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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CHARMING SHOPPES MASTER TRUST
(Issuer)
CHARMING SHOPPES RECEIVABLES CORP.
(Exact name of Registrant as specified in its charter)
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DELAWARE 9999 51-0383871
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3411 SILVERSIDE ROAD
WILMINGTON, DELAWARE 19810
(302) 479-5510
(Address, including zip code, and telephone number, including area
code, of principal executive offices of Registrant)
COLIN STERN
C/O CHARMING SHOPPES INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
(215) 638-6898
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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MARY C. FONTAINE PAUL WEIFFENBACH
MAYER, BROWN & PLATT ORRICK, HERRINGTON & SUTCLIFFE LLP
190 SOUTH LASALLE STREET 3050 K STREET, N.W.
CHICAGO, ILLINOIS 60603 WASHINGTON, D.C. 20007
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
---------------- ---------- ----------- ----------------- ---
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Class A Certificates $1,000,000 100% $1,000,000 $278
Class B Certificates $1,000,000 100% $1,000,000 $278
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION, DATED [______________], 1999
CHARMING SHOPPES MASTER TRUST
Issuer
CHARMING SHOPPES RECEIVABLES CORP.
Seller
SPIRIT OF AMERICA, INC.
Servicer
SERIES 1999-1
$[_________] Floating Rate Class A Asset Backed Certificates
$[_________] Floating Rate Class B Asset Backed Certificates
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 IN 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 offered in this prospectus will represent interests in the
trust only and will not represent interests in or obligations of Charming
Shoppes Receivables Corp., Spirit of America National Bank or any of their
affiliates.
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Class A Certificates Class B Certificates
-------------------- --------------------
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Principal amount $ $
Price to public per certificate % %
Underwriting discount per certificate % %
Proceeds to seller per certificate % %
Certificate rate per certificate One-Month LIBOR One-Month LIBOR
plus [___]% annually* plus [___]% annually**
Interest paid Monthly Monthly
First interest payment date [______________] [______________]
Scheduled first principal payment
date [______________] [______________]
Expected final principal payment
date [______________] [______________]
Series termination date [______________] [______________]
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* After the Class A expected final payment date, one-month LIBOR may not exceed
[ ]%.
** After the Class B expected final payment date, one-month LIBOR may not exceed
[ ]%.
The total price to public is $______, the total amount of the underwriting
discount is $_____ and the total amount of proceeds plus accrued interest and
before deduction of expenses is $_____.
CREDIT ENHANCEMENT--
- - Subordination of the Class B Certificates provides credit enhancement for the
Class A Certificates.
The Trust is also issuing:
- - Class C Certificates in the amount of $__________. The Class C Certificates
are subordinated to and provide credit enhancement for the Class A and the
Class B Certificates.
- - A Class D Certificate in the amount of $________. The Class D Certificate is
subordinated to and provides credit enhancement for the Class A, Class B and
Class C Certificates.
This prospectus relates to the offering of the Class A and Class B Certificates
only.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE CLASS A CERTIFICATES OR THE CLASS B
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Class A Underwriters
BEAR, STEARNS & CO. INC. [OTHERS]
Class B Underwriter
BEAR, STEARNS & CO. INC.
______________, 1999
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
We include cross-references in this prospectus to captions in these materials
where you can find further related discussions. The following table of contents
provide the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms for Prospectus"
beginning on page __ in this document.
TABLE OF CONTENTS
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SUMMARY...........................................................................................................1
THE TRUST......................................................................................................1
THE TRUSTEE....................................................................................................1
ORIGINATOR.....................................................................................................1
SELLER.........................................................................................................1
SERVICER.......................................................................................................1
SECURITIES.....................................................................................................1
The Offered Certificates.....................................................................................1
Additional Series 1999-1 Certificates........................................................................1
Interest Payments............................................................................................2
Principal Payments...........................................................................................2
Credit Enhancement...........................................................................................2
OTHER INTERESTS IN THE TRUST...................................................................................3
Other Series.................................................................................................3
The Seller Interest..........................................................................................3
TRUST ASSETS...................................................................................................3
THE RECEIVABLES................................................................................................4
COLLECTIONS BY THE SERVICER....................................................................................4
ALLOCATION OF TRUST ASSETS.....................................................................................4
Allocations of Collections of Finance Charge Receivables.....................................................5
Interest Rate Cap Agreements.................................................................................6
Shared Excess Finance Charge Collections.....................................................................6
Allocations of Collections of Principal
Receivables..................................................................................................6
Revolving Period.............................................................................................7
Controlled Amortization Period...............................................................................7
Early Amortization Period....................................................................................7
Early Amortization Events....................................................................................7
Shared Excess Principal Collections..........................................................................8
Minimum Seller Interest......................................................................................8
DENOMINATIONS..................................................................................................9
REGISTRATION, CLEARANCE AND SETTLEMENT.........................................................................9
OPTIONAL REPURCHASE............................................................................................9
TAX STATUS.....................................................................................................9
ERISA CONSIDERATIONS..........................................................................................10
CERTIFICATE RATING............................................................................................10
RISK FACTORS.....................................................................................................11
It may not be possible to find an investor to purchase your certificates......................................11
The credit enhancement provided for your certificates is limited and may not be sufficient to prevent losses..11
The Class B certificates are subordinated to the Class A certificates and trust assets may be diverted
from Class B to pay Class A.................................................................................11
If the transfer of the receivables were held to be merely a grant of a security interest or if a conservator
or receiver is appointed for the originator or the seller, you may experience delays and/or reductions in
payments on your certificates...............................................................................12
If the servicer becomes insolvent or a receiver is appointed, you may experience a loss on your certificates..14
Consumer protection laws may restrict the servicer's ability to collect receivables, maintain yield on the
portfolio and lead to an early pay out or inability to pay your certificates in full........................14
Principal may be paid earlier than expected creating a reinvestment risk to you or later than expected
resulting in a failure to receive payment when expected.....................................................15
The return on your certificates may be sensitive to social, economic and geographic factors that
are unpredictable...........................................................................................15
The return on your certificates will be sensitive to the ability of Fashion Bug stores to
generate receivables........................................................................................16
Competition in the credit card industry could lead to early payment of your certificates......................16
If credit card account holders are concentrated in one state or geographic location, laws, economic downturn
or natural disasters in that area may adversely affect collections of receivables...........................16
Issuance of additional series by the trust may adversely affect your payments or rights.......................17
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The credit quality of the receivables may change over time, which may affect the timing and
amount of payments on your certificates.....................................................................17
A change by the originator in the terms of the accounts may adversely affect the amount and
timing of collections and payments on your certificates.....................................................17
It may be difficult for you to achieve your desired investment results if the interests of
other investors are different from yours....................................................................18
If the seller elects to treat a percentage of principal receivables as finance charge
receivables, principal payments on your certificates could be delayed.......................................18
Payments from trust assets are the sole source of payments on your certificates...............................18
Other liens may have priority over the trustee's lien on the receivables which may affect the
timing and amount of payments on your certificates..........................................................18
Credit card rates may decline without a corresponding change in amounts needed to pay
your certificates...........................................................................................19
The credit enhancement provided by the interest rate cap agreements may not prevent you from
incurring a loss on your investment.........................................................................19
TRUST............................................................................................................20
MATURITY CONSIDERATIONS..........................................................................................20
Generally.....................................................................................................20
The Revolving Period..........................................................................................21
The Controlled Amortization Period............................................................................22
The Early Amortization Period.................................................................................23
Paired Series.................................................................................................23
SPIRIT OF AMERICA'S CREDIT CARD ACTIVITIES.......................................................................23
General.......................................................................................................23
