. S-29
Geographic Distribution.................................................. S-31
THE ACCOUNTS............................................................... S-31
USE OF PROCEEDS............................................................ S-31
MATURITY ASSUMPTIONS....................................................... S-31
RECEIVABLES YIELD CONSIDERATIONS........................................... S-34
POOL FACTORS............................................................... S-35
SERIES PROVISIONS.......................................................... S-35
General.................................................................. S-35
Interest Payments........................................................ S-36
Principal Payments....................................................... S-38
Discount Option Receivables.............................................. S-38
Postponement of Accumulation Period...................................... S-38
Reserve Account.......................................................... S-39
Subordination of the Class B Certificates and the Collateral Interest.... S-39
Investor Percentages and Transferor Percentage........................... S-40
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Reallocation of Cash Flows.............................................. S-42
Applications of Collections............................................. S-43
Example of Distributions................................................ S-49
Allocation of Investor Default Amount; Adjustment Amounts; Investor
Charge Offs............................................................ S-50
Allocation of Adjustment Amounts........................................ S-52
Pay Out Events.......................................................... S-53
Servicing Compensation and Payment of Expenses.......................... S-55
LISTING AND CLEARING OF CERTIFICATES...................................... S-55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFERED CERTIFICATES....... S-56
General................................................................. S-56
Characterization of the Offered Certificates as Indebtedness............ S-57
Treatment of the Trust.................................................. S-57
Possible Classification of the Transaction as a Partnership or as an
Association Taxable as a Corporation................................... S-58
Taxation of Interest Income of U.S. Certificate Owners.................. S-59
Sale or Other Disposition of a Certificate.............................. S-60
Non-U.S. Certificate Owners............................................. S-60
Backup Withholding...................................................... S-61
STATE AND LOCAL TAX CONSEQUENCES.......................................... S-62
UNDERWRITING.............................................................. S-63
LEGAL MATTERS............................................................. S-64
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT.................................. S-65
ANNEX I OTHER SERIES...................................................... A-1
</TABLE>
S-3
<PAGE>
SERIES 1999-1 TERMS
<TABLE>
<CAPTION>
<S> <C>
Transferor.............. Saks Credit Corporation (or SCC)
Servicer................ Saks Incorporated
Trustee................. Norwest Bank Minnesota, National Association
Pricing Date............ July 14, 1999
Closing Date............ July 21, 1999
Clearance and
Settlement............. DTC/Cedel/Euroclear
Trust Assets............ Receivables in credit card accounts now owned or later acquired by National
Bank of the Great Lakes that are designated to the Trust, including recoveries on
charged-off receivables in these accounts
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Series Amount % of Total Series
Structure:
Class A...... $280,000,000 74.0%
Class B...... $30,275,000 8.0%
Collateral $68,100,000 18.0%
Interest....
Annual 2.00%
Servicing
Fee..........
<CAPTION>
Class A Class B
-------------------------------- -------------------------------
<S> <C> <C>
Anticipated
Ratings:*
(Moody's / S&P Aaa/AAA/AAA
/ Duff)...... A1/A/A
Credit Subordination of Class B and the Subordination of the collateral
Enhancement.. collateral interest interest
Certificate One-month LIBOR plus 0.22% p.a. One-month LIBOR plus 0.43% p.a.
Rate.........
Interest Actual / 360 Actual / 360
Accrual
Method.......
Interest Monthly (15th) Monthly (15th)
Payment
Dates........
Interest Rate 2 London business days before 2 London business days before
Index each interest payment date each interest payment date
Re-set Date..
First Interest August 16, 1999 August 16, 1999
Payment
Date.........
Expected July 15, 2002 July 15, 2002
Payment
Date.........
Commencement
of
Accumulation
Period
(subject to
adjustment).. July 1, 2001 July 1, 2001
Stated Series
Termination
Date......... December 15, 2005 December 15, 2005
CUSIP Number.. 79377BAA2 79377BAB0
ISIN.......... US79377BAA26 US79377BAB09
Common Code... 010010705 010010721
</TABLE>
- --------
* It is a condition of issuance that one of these ratings is obtained.
S-4
<PAGE>
SERIES 1999-1 SUMMARY
. This summary:
a highlights selected information from this document,
a does not contain all of the information that you need to consider in
making your investment decision,
a provides general, simplified descriptions of matters which, in some
cases, are highly technical and complex. More detail is provided in
other sections of this prospectus supplement and in the prospectus.
. To understand all the terms of the offering of the certificates, read
carefully all of this prospectus supplement and the accompanying prospectus.
The Trust
The Saks Credit Card Master Trust is offering the Class A certificates and the
Class B certificates as part of Series 1999-1. The Class B certificates are
subordinated to the Class A certificates. In this prospectus supplement, when
we use "your certificates," we mean the Series 1999-1 Class A and Class B
certificates.
The Trust has issued four other series of certificates, and expects to issue
additional series in the future. The certificates of each series will represent
an ownership interest in the assets of the Trust. Series 1999-1 is part of
Group One, which includes all of the previously issued series.
National Bank of the Great Lakes
The bank is a limited purpose credit card bank. The bank originates and
acquires credit card accounts for the customers of Saks' retail stores and its
catalog businesses. Except for receivables in designated accounts acquired in
Fall 1998, the bank has sold all the receivables generated in its credit card
accounts to Saks Credit Corporation, as transferor. The bank's principal
offices are located in Elmhurst, Illinois and its telephone number is (630)
515-8200.
The Transferor
As transferor, Saks Credit Corporation sells eligible receivables to the Trust.
Saks Credit Corporation is the successor to Proffitt's Credit Corporation which
is sometimes referred to as "PCC" in the accompanying prospectus. Saks Credit
Corporation's principal offices are located at 140 Industrial Drive, Elmhurst,
Illinois 60126 and its telephone number is (630) 515-8200.
The Servicer
Saks is the servicer. Through its subservicer, Saks collects payments on the
receivables and allocates the collections among the interests in the Trust.
McRae's, Inc. currently is the sole subservicer.
The Receivables
The primary assets of the Trust are receivables generated by the bank's
portfolio of revolving consumer credit card accounts. The receivables consist
of principal receivables and finance charge receivables.
The following information is as of June 28, 1999.
. Principal receivables in the Trust: $1,050.0 million.
. Finance charge receivables in the Trust: $37.3 million.
. Accounts designated to the Trust: 8.1 million.
See "The Accounts" in this prospectus supplement.
The Offered Certificates
Certificates
The Trust is offering:
. $280,000,000 of Class A certificates; and
. $30,275,000 of Class B certificates.
You may purchase beneficial interests in these certificates in minimum
denominations of $1,000 and integral multiples of $1,000.
We expect that the Trust will issue the offered certificates on July 21, 1999.
Distribution Dates
Distributions for the Series 1999-1 certificates will be made on the 15th day
of each month, or if that
S-5
<PAGE>
day is not a business day, the next business day. The first distribution date
will be August 16, 1999.
Interest Payments
The Class A certificates will accrue interest for each interest period at an
annual rate equal to the one-month LIBOR rate plus 0.22%.
The Class B certificates will accrue interest for each interest period at an
annual rate equal to the one-month LIBOR rate plus 0.43%.
Interest accrued during an interest period will be due on the following
distribution date. Any interest due but not paid on a distribution date will be
payable on the next distribution date together with additional interest at the
applicable certificate rate plus 2% per annum.
. Each "interest period" begins on and includes a distribution date and ends
on but excludes the next distribution date. However, the first interest
period will begin on and include July 21, 1999 and end on and exclude
August 16, 1999, the first distribution date.
. LIBOR is the rate for deposits in U.S. dollars for a one-month period which
appears on the Telerate Page 3750 (or similar replacement page) as of 11:00
A.M., London time, on the related LIBOR determination date. See "Series
Provisions -- Interest Payments" in this prospectus supplement for a
discussion of the determination of LIBOR if that rate does not appear on
Telerate Page 3750 (or similar replacement page).
. LIBOR determination dates are:
. July 19, 1999, for the period beginning on and including July 21, 1999
and ending on but excluding August 16, 1999;
. August 12, 1999 for the period beginning on and including August 16,
1999 and ending on but excluding September 15, 1999; and
. the second London business day prior to the first day of each interest
period, for each interest period thereafter.
The following time line shows the relevant dates for the first two interest
periods.
First Two Interest Periods
Other interest periods will follow sequentially after the second interest
period in the same manner as is shown in the time line.
See "Series Provisions -- Interest Payments" in this prospectus supplement for
a discussion of the determination of amounts available to pay interest and for
the definition of business day and London business day.
You may obtain certificate rates for the current and immediately preceding
interest periods by telephoning Norwest Bank Minnesota, National Association,
the trustee, at (612) 667-3536.
Principal Payments
We expect that the Trust will distribute principal on the certificates on the
dates noted below; however, principal may be distributed earlier or later. You
will not be entitled to any premium for principal that is distributed earlier
or later.
If adverse events known as pay out events occur, the Trust may distribute
principal earlier than expected.
If collections on the credit card receivables are less than expected or are
collected more slowly than expected, then principal distributions may be
delayed.
. We expect that the Trust will distribute principal on the Class A and the
Class B certificates on the July, 2002 distribution date.
S-6
<PAGE>
. If the Trust does not distribute principal on the certificates on the
expected payment date, the Trust will continue to use collections of
receivables to pay principal on the certificates until they are paid in
full, or December 15, 2005 whichever occurs first.
See "Maturity Assumptions" in this prospectus supplement and in the
accompanying prospectus and "Series Provisions -- Investor Percentages and
Transferor Percentage " and "-- Principal Payments" in this prospectus
supplement for a discussion of the determination of amounts available to pay
principal.
The Collateral Interest
At the same time as the Trust issues the Class A and the Class B certificates,
the Trust will issue $68,100,000 of a collateral interest as part of
Series 1999-1.
As a subordinated interest, the collateral interest is a form of credit
enhancement for the Class A and Class B certificates.
The collateral interest may be subdivided into separate interests, and on the
closing date, all or some of the collateral interest may be sold to third
parties or to Saks or its affiliates, or retained by the transferor, and if
retained, all or some of the collateral interest may be sold to third parties
or to Saks or its affiliates at any time.
The collateral interest is not offered by this prospectus supplement and the
accompanying prospectus.
Credit Enhancement
. The credit enhancement described in this prospectus supplement benefits
Series 1999-1 only. You are not entitled to the benefits of any credit
enhancement available to other series.
. Subordination of the Class B certificates provides credit enhancement for
the Class A certificates. Subordination of the collateral interest provides
credit enhancement for both the Class A certificates and the Class B
certificates.
. The spread account is established only for the benefit of the collateral
interest and should not be considered enhancement for the Class A and Class
B certificates.
The principal amount outstanding at any time on a class of certificates and the
collateral interest is called the "investor amount." The collateral interest
amount and the Class B investor amount must be reduced to zero before the Class
A investor amount will suffer any loss of principal. The collateral interest
amount must be reduced to zero before the Class B investor amount will suffer
any loss of principal.
See "Series Provisions -- Reallocation of Cash Flows," "-- Applications of
Collections" and "-- Allocation of Investor Default Amount; Adjustment Amounts;
Investor Charge Offs" in this prospectus supplement for events which may lead
to a reduction of the Class A investor amount, the Class B investor amount, and
the collateral interest amount.
Other Interests in the Trust
Other Series of Certificates
Each series previously issued and currently outstanding is summarized in "Annex
I: Other Series" at the end of this prospectus supplement. The Trust may issue
additional series or classes with terms that may be different from Series 1999-
1 without the prior review or consent of the certificateholders of any series,
if the rating agency condition is met.
The Transferor Interest
SCC will own the transferor interest. The transferor interest represents the
remaining interests in the Trust's assets that are not represented by the
certificates of the various series and any collateral or other interests issued
by the Trust.
The transferor interest does not provide credit enhancement for your series or
any other series.
Allocations and Payments to You
and Your Series
Each month, the servicer will allocate collections of receivables, and the
amount of receivables that are written off as uncollectible, among:
. Series 1999-1;
. other outstanding series; and
. the transferor interest.
S-7
<PAGE>
From the amounts allocated to your series, the servicer will further allocate
among the Class A certificates, the Class B certificates and the collateral
interest based on the investor amount of each class.
Initially, the investor amount of each class will be equal to the original
principal amount of that class. The investor amount of a series or a class will
decline as a result of the accumulation of principal collections in the
principal account or principal payments. The investor amount may also decline
if collections of finance charge receivables are not sufficient to cover
receivables defaults allocated to a series or class of certificates. If the
investor amount for your series or class declines, there may be a reduction in
the amounts allocated and available for payment to you.
See the following chart and "Series Provisions -- Investor Percentages and
Transferor Percentage" and "-- Reallocation of Cash Flows" in this prospectus
supplement.
The following chart illustrates the Trust's general allocation structure only
and does not reflect the relative percentages of collections or other amounts
allocated to the transferor interest, to holders of the Series 1999-1 Class A
certificates, Class B certificates or the collateral interest, or any other
series.
Allocation of Trust Assets
Allocations of Collections of Finance Charge Receivables
The following chart demonstrates the manner in which collections of finance
charge receivables will be allocated and applied to your series. The chart is a
simplified demonstration of allocation and payment provisions and is qualified
by the full descriptions of these provisions in this prospectus supplement and
the accompanying prospectus.
Step 1:
. Collections of finance charge receivables and other amounts for Series 1999-
1 will be allocated, in order of priority, to the Class A investor amount,
the Class B investor amount, and the collateral interest amount.
Step 2:
. Collections of finance charge receivables and other amounts allocated to the
Class A certificates will be used in the following priority: first, to make
the interest payment due on the Class A certificates, then, to pay Class A's
portion of the servicing fee if Saks is no longer the servicer, and then to
cover Class A's portion of the receivables that are written off as
uncollectible (known as the default amount). Any remaining amount will
become excess spread and be applied as described in Step 3 below.
. Collections of finance charge receivables allocated to the Class B
certificates will be used in the following priority: first, to make the
interest payment due on the Class B certificates, and then to pay Class B's
portion of the servicing fee if Saks is no longer the servicer. Any
remaining amount will become excess spread and be applied as described in
Step 3 below.
. Collections of finance charge receivables allocated to the collateral
interest will be used to pay the collateral interest's portion of the
servicing fee if Saks is no longer the servicer. Any remaining amount will
become excess spread and be applied as described in Step 3 below.
. Remaining collections of finance charge receivables allocated to the Class B
investor amount and the collateral interest amount are applied in Step 3
because of their subordinated status.
S-8
<PAGE>
Step 3:
Collections of finance charge receivables allocated to your series and not used
in Step 2 are treated as excess spread and applied, together with shared excess
finance charge collections from other series in Group One, as necessary and
available, in the following priority:
. to make up deficiencies with respect to Class A, in their order of priority,
to the extent not covered in Step 2;
. to reimburse reductions of the Class A investor amount;
. to make up deficiencies with respect to Class B, in their order of priority,
to the extent not covered in Step 2;
. to cover Class B's portion of the default amount;
. to fund, if necessary, a reserve account, to cover interest payment
shortfalls;
. to reimburse reductions of the Class B investor amount;
. to pay the interest due on the collateral interest;
. to pay the servicing fee, or if Saks is no longer the servicer, to pay the
portion not covered in Step 2;
. to cover the collateral interest's portion of the default amount;
. to reimburse reductions of the collateral interest amount;
. to fund, as required, the spread account for the benefit of the collateral
interest;
. to fund, as required, other amounts due to the collateral interest; and
. finally, to other series in Group One, as part of shared excess finance
charge collections.
See "Series Provisions -- Applications of Collections" in this prospectus
supplement.
S-9
<PAGE>
Allocations of Collections of Finance Charge Receivables
Allocations of Collections of Principal Receivables for Series 1999-1
As long as no pay out event has occurred, your series' share of principal
collections, including shared principal collections from other series in Group
One will be applied each month as follows:
Step 1:
Collections of principal receivables for your series will be allocated, based
on the respective percentages, among the Class A investor amount, the Class B
investor amount and the collateral interest amount.
Step 2:
. Collections of principal receivables allocated to the collateral interest
and the Class B certificates may be reallocated, if necessary,
to make required payments on the Class A certificates that were not made
from finance charge collections, excess spread or shared excess finance
charge collections.
. Collections of principal receivables allocated to the collateral interest
may be reallocated, if necessary, to make required payments on the Class B
certificates that were not made from finance charge collections, excess
spread or shared excess finance charge collections.
. During the revolving period, no principal will be paid to you or holders of
the collateral interest, or accumulated in a trust account.
. During each month in the accumulation period, principal collections will be
deposited in a trust
S-10
<PAGE>
Allocations of Collections of Principal Receivables
account, up to a specified amount (known as the controlled deposit amount)
for payment first to the Class A certificateholders, and then to the Class B
certificateholders on the expected final distribution date, and then to pay
the holders of the collateral interest.
The amount, priority and timing of your principal payments, if any, depend on
whether your series is in the revolving period, the accumulation period or a
rapid amortization period, as described below.
The Class A certificates will be paid in full before the Class B certificates
and the collateral interest receive any payments of principal. The Class B
certificates will be paid in full before the collateral interest receives any
payments of principal.
Step 3:
Any remaining principal collections will be made available to other series in
Group One as shared principal collections, to the extent necessary, or paid to
the transferor.
See "Maturity Assumptions" and "Series Provisions -- Applications of
Collections" in this prospectus supplement.
The following chart demonstrates the manner in which collections of principal
receivables are allocated and applied to your series. The chart is a simplified
demonstration of certain allocation and payment provisions and is qualified by
the full descriptions of these provisions in this prospectus supplement and the
accompanying prospectus.
Revolving Period: Series 1999-1 will have a revolving period, when the Trust
will not pay or accumulate principal for certificateholders or the holders of
the collateral interest. In general, during the revolving period, the Trust
will pay available principal to other series or the holder of the
S-11
<PAGE>
transferor interest. See "Series Provisions -- Principal Payments" and "--
Applications of Collections" in this prospectus supplement.
The revolving period will start on the closing date and end on the earlier to
begin of:
. the accumulation period; or
. a rapid amortization period.
Accumulation Period: During the accumulation period, the servicer will deposit
a specified amount in the principal account each month in order to pay the
certificates and the collateral interest in full on the expected payment date.
Each month, the Trust will pay principal that is not required to be deposited
in the principal account to other series or the holder of the transferor
interest. Each month, if the amount actually deposited in the principal account
is less than the required deposit, the amount of this deficiency will be
carried forward as a shortfall and included in the next month's required
deposit. See "Series Provisions -- Principal Payments" and "-- Applications of
Collections" in this prospectus supplement.
On the expected payment date, the Trust will use the money on deposit in the
principal account to pay (a) the Class A investor amount, (b) if the Class A
investor amount is paid in full, the Class B investor amount and (c) if the
Class B investor amount is paid in full, the collateral interest amount.
You should be aware that there may not be sufficient amounts available to pay
principal in full for the Class A investor amount or the Class B investor
amount on the expected payment date. In addition, if the money on deposit in
the principal account is insufficient to pay these amounts on the expected
payment date or if a pay out event occurs, the rapid amortization period will
begin and the timing of your principal payments could change. See "Maturity
Assumptions" in this prospectus supplement and in the accompanying prospectus.
The accumulation period is scheduled to begin at the close of business on June
30, 2001, but in some cases may be delayed to no later than the close of
business on May 31, 2002. See "Series Provisions-- Postponement of Accumulation
Period" in this prospectus supplement.
The accumulation period will end upon the earliest of the following:
. the investor amount is paid in full;
. a rapid amortization period begins; or
. the Series 1999-1 termination date.
Pay Out Events: Adverse events called pay out events might lead to the start of
a rapid amortization period, which will end the revolving period or the
accumulation period.
A pay out event for your series will include the following events:
. we do not make a required payment or deposit within the applicable grace
period;
. we fail to observe or perform in any material respect any other obligation
or agreement causing you to be adversely affected, if (a) we do not remedy
the violation within 60 days after written notice is given and (b) you
continue to be materially and adversely affected for the 60-day period;
. certain of our representations, warranties or other information were
materially incorrect at the time they were provided causing you to be
adversely affected, if (a) they continue to be materially incorrect 60 days
after written notice is given and (b) you continue to be materially and
adversely affected for the 60-day period;
. the three-month average net yield on the receivables is less than the
average base rate for the same three-month period;
. we fail or are unable to designate additional accounts or to transfer
receivables to the Trust, as required under the pooling and servicing
agreement;
. defaults by the servicer that have a material adverse effect on you; or
. you are not paid in full on the expected payment date.
See "Series Provisions -- Pay Out Events" in this prospectus supplement.
S-12
<PAGE>
Rapid Amortization Period: If a rapid amortization period begins, the Trust
will use any available principal collections allocated to your series to pay
(a) the Class A investor amount, (b) if the Class A investor amount is paid in
full, the Class B investor amount and (c) if the Class B investor amount is
paid in full, the collateral interest amount. These payments will begin on the
distribution date in the month after the rapid amortization period begins.
The rapid amortization period will begin if a pay out event occurs and will end
upon the earliest of the following:
. the investor amount is paid in full;
. the Series 1999-1 termination date; or
. the Trust termination date.
Shared Principal Collections
Series 1999-1 is included in a group of series designated as "Group One." Each
series listed in "Annex I: Other Series" included at the end of this prospectus
supplement is, and future series may be, included in Group One. To the extent
that collections of principal receivables allocated to your series are not
needed to make payments or deposits to the principal account for your series,
these collections, called shared principal collections, will be applied to
cover principal payments for other series within Group One. Any reallocation
for this purpose will not reduce your series' investor amount. In addition, you
may receive the benefits of collections of principal receivables and certain
other amounts allocated to other series in Group One, to the extent those
collections are not needed for those other series. See "Description of the
Certificates and the Pooling and Servicing Agreement -- Shared Principal
Collections" in the accompanying prospectus.
Registration, Clearance and Settlement
Your certificates will be registered in the name of Cede & Co., as the nominee
of The Depository Trust Company. You will not receive a definitive certificate
representing your interest, except in limited circumstances described in the
accompanying prospectus, when certificates in fully registered, certificated
form are issued. See "Description of the Certificates and the Pooling and
Servicing Agreement -- Definitive Certificates" in the accompanying prospectus.
You may elect to hold your Certificates through DTC, in the United States, or
Cedelbank, societe anonyme or the Euroclear System, in Europe. Transfers within
DTC, Cedelbank or Euroclear, as the case may be, will be made in accordance
with the usual rules and operating procedures of those systems.
We expect that the Certificates will be delivered in book-entry form through
the facilities of DTC, Cedelbank and Euroclear on or about July 21, 1999. See
"Listing and Clearing of Certificates" in this prospectus supplement and
"Description of the Certificates and the Pooling and Servicing Agreement --
Book-Entry Registration" and Annex I in the accompanying prospectus.
Tax Status
Alston & Bird LLP, as our special counsel, is of the opinion that under
existing law, your certificates will be characterized as debt for federal
income tax purposes. By your acceptance of a Series 1999-1 certificate, you
will agree to treat your certificates as debt for federal, state and local
income tax purposes and franchise tax purposes. See "Certain Federal Income Tax
Consequences of the Offered Certificates" in this prospectus supplement and
"Certain Federal Income Tax Consequences" in the accompanying prospectus for
additional information concerning the application of federal income tax laws.
ERISA Considerations
The Class A certificates may be eligible for purchase by persons investing
assets of employee benefit plans or individual retirement accounts, if 100 or
more investors purchase the Class A certificates.
The Class B certificates are not eligible for purchase by persons investing
assets of employee benefit plans or individual retirement accounts other than
an insurance company's investments for its general account.
You should read "ERISA Considerations" in the accompanying prospectus for more
information regarding investments by persons subject to ERISA.
S-13
<PAGE>
Certificate Ratings
The Class A certificates will be rated in the highest rating category by at
least one nationally recognized rating organization.
The Class B Certificates will be rated in one of the three highest rating
categories by at least one nationally recognized rating organization. See "Risk
Factors -- Limited Nature of Certificate Rating" in the accompanying
prospectus.
Exchange Listing
We expect to list the certificates on the Luxembourg Stock Exchange. We cannot
guaranty that the application for the listing will be accepted or, if accepted,
when the listing will be accepted. You should consult with Banque Generale du
Luxembourg S.A. listing agent for the certificates, 50 Avenue J.F. Kennedy, L-
2951, Luxembourg, phone number (011) 352-4242-2686, to determine whether or not
the certificates are listed on the Luxembourg Stock Exchange. See "Listing and
Clearing of Certificates" in this prospectus supplement and "Description of the
Certificates and the Pooling and Servicing Agreement -- Book-Entry
Registration" and Annex I in the accompanying prospectus.
Additional Information
For more information, you can call (205) 940-4000 and direct your inquiries to
Charles J. Hansen.
S-14
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors in deciding whether to
purchase the certificates.
Your Certificates Have Limited The subordination of the collateral
Credit Enhancement. You May interest and, in the case of the Class A
Not Receive All Principal and certificates, the additional subordination
Interest. of the Class B certificates, provide
limited credit enhancement. If the
available credit enhancement is reduced to
zero, your right to receive payments of
principal and interest will depend solely
on the Trust receiving payments on the
receivables. The spread account is for the
sole benefit of the collateral interest,
and is not credit enhancement for your
certificates. You have no right to seek
payment from Saks, the transferor, the
servicer, or the bank, or any of their
affiliates, of payments of interest or
principal on the certificates.
If You Hold Class B If you hold Class B certificates, you will
Certificates, You Will Be Paid receive payments of principal only after
Only After the Class A the holders of the Class A certificates
Certificates Have Been Paid have been paid all interest and principal
due and owing to them. In addition, if the
collateral interest amount has been reduced
to zero, the Class B investor amount will
be reduced to the extent that payments due
on the Class A certificates for any month
cannot be made from the collections
allocated to your series. A reduction in
the Class B investor amount will result in
collections of finance charge receivables
allocable to the Class B certificates in
future months being reduced, which may
delay or reduce payments on the Class B
certificates.
Additionally, if receivables have to be
sold due to a pay out event occurring, the
net sales proceeds available to pay
principal would be paid first to the Class
A certificateholders and any remaining net
proceeds would be paid to the Class B
certificateholders. If that amount is
insufficient to pay the Class B
certificateholders in full, they will
suffer a loss. If the collateral interest
amount is reduced to zero, the Class B
certificateholders will not have the
benefit of any credit enhancement and will
bear the full credit and other risks
associated with their interest in the
Trust.
See "Description of the Certificates and
the Pooling and Servicing Agreement" in the
accompanying prospectus and "Series
Provisions -- Principal Payments" and "--
Pay Out Events" in this prospectus
supplement.
Principal May be Paid Earlier If Saks is unable to generate receivables
Than Expected Creating from store and catalog sales at the same
Reinvestment Risks, or Later rate as in previous years, a pay out event
Than Expected Resulting in You may occur, causing the rapid amortization
Not Receiving Payments When period to begin. During the rapid
Expected amortization period, collections of
principal receivables will be used to
reduce the Class A investor amount to zero
and then to reduce the Class B investor
amount to zero. The Class A and Class B
investor amounts may be reduced to zero
prior to the expected
S-15
<PAGE>
payment date. If this occurs, you will
receive less interest on your certificates
than expected, and you may be unable to
reinvest the returned principal at a rate
of return and with risks similar to your
certificates.
See "Risk Factors -- Dependence on the
Company's Department Stores; Competition"
in the accompanying prospectus.
Differences between Interest The receivables currently accrue interest
Rates on Floating Rate at a fixed rate. Your certificates accrue
Certificates and Fixed Rate interest at a rate based on LIBOR, which is
Assets May Reduce the Funds a floating rate. If the LIBOR rate
Available to increases, the trust is required to
Certificateholders and Cause distribute more money to certificateholders
an Early Repayment of as interest, but the fixed interest rate
Certificates receivables will not provide the trust with
corresponding greater amounts of income. If
LIBOR increases, the trust may have
insufficient money to pay interest on your
certificates, and a pay out event and an
early repayment of the principal of your
certificates could occur.
If the bank changes the terms of the
accounts in the future to charge a floating
rate of interest, that floating rate may
not be a LIBOR-based rate. In that case,
there will be a so-called "basis risk,"
which is the risk that the interest rate on
the receivables changes in an amount or
direction different than changes in LIBOR.
In this case, the trust may have
insufficient funds to pay interest on the
certificates, and a pay out event and an
early repayment of the principal of your
certificates could occur.
The trust does not have the benefit of any
interest rate hedge arrangement that would
reduce these risks. The bank may, however,
subject to competitive conditions, change
the rates or the method of determining the
interest rates charged on its accounts.
The Department Stores' Sales of Saks' merchandise and services are
Seasonal Sales Affect the seasonal, with disproportionately high
Level of Receivables and the levels during the Christmas shopping
Level of Credit Losses season. Sales are generally weakest during
the summer months due to vacations. The
outstanding amount of receivables reflects
this seasonality. Credit losses typically
lag credit sales by seven to eight months
reflecting Saks' write-off policies.
Therefore, the seasonal increase in credit
losses due to Christmas sales coincides
with the low summer sales volumes. This
raises the ratio of credit losses to
receivables balances during the summer.
If these higher losses during the summer
months cannot be absorbed by the
allocations of finance charge collections
and credit enhancement and new receivables
from additional sales and charges, a pay
out event could occur, and the principal on
your certificates may be returned earlier
than expected.
S-16
<PAGE>
If the Servicer is Unable to In June 1999, Saks assumed responsibility
Successfully Integrate the from a third party for servicing the Saks
Saks Fifth Avenue Credit Card Fifth Avenue receivables. While Saks has
Operations, the Trust successfully integrated the credit card
Portfolio's Performance Could operations of acquired businesses in the
Be Affected past, unanticipated problems could occur in
this conversion. A failure to successfully
integrate Saks Fifth Avenue credit card
operations could materially adversely
affect the performance of the Trust
portfolio, which could result in payments
on your certificates not being made when
expected.
See "Credit Card Program" in this
prospectus supplement.
S-17
<PAGE>
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS
Bankruptcy Reform
On May 5, 1999, the House of Representatives passed The Bankruptcy Reform
Act of 1999 (the "Reform Act"), which, if enacted, will make numerous changes
to the Bankruptcy Code with respect to consumer bankruptcy protection matters,
including various provisions that affect credit card debt.
Among other things, the Reform Act eases the requirements for creditors to
obtain a dismissal of a bankruptcy case of an individual debtor with primarily
consumer debts. The Reform Act presumes a debtor's abuse of the bankruptcy
provisions if such debtor's income exceeds certain minimum amounts. The
Bankruptcy Code also would be amended to promote alternative dispute resolution
by allowing the bankruptcy court, subject to certain conditions, to reduce a
creditor's claim by up to 20% if an individual debtor with wholly unsecured
consumer debts can prove by "clear and convincing evidence" that the creditor
"refused to negotiate a reasonable alternative repayment schedule proposed by
an approved credit counseling agency" prior to the filing of the bankruptcy
case.
The Reform Act would discourage bad faith repeat filings by amending the
automatic stay provisions of Section 362 of the Bankruptcy Code. If an
individual debtor files under Chapters 7, 11 or 13 of the Bankruptcy Code
within one year of a dismissed prior pending case, the automatic stay would
automatically terminate on the 30th day after the filing of the later case to
allow creditors to collect on any indebtedness owed. In addition, if there were
two or more prior pending cases which were later dismissed, the automatic stay
would not go into effect at all upon the current filing. Under certain
circumstances, in both instances, the bankruptcy court could extend or
reinstate the automatic stay, as the case may be.
The scope of the discharge of debts under Chapter 13 would be narrowed by
the Reform Act to prohibit the discharge of an individual debtor's debts for
any money or property obtained under false pretenses or by actual fraud. In
addition, discharge would not be permitted for consumer debts for certain
luxury goods and services owed to a single creditor in excess of $250 or cash
advances in excess of $250 to the extent such debts or cash advances were
incurred or obtained on or within 90 days before the entry of the order for
relief under Chapter 13.
The Reform Act also provides significant assurances in securitization
transactions by amending Section 541 of the Bankruptcy Code to state that
eligible financial assets (including credit card receivables) transferred by a
debtor to permitted entities (which would include transfers to the Trust) prior
to the filing of a bankruptcy case would not constitute property of the
debtor's bankruptcy estate. This change would ensure that the sale and the
transfer of Receivables to the Trust from the Transferor should not be part of
the sellers' bankruptcy estate under Section 541 of the Bankruptcy Code if the
sellers were to become bankrupt. The Bank is not a bankruptcy eligible entity.
See "Certain Legal Aspects of the Receivables--Certain Matters Relating to
Bankruptcy or Insolvency" in the Prospectus.
No prediction is made as to whether the Reform Act will be passed or
enacted, and if enacted, its final provisions.
Proposed FDIC Policy
The FDIC has proposed a policy statement with respect to the treatment of
securitizations and loan participations by the FDIC in its role as conservator
or receiver of insured depository institutions. The Federal Deposit Insurance
Act, provides that the FDIC, when acting as conservator or receiver of an
insured depository institution, may repudiate any contract entered into by such
institution, including agreements entered into in connection with
securitizations. Subject to certain conditions, the proposed policy statement
specifies that if the FDIC, as conservator or receiver of an insured depository
institution, repudiates a securitization-related contract, the FDIC will not
attempt to reclaim, recover, or recharacterize as property of the institution
financial
S-18
<PAGE>
assets transferred to a special purpose entity in connection with a
securitization. These conditions include satisfaction of the criteria for sale
accounting under generally accepted accounting principles, documenting the
transfer of the financial assets in a securitization as a sale as opposed to a
secured financing, and the insured depository institution's receipt of adequate
consideration for the transfer. See "Certain Legal Aspects of the Receivables--
Certain Matters Relating to Receivership" in the Prospectus.
CREDIT CARD PROGRAM
General
On February 2, 1998, Saks (formerly named "Proffitt's, Inc.") acquired
National Bank of the Great Lakes (the "Bank"), a national credit card bank, as
a result of Saks' acquisition of Carson Pirie Scott & Co. ("CPS"). The Bank has
been issuing proprietary credit cards to CPS customers since February 1996.
Upon the acquisition of CPS, Saks contributed all of its proprietary credit
card accounts to the Bank.