New Account Underwriting......................................................................................24
Description of Subservicer....................................................................................25
Billing and Payments..........................................................................................25
Delinquencies and Collections -- Collection Efforts...........................................................25
Credit Return Policy..........................................................................................26
Delinquency and Loss Experience...............................................................................26
Revenue Experience............................................................................................27
Payment Rates.................................................................................................28
THE RECEIVABLES..................................................................................................28
USE OF PROCEEDS..................................................................................................33
CHARMING SHOPPES PARTIES.........................................................................................33
General.......................................................................................................33
Year 2000 Compliance..........................................................................................33
DESCRIPTION OF THE CERTIFICATES..................................................................................34
General.......................................................................................................34
Interest Payments.............................................................................................35
Interest Rate Cap Agreements..................................................................................37
Principal Payments............................................................................................38
Subordination of Certain Classes..............................................................................39
Allocation Percentages........................................................................................39
Reallocation of Cash Flows....................................................................................42
Servicing Fees................................................................................................43
Application of Collections....................................................................................43
Series Shared Excess Finance Charge Collections...............................................................49
Series Shared Principal Collections...........................................................................50
Loss Amounts; Dilution Amounts; Investor Charge-Offs..........................................................51
Paired Series.................................................................................................53
Limitations on Addition of Accounts...........................................................................53
Early Amortization Events.....................................................................................54
Series Termination............................................................................................57
THE POOLING AGREEMENT............................................................................................57
Transfer and Assignment of Receivables........................................................................57
Exchanges.....................................................................................................58
Receivables Purchase Series...................................................................................59
Book-Entry Registration.......................................................................................60
Definitive Certificates.......................................................................................63
Representations and Warranties................................................................................64
Eligible Accounts; Eligible Receivables.......................................................................66
Addition of Accounts..........................................................................................67
Removal of Accounts...........................................................................................69
Collection and Other Servicing Procedures.....................................................................69
Collection Account............................................................................................69
Deposits in Collection Account................................................................................70
Shared Excess Finance Charge Collections......................................................................71
Shared Principal Collections..................................................................................71
Excess Funding Account........................................................................................72
Loss Amount; Dilution Amounts.................................................................................72
Discount Option...............................................................................................73
Defeasance....................................................................................................74
Optional Repurchase; Final Payment of Principal; Termination..................................................74
Servicing Compensation and Payment of Expenses................................................................75
Certain Matters Regarding the Seller and the Servicer.........................................................75
Servicer Default..............................................................................................76
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Reports to Series 1999-1 Certificateholders...................................................................78
Evidence as to Compliance.....................................................................................78
Amendments....................................................................................................79
List of Investor Certificateholders...........................................................................80
The Trustee...................................................................................................80
DESCRIPTION OF THE PURCHASE AGREEMENT............................................................................80
Restructuring of Trust........................................................................................80
Purchase Price for Receivables................................................................................81
Representations and Warranties................................................................................82
Certain Covenants.............................................................................................83
Addition and Removal of Accounts..............................................................................84
Termination of Purchase Agreement.............................................................................85
DESCRIPTION OF THE SECURITY AGREEMENT............................................................................85
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.........................................................................86
Insolvency Laws Affecting Transfers...........................................................................86
Other Issues Under Insolvency Laws............................................................................87
Consumer Protection Laws......................................................................................88
U.S. FEDERAL INCOME TAX CONSEQUENCES.............................................................................88
General.......................................................................................................88
Characterization of the Certificates as Indebtedness..........................................................89
Taxation of Interest Income of Certificateholders.............................................................90
Sale of a Certificate.........................................................................................90
Tax Classification of Trust...................................................................................91
FASIT Legislation.............................................................................................91
Possible Classification as a Partnership or as an Association Taxable as a Corporation........................91
Foreign Investors.............................................................................................92
Backup Withholding............................................................................................93
ERISA CONSIDERATIONS.............................................................................................93
UNDERWRITING.....................................................................................................94
LEGAL MATTERS....................................................................................................95
CERTIFICATE RATINGS..............................................................................................95
REPORTS TO CERTIFICATEHOLDERS....................................................................................95
WHERE YOU CAN FIND MORE INFORMATION..............................................................................96
ANNEX I
OTHER SERIES OUTSTANDING........................................................................................103
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES...................................................104
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iii
<PAGE> 6
SUMMARY
- - THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND
OTHER INFORMATION TO AID YOUR UNDERSTANDING OF THIS OFFERING. THIS SUMMARY
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING
YOUR INVESTMENT DECISION. THIS SUMMARY 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. YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY PRIOR TO MAKING YOUR
INVESTMENT DECISIONS SO THAT YOU UNDERSTAND ALL OF THE TERMS OF THE
OFFERING OF THE CERTIFICATES AND THE RISKS INVOLVED WITH A PURCHASE OF THE
CERTIFICATES.
THE TRUST
Charming Shoppes Master Trust was formed in December of 1992.
The purpose of the trust is to:
- acquire certain credit card receivables originated by the originator; and
- finance such acquisitions by issuing securities and receivables purchase
interests that represent undivided interests in the receivables and other
specified assets of the trust and by borrowing on a secured basis.
The trust may not engage in any other activities unless they relate to the
activities described above.
THE TRUSTEE
First Union National Bank serves as trustee for the trust.
ORIGINATOR
Spirit of America National Bank is a national banking association whose
principal place of business is 1103 Allen Drive, Milford, Ohio 45150 and whose
telephone number is (513) 576-5300.
SELLER
Charming Shoppes Receivables Corp., is a Delaware corporation whose principal
place of business is 3411 Silverside Road, Wilmington, Delaware 19810 and whose
telephone number is (302) 479-5510.
SERVICER
Spirit of America, Inc., is a Delaware corporation whose principal place of
business is 1103 Allen Drive, Milford, Ohio 45150 and whose telephone number is
(513) 576-5300.
SECURITIES
THE OFFERED CERTIFICATES
The trust will issue a new series of certificates designated as the "Series
1999-1 Certificates."
The Series 1999-1 Certificates that are being offered to you pursuant to this
prospectus are:
- Floating Rate Class A Asset Backed Certificates with an initial principal
balance of $[__________]; and
- Floating Rate Class B Asset Backed Certificates with an initial principal
balance of $[__________].
ADDITIONAL SERIES 1999-1 CERTIFICATES
The other Series 1999-1 Certificates that the trust will issue are:
- Floating Rate Class C Asset Backed Certificates with an initial principal
balance of $[__________]; and
- a Floating Rate Class D Asset Backed Certificate with an initial principal
balance of $[__________].
The Class C Certificates will be sold in private transactions. All or a portion
of the Class D Certificate may be purchased by an affiliate of the seller and/or
sold in a private transaction.
The seller expects that the trust will issue the Series 1999-1 Certificates on
_____, _____, 1999.
<PAGE> 7
INTEREST PAYMENTS
The Class A Certificates will accrue interest for each interest period at an
annual rate equal to one-month LIBOR as determined each month plus ___%; except
that after the Class A expected final payment date, one-month LIBOR may not
exceed [_]% for any interest period.