On September 17, 1998, Proffitt's, Inc. acquired Saks Holdings, Inc. ("Saks
Holdings"). At that time, Proffitt's changed its name to "Saks Incorporated"
("Saks"). Saks Holdings operates the Saks Fifth Avenue, Off 5th, Bullock &
Jones and Folio businesses ("Saks Fifth Avenue"). Upon the acquisition of Saks
Holdings, Saks contributed all of Saks Fifth Avenue's proprietary credit card
accounts to the Bank.
On July 1, 1999, Saks designated to the Trust approximately two million
accounts of Saks Fifth Avenue customers which comprised approximately $341
million of receivables. At the same time, the Trust changed its name from the
"Proffitt's Credit Card Master Trust" to the "Saks Credit Card Master Trust",
and a new Saks' subsidiary, Saks Credit Corporation ("SCC" or the
"Transferor"), succeeded Proffitt's Credit Corporation, as Transferor to the
Trust. SCC also entered into a new Receivables Purchase Agreement with the Bank
which replaced PCC's previous Receivables Purchase Agreement with the Bank.
The Bank issues proprietary credit cards to customers of the Saks Fifth
Avenue, Proffitt's, McRae's, Younkers, Herberger's, Parisian, Carson Pirie
Scott, Boston Store and Bergner's department stores (collectively, the
"Department Stores") for in-store, phone and catalog purchases. Saks uses the
Bank's proprietary credit card programs to help stimulate sales, generate brand
loyalty, and to market Saks' merchandise and services. The Bank originates and
administers each program, performing some functions directly and others by
contracts with affiliates and third parties, under standardized guidelines that
maintain control over the credit underwriting and collections processes. The
Bank's ownership of the credit card accounts creates efficiencies and cost
savings, and increases revenue by, among other things (i) allowing for greater
standardization of terms for all of the Bank's credit card accounts, (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.
Saks and its subsidiaries provide credit card services for all of the Bank's
credit card customers at servicing facilities located in Jackson, Mississippi
and Elmhurst, Illinois (each, a "Credit Service Center"). All credit card
servicing, credit granting, administration and collection functions not
performed directly by the Bank are conducted centrally by the Credit Service
Centers on behalf of the Bank and SCC pursuant to service agreements. Both
Credit Service Centers use versions of the Vision21 credit and processing
system. Vision 21 is a fully automated system, obtained from a third party
vendor, that has been modified to meet Saks' specific needs.
Saks Fifth Avenue employed Alliance Data Systems ("ADS"), (formerly JC
Penney Business Services Incorporated) to perform all credit processing
services from 1992 to June 1999, pursuant to Saks Fifth Avenue's performance
rules and guidelines, at ADS' Dallas facility. Saks terminated the ADS
servicing contract in June 1999 and has converted all processing from ADS (the
"Conversion"). Most processing functions, including application processing,
authorizations, transaction processing, statement rendition, customer service,
and collections for the Saks Fifth Avenue accounts now are performed directly
by the Bank or by contracts with affiliates. Certain activities are performed
by unaffiliated third parties under agreements with the Bank. All references to
the administration and processing of the Saks Fifth Avenue accounts describe
the post-Conversion administration and processing.
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<PAGE>
Approximately 43% of Saks' consolidated net sales in calendar year 1998 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 Saks'
marketing and growth strategies, and generates significant finance charge
income which augments the income received from the sale of merchandise and
services. Saks 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 customers who use other
payment methods.
Saks 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 verification. Also, customers who open accounts are
entitled to discounts on first day purchases made using their new Bank credit
card account. See "-- Account Origination and Underwriting."
The Trust has an aggregate of approximately 4.8 million credit card accounts
outstanding that have been active in the last 12 months.
Company Overview
Saks Incorporated is a national retailer currently operating more than 350
Department Stores in 38 states. Saks' stores are principally anchor department
stores in leading regional or community malls and typically offer a broad
selection of fashion apparel, shoes, accessories, jewelry, cosmetics,
decorative home furnishings, and furniture in selected locations. In addition,
Saks operates the Folio and Bullock & Jones catalog businesses.
Store Formats
Saks believes that by positioning the stores in diverse geographic locations
and by using different store formats and trade names, it is able to appeal to a
broad portion of its potential customer base. For example, the Younkers and
Proffitt's store formats generally appeal to middle and upper-middle income
customers in smaller and mid-size trade areas, while the Parisian store format
generally appeals to upper-middle and upper-income customers in larger
metropolitan trade areas.
Complementing these formats are:
. The Saks Fifth Avenue format, which has a leadership position in luxury
merchandise primarily through stores located in major urban and suburban
trade areas and many resort locations;
. The Off 5th outlet format, which offers off-price merchandise to a more
moderate-income segment of customers; and
. The Folio and Bullock & Jones catalog formats, which offer merchandise
by direct mail.
In smaller communities, Saks' stores cater to middle and upper income
customers with a selection of name-brand merchandise that is not otherwise
available in that trade area. In larger metropolitan areas, Saks tries to
maximize its presence by operating several stores (sometimes with different
formats) in prime locations. In addition, management believes that Saks Fifth
Avenue stores serve as destination stores that draw customers from a wide
geographic base. Each of the stores carry name-brand merchandise selected to
appeal to the particular customer base of the store. Key brands featured in the
more traditional Department Stores include Liz Claiborne, Calvin Klein,
Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Estee Lauder, Clinique, Lancome,
Nine West, Enzo, Waterford, and Bali. In addition to the above brands, Parisian
stores carry many brands typically carried only at specialty stores, including
Sigrid Olson, Robert Talbott, Ike Behar, MAC, Bobbi Brown, Trish McEvoy, BCBG,
and Brighton. Saks Fifth Avenue has key relationships with the leading fashion
houses, including Giorgio Armani, Chanel, Dolce and Gabbana, Salvatore
Ferragamo, Gucci, Prada, Oscar de la Renta, St. John, Yves St. Laurent, J.P.
Tod, Ermenegildo Zegna, and Max Mara.
S-20
<PAGE>
Acquisition and Integration Strategy
Saks has grown through the acquisition of principally anchor department
store businesses, such as Parisian, Herberger's, Carson Pirie Scott, and in
Fall 1998, the national chain of Saks Fifth Avenue. Saks complemented these
department store company acquisitions with selective real estate acquisitions,
new store openings and purchases of single-store locations and groups of
stores; all part of Saks' goal of achieving a leading position in each trade
area in which it operates. Given current trends toward limited new mall
development, management believes the attractiveness of its existing locations
provides Saks with a distinct competitive advantage.
Through its acquisitions, Saks has developed, as one of its key strengths,
the ability to integrate and enhance the back office functions of the acquired
stores. Saks' integration philosophy includes:
. Retaining key store management;
. Maintaining store identity and store level sales personnel to assure
that the acquisition does not adversely affect customer service;
. Retaining previously developed regional expertise and knowledge of the
local customer base, which allows each store format to tailor a portion
of its merchandise selection to the local customer;
. Using a "best practices" process where each store's operating procedures
and policies are reviewed to see if there are practices which will
provide more efficient operations at other stores;
. Coordinating most merchandise planning and buying (except for Saks Fifth
Avenue stores) through Saks' central merchandising group to obtain the
benefits of vendor relationships; and
. Centralizing support functions, such as credit card operations,
logistics and information systems, to reduce expenses and promote
efficiency.
Saks successfully implemented this strategy in the acquisitions of McRae's,
Younkers, Parisian, Herberger's, and Carson Pirie Scott, each of which resulted
in enhanced efficiencies and improved earnings, and is currently implementing
this strategy with the Saks Fifth Avenue stores.
Saks 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 level 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.
Bank Regulation
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 the Truth-in-Lending Act and other consumer laws, credit
reporting, community reinvestment and other legal requirements, adequacy of
financial reporting, adequacy of management, capital and earnings, and a review
of the adequacy of the system of internal controls. Such examinations are not
conducted for the benefit of the Certificateholders or other holders of
securities.
Portfolio Information
The Bank determined that some of the accounts and the related receivables
(collectively, the "Excluded Accounts") that it acquired in Fall 1998 were
originated or administered under guidelines less stringent than those applied
to the Accounts designated to the Trust and the related Receivables in the
Trust (collectively, the
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<PAGE>
"Trust Portfolio"). The Excluded Accounts included approximately $117.0 million
of receivables at June 28, 1999 (the "Series Cut-Off Date"), which are not
included in the Trust Portfolio, and some of which have been sold to a separate
facility. The assets of the Trust consist of 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 Closing Date.
After the 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.
All information below regarding the "Bank Portfolio" includes all of the
Bank's credit card accounts and all receivables generated from these accounts
and therefore includes receivables generated from both the Trust Portfolio, as
well as from the Excluded Accounts which are not part of the Trust Portfolio.
The following table shows Receivables outstanding in the Bank Portfolio for the
periods presented. Amounts and percentages in the following tables may not add
to the totals because of rounding. The Bank Portfolio's future composition may
not be similar to this historical experience. See "The Accounts."
Receivables Outstanding
Bank Portfolio
(Dollars In Thousands)
<TABLE>
<CAPTION>
As of May 31, As of December 31,
--------------------- ------------------------------------
1999 1998 1998 1997 1996(2)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)......... $1,206,452 $1,175,148 $1,388,843 $1,324,807 $1,195,121
Number of Accounts(3)... 2,795,273 2,749,678 3,168,707 3,068,731 2,143,085
</TABLE>
- --------
(1) Receivables outstanding typically decrease from December to May due to
payments of holiday purchases and decreased sales volumes in the summer
months.
(2) For CPS, the number of Accounts is not available for the period 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 ability of the Department Stores to generate sales charged
to the Bank's credit cards. In addition, since the Department Stores accept
cash, checks and debit and other credit cards, including American Express,
MasterCard, VISA and Discover cards, the Trust will also depend upon the
decisions of customers to use the Bank's credit cards rather than other payment
methods.
Bank credit cardholders are offered a variety of incentives to use their
credit cards. These incentives, which vary 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 specified levels. Such coupons are
usable only in connection with new purchases using Bank credit cards.
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<PAGE>
The Department Stores' future sales made using the Bank's credit cards may
not be similar to the historical experience set forth below.
Department Stores' Sales by Form of Payment
<TABLE>
<CAPTION>
For the Five Months For the 12 Months
Ended May 31, Ended December 31,
-------------------- ---------------------------
1999 1998 1998 1997(1) 1996(2)(3)
--------- --------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Bank Credit Cards........... 42.81% 43.86% 42.76% 43.46% 41.88%
Third Party Credit Cards
(Visa, MasterCard, etc.)... 34.04 33.07 33.63 32.34 27.04
Cash, Check or Other........ 23.15 23.07 23.61 24.21 31.08
--------- --------- ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
========= ========= ====== ====== ======
</TABLE>
- --------
(1) Does not include percentages for Younkers for January 1997.
(2) Does not include percentages for Younkers or Saks Fifth Avenue for the 12
months ended December 1996.
(3) Does not include percentages for Proffitt's for January 1996.
Account 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. In these 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 generally created through three new account
programs:
New Account Programs
In-Store "Instant Credit" Applications. The Bank offers instant credit to
customers applying for a credit card at the time of a purchase in the
Department Stores. Approximately 75% of the Bank's new accounts were generated
through in-store instant credit applications in 1998. Sales associates are
encouraged through various incentives and promotional events to help customers
establish instant credit accounts with the Bank, and approved customers may
receive a discount on their first day purchases with the new card. The customer
completes the instant credit application at the point of sale and must have a
valid third party credit card in the customer's name and valid picture
identification. Upon receipt of the necessary information, the sales associate
relays the information to the applicable Credit Service Center over the
telephone. A full credit report is then obtained and a credit bureau derived
risk score is generated. If the Bank's policy rules are passed and the risk
score is above the cut-off, a credit card account number is immediately
assigned by the system. The credit limit is based on the risk score. Rejected
applicants are notified by letters generated by the Vision21 System in
accordance with applicable law.
Mail-In Applications. Mail-in credit applications are available in the
Department Stores. During 1998, approximately 8% of new accounts were generated
through mail-in applications. Upon completion by the customer, these
applications can be submitted either at the service desk in one of the
Department Stores or mailed to a Credit Service Center. When received, the
application is reviewed for completeness. The application is processed and
acted upon in the same manner as instant credit applications.
Promotional (Pre-approved) Applications. Promotional (pre-approved)
applications are used as part of the credit solicitation effort for new and
existing Department Stores and trade areas. During 1998, approximately 17% of
the Bank's new accounts were generated by pre-approved applications. Of this
pre-approved group, 8% was related to the acquisitions of new stores (certain
of whose customers were solicited for new Bank credit card accounts), 7%
represented prescreened direct mail and phone solicitations for new and
remodeled stores; and 2% represented pre-screened direct mail and phone
solicitations in existing markets. In
S-23
<PAGE>
these new account promotions, 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. Qualifying persons are sent
a marketing package which includes information about the relevant Department
Store and the related Bank credit card program, along with an application to be
signed. If the application is returned, signed and unaltered, and if the
application passes any post-screen tests, which have been permitted since 1997,
a credit limit is established based on the risk score associated with the
account. 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. Management believes that post-screening has improved credit
quality for accounts originated through pre-approved solicitations.
Account Monitoring
No automatic adjustment to a cardholder's credit limit is made during the
initial six months from account activation. Ongoing monitoring of customers'
credit limits is conducted through the use of updated credit bureau generated
risk scores and through behavioral scoring models. Currently, risk scores are
updated semi-annually. 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. Accounts are generally closed to additional purchases no
later than two payments past due, and higher risk accounts (based on dollars at
risk, length of time on the file, credit bureau risk score or behavioral score)
can be closed from additional purchases as soon as one day past the payment due
date.
Saks has purchased "Probe" account management software from Experian, Inc.,
a credit management consultant. Probe enables a creditor to develop and test
multiple account management strategies simultaneously, allowing continual
refinement of account management policies to improve performance. A test group
of customers is selected by random sampling and different operating strategies
are assigned to the test group and the balance of the portfolio. The strategies
are tracked to determine the best performing strategy, which then may be used
as the primary or "champion" strategy. The Probe adaptive control system is
expected to enhance the Bank's ability to test, measure, administer and monitor
changes in operational strategy. Probe will be used in connection with
authorization, line management, collections, fraud and select monitoring and
marketing programs.
Automatic Over Limit Authorization
When customers (other than customers of CPS) attempt to incur charges that
exceed their designated credit limit ("over limit charges"), the Vision 21
system automatically reviews the account during the authorization process and
determines an acceptable dollar amount of over limit privileges for the
customer. The amount of the over limit authorization is determined by the
number of times the account has been billed, the current delinquency status of
the account and the account's credit bureau derived risk score. The process for
CPS receivables is generally the same, except that customized behavioral
scoring is used in the decision process, consistent with historic practice.
The system provides for automatic over-limit discretionary criteria, which
allows a manager or supervisor to increase the acceptable amount of over-limit
temporarily to improve customer service levels during high volume periods.
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 or reject
the sale. Generally, the credit authorizer will evaluate one or more of the
following factors: (i) credit bureau risk score; (ii) length of time the
account has been active; (iii) delinquency/payment history; and (iv) a new
credit report.
S-24
<PAGE>
Deactivation/Cancellation of Accounts
Cardholders or the Bank can deactivate accounts. Currently, 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 generally can 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. The Bank or the cardholder
may terminate a credit card account without advance notice at any time. The
cardholder will, however, remain liable for any outstanding balance on the
account.
Billing And Payments
Account holders are given an interest (or a "finance charge") grace period
of approximately 25 to 30 days after each billing cycle closes to make a
payment. 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 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 the entire balance is not paid during the grace
period, a finance charge is imposed on the unpaid balance to the date of
repayment. The annual percentage rate charged by the Bank ranges from 19.8% to
21.6%.
Credit cardholders are generally charged $25 if a check is dishonored after
the second presentment. A late charge is assessed for each minimum payment that
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 Bank's
credit card programs is the greater of 7.5% (5% for the Saks Fifth Avenue and
CPS programs) of the account balance or $10 ($15 in the case of Saks Fifth
Avenue). 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."
During March 1999, all active Saks Fifth Avenue accountholders received
terms change notices that described changes to their accounts. These changes
permit the Bank, with the exception for customers who do not use their accounts
after July 1, 1999, to standardize finance charge rates at 21.6%, and to impose
late fees of $15, return check fees of $25, and a $0.50 minimum finance charge.
The Bank terminated inactive Saks Fifth Avenue accounts and, subject to credit
approval, opened new accounts (with new terms) for customers with the closed
accounts who made a purchase after March 7, 1999.
The Bank periodically evaluates the terms of its agreements with cardholders
in light of competition and possible effects on credit quality. The Bank is now
considering a number of terms changes, such as lowering the minimum monthly
payment to the greater of 5% of the account balance or $10. The Bank may make
these terms changes in the future.
Delinquency, Collections And Losses
Accounts are aged based on the number of days contractually delinquent.
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.
The Credit Service Centers each utilize a Melita predictive dialing system,
which assigns collection tasks in all stages of collection to collectors on a
random basis. The Elmhurst Credit Service Center uses two
S-25
<PAGE>
behavioral scoring models developed by Fair, Isaacs & Co. for managing and
prioritizing collections efforts. These account history scoring models are the
basis for collection strategies including timing and frequency of calls and
dunning policies. The priority assigned to collection efforts is based on each
account's risk based on delinquency status and outstanding balance. The later
stages of delinquency are administered "cradle-to-grave" to enable late-stage
collector teams to develop a familiarity with borrower circumstances and design
appropriate solutions to bring delinquent accounts current. Certain high
balance Saks Fifth Avenue Accounts are routed to a specialized collections
group trained in handling sensitive accounts.
Saks' collection strategy and process includes:
. When an account becomes one payment past due, a reminder is printed on
the bottom of the next account statement.
. When an account becomes two payments past due, a suspension message is
printed on the statement notifying the customer that they will be unable
to use their account until payment is made. Currently, most accounts
enter the collection system at this point and are scheduled to be worked
10 days later. However, higher risk accounts (based on various factors
such as dollars at risk, length of time on file, and high risk
behavioral score) can be worked as soon as one day after missing the
payment due date.
. When the account ages to 40 days past due, a follow-up reminder is
mailed to the customer.
. When the account is three payments past due , (i) a stronger message
appears on the customer's account statement and (ii) a collection letter
is sent to the customer notifying them that the past due status of their
account will adversely affect their credit rating.
. An account is worked strenuously on the predictive dialer until a
payment is made or it ages past 120 days delinquent. At this point, it
is assigned to a "Late Stage Collection Team." The Late Stage Collection
Team initiates more strenuous action on the account. These actions
include:
- Detailed skip tracing utilizing Credit Bureau Services, Fast Data-
Phone, Address, Neighbor Search, and Cross Reference Directory
Search;
- Customized letter generation of demand notices;
- Specialized phone-based collection techniques, including predictive
autodialing; and
- Selective pre-charge off utilization of collection agencies and
attorneys.
. Prior to the eighth billing date, if a qualifying minimum payment has
not been received and the account is at least six months past due, the
account is written off. See "-- Charge Offs."
. Following write-off, accounts are assigned to collection agencies or
attorneys. Accounts are assigned by geographic location. Third-party
collectors are paid on a contingency basis and are awarded business
based on past collection performance. Third-party collectors utilize
remedies that are lawfully available to collect the accounts.
Historically, the third-party collectors have collected between 20% and
30% of the account balances assigned to them.
Credit Service Center collections representatives have the authority to make
payment arrangements with customers. The arrangements go into the collector
queue for the day after the promise to pay is to be fulfilled. If the promise
to pay is broken, a collector may contact the customer immediately, depending
on the stage of collection, and reverse the payment arrangements. During all
stages of delinquency, computer logs of collectors' efforts to contact accounts
are maintained with the Servicer, thereby allowing management to monitor the
collection efforts and status of delinquent accounts.
Both Credit Service Centers offer incentive programs to compensate
collectors for improvements in charge offs. Collector turnover is low due to a
competitive pay program.
S-26
<PAGE>
Reaging of Accounts
Manual reaging is generally used only in cases where billing errors,
customer disputes, incorrect addresses, or other account problems warrant such
action. A manager must approve any reaging of accounts. The Vision21 system
produces a reage report that allows management to review manual reage volume
and performance at any time. A delinquent account will generally be
automatically cured (i.e., made current) if the accountholder makes at least
three minimum monthly payments in a three-month period in any combination of
amounts. An account is not permitted to be reaged more than once every six
months.
Charge offs
All receivables are charged off if a minimum qualified payment has not been
received prior to the eighth billing date and the account is 180 days or more
past due. In addition, receivables are charged off upon notice of bankruptcy,
in the event of an accountholder's death absent a surviving joint
accountholder, or upon the account becoming otherwise uncollectible.
The credit evaluation, servicing and charge off policies and collections
practices may be changed at any time in the Bank's and the Servicer's business
judgment to reflect, among other things, changing economic conditions and
risks, changing competition in the Department Stores' markets, changes
suggested by the behavioral models and adaptive control systems and changes in
applicable law.
The following table sets forth the loss experience with respect to the
credit card accounts in the Bank Portfolio for each of the periods shown.
Future loss experience for the Receivables may not be similar to the historical
experience set forth below. See "Risk Factors" herein and in the Prospectus.
Loss Experience
Bank Portfolio
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the Five Months
Ended For the 12 Months Ended
May 31, December 31,
---------------------- ----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Principal
Receivables(1)......... $1,227,851 $1,195,725 $1,181,874 $1,113,242 $1,031,522
Total Principal Charge
Offs(2)................ 26,331 24,945 61,938 57,921 47,610
Recoveries.............. 4,524 4,730 11,021 11,167 9,740
Net Principal Charge
Offs................... 21,807 20,215 50,917 46,753 37,870
Net Principal Charge
Offs
Percentage (3)......... 4.26% 4.06% 4.31% 4.20% 3.67%
</TABLE>
- --------
(1) Average Principal Receivables for a particular period is the average of the
principal balances outstanding at the beginning and the end of each month
during such period.
(2) Total Principal Charge Offs are charge offs before Recoveries and do not
include fraud losses.
(3) The percentages for the five months ended May 31, 1999 and 1998 are
annualized figures, which are not necessarily indicative of results that
may be realized for the entire year.
S-27
<PAGE>
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 Bank Portfolio. Because delinquencies are affected by a
number of factors, including competitive and general economic conditions and
consumer debt levels, the delinquency experience for the Receivables in the
future may not be similar to the historical experience set forth below.
Historical Delinquencies
Bank Portfolio
(Dollars In Thousands)
<TABLE>
<CAPTION>
As of May 31,
-----------------------------------------------
1999 1998
----------------------- -----------------------
Percentage Percentage
of Total of Total
Receivables Receivables Receivables Receivables
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current(1)...... $1,147,364 95.10% $1,113,479 94.75%
31 to 60 days
delinquent..... 23,546 1.95 25,272 2.15
61 to 90 days
delinquent..... 10,150 0.84 11,065 0.94
Over 91 days
delinquent..... 25,392 2.10 25,331 2.16
---------- ------ ---------- ------
Total
Delinquent..... 59,088 4.90% 61,669 5.25%
---------- ------ ---------- ------
Total
Receivables.... $1,206,452 100.00% $1,175,148 100.00%
========== ====== ========== ======
<CAPTION>
As of December 31,
-----------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current(1)...... $1,322,969 95.26% $1,260,771 95.17% $1,127,443 94.34%
31 to 60 days
delinquent..... 26,226 1.89 28,071 2.12 35,415 2.96
61 to 90 days
delinquent..... 11,187 0.81 10,909 0.82 11,260 0.94
Over 91 days
delinquent..... 28,461 2.05 25,057 1.89 21,004 1.76
----------- ----------- ----------- ----------- ----------- -----------
Total
Delinquent..... 65,875 4.74% 64,036 4.83% 67,679 5.66%
----------- ----------- ----------- ----------- ----------- -----------
Total
Receivables.... $1,388,843 100.00% $1,324,807 100.00% $1,195,121 100.00%
=========== =========== =========== =========== =========== ===========
</TABLE>
- --------
(1) Includes both current Accounts and Accounts that are less than 31 days past
due as well as Accounts with credit balances.
The Bank 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 collection efforts and general
economic conditions. New 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 effect on the Bank Portfolio
given the moderate growth historically exhibited by the Bank Portfolio. The
Bank utilizes its underwriting procedures and risk management policies to
establish and maintain its Accounts while promoting the sale of Saks'
merchandise within the context of acceptable risk characteristics (including
delinquencies and losses) and the Bank's safety and soundness. See "-- Account
Origination and Underwriting" herein and "Description of the Certificates and
the Pooling and Servicing Agreement -- Addition of Accounts" in the Prospectus.
S-28
<PAGE>
COMPOSITION OF THE TRUST PORTFOLIO
General
The following information describing the Trust Portfolio is as of the dates
shown. The composition of the Trust Portfolio in the future may not be similar
to the historical information reflected below. Amounts and percentages in the
following tables may not add to the totals because of rounding.
Composition of the Trust Portfolio
by Credit Limit
as of June 28, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Aggregate Aggregate
Credit Limit Accounts(1) Accounts Credit Limit Credit Limit
- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Zero........................... 174,491 3.62% $ -- 0.00%
$0.01 - $600.00................ 445,090 9.24 179,812 1.55
$600.01 - $1,000.00............ 384,629 7.98 318,823 2.75
$1,000.01 - $2,000.00.......... 1,610,794 33.43 2,448,846 21.14
$2,000.01 - $3,000.00.......... 932,314 19.35 2,277,782 19.66
$3,000.01 - $4,000.00.......... 325,455 6.75 1,227,081 10.59
$4,000.01 - $5,000.00.......... 809,430 16.80 3,995,984 34.49
$5,000.01 or more.............. 136,066 2.82 1,137,564 9.82
--------- ------ ----------- ------
Total........................ 4,818,269 100.00% $11,585,892 100.00%
========= ====== =========== ======
</TABLE>
- --------
(1) Includes all Accounts with activity during the preceding 12 months.
Composition of the Trust Portfolio
by Payment Status
as of June 28, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status Accounts(1) Accounts Outstanding Outstanding
- -------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current(2)...................... 2,606,808 96.92% $1,039,968 96.29%
31 to 60 days delinquent........ 38,592 1.43 16,859 1.56
61 to 90 days delinquent........ 15,319 0.57 7,185 0.67
Over 91 days delinquent......... 28,805 1.07 16,026 1.49
--------- ------ ---------- ------
Total ........................ 2,689,524 100.00% $1,080,037 100.00%
========= ====== ========== ======
</TABLE>
- --------
(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.
S-29
<PAGE>
Composition of the Trust Portfolio
by Age
as of June 28, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Numbers Receivables Receivables
Age Accounts(1) of Accounts Outstanding Outstanding
- --- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Under 6 months.................. 429,228 8.91% $ 54,700 5.06%
6 months to 1 year.............. 692,524 14.37 71,634 6.63
1-2 years....................... 536,283 11.13 89,439 8.28
2-3 years....................... 387,286 8.04 75,384 6.98
3 years and older............... 2,772,948 57.55 788,880 73.04
--------- ------ ---------- ------
Total........................... 4,818,269 100.00% $1,080,037 100.00%
========= ====== ========== ======
</TABLE>
- --------
(1) Includes all Accounts with activity during the preceding 12 months.
Composition of the Trust Portfolio
by Account Balance
as of June 28, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts(1) Accounts Outstanding Outstanding
- --------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
No Balance(2).................... 2,167,343 44.98% $ -- 0.00%
$0.01 to $500.00................. 1,878,395 38.98 320,637 29.69
$500.01 to $1000.00.............. 370,452 7.69 259,232 24.00
$1,000.01 to $2,000.00........... 160,583 3.33 218,492 20.23
$2,000.01 to $3,000.00........... 38,118 0.79 91,808 8.50
$3,000.01 to $4,000.00........... 14,488 0.30 49,834 4.61
$4,000.01 to $5,000.00........... 7,199 0.15 31,989 2.96
$5,000.00+....................... 12,295 0.26 119,733 11.09
Credit balance(3)................ 169,396 3.52 (11,689) (1.08)
--------- ------ ---------- ------
Total.......................... 4,818,269 100.00% $1,080,037 100.00%
========= ====== ========== ======
</TABLE>
- --------
(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-30
<PAGE>
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 June 28, 1999.
Composition of the Trust Portfolio
by State
as of June 28, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
State Accounts(1) Accounts Outstanding Outstanding
- ----- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Illinois......................... 947,649 19.67% $ 198,623 18.39%
Alabama.......................... 496,003 10.29 126,860 11.75
Wisconsin........................ 513,261 10.65 75,847 7.02
Mississippi...................... 251,456 5.22 67,031 6.21
Tennessee........................ 307,186 6.38 61,614 5.70
Florida.......................... 200,418 4.16 54,877 5.08
New York......................... 115,609 2.40 54,050 5.00
Iowa............................. 277,622 5.76 44,320 4.10
Other............................ 1,709,065 35.47 396,815 36.74
--------- ------ ---------- ------
Total............................ 4,818,269 100.00% $1,080,037 100.00%
========= ====== ========== ======
</TABLE>
- --------
(1) Includes all Accounts with activity during the preceding 12 months.
THE ACCOUNTS
The Receivables in the Accounts designated to the Trust Portfolio as of June
28, 1999 included approximately $37.3 million of Finance Charge Receivables and
approximately $1,050.0 million of Principal Receivables (which amounts include
overdue Finance Charge Receivables and overdue Principal Receivables,
respectively). As of June 28, 1999, there were approximately 4.8 million active
Accounts which had an average credit limit of $2,400. Excluding zero balance
accounts, the average principal balance was $407. As of June 28, 1999, the
average principal receivables balance in the Accounts as a percentage of the
average credit limit with respect to the Accounts was approximately 9.2%. The
Accounts were selected from the Bank Portfolio in the manner described in the
Prospectus under "The Accounts."
USE OF PROCEEDS
Net proceeds from the sale of the Offered Certificates in the amount of the
initial Class A and Class B Investor Amounts less offering expenses, will be
paid to SCC. SCC will use such net proceeds to repay approximately $308,830,000
of the Trust Series 1997-1 Variable Funding Certificates, certain of which are
held by multi-seller commercial paper vehicles administered by affiliates of
two of the underwriters of this offering. See "Underwriting" and "Annex I Other
Series" in this Prospectus Supplement.
MATURITY ASSUMPTIONS
The Series 1999-1 Supplement provides that the Class A Certificateholders
and the Class B Certificateholders will not receive payments of principal until
July 15, 2002 (the "Expected Payment Date"),
S-31
<PAGE>
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 Controlled
Accumulation Amount (equal to $31,531,250), subject to adjustment 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 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
first to the Class A Certificateholders, until the Class A Investor Amount is
reduced to zero, and then to the Class B Certificateholders, until the Class B
Investor Amount is reduced to zero, on the Expected Payment Date, 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, and the Collateral Interest Amount will generally begin
amortizing only after the Class B Investor Amount is paid in full. Allocations
based upon an Investor Percentage with a fixed numerator during the Rapid
Amortization Period may result in greater distributions of principal to
Certificateholders than would be the case if an Investor Percentage with a
floating numerator were used to determine the percentage of Collections
distributed in respect of the Investor Amount. The Offered Certificates are
also subject to an optional repurchase by the Transferor on any Distribution
Date on or after the Distribution Date on which the sum of the Class A Adjusted
Investor Amount, the Class B Adjusted Investor Amount, and the portion of the
Collateral Interest Adjustment Amount held by third party investors is less
than or equal to 10% of the sum of the Class A Investor Amount on the Closing
Date, the Class B Investor Amount on the Closing Date, and the portion of the
maximum amount of the Collateral Interest Amount held by parties other than the
Transferor and 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 1999-1, cause the Trust to issue another Series as a Paired Series
with respect to Series 1999-1 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 1999-1. 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 1999-1 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 1999-1 is in the Accumulation Period, the
S-32
<PAGE>
percentage used for allocating Collections of Principal Receivables for Series
1999-1 and for the Paired Series may be reset as specified herein. See "Series
Provisions -- Investor Percentages and Transferor Percentage" herein 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 the
Expected Payment Date 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, especially during the summer months due to seasonal sales and
Account charge off patterns. 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 the
Expected Payment Date 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. See "Risk Factors."
Although it is anticipated that principal payments will be made to Class A
Certificateholders and to the Class B Certificateholders on the Expected
Payment Date, 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" herein and "Risk Factors" in the
Prospectus.
The following table sets forth the highest and lowest credit card account
holder monthly payment rates for the Bank 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.
Account Holder Monthly Payment Rates(1)
Bank Portfolio
<TABLE>
<CAPTION>
For the 12 Months
For the Five Months Ended December
Ended May 31, 31,
-------------------- -------------------
1999 1998 1998 1997 1996
--------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Lowest Month......................... 20.09% 19.24% 18.64% 18.81% 18.67%
Highest Month........................ 22.74% 22.46% 22.46% 22.68% 23.25%
Monthly Average...................... 21.50% 20.68% 20.37% 20.26% 20.53%
</TABLE>
- --------
(1) The monthly payment rates are calculated as the amount of total payments
received during the month, divided by total Receivables outstanding at the
beginning of each month.
The amount of Collections on Receivables may vary from month to month due to
seasonal variations, general economic conditions and the payment habits of
individual 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
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<PAGE>
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.
During the Accumulation Period, a slow down in the payment rate below the
assumed payment rate used to determine the Accumulation Period Length or a Pay
Out Event may occur, either of which would initiate the Rapid Amortization
Period. Accordingly, the actual number of months elapsed from the beginning of
the Accumulation Period to the final Distribution Date with respect to the
Offered Certificates may not 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. Future
account holder monthly payment rate experience may not be similar to historical
experience. See "Risk Factors" herein and in the Prospectus.
RECEIVABLES YIELD CONSIDERATIONS
The yield for active credit card accounts in the Bank 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" herein and in the Prospectus.
Portfolio Yield
Bank Portfolio
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the Five Months For the 12 Months
Ended May 31, Ended December 31,
---------------------- ----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Receivables(1).. $1,248,853 $1,213,782 $1,200,767 $1,129,525 $1,046,501
Billed Finance Charges
and Fees, Unadjusted... 93,887 87,304 213,091 188,572 173,423
Portfolio Yield,
Unadjusted(2)(3)....... 18.04% 17.26% 17.75% 16.69% 16.59%
Discount Option
Receivable Collections
(2% Discount
Percentage)............ $ 28,311 $ 24,072 $ 58,322 $ 50,798 $ 47,780
Portfolio Yield,
Discount
Adjusted(2)(4)......... 23.48% 22.02% 22.60% 21.19% 21.14%
</TABLE>
- --------
(1) Average Receivables for a particular period is the average of the total
balances outstanding at the beginning and the end of each month during such
period.