The Class B Certificates will accrue interest for each interest period at an
annual rate equal to one-month LIBOR as determined each month plus ___%; except
that after the Class B expected final payment date, one-month LIBOR may not
exceed [_]% for any interest period.
See "Description of the Certificates--Interest Payments" for a description of
how and when LIBOR will be determined each month.
Interest accrued during each interest period will be due on each 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 1% per annum.
- A distribution date is the 15th day of each month, or if that day is not a
business day, the next business day. The first distribution date is
__________, 1999.
- Each interest period begins on and includes a distribution date and ends
on and excludes the next distribution date. The first interest period,
however, will begin on and include______, 1999 and end on and exclude the
first distribution date.
You may obtain the certificate rates for any current and immediately preceding
interest period by telephoning First Union National Bank, the trustee, at (215)
985-7585.
For a discussion of the amounts available to make payments of interest on any
distribution date, see "Description of the Certificates--Application of
Collections."
PRINCIPAL PAYMENTS
If you hold a Class A Certificate, the seller expects you will begin receiving
payments of principal during the controlled amortization period, scheduled to
begin on [________, ____] and the end of which is scheduled to be the
distribution date in ____, ____, the Class A expected final payment date. The
Seller expects you will receive principal payments in an amount calculated so
that the outstanding principal balance of the Class A Certificates at the
commencement of such period is paid out in equal installments of [$_____] on
each distribution date in the controlled amortization period.
If you hold a Class B Certificate, you will not receive payments of principal
until the Class A Certificates have been paid in full. The Seller expects you
will receive payment of principal in full on the distribution date in _____,
_____, the Class B expected final payment date.
Certain circumstances could cause principal to be paid earlier or later than the
expected dates and could cause payments to be made in reduced amounts. For a
discussion of these circumstances, see "Maturity Considerations." You will not
receive any premium for early or late payment of principal.
The final payment of principal and interest on the Series 1999-1 Certificates
will be made no later than ___________, ____, or if that day is not a business
day, the next business day, which is called the Series 1999-1 termination date.
For a discussion of the amounts available to make payments of principal on any
distribution date, see "Description of the Certificates--Application of
Collections."
CREDIT ENHANCEMENT
Credit enhancement for your series is for the benefit of your series only. You
are not entitled to the benefit of any credit enhancement available to other
series.
Credit enhancement is provided for the Class A Certificates by the subordination
of the Class B Certificates, the Class C Certificates and the Class D
Certificate.
Credit enhancement is provided for the Class B Certificates by the subordination
of the Class C Certificates and the Class D Certificate.
The Class D investor interest must be reduced to zero before the Class C
Certificates will suffer any loss of principal. The Class C investor interest
must be
2
<PAGE> 8
reduced to zero before the Class B Certificates will suffer any loss of
principal. The Class B investor interest must be reduced to zero before the
Class A Certificates will suffer any loss of principal.
For a description of events that may lead to a reduction of the investor
interest of any class, see "Description of the Certificates--Application of
Collections--Reallocations and Payments of Principal," and "--Loss Amounts;
Dilution Amounts; Investor Charge-Offs."
OTHER INTERESTS IN THE TRUST
OTHER SERIES
The trust has issued other series of certificates and may issue additional
series of certificates. Each series of certificates represents an undivided
ownership interest in the receivables and other specified assets of the trust.
Additionally, the trust has issued a series of receivables purchase interests
and may issue additional series of receivables purchase interests. Each series
of receivables purchase interests also represents an undivided ownership
interest in the receivables and other specified assets of the trust conveyed to
the purchasers of such interests.
You can review a summary of each series previously issued and currently
outstanding under the caption "Annex 1: Other Series Outstanding" at the end of
this prospectus.
The trust may issue additional series with terms that may be different from any
other series without your prior consent.
THE SELLER INTEREST
Charming Shoppes Receivables Corp. is currently entitled to the remaining
interest in the assets of the trust not represented by the Series 1999-1
Certificates or any other series. This interest does not provide credit
enhancement for your series or any other series. This interest is represented by
the exchangeable seller certificate.
TRUST ASSETS
Spirit of America National Bank has transferred to Charming Shoppes Receivables
Corp., which in turn has transferred to the trust, the receivables arising under
certain credit card accounts owned by the bank. All new receivables generated in
these accounts will automatically be transferred by the bank to Charming Shoppes
Receivables Corp. and by Charming Shoppes Receivables Corp. to the trust. The
total amount of receivables in the trust will fluctuate daily as new receivables
are generated and payments are received on the accounts. For a discussion of
additional similar assets that may be transferred to the trust, see
"The Receivables" and "The Pooling Agreement--Addition of Accounts."
The trust assets will also include payments due on the receivables and other
proceeds of the receivables and of related credit insurance policies, including
net amounts received on receivables charged-off as uncollectible.
Additional assets include:
- - all of the rights and remedies of Charming Shoppes Receivables Corp. under
the agreement by which Spirit of America National Bank transfers the
receivables to it;
- - monies on deposit in the trust's bank accounts and investment earnings on
such monies;
- - any credit enhancement issued with respect to any series issued by the
trust; and
- - the proceeds of all other assets.
Your series will not have any interest in the following trust assets:
- - credit enhancement (including any hedge agreement) issued for other series,
- - monies on deposit in bank accounts established for other series or
investment earnings on such monies, or
- - undivided interests in trust assets sold to other series.
The seller may remove receivables that it transferred to the trust under the
limited circumstances described in "The Pooling Agreement--Removal of Accounts."
3
<PAGE> 9
THE RECEIVABLES
The receivables arise in accounts selected from the portfolio of credit card
accounts owned by Spirit of America National Bank based on certain criteria
described in "The Pooling Agreement--Eligible Accounts; Eligible
Receivables."
The receivables consist of both principal receivables and finance charge
receivables.
Principal receivables are, generally, amounts charged by cardholders for
purchases of merchandise, services or credit insurance premiums and other fees
that Spirit of America, Inc., as servicer, has designated to be treated as
principal receivables.
Finance charge receivables are the related finance charges, late payment fees,
returned check charges and certain other credit card fees. Allocated interchange
fees, if included in the trust in the future, would also be considered finance
charge receivables. See "The Pooling Agreement--Addition of Accounts."
Charming Shoppes Receivables Corp., as seller, may designate a fixed or variable
percentage of principal receivables to be treated as finance charge receivables
under the limited circumstances described in "The Pooling Agreement--Discount
Option."
COLLECTIONS BY THE SERVICER
Spirit of America, Inc. will service the receivables under the agreement. In
limited cases, Spirit of America, Inc. may resign or be removed and either the
trustee or a third party may be appointed as the new servicer. Spirit of
America, Inc., or any new servicer, is called the servicer. The servicer
receives a servicing fee from the trust for each series. See "The Pooling
Agreement--Servicing Compensation and Payment of Expenses."
The servicer receives collections on the receivables, deposits those collections
in an account and keeps track of those collections for finance charge
receivables and principal receivables. The servicer then allocates those
collections as summarized below.
Spirit of America, Inc. has delegated a portion of its servicing duties to
Alliance Data Systems, Inc. See "Spirit of America's Credit Card
Activities--Description of Subservicer."