(2) The percentages for the five months ended May 31, 1999 and 1998 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 and "Series Provisions -- Discount Option Receivables" for
a description of the pending reduction of the Discount Percentage to 1%.
S-34
<PAGE>
POOL FACTORS
The "Class A Pool Factor," the "Class B Pool Factor" and the "Collateral
Interest Pool Factor" are each a seven-digit decimal, which the Servicer will
compute monthly, expressing as of each Record Date, the Class A Investor Amount
as a proportion of the Class A Investor Amount as of the Closing Date, the
Class B Investor Amount as a proportion of the Class B Investor Amount as of
the Closing Date, and the Collateral Interest Amount as a proportion of the
Collateral Interest Amount as of the Closing Date, respectively. On the Closing
Date, the Class A Pool Factor, the Class B Pool Factor and the Collateral
Interest 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 Interest Pool Factor will decline
to reflect reductions in the Collateral Interest 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.
SERIES PROVISIONS
General
The Offered Certificates and the Collateral Interest will be issued pursuant
to the Pooling and Servicing Agreement and a Supplement thereto (the "Series
1999-1 Supplement"). The Class A Certificates and the Class B Certificates are
herein collectively referred to as the "Offered Certificates." Reference should
be made to the Prospectus for additional information concerning the Pooling and
Servicing Agreement.
The Offered 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 Class A Certificate represents
the right to receive monthly payments of interest at the applicable Class A
Certificate Rate for the related Interest Period and each Class B Certificate
represents the right to receive monthly payments of interest at the applicable
Class B Certificate Rate for the related Interest Period. Each Offered
Certificate represents the right to receive payments of principal on the
Expected Payment Date or during the Rapid Amortization Period funded from
Collections of Finance Charge Receivables, Recoveries and Collections of
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 initially will own the Collateral Interest and intends to
sell some or all of the Collateral Interest to investors. The Collateral
Interest will represent an undivided interest in the Trust, including the right
to a floating percentage (the "Collateral 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 Collateral Interest to Saks or any of its affiliates.
The ability of the Transferor to sell some or all of the Collateral Interest is
subject to certain additional conditions, including delivery to the Trustee of
an opinion of counsel that the issuance of such interests in the Collateral
Interest will not have a material adverse effect on the Federal income tax
characterization of any outstanding series or class. See "-- Investor
Percentages and Transferor Percentage."
S-35
<PAGE>
The Transferor initially will own the interest not represented by the
Offered Certificates, the Collateral Interest, or other series of certificates
(the "Transferor Interest"). 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 Saks 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 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 initially will be represented by two or more
certificates, each registered in the name of Cede, as 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. 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 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
"Listing and Clearing of Certificates" herein, and "Description of the
Certificates and the Pooling and Servicing Agreement -- Book-Entry
Registration" and "-- Definitive Certificates" and Annex I in the Prospectus.
Interest Payments
Interest will accrue on the Class A Certificates at the Class A Certificate
Rate and on the Class B Certificates at the Class B Certificate Rate from July
21, 1999 (the "Closing Date"). Each "Interest Period" begins on and includes a
Distribution Date and excludes the next Distribution Date. However, the first
Interest Period will begin on and include the Closing Date and end on and
include August 15, 1999, the day preceding the first Distribution Date.
Interest will be distributed on August 16, 1999 and on the 15th day of each
month thereafter (or, if such 15th day is not a business day, the next
succeeding business day) (each, a "Distribution Date"). For purposes of this
Prospectus Supplement and the accompanying Prospectus, a "business day" is,
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<PAGE>
unless otherwise indicated, any day other than a Saturday, a Sunday or a day on
which banking institutions in Birmingham, Alabama; Jackson, Mississippi;
Dallas, Texas; Atlanta, Georgia; Charlotte, North Carolina; Minneapolis,
Minnesota; Chicago, Illinois; or New York, New York are authorized or obligated
by law or executive order to be closed.
Interest payments on the Class A Certificates and the Class B Certificates
on any Distribution Date will be calculated on the outstanding principal
balance of the Class A Certificates and the outstanding principal balance of
the Class B Certificates, respectively, as of the preceding Record Date, except
that interest for the first Distribution Date will accrue at the applicable
Certificate Rate on the initial outstanding principal balance of the Class A
Certificates and the initial outstanding principal balance of the Class B
Certificates, as applicable, from the Closing Date.
Interest due on the Certificates but not paid on any Distribution Date will
be payable on the next succeeding Distribution Date together with additional
interest (the "Additional Interest") on such amount at the applicable
Certificate Rate plus 2% per annum (such amount with respect to the Class A
Certificates, the "Class A Additional Interest" and such amount with respect to
the Class B Certificates, the "Class B Additional Interest"). To the extent
permitted by law, such Additional Interest shall accrue on the same basis as
interest on the Certificates, and shall accrue from the Distribution Date such
overdue interest became due, to but excluding the Distribution Date on which
such Additional Interest is paid.
Interest payments on the Class A Certificates on any Distribution Date will
be paid from Class A Available Funds for the related Monthly Period and, to the
extent such Class A Available Funds are insufficient to pay such interest, from
Excess Spread and Reallocated Principal Collections (to the extent available)
for such Monthly Period. Interest payments on the Class B Certificates on any
Distribution Date will be paid from Class B Available Funds for the related
Monthly Period and, to the extent such Class B Available Funds are insufficient
to pay such interest, from Excess Spread and Reallocated Principal Collections
(to the extent available) remaining after payments have been made with respect
to the Class A Certificates.
The Class A Certificates will accrue interest from and including the Closing
Date through but excluding August 16, 1999, from and including August 16, 1999
through but excluding September 15, 1999, and with respect to each Interest
Period thereafter, at a rate of 0.22% per annum above LIBOR prevailing on the
related LIBOR Determination Date with respect to each such period. The Class B
Certificates will accrue interest from and including the Closing Date through
but excluding August 16, 1999, from and including August 16, 1999 through but
excluding September 15, 1999, and with respect to each Interest Period
thereafter, at a rate of 0.43% per annum above LIBOR prevailing on the related
LIBOR Determination Date with respect to each such period.
The Trustee will determine LIBOR on July 19, 1999 for the period from and
including the Closing Date through but excluding August 16, 1999, on August 12,
1999 for the period from and including August 16, 1999 through but excluding
September 15, 1999, and for each Interest Period thereafter, on the second
London business day prior to the first day of such Interest Period (each, a
"LIBOR Determination Date"). For purposes of calculating LIBOR, a "London
business day" is any business day on which dealings in deposits in United
States dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page
3750 as of 11:00 A.M., London time, on such date. If such rate does not appear
on Telerate Page 3750, the rate for that LIBOR Determination Date will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 A.M., London time, on
that day to prime banks in the London interbank market for a one-month period.
The Trustee will request the principal London office of each of the Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that LIBOR Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, the rate
for that LIBOR Determination Date will be the arithmetic mean of the rates
quoted by four major
S-37
<PAGE>
banks in New York City, selected by the Servicer, at approximately 11:00 A.M.,
New York City time, on that day for loans in United States dollars to leading
European banks for a one-month period.
"Telerate Page 3750" means the display page currently so designated on the
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Servicer.
The Class A Certificate Rate and the Class B Certificate Rate applicable to
the then current and immediately preceding Interest Period may be obtained by
telephoning the Trustee at its Corporate Trust Office at (612) 667-3536.
Interest on the Certificates will be calculated on the basis of the actual
number of days in the related Interest Period and a 360-day year.
Principal Payments
During the Revolving Period, which begins on the Closing Date and ends on
the close of business on the last day of the Monthly Period preceding the
commencement of the Accumulation Period or, if earlier, the day the Rapid
Amortization Period begins, principal payments will be made to the holder of
the Exchangeable Transferor Certificate, allocated to other Series of
certificates, applied as Reallocated Principal Collections, if required, or
deposited in the Excess Funding Account rather than deposited to the Principal
Account or paid to the Certificateholders. Under certain circumstances, the
commencement of the Accumulation Period may be postponed by the Transferor. On
or prior to the Distribution Date occurring 12 months prior to the 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 June 2001 Monthly Period.
During the Accumulation Period, a portion of Available Principal
Collections will be deposited in the Principal Account on each Distribution
Date. During the Rapid Amortization Period, which would begin upon the
occurrence of a Pay Out Event, any amounts held in the Principal Account will
be distributed first to the Class A Certificateholders, second to the Class B
Certificateholders, with the balance, if any, to the holders of the Collateral
Interest to the extent of the Class A Investor Amount, the Class B Investor
Amount and the Collateral Interest Amount, respectively, and thereafter
Available Principal Collections will be paid to the Certificateholders and the
holders of the Collateral Interest on each Distribution Date.
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 has designated that as of
September 1, 1999, the Discount Percentage will be 1%. See "Discount Option
Receivables" 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 June 2001 Monthly Period. Upon written notice to the
Trustee, the Transferor may elect to postpone the commencement of the
Accumulation Period and extend the length of the Revolving Period, subject to
certain conditions, including those set forth below. The Transferor may make
such election only if the Accumulation 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 Initial Investor Amount no
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<PAGE>
later than the Expected Payment Date, based on (a) the monthly Collections of
Principal Receivables expected to be distributable to the certificateholders of
all series (excluding certain other series), assuming a principal payment rate
no greater than the lowest monthly principal payment rate on the Receivables
for the preceding 12 months and (b) the amount of principal expected to be
distributable to certificateholders of all series (excluding certain other
series) which are not expected to be in their revolving periods during the
Accumulation Period. If the Accumulation Period Length is less than 12 months,
the Transferor may, at its option, postpone the commencement of the
Accumulation Period such that the number of months included in the Accumulation
Period will be equal to or exceed the Accumulation Period Length. The effect of
the foregoing calculation is to permit the reduction of the length of the
Accumulation Period based on the investor amounts of certain other series which
are scheduled to be in their revolving periods during the Accumulation Period
and on increases in the principal payment rate occurring after the Closing
Date. The length of the Accumulation Period will never be less than one month
nor greater than 12 months.
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 and the Collateral Interest. 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 the Collateral Interest 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 Accumulation Period (or earlier, under certain
circumstances relating to the yield on the Receivables).
Subordination of the Class B Certificates and the Collateral Interest
The Class B Certificates and the Collateral Interest will be subordinated to
the extent necessary to fund certain payments with respect to the Class A
Certificates and the Collateral Interest will be subordinated to the extent
necessary to fund 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, Collections of Principal Receivables allocable to
the Collateral Interest that are included in Collateral Subordinated Principal
Collections (which may be subdivided pursuant to the Series 1999-1 Supplement
to reflect any subdivision of the Collateral Interest), may be reallocated to
the Class A Certificateholders and the Class B Certificateholders, and the
Collateral Interest Amount may be reduced as a result. To the extent the Class
B Investor Amount is reduced, the percentage of Collections of Finance Charge
Receivables allocated to the Class B Certificateholders in subsequent Monthly
Periods will be reduced. Moreover, to the extent the amount of such reduction
in the Class B Investor Amount is not reimbursed, the amount of principal
distributable to the Class B Certificateholders will be reduced. See "--
Investor Percentages and Transferor Percentage," "-- Reallocation of Cash
Flows," and "-- Applications of Collections."
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<PAGE>
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 1999-1) and the
denominator of which is the greater of (i) the sum of the aggregate Principal
Receivables in the Trust and the amount on deposit in the Excess Funding
Account, 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 amount on deposit in the Excess
Funding Account, 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 amount on deposit in the Excess Funding
Account, 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, if the Offered 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 and the Collateral Interest Adjusted 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); provided, however, that the Class A
Investor Amount may not be reduced below zero.
"Class A Adjusted Investor Amount" means, on any date of determination while
the Class A Certificates are outstanding, an amount equal to the Class A
Investor Amount minus the amount, if any, of funds held in the Principal
Account (the "Principal Account Balance") (but not less than zero).
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<PAGE>
"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 the excess of the
Principal Account Balance over the Class A Investor Amount on such date (up to
the Class B Investor Amount).
"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 Interest Amount" means, on any date of determination, an amount
equal to (a) the initial Collateral Interest Amount equal to $68,100,000, minus
(b) the aggregate amount of principal payments made to the holders of the
Collateral Interest on or prior to such date, minus (c) the amount of
Collateral Interest 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 Interest Amount, minus (d) an amount equal to the
amount by which the Collateral Interest 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 Interest 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 Interest Amount; provided, however, that the Collateral Interest
Amount may not be reduced below zero.
"Collateral Interest Adjusted Amount" for any date of determination, means
an amount equal to the Collateral Interest Amount, minus the excess of the
Principal Account Balance over the sum of the Class A Investor Amount and the
Class B Investor Amount on such date (up to the Collateral Interest Amount).
The Collateral Interest Adjusted Amount may be subdivided pursuant to the
Series 1999-1 Supplement to reflect any subdivision of the Collateral Interest.
"Collateral Interest Percentage" shall be calculated by substituting the
Collateral Interest Adjusted Amount and the initial Collateral Interest Amount
in all references to the Adjusted Investor Amount and the Initial Investor
Amount, respectively, in the definition of Investor Percentage. The Collateral
Interest Percentage may be subdivided pursuant to the Series 1999-1 Supplement
to reflect any subdivision of the Collateral Interest.
"Collateral Subordinated Principal Collections" means, with respect to any
Monthly Period, an amount equal to the product of (i) the applicable Collateral
Interest Percentage with respect to Collections of Principal Receivables and
(ii) the aggregate amount of Collections of Principal Receivables for such
Monthly Period.
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The Collateral Subordinated Principal Collections may be subdivided pursuant to
the Series 1999-1 Supplement to reflect any subdivision of the Collateral
Interest.
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 the following 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 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 Saks 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 1999-1 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, Collections of Principal Receivables
allocable first to the Collateral 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 Collateral
Interest Amount, the Class B Investor Amount, and the Class A 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
"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 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 Saks 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 1999-1 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 1999-1 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,
Reallocated Principal Collections allocable to the Collateral 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 Collateral
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Interest 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 Interest 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
following Distribution Date, (ii) any Collateral Monthly Interest previously
due but not paid to the Collateral Interest on a prior Distribution Date, (iii)
any Collateral Interest Additional Interest for the following Distribution Date
and any Collateral Interest Additional Interest previously due but not paid to
the Collateral Interest on a prior Distribution Date and (iv) if Saks is no
longer the Servicer, the Collateral Interest Servicing Fee for such
Distribution Date and any unpaid Collateral Interest Servicing Fee for a prior
Distribution Date exceeds the Collateral Interest 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 Interest Allocable Amount, if
any, for such Distribution Date exceeds the amount of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1999-1 available on such
Distribution Date as specified in clause (i) under "-- Applications of
Collections -- Excess Spread; Shared Excess Finance Charge Collections." The
Collateral Interest Required Amount may be subdivided pursuant to the Series
1999-1 Supplement to reflect any subdivision of the Collateral Interest. If the
Collateral Interest Required Amount is greater than zero, available Excess
Spread and Shared Excess Finance Charge Collections and amounts, if any, held
in the Spread Account will then be used to fund the remaining Collateral
Interest Required Amount. If such Excess Spread and Shared Excess Finance
Charge Collections and amounts, if any, available in the Spread Account are
insufficient to fund the Collateral Interest Required Amount, then the
Collateral Interest Amount may be reduced. See "-- Allocation of Investor
Default Amount; Adjustment Amounts; Investor Charge Offs."
Reallocated Principal Collections allocable to the Collateral Interest may
be reimbursed from amounts available in the Spread Account. The Spread Account
will be established with the Trustee solely for the benefit of the Collateral
Interest. Class A Certificateholders and Class B Certificateholders should not
view the Spread Account as credit enhancement for their Certificates.
Applications of Collections
During the Revolving Period, Collections of Principal Receivables allocable
to Series 1999-1 with respect to each Monthly Period will only be required to
be deposited into the Collection Account on a daily basis during such Monthly
Period under limited circumstances as provided in the Series 1999-1 Supplement;
provided, however, that in the event that the Minimum Transferor Amount exceeds
the Transferor Amount on any date, such Collections of Principal Receivables
shall be deposited into the Excess Funding Account until the Transferor Amount
equals the Minimum Transferor Amount. During the Accumulation Period, after an
amount of Collections of Principal Receivables allocable to Series 1999-1 equal
to the Controlled Deposit Amount with respect to each Monthly Period has been
deposited into the Collection Account, Collections of Principal Receivables
allocable to Series 1999-1 with respect to each Monthly Period need not be
deposited into the Collection Account on a daily basis during such Monthly
Period, except under limited circumstances as provided in the Series 1999-1
Supplement; 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 1999-1, 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 based on the applicable Investor Percentage
for such Monthly Period.