ALLOCATION OF TRUST ASSETS
Each due period, the servicer will allocate collections of finance charge
receivables, principal receivables and the loss amount, which is the amount of
receivables not collected and charged-off as uncollectible, and, if required as
described in "The Pooling Agreement--Loss Amount; Dilution Amounts," dilution
amounts, which are reductions to principal receivables (other than loss amounts)
by the servicer for reasons other than payments on such receivables, among:
- - your series, based on the size of the investor interest relative to the
amount of principal receivables in the trust and amounts on deposit in the
excess funding account;
- - other outstanding series, based on the size of their respective interests
in the trust relative to the amount of principal receivables in the trust
and amounts on deposit in the excess funding account; and
- - the holder of the exchangeable seller certificate, based on the size of the
seller's interest relative to the amount of principal receivables in the
trust and amounts on deposit in the excess funding account.
The trust assets allocated to your series will be further allocated to each
class based on the size of the investor interest of that class relative to the
size of the investor interest of Series 1999- 1. See "Description of the
Certificates--Allocation Percentages."
You are entitled to receive payments of interest and principal based on
allocations to your series. The investor interest of your series, which is the
basis for allocations to your series is the sum of the investor interest for
each class in your series. The investor interest for each class will initially
equal the outstanding principal balance of such class.
The investor interest of a class will decline as a result of any of the
following:
- - principal payments made on such class;
- - reallocation of principal receivables allocated to such class (in the case
of Class B, Class C and Class D Certificates) to cover required payments
for more senior classes; and
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- - reductions caused by loss amounts and unfunded dilution amounts allocated
to such class if allocations (and reallocations) are insufficient to cover
such amounts and such class is the only or the most subordinated class then
outstanding.
If the investor interest of your class or series declines, amounts allocated and
available for payment of your class or series will be reduced. For a more
detailed discussion of events that may lead to reductions to the investor
interest for reasons other than the payment of principal, see "Description of
the Certificates--Application of Collections--Reallocations and Payments of
Principal;" and "--Loss Amounts; Dilution Amounts; Investor Charge-Offs."
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
The Servicer will allocate collections of finance charge receivables to your
series for application on each distribution date as described in the following
steps. The following steps are a simplified description of certain allocation
and payment provisions and are qualified by the detailed descriptions of these
provisions in this prospectus.
Step 1: Collections of finance charge receivables for your series are allocated,
based on varying percentages, among the investor interest of each class.
Step 2: Collections allocated to the Class A investor interest are applied to
cover, in the following order of priority: the interest payment due on Class A,
Class A's portion of the servicing fee due to the servicer, Class A's portion of
the loss amount and Class A's portion of the dilution amount.
Collections allocated to the Class B investor interest are applied to cover, in
the following order of priority: the interest payment due on Class B and Class
B's portion of the servicing fee due to the servicer.
Collections allocated to the Class C investor interest and the Class D investor
interest will each be applied to cover the portion of the servicing fee due to
the servicer for such class.
Step 3: Collections not used in Step 2 are combined with any collections of
excess finance charge receivables allocated to your series from any other series
that remain after all applications required by that series (if the terms of that
series permit such collections to be shared with other series), are treated as
excess spread and are applied, if necessary, to cover:
- - the interest payment due to Class A, Class A's portion of the servicing fee
then due, Class A's portion of the loss amount and Class A's portion of the
dilution amount, each to the extent not covered in Step 2;
- - reimbursement of reductions of the Class A investor interest for reasons
other than principal payments;
- - the interest payment due to Class B and Class B's portion of the servicing
fee then due, each to the extent not covered in Step 2, then to Class B's
portion of the loss amount and Class B's portion of the dilution amount;
- - reimbursement of reductions of the Class B investor interest for reasons
other than principal payments;
- - Class C's portion of the servicing fee then due to the extent not covered
in Step 2, then to the interest payment due to Class C, Class C's portion
of the loss amount and Class C's portion of the dilution amount;
- - reimbursement of reductions of the Class C investor interest for reasons
other than principal payments;
- - other amounts then due to the Class C Certificates or required to be
applied under the purchase agreement with the holders of the Class C
Certificates;
- - Class D's portion of the servicing fee then due to the extent not covered
in Step 2, then to the interest payment due to Class D, Class D's portion
of the loss amount and Class D's portion of the dilution amount;
- - reimbursement of reductions of the Class D investor interest for reasons
other than principal payments; and
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- - to be applied as Available Principal Collections, if necessary.
Step 4: Collections of finance charge receivables allocated to your series and
not used in Steps 2 and 3 above may be paid to other series to cover finance
charge shortfalls in those series, to the seller or to any other person then
entitled to receive such payments.
For a more detailed description of the allocation and payment process for your
series, see "Description of the Certificates--Allocation Percentages," and
"--Application of Collections."
INTEREST RATE CAP AGREEMENTS
As additional protection for your certificates, the trust will receive the
benefit of interest rate cap agreements relating to your certificates. Under
these agreements, the trust will receive payments from counterparties if the
interest rate on your certificates for any interest period exceeds a specified
rate. These payments will generally equal the difference between the amount of
interest you accrue on your certificates (if it exceeds the specified rate) over
the interest that would have accrued on your certificates at the specified rate.
These amounts will be treated as finance charge receivables allocated to your
class for application in accordance with Step 2 above.
The specified rate for the Class A Certificates is [____]%. The specified rate
for the Class B Certificates is [____]%.
The interest rate cap agreements will terminate on the expected final payment
date for your class. After that date, if you have not been paid in full,
interest will continue to accrue on your certificates, but will not exceed the
specified rate in any interest period thereafter.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Your series is included in a group of series issued by the trust designated as
group one. Each other outstanding certificate series (as identified in "Annex I:
Other Series Issued" at the end of this prospectus) of the trust is also in
group one and other series issued in the future may also be in group one. Each
certificate series in group one may share finance charge collections not needed
to make required payments for that series with each other certificate series in
group one. Any reallocation for this purpose will not reduce your series'
investor interest. In addition, you may benefit if your series has a finance
charge shortfall and other certificate series in group one have excess finance
charge collections available for sharing. See "Description of the
Certificates--Series Shared Excess Finance Charge Collections."
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
The servicer will allocate collections of principal receivables to your series
for application on each distribution date as described in the following steps.
The accompanying steps are a simplified demonstration of certain allocation and
payment provisions and are qualified by the detailed descriptions of these
provisions in this prospectus.
Step 1: Collections of principal receivables for your series are allocated,
based on varying percentages, among the investor interest of each class.
Step 2: Collections allocated to the Class D investor interest, the Class C
investor interest and the Class B investor interest may be reallocated and
treated as finance charge receivables if the amounts required to be covered in
Step 2 of Allocations of Collections of Finance Charge Receivables above for any
class remain uncovered after application of all finance charge receivables and
excess spread. If collections for any class are required to be reallocated, they
will not be available for application as described in Step 3.
Step 3: Collections allocated to your series and not reallocated in Step 2 are
combined with any shared excess principal collections from any other series, to
the extent available and necessary, and are treated as available investor
principal collections.
These collections may be paid to you as payments of principal as discussed
below. The amount, if any, priority and timing of your principal payments depend
on whether your series is in the revolving period, the controlled amortization
period or the early amortization period, as described below.