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Payment of Interest, Fees and Other Items
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply the Class A Available Funds, Class B Available Funds,
and Collateral Interest 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 Class A Additional Interest, will be distributed to the Class A
Certificateholders;
(ii) if Saks 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 Class B Additional Interest, will be distributed to the Class B
Certificateholders;
(ii) if Saks 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 Interest
Available Funds with respect to such Distribution Date will be distributed in
the following priority (provided, however, the Collateral Interest Available
Funds and allocations thereof may be subdivided pursuant to the Series 1999-1
Supplement to reflect any subdivision of the Collateral Interest):
(i) if Saks is no longer the Servicer, an amount equal to the Collateral
Interest Servicing Fee for such Distribution Date, plus the amount of any
Collateral Interest 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) the portion
of the Class A Available Funds used to cover the Class A Allocable Amount, plus
(c) amounts designated as Available Principal Collections as described under
"-- Excess Spread; Shared Excess Finance Charge Collections," minus (d) any
applied Reallocated Principal Collections for the related Monthly Period, plus
(e) Shared Principal Collections allocated to Series 1999-1.
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"Class A Account Percentage" means, with respect to any Determination Date,
the percentage equivalent of a fraction, the numerator of which is the
aggregate amount on deposit in the Principal Account with respect to Class A
Monthly Principal and the denominator of which is the aggregate amount on
deposit in the Principal Account, in each case as of the last day of the
preceding Monthly Period.
"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) an amount equal to the product of (a) the Class A Account
Percentage and (b) 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 1999-1 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 1999-
1 Supplement with respect to such Distribution Date.
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to the product of (i) the Class A Certificate Rate for the related
Interest Period , (ii) the actual number of days in such Interest Period
divided by 360, and (iii) 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 the
interest accrued on the initial outstanding principal balance of the Class A
Certificates at the applicable Class A Certificate Rate for the period from and
including the Closing Date through but excluding August 16, 1999.
"Class B Account Percentage" means, with respect to any Determination Date,
the percentage equivalent of a fraction, the numerator of which is the
aggregate amount on deposit in the Principal Account with respect to Class B
Monthly Principal and the denominator of which is the aggregate amount on
deposit in the Principal Account, in each case as of the last day of the
preceding Monthly Period.
"Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (i) the applicable Class B Investor Percentage of
Collections of Finance Charge Receivables with respect to such Monthly Period
plus any other amounts that are to be treated as Collections of Finance Charge
Receivables, (ii) an amount equal to the product of (a) the Class B Account
Percentage and (b) 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 1999-1 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 1999-
1 Supplement with respect to such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution Date, an
amount equal to the product of (i) the Class B Certificate Rate for the related
Interest Period , (ii) the actual number of days in such Interest Period
divided by 360, and (iii) 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 the
interest accrued on the initial outstanding principal balance of the Class B
Certificates at the applicable Class B Certificate Rate for the period from and
including the Closing Date through but excluding August 16, 1999.
"Collateral Interest Account Percentage" means, with respect to any
Determination Date, the percentage equivalent of a fraction, the numerator of
which is the aggregate amount on deposit in the Principal
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Account with respect to Collateral Interest Monthly Principal and the
denominator of which is the aggregate amount on deposit in the Principal
Account, in each case as of the last day of the preceding Monthly Period.
"Collateral Interest Available Funds" means, with respect to any Monthly
Period, an amount equal to the sum of (i) applicable Collateral Interest
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, (ii) an amount equal to the product of (a) the
Collateral Interest Account Percentage and (b) 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 Collateral Interest Available Funds pursuant to the
Series 1999-1 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 Collateral
Interest Available Funds pursuant to the Series 1999-1 Supplement with respect
to such Distribution Date (provided, however, the Collateral Interest Available
Funds and allocations thereof may be subdivided pursuant to the Series 1999-1
Supplement to reflect any subdivision of the Collateral Interest).
"Collateral Interest 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
outstanding principal amount of the Collateral Interest as of the preceding
Record Date (or, in the case of the first Distribution Date, as of the Closing
Date) and the Collateral Interest Rate for the related Interest Period 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 Monthly
Interest may be subdivided pursuant to the Series 1999-1 Supplement to reflect
any subdivision of the Collateral Interest.
"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) and
(C)(ii) above.
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 1999-1 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 the Class B 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;"
(e) 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;
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(f) 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 uncovered 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;"
(g) an amount equal to Collateral Monthly Interest (as such amount may be
subdivided pursuant to the Series 1999-1 Supplement to reflect any subdivision
of the Collateral Interest), for such Distribution Date, plus the amount of
Collateral Monthly Interest previously due but not paid to the holders of the
Collateral Interest on a prior Distribution Date, plus any additional interest
with respect to interest amounts that were due but not paid to the holders of
the Collateral Interest on a prior Distribution Date at a rate equal to the
Collateral Interest Rate plus 2% per annum ("Collateral Interest Additional
Interest") will be distributed to the holders of the Collateral Interest;
(h) an amount equal to the Class A Servicing Fee, the Class B Servicing Fee
and the Collateral Interest Servicing Fee (as such amount may be subdivided
pursuant to the Series 1999-1 Supplement to reflect any subdivision of the
Collateral Interest), for such Distribution Date (or, if Saks 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 Interest Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution
Date, will be distributed to the Servicer;
(i) an amount equal to the Collateral Interest Allocable Amount (as such
amount may be subdivided pursuant to the Series 1999-1 Supplement to reflect
any subdivision of the Collateral Interest), for such Distribution Date will
be treated as a portion of Available Principal Collections for such
Distribution Date as described under "-- Payments of Principal;"
(j) an amount equal to the unreimbursed reductions of the Collateral
Interest Amount (as such amount may be subdivided pursuant to the Series 1999-
1 Supplement to reflect any subdivision of the Collateral Interest), if any,
due to: (i) Collateral Interest Charge Offs (as such amount may be subdivided
pursuant to the Series 1999-1 Supplement to reflect any subdivision of the
Collateral Interest); (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 Interest Amount (as
such amount may be subdivided pursuant to the Series 1999-1 Supplement to
reflect any subdivision of the Collateral Interest), and (iii) reallocations
of the Collateral Interest Amount (as such amount may be subdivided pursuant
to the Series 1999-1 Supplement to reflect any subdivision of the Collateral
Interest), to the Class A Investor or the Class B Investor Amount as a result
of uncovered Class A Allocable Amounts or uncovered 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;"
(k) an amount equal to the excess, if any, of the Required Spread Account
Amount over the Available Spread Account Amount will be deposited into the
Spread Account;
(l) an amount equal to the aggregate of any other amounts, if any, then due
to the Collateral Interest; and
(m) 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.
"Available Spread Account Amount" means the amount specified as such in the
Series 1999-1 Supplement or such higher amount designated by the Transferor.
"Required Spread Account Amount" means the amount specified as such in the
Series 1999-1 Supplement or such higher amount designated by the Transferor.
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"Required Reserve Account Amount" means the amount specified as such in the
Series 1999-1 Supplement, which shall be zero prior to the Reserve Account
Funding Date, and thereafter shall not be less than 1.50% of the Investor
Amount without satisfaction of the Rating Agency Condition.
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 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 Accumulation Period, be deposited in the Principal
Account for payment to the Class A Certificateholders on the earlier to
occur of the 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 Accumulation Period, after an amount equal to the
Class A Investor Amount has been deposited in the Principal Account, be
deposited in the Principal Account for payment to the Class B
Certificateholders on the Expected Payment Date or with respect to the
Rapid Amortization Period, after the Class A Investor Amount has been paid
in full;
(iii) an amount equal to Collateral Monthly Principal will, during the
Accumulation Period, after an amount equal to the sum of the Class A
Investor Amount and the Class B Investor Amount has been deposited in the
Principal Account, be deposited in the Principal Account for payment to the
holder(s) of the Collateral Interest on the Expected Payment Date, or with
respect to the Rapid Amortization Period, after the Class A Investor Amount
and the Class B Investor Amount has been paid in full, be distributed to
the holder(s) of the Collateral Interest.
(iv) the balance, if any, will be treated as Shared Principal
Collections with respect to other Series in Group One and applied as
described under "Description of the Certificates and The Pooling and
Servicing Agreement -- Shared Principal Collections" in the Prospectus.
"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, 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, beginning with the Distribution Date on which an
amount equal to the Class A Investor Amount has been deposited in the Principal
Account (after taking into account deposits to be made on such Distribution
Date), or with respect to any Distribution Date relating to the Rapid
Amortization Period, beginning with the Distribution Date on which the Class A
Certificates have been paid in full (after taking into account payments to be
made on such Distribution Date), will equal the least of (i) the Available
Principal Collections on deposit in the Principal Account with respect to such
Distribution Date (minus the portion of such Available Principal Collections
applied to Class A Monthly Principal on such Distribution Date), (ii) for each
Distribution Date with respect to the Accumulation Period, the Controlled
Deposit Amount for such Distribution Date (minus the
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Class A Monthly Principal with respect to such Distribution Date) and (iii) the
Class B Adjusted Investor Amount prior to any deposits on such Distribution
Date.
"Collateral Interest Monthly Principal" with respect to any Distribution
Date relating to the Accumulation Period, beginning with the Distribution Date
on which an amount equal to the sum of (i) the Class A Investor Amount and (ii)
the Class B Investor Amount has been deposited in the Principal Account (after
taking into account deposits to be made on such Distribution Date), or with
respect to any Distribution Date relating to the Rapid Amortization Period,
beginning with the Distribution Date on which the Class B Certificates have
been paid in full (after taking into account payments to be made on such
Distribution Date), will equal the least of (i) the Available Principal
Collections on deposit in the Principal Account with respect to such
Distribution Date (minus the portion of such Available Principal Collections
applied to Class A Monthly Principal and Class B Monthly Principal on such
Distribution Date), (ii) for each Distribution Date with respect to the
Accumulation Period, the Controlled Deposit Amount for such Distribution Date
(minus the sum of the Class A Monthly Principal and the Class B Monthly
Principal with respect to such Distribution Date) and (iii) the Collateral
Interest Adjustment Amount prior to any deposits on such Distribution Date.
"Controlled Accumulation Amount" means for any Distribution Date with
respect to the Accumulation Period, $31,531,250; provided, however, if the
Accumulation Period Length is determined to be less than 12 months, the
Controlled Accumulation Amount shall be equal to (i) the product of (x) the
Initial Investor Amount and (y) the Accumulation Period Factor for such Monthly
Period divided by (ii) the Required Accumulation Factor Number.
"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, (b) the initial investor amounts (or other applicable
amounts) of all outstanding Series (other than Series 1999-1) 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 Accumulation Period, the excess, if any, of the
Controlled Accumulation Amount for such Distribution Date over the amount
deposited into the Principal Account for such Distribution Date, and (b) on
each subsequent Distribution Date with respect to the 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 for such
subsequent Distribution Date.
Example of Distributions
The following is an example of the application of the foregoing provisions
to the first Monthly Period during which the Offered Certificates will be
outstanding:
<TABLE>
<S> <C>
July 1--July 31........................................ Monthly Period
July 31................................................ Record Date
August 10.............................................. Determination Date
August 16.............................................. Distribution Date
</TABLE>
S-49
<PAGE>
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. 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 Distribution 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 Interest (the "Collateral Interest Default Amount") (as such
amount may be subdivided pursuant to the Series 1999-1 Supplement to reflect
any subdivision of the Collateral Interest) on each Distribution Date in an
amount equal to the product of (i) the Collateral Interest Percentage
applicable during the related Monthly Period and (ii) the Default Amount for
such Monthly Period.
On each Determination Date, the Servicer will also calculate the Series
Adjustment Amount, as described below under "-- Allocation of Adjustment
Amounts." A portion of the Series Adjustment Amount will be allocated to the
Class A Certificateholders (the "Class A Adjustment Amount") on each
Distribution Date in an amount equal to the product of (i) the Series
Adjustment Amount for Series 1999-1 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 1999-1 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
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<PAGE>
Amount will be allocated to the Collateral Interest (the "Collateral Interest
Adjustment Amount") (as such amount may be subdivided pursuant to the Series
1999-1 Supplement to reflect any subdivision of the Collateral Interest) on
each Distribution Date in an amount equal to the product of (i) the Series
Adjustment Amount for Series 1999-1 with respect to the related Monthly Period
and (ii) the percentage equivalent of a fraction the numerator of which is the
Collateral Interest Amount (as such amount may be subdivided pursuant to the
Series 1999-1 Supplement to reflect any subdivision of the Collateral Interest)
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 Interest Default Amount
and the Collateral Interest Adjustment Amount with respect to a Distribution
Date is referred to as the "Collateral Interest Allocable Amount" (as such
amount may be subdivided pursuant to the Series 1999-1 Supplement to reflect
any subdivision of the Collateral Interest). The sum of the Class A Allocable
Amount, the Class B Allocable Amount and the Collateral Interest 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 1999-1 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 1999-1 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 1999-1 and Reallocated Principal
Collections, then the Collateral Interest Amount (as such amount may be
subdivided pursuant to the Series 1999-1 Supplement to reflect any subdivision
of the Collateral Interest) 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 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 Interest Amount to be a negative number,
the Collateral Interest Amount will be reduced to zero, and the Class B
Investor Amount will be reduced by the amount by which the Collateral Interest
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 Collateral Interest Amount with respect to
such Distribution Date and the amount of Excess Spread and Shared Excess
Finance Charge Collections 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 Collateral Interest
Amount and the Class B Investor Amount for such Distribution Date and the
amount of Excess Spread and Shared Excess Finance Charge Collections and the
amount of Reallocated Principal Collections used to fund the Class A 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 1999-1 and
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<PAGE>
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 1999-1 not required to pay the Class A
Required Amount or reimburse Class A Investor Charge Offs, and Reallocated
Principal Collections (exclusive of any Class B Subordinated Principal
Collections) not required to pay the Class A Required Amount, then the
Collateral Interest Amount (as such amount may be subdivided pursuant to the
Series 1999-1 Supplement to reflect any subdivision of the Collateral Interest)
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, 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 Interest Amount to be a negative number, the Collateral Interest
Amount remaining after any reduction for the benefit of the Class A
Certificates will be reduced to zero, and the Class B Investor Amount remaining
after any reduction for the benefit of the Class A Certificates will be reduced
by the amount by which the Collateral Interest 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 Collateral Interest Amount with respect to such Distribution Date and the
amount of Excess Spread and Shared Excess Finance Charge Collections, and the
amount of Reallocated Principal Collections used to fund the Class B Allocable
Amount for such Distribution Date (a "Class B Investor Charge Off"), which will
have the effect of slowing or reducing the return of principal to the Class B
Certificateholders. If the Class B Investor Amount has been reduced by the
amount of any Class B Investor Charge Offs, it will thereafter be increased on
any Distribution Date (but not by an amount in excess of the aggregate Class B
Investor Charge Offs) by the amount of Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1999-1 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 Interest Required Amount for
such Distribution Date exceeds the sum of Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1999-1 not required to pay the
Class A Required Amount, reimburse Class A Investor Charge Offs, pay the
Class B Required Amount, or reimburse Class B Investor Charge Offs and the
amounts, if any, in the Spread Account, then the Collateral Interest Amount (as
such amount may be subdivided pursuant to the Series 1999-1 Supplement to
reflect any subdivision of the Collateral Interest), 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 Interest Allocable Amount for such Distribution Date (a
"Collateral Interest Charge Off") (as such amount may be subdivided pursuant to
the Series 1999-1 Supplement to reflect any subdivision of the Collateral
Interest).
Allocation of Adjustment Amounts
The Minimum Transferor Interest Percentage applicable to Series 1999-1 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 Collateral Interest Amount owned by the Transferor is
less than 2% of the Investor Amount and the Minimum Transferor
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<PAGE>
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
Collateral Interest 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 Collateral Interest 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 Collateral Interest Amount owned by the Transferor as a percentage of the
Investor Amount on the Distribution Date preceding such designation (after
giving effect to all distributions and adjustments made on such Distribution
Date) does not equal or exceed 2%. The "Minimum Transferor Amount" will
generally be equal to the product of the aggregate adjusted investor amount for
all Series outstanding and the applicable Minimum Transferor Interest
Percentage.
If as a result of an Adjustment (i) the Principal Receivables plus the
Excess Funding Account balance is less than (ii) the aggregate investor amount
of all Series (after giving effect to any required transfer of Receivables in
Additional Accounts to the Trust and any amounts deposited in the Excess
Funding Account), and the Transferor fails to make any payment required by the
Pooling and Servicing Agreement in respect thereof, then the amount of such
deficiency will be allocated among all Series based on their respective
Investor Percentages (a "Series Adjustment Amount"). The Series Adjustment
Amount, as applicable to Series 1999-1, 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 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 Series 1999-1 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, and finally to the
Collateral Interest, in each case to the extent of any reductions in the Class
A Investor Amount, the Class B Investor Amount, or the Collateral Interest
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
June 2001 Monthly Period, unless the Transferor has designated a different date
for the commencement of the Accumulation Period or a Pay Out Event occurs prior
to such date. See "-- Principal Payments."