The Class A Certificates will be paid in full before the Class B Certificates
receive any payments of principal. The Class B Certificates will be paid in full
before the Class C Certificates receive any payments of principal. See "Maturity
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<PAGE> 12
Considerations" and "Description of the Certificates--Application of
Collections."
Step 4: Collections not used in Steps 2 and 3 above may be paid to other series,
if required, or to the holder of the exchangeable seller certificate
representing the seller's interest, unless necessary to cover any shortfall in
the excess funding account. See "Description of the Certificates--Application of
Collections."
REVOLVING PERIOD: Your series will have an initial period of time, called the
revolving period, when the trust will not pay principal on any certificate. In
general, during the revolving period, the trust will pay principal collections
to other series, deposit such collections in the excess funding account when
necessary to fund any shortfall or pay such collections to the holder of the
exchangeable seller certificate. See "Description of the Certificates--Principal
Payments" and "--Application of Collections."
The revolving period starts on __________, 1999 and ends on the earlier to begin
of:
- - the controlled amortization period; and
- - the early amortization period.
CONTROLLED AMORTIZATION PERIOD: During the period called the controlled
amortization period, each month the servicer will pay to the holders of Class A
Certificates an amount calculated so that the outstanding investor interest of
the Class A Certificates at the commencement of such period is paid out in equal
installments of [$_____] on each distribution date in the controlled
amortization period.
Once the Class A Certificates have been paid in full, the trust will use
available principal collections to pay the Class B investor interest.
In general, the trust will pay principal collections to other series, deposit
such collections in the excess funding account when necessary to fund any
shortfall or pay such collections to the holder of the exchangeable seller
certificate. See "Description of the Certificates--Reallocations of Cash Flows"
and "--Application of Collections."
If the amount actually paid on the Class A Certificates in any month is less
than the required payment, the amount of this deficiency will be carried forward
as a shortfall and included in the next month's required payment.
You should be aware that there may not be sufficient amounts available to pay
principal in full for your investor interest. If the Class A investor interest
or the Class B investor interest is not paid in full on its expected final
payment date, the early amortization period will begin and the timing of your
principal payments could change. See "Maturity Considerations."
The controlled amortization period is scheduled to commence on [________, ____].
See "Maturity Considerations--The Controlled Amortization Period."
The controlled amortization period will end upon the earlier to occur of the
following:
- - the repayment of the investor interest for your series, and
- - the beginning of the early amortization period.
EARLY AMORTIZATION PERIOD: If an early amortization event occurs, the early
amortization period begins, and the trust will use any available principal
collections allocated to your series each month to make payments in the
following priority:
- - on the Class A investor interest, until paid in full, then
- - on the Class B investor interest, until paid in full, then
- - to other amounts due, as described in this prospectus.
The early amortization period will end when any one of the following occurs:
- - the investor interest for your series is repaid,
- - the trust termination date, or
- - the Series 1999-1 termination.
EARLY AMORTIZATION EVENTS: Certain adverse events called early amortization
events might lead to the
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start of an early amortization period and the end of either the revolving period
or the controlled amortization period.
An early amortization event for your series will occur if:
- - the seller or the originator does not make any required payment or deposit,
subject to a five day grace period;
- - the seller or the originator materially violates any other obligation or
agreement relating to the certificates causing you to be materially and
adversely affected, if (a) the seller or originator does not remedy the
violation within 60 days after it has received written notice and (b) you
continue to be materially and adversely affected for the 60-day period;
- - the seller or the originator provides certain representations, warranties
or other information which were materially incorrect at the time they were
provided causing you to be materially and adversely affected, if (a) they
continue to be materially incorrect 60 days after the seller has received
written notice and (b) you continue to be materially and adversely affected
for the 60-day period;
- - the three month average yield on the receivables net of losses on the
receivables is below the three month average of the sum of monthly interest
and monthly servicing fees payable for each month in such three month
period;
- - the seller fails to transfer additional assets to the trust when required;
- - certain defaults by the servicer occur that have a material adverse effect
on you;
- - the Class A investor interest is not paid in full on its expected final
payment date or the Class B investor interest is not paid in full on its
expected final payment date;
- - the interest rate cap provider fails to make certain payments when due to
the trustee, subject to a five day grace period;
- - the interest rate cap provider is downgraded below a specified level and is
not replaced by a provider or arrangement satisfactory to the applicable
rating agencies;
- - certain events of insolvency or receivership relating to the seller or
certain of its affiliates occur;
- - the originator is unable to transfer receivables to the trust as required
under the agreement; or
- - the seller or the trust becomes an "investment company" under the
Investment Company Act of 1940.
For a more detailed discussion of these events that can lead to the beginning of
the early amortization period, see "Description of the Certificates -- Early
Amortization Events."
SHARED EXCESS PRINCIPAL COLLECTIONS
Your series is included in a group of series issued by the trust designated as
group one. Each other outstanding certificate series of the trust is also in
group one and other certificate series issued in the future may also be in group
one. Each certificate series in group one may share principal collections not
needed to make required payments for that certificate series with each other
certificate series in group one. Any reallocation for this purpose will not
reduce your series' investor interest. In addition, you may benefit if your
series has a principal shortfall and other certificate series in group one have
excess principal collections available for sharing. See "Description of the
Certificates--Series Shared Excess Principal Collections."
MINIMUM SELLER INTEREST
Charming Shoppes Receivables Corp. is required to maintain the seller interest
at a minimum level equal to the greater of the sum of the amounts specified for
each outstanding series and zero. The minimum requirement for each other series
outstanding on the closing date is described in "Annex 1: Other Series
Outstanding" at the end of this prospectus. The initial minimum requirement for
your series will be zero. If the required minimum seller interest at any time
were equal to zero, failure to maintain the seller interest at that level would
mean that the aggregate outstanding amount of all series would exceed the
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<PAGE> 14
sum of receivables in the trust and amounts on deposit in the excess funding
account.
Like your certificates, the seller interest can be reduced because of
allocations of loss amounts and dilution amounts. See "Description of the
Certificates--Allocation Percentages."
If the seller interest is reduced below the minimum required seller interest and
the shortfall remains for a specified grace period, the seller will be required
to designate additional accounts for the trust. The balance of receivables in
the new accounts should at least equal the shortfall. If no additional accounts
are available, the servicer will deposit amounts allocable to the seller in the
excess funding account rather than paying such amounts to the seller.
Additionally, if such shortfall is caused by allocated dilution amounts, the
seller will be required to make a deposit in the amount of such shortfall in the
excess funding account.
The failure of the seller to take any of these actions will be an early
amortization event, but will not create a claim against the seller, unless the
seller fails to deposit the amount of any shortfall relating to dilution
allocations.
Investment earnings on amounts on deposit in the excess funding account will be
deposited in the collection account each month and allocated and applied as
finance charge receivables.
If any series, including your series, is in an amortization or accumulation
period, an amount equal to the principal shortfalls on such series will be
withdrawn from the excess funding account and distributed as principal
collections to each series with a principal shortfall. See "The Pooling
Agreement--Excess Funding Account."
Amounts on deposit in the excess funding account in excess of the amount
required to maintain the required minimum seller interest will be released to
the holder of the exchangeable seller certificate each month.
DENOMINATIONS
The trust will offer beneficial interests in Class A Certificates and Class B
Certificates in minimum denominations of $1,000 and integral multiples of that
amount.