A "Pay Out Event" refers to any of the 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 1999-1:
(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 1999-1 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 1999-1 Supplement, which
failure has a material adverse effect on the holders of the Offered
Certificates and the Collateral Interest, and which continues unremedied
for a period of 60 days after the date on which written notice of such
failure,
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<PAGE>
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 the
Offered Certificates and the Collateral Interest representing not less than
50% of the Investor Amount, and continues to materially and adversely
affect the holders of the Offered Certificates and the Collateral Interest
for such period; or
(b) any representation or warranty made by the Transferor in the Pooling
and Servicing Agreement or the Series 1999-1 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 the Offered Certificates and the Collateral Interest
representing not less than 50% of the Investor Amount, and (ii) as a result
of which the interests of the holders of the Offered Certificates and the
Collateral Interest 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
(d) failure to pay the Investor Amount on the 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 Offered Certificates and the Collateral
Interest;
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 the Offered Certificates and the Collateral
Interest 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 the Offered Certificates and the Collateral Interest)
may declare that a Pay Out Event has occurred with respect to only the Offered
Certificates and the Collateral Interest 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 Offered Certificates and the
Collateral Interest 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 Series 1999-1 for such Monthly Period
(provided, however, that Shared Excess Finance Charge Collections will be
included in Portfolio Yield only to the extent that the Rating Agency Condition
is satisfied with respect to Standard & Poor's), (ii) the amount of investments
earnings (net of investment expenses and losses), if any, on the Principal
Account and Reserve Account balances, (iii) the amount of funds withdrawn from
the Reserve Account less (iv) an amount equal to the Default Amount allocable
to Series 1991-1 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, and Collateral
Monthly Interest payable on the Offered Certificates and the Collateral
Interest 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
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<PAGE>
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 $171,111, (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 $18,501, (iii) the share of
such fee allocable to the Collateral Interest (the "Collateral Interest
Servicing Fee") (as such amount may be subdivided pursuant to the Series 1999-1
Supplement to reflect the subdivision of the Collateral Interest) 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 Interest Adjusted
Amount; provided, however, with respect to the first Distribution Date, the
Collateral Interest Servicing Fee shall be equal to $41,617.
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.
LISTING AND CLEARING OF CERTIFICATES
We expect to list the Certificates on the Luxembourg Stock Exchange. We
cannot guaranty that the application for the listing will be accepted or, if
accepted, when such listing will be accepted. In connection with the listing
application, the Certificate of Incorporation and Bylaws of the Transferor, as
well as the legal notice relating to the issuance of the Offered Certificates
will be deposited prior to listing with the Chief Registrar of the District
Court in Luxembourg, where copies thereof may be obtained upon request. The
Class A Certificates and the Class B Certificates have been accepted for
clearance through the facilities of DTC, Cedel and Euroclear (ISIN number for
the Class A Certificates US79377BAA26, and for the Class B Certificates
US79377BAB09, and Common Code number for the Class A Certificates 010010705,
and for the Class B Certificates 010010721).
The Transferor has taken all reasonable care to ensure that the information
contained in this Prospectus Supplement and the Prospectus in relation to the
Transferor and the Offered Certificates is true and accurate in all material
respects and that in relation to the Transferor and the Offered Certificates
there are no material facts the omission of which would make misleading any
statement herein or in the Prospectus, whether fact or opinion. The Transferor
accepts responsibility accordingly. The transactions contemplated in this
Prospectus Supplement were authorized by resolutions adopted by the Transferor
as of June 30, 1999.
Copies of the Pooling and Servicing Agreement, the Series 1999-1 Supplement,
the Annual Independent Public Accountants Servicing Report required pursuant to
the Pooling and Servicing Agreement, and the documents listed under "Where You
Can Find More Information" and "Description of the Certificates and the Pooling
and Servicing Agreement -- Reports to Certificateholders" in the Prospectus
will be available at the office of the listing agent of the Trust in
Luxembourg, Banque Generale du Luxembourg S.A., whose address is 50 Avenue J.F.
Kennedy, L-2951, Luxembourg. Financial information regarding Saks is included
in the consolidated financial statements of Saks in Saks' Annual Report for the
fiscal year ended January 30, 1999,
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which document is also available without charge at the office of the listing
agent in Luxembourg. The Certificates, the Pooling and Servicing Agreement and
the Series 1999-1 Supplement are governed by the laws of the State of New York.
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
systems. Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of Cedel Customers and the
Euroclear Participants, respectively, through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Customers and Euroclear Participants will occur in the
ordinary way in accordance with their applicable rules and operating
procedures. See "Description of the Certificates and the Pooling and Servicing
Agreement -- Book-Entry Registration" and Annex I in the Prospectus.
DTC has advised us that its management is aware that some computer
applications, systems, and the like for processing data that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter Year 2000 problems. DTC has informed its participants and other
members of the financial community that it has developed and is implementing a
program so that its systems, as these relate to the timely payment of
distributions (including principal and interest payments) to security holders,
book-entry deliveries and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well
as third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. DTC has informed its participants and other members of the financial
community that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to:
. impress upon them the importance of such services being Year 2000 compliant;
and
. determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services.
In addition, DTC is in the process of developing contingency plans it deems
appropriate. According to DTC, the foregoing information with respect to DTC
has been provided to its participants and other members of the financial
community for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind. None of the
Transferor, the Bank, Saks or any of their affiliates makes any representation
as to the accuracy or completeness of such information. See "Description of the
Certificates and the Pooling and Servicing Agreement -- Book-Entry
Registration" in the Prospectus.
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.
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<PAGE>
This discussion does not address every aspect of the U.S. Federal income tax
laws that may be relevant to Certificate Owners in light of their personal
investment circumstances or to certain types of Certificate Owners subject to
special treatment under U.S. Federal income tax law (for example, banks and
other financial institutions, insurance companies, dealers in securities and
tax-exempt organizations). Each prospective Certificate Owner is urged to
consult with its own tax advisor in determining the Federal, state, local and
foreign income tax and any other tax consequences of the purchase, ownership
and disposition of the Offered Certificates.
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 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 SCC 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 secured loan.
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. 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 factor in making this determination is
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.
Based on its analysis of such factors, it is the opinion of Special Tax Counsel
that, under current law, although no transaction closely comparable to that
contemplated herein has been the subject of any 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
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<PAGE>
(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
The opinion of Special Tax Counsel with respect to the Offered Certificates
and the Trust is not binding on the courts or the IRS. 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. The Transferor currently does not intend 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).
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.
If a transaction were treated as creating a partnership between the
Transferor and Certificate Owners whose interests in the Trust were treated as
equity, the partnership itself would not be subject to Federal income tax
(unless it were to be characterized as a publicly traded partnership taxable as
a corporation); 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, unless the partnership were treated as engaged in a
trade or business, 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. Finally, if the partnership were a publicly traded
partnership that qualifies for exemption from taxation as a corporation, all or
a portion of any taxable income allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may, under certain circumstances,
constitute "unrelated business taxable income" which generally would be taxable
to the holder.
If it were determined that a transaction created an entity classified as an
association or as 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, 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 reduce amounts
available for
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<PAGE>
distribution to Certificate Owners. Cash distributions to the Certificate
Owners (except any Class not recharacterized as an equity interest in an
association) generally would be treated as dividends for tax purposes to the
extent of such deemed corporation's earnings and profits, and in the case of
non-U.S. Certificate Owner, would be subject to withholding tax.
Taxation of Interest Income of U.S. Certificate Owners
Assuming, in accordance with Special Tax Counsel's opinion, that the Offered
Certificates are debt obligations for federal income tax purposes, interest
thereon will be includible in income by a U.S. Certificate Owner as ordinary
income in accordance with its method of tax accounting. Interest received on
the Offered Certificates may also constitute "investment income" for purposes
of certain limitations of the Code concerning deductibility of investment
interest expense.
While it is not anticipated that the Offered Certificates will be issued at
a greater than de minimis discount, under applicable Treasury regulations, the
Offered Certificates may nevertheless be deemed to have been issued with
original issue discount ("OID"). This could be the case, for example, if
interest payments are not treated as "qualified stated interest" because the
IRS determines that (i) no reasonable legal remedies exist to compel timely
payment and (ii) the Offered Certificates do not have terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment a remote contingency.
Applicable regulations provide that, for purposes of the foregoing test, the
possibility of nonpayment due to default, insolvency, or similar circumstances,
is ignored. Although this provision does not directly apply to the Offered
Certificates (because they have no actual default provisions) the Transferor
intends to take the position that, because nonpayment can occur only as a
result of events beyond its control (principally, loss rates and payment delays
on the Receivables substantially in excess of those anticipated), nonpayment is
a remote contingency. Based on the foregoing, and on the fact that generally
interest will accrue on the Offered Certificates at a "qualified floating
rate," the Transferor intends to take the position that interest payments on
the Offered Certificates constitute qualified stated interest. If, however,
interest payments were not "qualified stated interest," all of the taxable
income to be recognized with respect to the Offered Certificates would be
includible in income as OID but would not be includible again when the interest
is actually received.
If the Offered Certificates are in fact issued at a greater than de minimis
discount or are treated as having been issued with OID under applicable
Treasury regulations, the excess of the "stated redemption price at maturity"
of an Offered Certificate over the initial offering price at which a
substantial amount of the Offered Certificates are sold to the public will
constitute OID. A U.S. Certificate Owner must include OID in income as interest
over the term of the Offered Certificate under a constant yield method. In
general, OID must be included in income in advance of the receipt of cash
representing that income. In the case of a debt instrument as to which the
repayment of principal may be accelerated as a result of the prepayment of
other obligations securing the debt instrument (a "Prepayable Instrument"), the
periodic accrual of OID is determined by taking into account both the
prepayment assumptions used in pricing the debt instrument and the prepayment
experience. If this provision applies to the Offered Certificates (which is not
clear), the amount of OID which will accrue in any given "accrual period" may
either increase or decrease depending upon the actual prepayment rate.
Accordingly, each U.S. Certificate Owner should consult its own tax advisor
regarding the effect of the OID rules if the Offered Certificates are issued
with OID. Under the applicable Treasury regulations, if an Offered Certificate
is issued with de minimis OID, a U.S. Certificate Owner must include such OID
in income proportionately as principal payments are made.
A U.S. Certificate Owner who purchases an Offered Certificate at a discount
from its adjusted issue price after its original issuance 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 interest
deductions with respect to debt incurred to acquire or carry the market
discount Offered Certificate.
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<PAGE>
A U.S. Certificate Owner who purchases an Offered Certificate after its
original issuance for an amount in excess of the sum of all amounts payable on
such Offered Certificate after the purchase date other than payment of
qualified stated interest (the "Remaining Redemption Amount") will be
considered to have purchased the Offered Certificate at a premium. Such U.S.
Certificate Owner may generally elect to amortize such premium (as an offset to
interest income), using a constant yield method, over the remaining term of the
Offered Certificate.
A U.S. Certificate Owner who purchases an Offered Certificate that was
issued with OID after its original issuance for an amount less than or equal to
the Remaining Redemption Amount but in excess of the Offered Certificate
adjusted issue price generally is permitted to reduced the daily portion of OID
otherwise includible in such Certificate Owner's taxable income.
Sale or Other Disposition of a Certificate
In general, a U.S. Certificate Owner will recognize gain or loss upon the
sale, exchange, redemption, or other taxable disposition of an Offered
Certificate measured by the difference between (i) the amount of cash and the
fair market value of any property received (other than amounts attributable to,
and taxable as, accrued interest) and (ii) the U.S. Certificate Owner's tax
basis in the Offered Certificate (which is equal, in general, to the purchase
price of the Offered Certificate 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 Offered Certificate). Subject to
the market discount rules discussed above and to the one-year holding
requirement for long-term capital gain treatment, any such gain or loss
generally will be long-term capital gain, provided that the Offered Certificate
was held as a capital asset and provided, further, that if the rules applicable
to Prepayable Instruments apply, any OID not previously accrued will be treated
as ordinary income. The maximum ordinary income tax rate for individuals,
estates, and trusts exceeds the maximum long-term capital gains tax rate for
such taxpayers. In addition, capital losses generally may be used only to
offset capital gains.
Non-U.S. Certificate Owners
As set forth above, Special Tax Counsel will render an opinion, upon
issuance, that the Certificates will be treated as indebtedness for 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 (x) 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 IRS Form W-8ECI, or (y) 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
in addition (i) the non-U.S. 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); (ii) the non-U.S. Certificate Owner is
not a controlled foreign corporation with respect to the Transferor (or the
holder of such an interest); (iii) the non-U.S. Certificate Owner is not a bank
whose receipt of interest on a Certificate is described in section 881(c)(3)(A)
of the Code; (iv) such interest is not contingent interest described in section
871(h)(4) of the Code; and (v) the non-U.S. Certificate Owner does not bear
certain relationships to any holder of either the Exchangeable Transferor
Certificate other than the Transferor or any holder of the Certificates of any
Series not properly characterized as debt. Applicable identification
requirements generally will be satisfied if there is delivered to a securities
clearing organization (i) IRS Form W-8 or IRS Form W-8BEN 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 or IRS Form W-8BEN, signed by the
Certificate
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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") 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 Supplement but generally will be effective for payments made after
December 31, 2000. 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 hold true.
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.
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.
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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 Servicer on behalf of the Trust
pursuant to the Pooling and Servicing 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
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 SCC 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.
Saks 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 is suffered or sustained by the Trust, the Trustee or any Certificate
Owner or
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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 (the
"Underwriters"), and the Underwriters have severally agreed to purchase from
the Transferor, the principal amount of Offered Certificates set forth opposite
their respective names below:
<TABLE>
<CAPTION>
Principal Amount
Of Class A
Underwriters Certificates
<S> <C>
Banc of America Securities LLC........................... $ 70,000,000
Banc One Capital Markets, Inc............................ 70,000,000
Chase Securities Inc..................................... 70,000,000
J.P. Morgan Securities Inc............................... 70,000,000
------------
$280,000,000
============
<CAPTION>
Principal Amount
Of Class B
Underwriter Certificates
<S> <C>
Banc of America Securities LLC........................... $ 30,275,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any of the Certificates are purchased.
The Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof and to certain dealers
at such price less concessions not in excess of 0.18% of the principal amount
of the Class A Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.15% of the principal amount of the
Class A Certificates to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriters.
The Underwriter of the Class B Certificates proposes initially to offer the
Class B Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
0.21% of the principal amount of the Class B Certificates. The Underwriter may
allow, and such dealers may reallow, concessions not in excess of 0.175% 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 Saks 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.
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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.
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 Saks and its
affiliates. Bank of America, N.A., which is an affiliate of Banc of America
Securities LLC is agent bank and a lender to Saks and certain of its affiliates
under a $1.25 billion amended and restated credit facility (the "Credit
Facility"), and affiliates of each of the other underwriters are lenders under
the Credit Facility. Bank of America, N.A. and the First National Bank of
Chicago are also administrative or referral agents for two multi-seller, asset-
backed commercial paper conduits which are purchasers of the Series 1997-1
Variable Funding Certificates.
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 Saks 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-64
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accumulation Period Factor........... S-49
Accumulation Period Length........... S-38
Additional Interest.................. S-37
Adjusted Investor Amount............. S-40
ADS.................................. S-19
Allocable Amount..................... S-51
Available Principal Collections...... S-44
Available Spread Account Amount...... S-47
Bank................................. S-19
Bank Portfolio....................... S-22
Base Rate............................ S-54
business day......................... S-36
Class A Account Percentage........... S-45
Class A Additional Interest.......... S-37
Class A Adjusted Investor Amount..... S-40
Class A Adjustment Amount............ S-50
Class A Allocable Amount............. S-51
Class A Available Funds.............. S-45
Class A Certificate Rate............. S-4
Class A Investor Amount.............. S-40
Class A Investor Charge Off.......... S-51
Class A Investor Default Amount...... S-50
Class A Investor Percentage.......... S-41
Class A Monthly Interest............. S-45
Class A Monthly Principal............ S-48
Class A Pool Factor.................. S-35
Class A Required Amount.............. S-42
Class A Servicing Fee................ S-55
Class B Account Percentage........... S-45
Class B Additional Interest.......... S-37
Class B Adjusted Investor Amount..... S-41
Class B Adjustment Amount............ S-50
Class B Allocable Amount............. S-51
Class B Available Funds.............. S-45
Class B Certificate Rate............. S-4
Class B Investor Amount.............. S-41
Class B Investor Charge Off.......... S-52
Class B Investor Default Amount...... S-50
Class B Investor Percentage.......... S-41
Class B Monthly Interest............. S-45
Class B Monthly Principal............ S-48
Class B Pool Factor.................. S-35
Class B Required Amount.............. S-42
Class B Servicing Fee................ S-55
Class B Subordinated Principal
Collections......................... S-39
Closing Date......................... S-36
Code................................. S-56
Collateral Interest Account
Percentage.......................... S-45
Collateral Interest Additional
Interest............................ S-47
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Collateral Interest Adjusted Amount.. S-41
Collateral Interest Adjustment
Amount.............................. S-51
Collateral Interest Allocable
Amount.............................. S-51
Collateral Interest Amount........... S-41
Collateral Interest Available Funds.. S-46
Collateral Interest Charge Off....... S-52
Collateral Interest Default Amount... S-50
Collateral Interest Monthly
Principal........................... S-49
Collateral Interest Percentage....... S-41
Collateral Interest Pool Factor...... S-35
Collateral Interest Rate............. S-46
Collateral Interest Required Amount.. S-43
Collateral Interest Servicing Fee.... S-55
Collateral Monthly Interest.......... S-46
Collateral Percentage................ S-35
Collateral Subordinated Principal
Collections......................... S-41
Controlled Accumulation Amount....... S-49
Controlled Deposit Amount............ S-49
Conversion........................... S-19
CPS.................................. S-19
Credit Facility...................... S-64
Credit Service Center................ S-19
Default Amount....................... S-50
Defaulted Accounts................... S-50
Defaulted Receivables................ S-50
Deficit Controlled Accumulation
Amount.............................. S-49
Department Stores.................... S-19
Depositaries......................... S-56
Determination Date................... S-50
Discount Option Receivables.......... S-38
Discount Percentage.................. S-38
Distribution Date.................... S-36
Excess Spread........................ S-46
Excluded Accounts.................... S-21
Expected Payment Date................ S-31
Final Regulations.................... S-61
Interest Period...................... S-36
Investor Default Amount.............. S-50
Investor Percentage.................. S-40
IRS.................................. S-57
LIBOR................................ S-37
LIBOR Determination Date............. S-37
London business day.................. S-37
Minimum Transferor Amount............ S-53
non-U.S. Certificate Owner........... S-57
OCC.................................. S-21
Offered Certificates................. S-35
OID.................................. S-59
</TABLE>
S-65
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pay Out Event........................ S-53
Pool Factors......................... S-35
Portfolio Yield...................... S-54
Prepayable Instrument................ S-59
Principal Account Balance............ S-40
Probe................................ S-24
Reallocated Principal Collections.... S-42
Reference Banks...................... S-38
Reform Act........................... S-18
Remaining Redemption Amount.......... S-60
Required Accumulation Factor Number.. S-49
Required Reserve Account Amount...... S-48
Required Spread Account Amount....... S-47
Reserve Account...................... S-39
Reserve Account Funding Date......... S-39
Saks................................. S-19
Saks Fifth Avenue.................... S-19
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Saks Holdings........................ S-19
SCC.................................. S-19
Series Adjustment Amount............. S-53
Series Cut-off Date.................. S-22
Series 1999-1 Supplement............. S-35
Servicing Fee Percentage............. S-56
Shared Excess Finance Charge
Collections......................... S-47
Special Tax Counsel.................. S-57
Telerate Page 3750................... S-38
Transferor........................... S-19
Transferor Interest.................. S-36
Transferor Percentage................ S-36
Trust Portfolio...................... S-22
U.S. Certificate Owner............... S-57
Underwriters......................... S-63
Underwriting Agreement............... S-63
</TABLE>
S-66
<PAGE>
ANNEX I
OTHER SERIES
The following table sets forth the principal characteristics of the Class A-
1, Class A-2 and Class A-3 Variable Funding Certificates of Series 1997-1, the
Class A and Class B Certificates of Series 1997-2, the Class A and Class B
Certificates of Series 1998-1, and the Class A and Class B Certificates of
Series 1998-2, 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.