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 when certificates in
fully registered, certificated form are issued. See "The Pooling
Agreement--Definitive Certificates."
You may elect to hold your certificates through DTC, in the United States, or
Cedel Bank, societe anonyme or the Euroclear System, 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 such system. See "The Pooling
Agreement--Book-Entry Registration."
We expect that your certificates will be delivered in book-entry form through
the facilities of DTC, Cedel and Euroclear on or about _____________, 1999.
Cross-market transfers between persons holding directly or indirectly through
DTC and counterparties holding directly or indirectly through Cedel or Euroclear
will be made in DTC through the relevant depositaries of Cedel or Euroclear.
OPTIONAL REPURCHASE
The seller has the option to repurchase any series of certificates once the
investor interest for the series is reduced to 10% or less of the initial
investor interest. See "The Pooling Agreement--Optional Repurchase; Final
Payment of Principal; Termination."
TAX STATUS
Special counsel to the seller is of the opinion that, under existing law, the
Class A Certificates and Class B Certificates will be characterized as debt for
federal income tax purposes and the trust will not be classified as an
association (or publicly traded partnership) taxable as a corporation. Under the
pooling and servicing agreement creating the certificates, you and the seller
agree to treat your certificates as debt for federal, state and local income tax
purposes and franchise tax purposes. See "U.S. Federal Income Tax Consequences"
for additional
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information concerning the application of federal income tax law.
ERISA CONSIDERATIONS
Generally, you may not acquire Class A Certificates or Class B Certificates if
you are purchasing with the assets of a retirement plan, individual retirement
plan or other employee benefit plan. See "ERISA Considerations."
CERTIFICATE RATING
The Class A Certificates are required to be initially rated AAA or its
equivalent by at least one nationally recognized rating agency.
The Class B Certificates are required to be initially rated A or its equivalent
by at least one nationally recognized rating agency.
A rating is not a recommendation to buy, sell or hold the certificates. A rating
may be lowered or withdrawn at any time by a rating agency.
When we refer to a "Rating Agency" in this prospectus, we mean any nationally
recognized rating agency that has rated any outstanding series issued by the
trust.
See "Certificate Ratings."
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RISK FACTORS
Potential investors should consider, among other things, the following risk
factors in connection with the purchase of any Class A Certificate or Class B
Certificate.
IT MAY NOT BE POSSIBLE TO FIND AN INVESTOR TO PURCHASE YOUR CERTIFICATES.
The underwriters may assist in resales of
the certificates but they are not required
to do so. A secondary market for any
certificates may not develop. If a
secondary market does develop, it might
not continue or it might not be
sufficiently liquid to allow you to resell
any of your certificates.
THE CREDIT ENHANCEMENT PROVIDED FOR YOUR CERTIFICATES IS LIMITED AND MAY NOT BE
SUFFICIENT TO PREVENT LOSSES.
The subordination of the Class B
Certificates provides credit enhancement
for the Class A Certificates. The
subordination of the Class C Certificates
and the Class D Certificates provide
credit enhancement for both the Class A
Certificates and the Class B Certificates.
The amount of such credit enhancement is
limited and may decline under the
circumstances described in this
prospectus. The Class B Certificates will
bear directly the credit and other risks
associated with the certificates if the
investor interests of the Class C and the
Class D Certificates are reduced to zero.
The Class A Certificates will bear
directly the credit and other risks
associated with the certificates if the
Class B investor interest is reduced to
zero. Additionally, if the investor
interest of any class is reduced, the
amount of collections allocated to your
series will be reduced, thus reducing the
amount available to make payments of
interest and principal on the
certificates. See "Description of the
Certificates--Subordination of Certain
Classes," "--Reallocations and Payment of
Principal" and "--Loss Amounts; Dilution
Amounts; Investor Charge-Offs."
THE CLASS B CERTIFICATES ARE SUBORDINATED TO THE CLASS A CERTIFICATES AND TRUST
ASSETS MAY BE DIVERTED FROM CLASS B TO PAY CLASS A.
If you purchase a Class B certificate, your
right to receive principal payments is
subordinated to the payment in full of the
Class A certificates. No principal will be
paid to you until the full amount of
principal has been paid on the Class A
certificates.
If Class A's share of collections of finance
charge receivables allocated to Series
1999-1, excess spread, and Class C's and
Class D's share of principal collections
are not sufficient to make all required
payments for the Class A certificates,
collections of principal receivables
allocated to Class B may be diverted to
Class A.
Also, if Class A's share of losses and
dilutions on the receivables exceeds the
collections and credit enhancement
available to cover those losses, the
seller fails to make any required payment
to cover dilution amounts and the Class C
and Class D investor interests are reduced
to zero, the Class B investor interest may
be reduced to avoid reducing the Class A
investor interest. If this occurs, the
Class B investor interest and future
allocations to Class B would be reduced.
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As a result of the subordination, you may
receive payments of interest or principal
later than you expect or you may not
receive the full amount of principal and
interest due to you. See "Description of
the Certificates--Allocation Percentages"
and "--Application of
Collections--Subordination of Certain
Classes" herein.
IF THE TRANSFER OF THE RECEIVABLES WERE HELD TO BE MERELY A GRANT OF A SECURITY
INTEREST OR IF A CONSERVATOR OR RECEIVER IS APPOINTED FOR THE ORIGINATOR OR THE
SELLER, YOU MAY EXPERIENCE DELAYS AND/OR REDUCTIONS IN PAYMENTS ON YOUR
CERTIFICATES.
There are three transfers of receivables
made in connection with the ultimate
transfer of receivables from Spirit of
America National Bank, as originator, to
the trust--
- the transfer by the originator to
the seller,
- the transfer by the seller to the
trustee, and
- the grant of a security interest by
the originator in favor of the
trustee for the benefit of investors
that are not affiliates of the
originator.
The transfer of receivables from the
originator to the seller and from the
seller to the trustee are intended to be
treated as sales. It is possible that
creditors or other persons (including a
trustee, receiver or conservator of the
originator or the seller, or the seller as
debtor- in-possession in bankruptcy) could
take the position that such transfer
instead constituted a grant of a security
interest in the receivables. The transfer
by the originator to the trustee under the
security agreement is a grant of a
security interest. The effect of
characterizing any of the foregoing
transfers as the grant of a security
interest is discussed below.
Transfers by Spirit of America National
Bank. Under the Federal Deposit Insurance
Act, as amended (the "FDIA"), a
conservator or receiver for a federally
insured bank can avoid certain security
interests granted by the bank. In its 1993
policy statement regarding security
interests, the Federal Deposit Insurance
Corporation (the "FDIC") indicated that it
would not seek to avoid a security
interest that was validly perfected before
the insolvency of the bank if certain
other conditions were satisfied, including
that such security interest was not
granted or taken in contemplation of
insolvency or with the intent to hinder,
delay or defraud such bank or its
creditors. One of such conditions was that
the security interest not be granted for
the benefit of any affiliate of the bank.
Consequently, if the transfer by Spirit of
America National Bank, as originator, to
Charming Shoppes Receivables Corp., as
seller, were characterized as the grant of
a security interest, it may not benefit
from the policy statement.
To give you additional protection (and to
carry out the intent of the parties), the
originator has granted a security interest
directly to the trustee for your benefit
(among others) if you are not an affiliate
of the originator. It is possible,
however, that a conservator or receiver
for the originator could assert a position
contrary to the policy statement and:
- seek to avoid the security interest
and/or recover payments to the
seller or the trustee with respect
to the receivables;
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- require the seller or the trustee to
establish its right to payments on
the receivables by submitting to and
completing the administration claims
procedures under the FDIA; or
- request a stay of proceedings with
respect to the originator as
provided under the FDIA.
In any or all of such events, delays in
payments on the certificates and possible
reductions in the amount of those payments
could occur.
Whether or not the circumstances described
above exist, the FDIC may repudiate
contracts determined by it to be
burdensome and, in such case, claims (and
therefore any security interests securing
such claims) would be limited to "actual
direct compensatory damages". The meaning
of this phrase could be subject to
different interpretations. If the FDIC
were to take a position adverse to the
certificateholders, delays in payment, and
possible reductions in payment, could
occur.
Additionally, the appointment of a receiver
or conservator could result in
administrative expenses of the receiver,
the conservator or banking authorities
having priority over the interests of the
seller or the trustee in the receivables.
The FDIC, as conservator or receiver,
would also have the rights and powers
conferred under applicable federal or
state laws.
If the only triggering event to occur is the
insolvency of the seller or the
appointment of a conservator or receiver
for the originator, the FDIC, as
conservator or receiver of the originator,
would have the power (notwithstanding the
terms of the relevant agreements) to
prevent the termination of the receivables
sale contract between the originator and
the seller and the early sale, liquidation
or disposition of the receivables. The
conservator or receiver may also have the
power to cause the early sale of the
receivables and therefore the early
retirement of your certificates, and to
prohibit the continued transfer of
receivables to the seller.
Transfers by the Charming Shoppes
Receivables Corp. Charming Shoppes
Receivables Corp., as seller, intends that
the transfers by it to the trust be
characterized as sale. The seller will
take certain actions under the Uniform
Commercial Code (the "UCC") in effect in
Delaware (the principal place of business
of the seller) to perfect the trustee's
interest in the receivables. Nevertheless,
a tax or other statutory or nonconsensual
lien on the property of the originator or
the seller arising before an interest in a
receivable is transferred to the trustee
may have priority over the trustee's
interest in such receivable. If the seller
were to become a debtor in a bankruptcy
case and a bankruptcy trustee or creditor
of the seller were to take the position
that the transfer of an interest in the
receivables to the trustee should be
recharacterized as a pledge of such
receivables, then delays in distributions
on your certificates or reductions in such
distributions could result.
Upon the occurrence of an early amortization
event, if the seller were the subject of
bankruptcy or insolvency proceedings, the
bankruptcy court may have the power
(notwithstanding the terms of the trust
documents) to prevent the termination of
the receivables sale agreement between the
originator and the seller, or the seller
and the trust, and the early sale,
liquidation or disposition
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of the receivables and the commencement of
an early amortization period. The
bankruptcy court may also have the power
to cause the early retirement of your
certificates, and to prohibit the
continued transfer of receivables to the
seller or the trust.
IF THE SERVICER BECOMES INSOLVENT OR A RECEIVER IS APPOINTED, YOU MAY EXPERIENCE
A LOSS ON YOUR CERTIFICATES.
Cash collections held by the servicer may,
subject to certain conditions, be
commingled and used for the benefit of the
servicer prior to the date on which such
collections are required to be deposited
in a trust account. In the event of the
insolvency or receivership of the servicer
or, in certain circumstances, the lapse of
certain time periods provided for in the
UCC, the trust may not have a perfected
interest in such collections. In such
event, the trust may not receive all or
part of such collections, which may result
in a loss on the certificates.
If certain events relating to the
bankruptcy, insolvency or receivership of
the originator, the seller or certain of
their affiliates were to occur, then,
under the terms of the relevant
agreements:
- an early amortization event will occur
with respect to each series;
- new principal receivables will not be
transferred to the trust; and
- unless the persons specified in
"Description of the Certificates--Early
Amortization Events" object, the trustee
will sell the receivables, thereby causing
early termination of the trust.
The proceeds of any such sale will be
treated as collections and allocated to
your series, other outstanding series and
the seller's interest. If the proceeds
were insufficient to repay the
certificates in full, you would suffer a
loss.
If a servicer default occurs solely because
an insolvency event occurs with respect to
the servicer, and no other servicer
default exists, the relevant court may
have the power to prevent either the
trustee or certificateholders and other
investors from appointing a successor
servicer.
Application of federal and state bankruptcy
and debtor relief laws would affect the
interest of certificateholders in the
receivables if such laws result in any
receivables being charged off as
uncollectible.
CONSUMER PROTECTION LAWS MAY RESTRICT THE SERVICER'S ABILITY TO COLLECT
RECEIVABLES, MAINTAIN YIELD ON THE PORTFOLIO AND LEAD TO AN EARLY PAY OUT OR
INABILITY TO PAY YOUR CERTIFICATES IN FULL.
Many federal and state consumer protection
laws regulate the making, enforcement and
collection of consumer loans. Congress and
the states may enact laws and amendments
to existing laws to regulate further the
credit card and consumer revolving loan
industry or to reduce finance charges or
other fees or charges applicable to credit
card and other consumer revolving loan
accounts. Such laws, as well as any new
laws or rulings that may be adopted, may
adversely affect the servicer's ability to
collect on the receivables or maintain the
current level of periodic rate finance
charges and other fees and charges with
respect to the accounts. For example, if
the transferor were required to reduce its
finance charges and other fees, resulting
in a
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<PAGE> 20
corresponding decrease in the accounts'
effective yield, this could lead to an
early amortization event, resulting in the
payment of principal sooner than expected.
In addition, failure by the servicer to
comply with such requirements could
adversely affect the servicer's ability to
enforce the receivables.
Both the seller and the originator make
certain representations and warranties
relating to the validity and
enforceability of the accounts and the
receivables. The trustee will not,
however, make any examination of the
receivables or the related records for
purposes of establishing the presence or
absence of defects, compliance with such
representations or 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
affected receivables will be reassigned to
the seller and by the seller to the
originator. Payments made in respect of
any such reassignment of receivables by
the seller or the originator may be
recoverable by it or on its behalf if such
payments were made within one year prior
to the filing of a bankruptcy case
involving it.
PRINCIPAL MAY BE PAID EARLIER THAN EXPECTED CREATING A REINVESTMENT RISK TO YOU
OR LATER THAN EXPECTED RESULTING IN A FAILURE TO RECEIVE PAYMENT WHEN EXPECTED.
The receivables may be paid at any time.
There is no assurance that there will be
new receivables created in the accounts,
receivables will be added to the trust, or
any particular pattern of repayments will
occur. Additionally, the seller has
substantial discretion as to when the
controlled amortization period will
commence.
The actual rate of payments of principal on
the certificates during the controlled
amortization period and the early
amortization period will depend on, among
other factors--
- the rate of accountholder repayments,
- the timing of the receipt of repayments,
- the length of the controlled amortization
period,
- the amount of dilution adjustments and
- the rate of default by accountholders.
As a result, the seller cannot assure you
that the Class A investor interest or the
Class B investor interest will be paid on
its expected final payment date.