1. Class A-1, Class A-2 and Class A-3 Variable Funding Certificates, Series
1997-1
<TABLE>
<S> <C>
Group......................................... One
Class A-1 and Class A-2 Maximum Investor
Amount....................................... $750,000,000
Expected Class A-1 and Class A-2 Maximum
Investor Amount immediately following the
Closing Date................................. $300,000,000
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........................... May 6, 1998
Series Termination Date....................... June 15, 2003
</TABLE>
A-1
<PAGE>
4. Class A and Class B Asset Backed Certificates, Series 1998-2
<TABLE>
<S> <C>
Group............................................... One
Class A Initial Investor Amount..................... $200,000,000
Class B Initial Investor Amount..................... $21,500,000
Class A Certificate Rate............................ 6.00%
Class B Certificate Rate............................ 6.15%
Class A Expected Payment Date....................... May 2001 Distribution Date
Class B Expected Payment Date....................... June 2001 Distribution Date
Credit Enhancement.................................. Subordination
Series Closing Date................................. May 21, 1998
Series Termination Date............................. September 15, 2004
</TABLE>
A-2
<PAGE>
PROSPECTUS
Saks Credit Card Master Trust
(formerly named the "Proffitt's Credit Card Master Trust")
Asset Backed Certificates
Saks Credit Corporation Saks Incorporated
(as successor to Proffitt's Credit Corporation)
(formerly named "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 18. 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
<TABLE>
<S> <C>
PROSPECTUS SUMMARY......................................................... 1
RISK FACTORS............................................................... 18
Limited Liquidity......................................................... 18
Non-Recourse Obligation................................................... 18
Transfer of Receivables................................................... 18
Commingling of Collections................................................ 18
Bankruptcy and Insolvency Risks........................................... 19
Effects of Consumer and Debtor Protection Laws on Collectibility of
Receivables.............................................................. 20
Effect of Payment Rate on Certificates.................................... 21
Effects of Convenience Use and Special Deferrals.......................... 21
Ability to Change Terms of the Receivables................................ 21
Dependence on the Company's Department Stores; Competition................ 22
Competition from Other Credit and Payment Sources......................... 23
Social, Legal and Economic Factors........................................ 23
Effect of Limited Subordination........................................... 23
Issuance of Additional Series; Master Trust Considerations................ 23
Absence of Control on Certain Voting Matters.............................. 24
Effects of Prepayment Distinctions among Classes.......................... 24
Effect on Certain Pre-Funded Series of Ability to Generate Additional
Receivables.............................................................. 24
Basis Risk................................................................ 25
Addition of Trust Assets.................................................. 25
Limited Nature of Certificate Rating...................................... 25
Limited Credit Enhancement................................................ 25
Effect of Discount Option................................................. 26
Book-Entry Registration................................................... 26
Geographic Concentrations................................................. 27
General Economic Conditions; Seasonality.................................. 27
Integration of Acquired Companies......................................... 27
Forward-Looking Statements................................................ 27
CREDIT CARD PROGRAM........................................................ 27
THE ACCOUNTS............................................................... 28
THE TRUST.................................................................. 29
MATURITY ASSUMPTIONS....................................................... 29
USE OF PROCEEDS............................................................ 30
THE COMPANY................................................................ 30
PCC........................................................................ 31
DESCRIPTION OF THE CERTIFICATES AND THE POOLING AND SERVICING AGREEMENT.... 31
General................................................................... 31
Book-Entry Registration................................................... 32
Definitive Certificates................................................... 35
Interest Payments......................................................... 36
Principal Payments........................................................ 36
Transfer of Receivables................................................... 37
Exchanges................................................................. 37
Representations and Warranties............................................ 39
Addition of Accounts...................................................... 41
Removal of Accounts....................................................... 42
Discount Option Receivables............................................... 43
Collection and Other Servicing Procedures................................. 43
Collection and Principal Accounts......................................... 44
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Funding Period............................................................ 44
Investor Percentage and Transferor Percentage............................. 45
Application of Collections................................................ 45
Shared Principal Collections.............................................. 46
Excess Funding Account.................................................... 47
Shared Excess Finance Charge Collections.................................. 47
Paired Series............................................................. 48
Allocation of Investor Default Amount; Adjustment Amounts; Investor Charge
Offs..................................................................... 48
Allocation of Adjustment Amounts.......................................... 49
Defeasance................................................................ 49
Optional Repurchase; Final Payment of Principal; Termination.............. 50
Pay Out Events............................................................ 50
Servicing Compensation and Payment of Expenses............................ 51
Certain Matters Regarding the Servicer.................................... 52
Servicer Default.......................................................... 52
Reports to Certificateholders............................................. 53
Amendments................................................................ 55
Indemnification........................................................... 56
Amendments to the Pooling and Servicing Agreement Relating to FASIT
Election................................................................. 56
List of Certificateholders................................................ 57
The Trustee............................................................... 57
ENHANCEMENT................................................................ 57
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES................................... 59
Transfer of Receivables................................................... 59
Certain Matters Relating to Bankruptcy or Insolvency...................... 60
Certain Matters Relating to Receivership.................................. 62
Consumer and Debtor Protection Laws, Recent and Proposed Legislation...... 63
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 64
STATE AND LOCAL TAX CONSEQUENCES........................................... 69
ERISA CONSIDERATIONS....................................................... 69
PLAN OF DISTRIBUTION....................................................... 71
LEGAL MATTERS.............................................................. 72
INDEX OF TERMS FOR PROSPECTUS.............................................. 73
ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES...... I-1
</TABLE>
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
1
<PAGE>
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
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."
2
<PAGE>
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 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
3
<PAGE>
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 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
- --------
* MasterCard(R) and VISA(R) are registered trademarks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
4
<PAGE>
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."
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
5
<PAGE>
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 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:
6
<PAGE>
(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 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
7
<PAGE>
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."
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
8
<PAGE>
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
(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."
9
<PAGE>
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 The principal of the Certificates of
Period.............................. 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 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
10
<PAGE>
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 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
11
<PAGE>
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
12
<PAGE>
funds. 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 Any Series may be included in a group
Collections......................... 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
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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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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
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
18 of this Prospectus for a
discussion of certain factors that
should be considered by prospective
purchasers of the Offered
Certificates.
17
<PAGE>
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
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<PAGE>
the UCC, the Trust may not have a perfected interest in such Collections.
During periods when the Company fails to 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
19
<PAGE>
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."
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.
20
<PAGE>
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 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
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<PAGE>
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 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
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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.
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, MasterCard, VISA and the Discover
Card. 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
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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 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
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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 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
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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 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."
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
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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.
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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.
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
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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
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.
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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 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.
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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 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.
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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 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),
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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.
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.
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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 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
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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.
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
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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 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
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(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 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.
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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 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
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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.
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
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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 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.
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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.
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
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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 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
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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 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
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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
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
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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).
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.
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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 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
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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 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
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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 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.
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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.
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.
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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
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,
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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 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
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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 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).
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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 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.
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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 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
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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").
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,
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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.
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
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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 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
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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 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.
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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 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
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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 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.
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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
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.
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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.
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
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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).
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
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(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 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. 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
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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.
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
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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 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.
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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). 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
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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 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.
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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
<TABLE>
<CAPTION>
Term Page
- ---- --------
<S> <C>
Accounts............................................................... cover, 1
Accumulation Period.................................................... 12
Additional Account Closing Date........................................ 41
Additional Account Cut-Off Dtae........................................ 39
Additional Accounts.................................................... 2
Adjustment............................................................. 49
Adjustment Payment Obligation.......................................... 49
Aggregate Automatic Addition Limit..................................... 42
Aggregate Investor Amount.............................................. 39
Aggregate Investor Percentage.......................................... 45
Amortization Period.................................................... 3
Automatic Additional Accounts.......................................... 2
Bank................................................................... 1
Bankruptcy Code........................................................ 19
Benefit Plans.......................................................... 69
Cash Collateral Account................................................ 58
Cash Collateral Guaranty............................................... 58
Cede................................................................... i
Cedel.................................................................. 7
Cedel Participants..................................................... 34
Certificate Owners..................................................... i
Certificate Rate....................................................... 3
Certificateholders..................................................... i
Certificates........................................................... cover, 1
Class.................................................................. cover, 1
Closing Date........................................................... 10
Code................................................................... 64
Collection Account..................................................... 8
Collections............................................................ 1
Commission............................................................. i
Company................................................................ ii
Controlled Accumulation Amount......................................... 12
Controlled Amortization Amount......................................... 11
Controlled Amortization Period......................................... 11
Controlled Deposit Amount.............................................. 12
Controlled Distribution Amount......................................... 11
Cooperative............................................................ 34
CPS.................................................................... cover
Creation Date.......................................................... 39
Credit Card Guidelines................................................. 22
Default Amount......................................................... 48
Defaulted Accounts..................................................... 4
Defaulted Receivables.................................................. 48
Defeased Series........................................................ 16
Definitive Certificates................................................ 35
Department Stores...................................................... 2
Depositaries........................................................... 33
Depositary............................................................. 33
Depository............................................................. 32
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ------
Disclosure Document...................................................... 6
<S> <C>
Discount Option.......................................................... 26
Discount Option Receivable Collections................................... 43
Discount Option Receivables.............................................. 43
Discount Percentage...................................................... 43
Dissolution Event........................................................ 51
Distribution Date........................................................ 9
DOL...................................................................... 69
DTC...................................................................... i, I-1
DTC Rules................................................................ 33
Eligible Account......................................................... 28
Eligible Originator...................................................... 28
Eligible Receivable...................................................... 28
Enhancement.............................................................. 2
Enhancement Investor Amount.............................................. 58
Enhancement Provider..................................................... 43
ERISA.................................................................... 16
Euroclear................................................................ 34
Euroclear Operator....................................................... 34
Euroclear Participants................................................... 34
Euroclear System......................................................... 34
Excess Funding Account................................................... 9, 47
Exchange................................................................. 6
Exchange Act............................................................. i
Exchange Date............................................................ 38
Exchange Notice.......................................................... 38
Exchangeable Transferor Certificate...................................... 6
FASIT.................................................................... 56, 67
FDIA..................................................................... 20
FDIC..................................................................... 4
Final Regulation......................................................... 69
Final Regulations........................................................ 68
Final Termination Date................................................... 50
Finance Charge Receivables............................................... 4
Finance Charges.......................................................... 4
FIRREA................................................................... 20
Full Investor Amount..................................................... 14
Funding Period........................................................... 14
Global Securities........................................................ I-1
Group.................................................................... 13
Indirect Participants.................................................... 33
Ineligible Receivable.................................................... 39
Initial Cut-Off Date..................................................... 2
Initial Investor Amount.................................................. 15
Initial Seller, Initial Sellers.......................................... 18
Interchange.............................................................. 5
Interest Funding Account................................................. 36
Interest Period.......................................................... 9
Investor Amount.......................................................... 3
</TABLE>
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<TABLE>
<CAPTION>
Term Page
- ---- -----
Investor Charge Off 48
<S> <C>
Investor Default Amount................................................... 48
Investor Percentage....................................................... 4
Investor Servicing Fee.................................................... 8
IRS....................................................................... 64
L/C Bank.................................................................. 58
McRae's................................................................... cover
Minimum Aggregate Principal Receivables................................... 41
Minimum Transferor Amount................................................. 49
Minimum Transferor Interest Percentage.................................... 49
Monthly Period............................................................ 9
Monthly Servicer Report................................................... 53
Monthly Servicing Fee..................................................... 51
Moody's................................................................... 44
non-U.S. Certificate Owner................................................ 64
Obligor................................................................... 21
OCC....................................................................... 20
Offered Certificate....................................................... 9
OID....................................................................... 64
OID Regulations........................................................... 64
Paired Series............................................................. 15
Participants.............................................................. 26
Participation Agreement................................................... 41
Participations............................................................ 41
Pay Out Event............................................................. 50
Payment Date Statement.................................................... 54
PCC....................................................................... cover
Permitted Investments..................................................... 44
Pooling and Servicing Agreement........................................... 1
Pre-Funded Amount......................................................... 14
Pre-Funding Account....................................................... 14
Principal Account......................................................... 12
Principal Amortization Period............................................. 11
Principal Commencement Date............................................... 10
Principal Receivables..................................................... 4
Principal Shortfalls...................................................... 46
Principal Terms........................................................... 7
Proffitt's................................................................ 8
Prospectus Supplement..................................................... cover
Qualified Institution..................................................... 44
Rapid Amortization Period................................................. 13
Rating Agency............................................................. 17
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- -------------
<S> <C>
Rating Agency
Condition.............. 39, 52
Receivables............. cover, 32
Receivables Purchase
Agreement, Receivables
Purchase Agreements.... 18
Record Date............. 6
Recoveries.............. 48
Removed Accounts........ 5
Reserve Account......... 59
Revolving Period........ 10
RTC..................... 62
Scheduled Payment Date.. 10
Securities Act.......... i
Senior Certificates..... 3
Series.................. cover, 1, I-1
Series Adjustment
Amount................. 49
Series Supplement....... 1
Service Transfer........ 52
Servicer................ cover, 1, 8
Servicer Default........ 53
Servicing Fee
Percentage............. 51
Shared Excess Finance
Charge Collections..... 47
Shared Principal
Collections............ 46
Shortfall Amount........ 47
Special Tax Counsel..... 64
Spread Account.......... 59
Standard & Poor's....... 44
Stated Series
Termination Date....... 50
Subordinated
Certificates........... 3
Subservicers............ cover
Terms and Conditions.... 35
Transfer Agent and
Registrar.............. 36
Transferor.............. cover, 1
Transferor Amount....... 3
Transferor Percentage... 32
Trust................... cover, 1
Trust Portfolio......... cover
Trustee................. cover, 1
U.S. Certificate Owner.. 64
U.S. Person............. I-3
UCC..................... 18
</TABLE>
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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.
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.
I-1
<PAGE>
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
I-2
<PAGE>
Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(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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Saks Credit Card Master Trust
Issuer
Saks Credit Corporation
Transferor
Saks Incorporated
Servicer
SERIES 1999-1
$280,000,000 Class A Floating Rate Asset Backed Certificates
$30,275,000 Class B Floating Rate Asset Backed Certificates
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Prospectus Supplement
Dated July 14, 1999
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Underwriters of the Class A Certificates
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Chase Securities Inc.
J.P. Morgan & Co.
Underwriter of the Class B Certificates
Banc of America Securities LLC
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the certificates in any jurisdiction where the offer is
not permitted.
The delivery of this prospectus supplement and the accompanying prospectus at
any time does not imply that the information in this prospectus supplement and
the accompanying prospectus is correct as of any date after the dates on their
covers or after any other specified dates. We note that if any material change
occurs while this prospectus supplement and the accompanying prospectus are
required by law to be delivered, we will update the relevant information in
this prospectus supplement and the accompanying prospectus to incorporate the
material change.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the certificates and with respect to their unsold allotments or
subscriptions. In addition all dealers selling the certificates will deliver a
prospectus supplement and prospectus until August 13, 1999.
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