The continuation of the revolving period
until its scheduled ending date will be
dependent on the continued generation of
new receivables for the trust. A decline
in the amount of receivables for any
reason could result in the occurrence of
the early amortization period. If that
happened, the certificates would be paid
out earlier than expected and you would
bear the risk of reinvestment of the
principal amounts you are paid.
THE RETURN ON YOUR CERTIFICATES MAY BE SENSITIVE TO SOCIAL, ECONOMIC AND
GEOGRAPHIC FACTORS THAT ARE UNPREDICTABLE.
Monthly payment rates by accountholders
depend on a variety of factors, including
seasonal purchasing and individual payment
habits, the availability
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<PAGE> 21
of other sources of credit, general
economic conditions, and the terms of the
account agreements (which are subject to
change by the originator). Increased
convenience use, where accountholders pay
their balances in full on or prior to the
due date and thus avoid all finance
charges, would decrease the yield on the
accounts and could cause the commencement
of an early amortization period, as well
as a decrease in protection to you against
defaults under the accounts. The seller
cannot assure you of the accountholder
monthly payment rates that will actually
occur in any future period, as to the
actual rate of payment of principal of the
certificates or whether the terms of any
previously or subsequently issued series
might have an impact on the amount or
timing of any such payment of principal.
THE RETURN ON YOUR CERTIFICATES WILL BE SENSITIVE TO THE ABILITY OF FASHION BUG
STORES TO GENERATE RECEIVABLES.
Since the majority of the currently
outstanding Spirit of America credit cards
can be used primarily to purchase
merchandise or services from the Fashion
Bug(R) and Fashion Bug Plus(R) stores
owned by affiliates of Charming Shoppes,
the trust is substantially dependent upon
the Fashion Bug Stores for the generation
of receivables. The business of marketing
clothing merchandise and related services
is highly competitive. Many considerations
enter into the competition for the
consumer's patronage, including price,
quality, style, service, product mix,
convenience and credit availability and
terms. Additionally, store closings in a
concentrated area could decrease the
amount of receivables generated or
increase losses. There can therefore be no
assurance that the Fashion Bug Stores will
continue to generate receivables at the
same rate as in prior years.
COMPETITION IN THE CREDIT CARD INDUSTRY COULD LEAD TO EARLY PAYMENT OF YOUR
CERTIFICATES.
Because the Fashion Bug Stores accept, in
addition to Spirit of America credit
cards, American Express cards and
MasterCard, Visa and Discover credit
cards, credit sales at Fashion Bug Stores
will not always generate receivables.
There can be no assurance that the
originator will continue to maintain its
historic percentage share of Fashion Bug
Stores credit card sales against
competition from such other credit cards.
If the originator is unable to generate
receivables at the same rate as in prior
years, an early amortization event and
early payout of your certificates could
occur.
IF CREDIT CARD ACCOUNT HOLDERS ARE CONCENTRATED IN ONE STATE OR GEOGRAPHIC
LOCATION, LAWS, ECONOMIC DOWNTURN OR NATURAL DISASTERS IN THAT AREA MAY
ADVERSELY AFFECT COLLECTIONS OF RECEIVABLES.
If the trust contains a high concentration
of receivables relating to cardholders
located within a single state or region of
the United States, events in that state or
region may have a magnified effect on the
trust due to such concentration. This
prospectus contains a detailed geographic
breakdown of the number of accounts and
the amount of receivables relating to
cardholders with addresses in each
applicable state. See "The Receivables--
Geographic Distributions of Accounts."
As of February 28, 1999, approximately [__]%
and [__]% of the outstanding balance of
receivables were located in Ohio and
Pennsylvania, respectively. No other state
accounts for more than 10% of the
receivables.
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<PAGE> 22
The originator has no way of predicting how
a future geographic event or a change in
the geographic distribution of the
receivables may affect the certificates.
ISSUANCE OF ADDITIONAL SERIES BY THE TRUST MAY ADVERSELY AFFECT YOUR PAYMENTS OR
RIGHTS.
The trust, as a master trust, has issued and
may issue additional series from time to
time without your consent. It is a
condition to any new issuance that the
rating agencies that have rated your
series and other outstanding series
confirm that a new issuance would not
result in a downgrade or withdrawal of its
current ratings. These new series may have
terms that are different from your series
which could affect the timing and amounts
of payments on your series. See "The
Pooling Agreement -- Exchanges."
THE CREDIT QUALITY OF THE RECEIVABLES MAY CHANGE OVER TIME, WHICH MAY AFFECT THE
TIMING AND AMOUNT OF PAYMENTS ON YOUR CERTIFICATES.
The seller expects, and in some cases will
be obligated, to designate additional
accounts the receivables in which will be
conveyed to the trust. Such new accounts
may include accounts originated using
criteria different from those which were
applied to the initial accounts because
such accounts were originated at a
different date and may also include
different types of accounts than those in
the trust today. While the seller is not
permitted to add additional accounts if it
believes that such addition would have an
adverse effect on the timing or amounts of
payments to you, the seller cannot assure
that such accounts will have the same
terms and characteristics as the existing
accounts. These accounts could have lower
finance charges and other fees and have
higher loss or delinquency experiences,
the result of which could reduce the
average yield on the receivables held by
the trust. See "The Pooling
Agreement--Addition of Accounts."
A CHANGE BY THE ORIGINATOR IN THE TERMS OF THE ACCOUNTS MAY ADVERSELY AFFECT THE
AMOUNT AND TIMING OF COLLECTIONS AND PAYMENTS ON YOUR CERTIFICATES.
Although receivables arising under accounts
are transferred to the trust, the
originator does not transfer the accounts
themselves. As owner of the accounts, the
originator will have the right to
determine the periodic rate finance
charge, the fees and the other charges
that will be applicable from time to time
to the accounts, to alter the minimum
monthly payment required under the
accounts and to change various other
terms with respect to the accounts.
Changes in the terms of the accounts could
reduce the amount of receivables arising
under the accounts, reduce the amount of
collections on the receivables or
otherwise alter payment patterns.
The originator has agreed not to change the
terms of the accounts if such change would
have a material adverse effect on the
collectibility of the receivables unless
it is required by law to make a change.
Except as specified above, there are no
restrictions on the originator's ability
to change the terms of the accounts. 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
originator to decrease customer finance
charges or otherwise take actions that
would change any account terms.
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<PAGE> 23
IT MAY BE DIFFICULT FOR YOU TO ACHIEVE YOUR DESIRED INVESTMENT RESULTS IF THE
INTERESTS OF OTHER INVESTORS ARE DIFFERENT FROM YOURS.
Certificateholders of any series, including
your series, or any class within any
series may need the consent or approval of
a specified percentage of the investor
interests of other series or classes to
take or direct that certain actions be
taken by the trust. These actions include
appointing a successor servicer, amending
the operative agreements under which the
trust and your certificates are governed,
commencing an early amortization period
and preventing the liquidation of the
trust under certain circumstances. The
interests of any other series or class may
not coincide with yours, making it more
difficult to achieve the results you
desire.
IF THE SELLER ELECTS TO TREAT A PERCENTAGE OF PRINCIPAL RECEIVABLES AS FINANCE
CHARGE RECEIVABLES, PRINCIPAL PAYMENTS ON YOUR CERTIFICATES COULD BE DELAYED.
The seller may, without your consent,
designate a percentage of the receivables
that would otherwise be treated as
principal receivables to be treated as
finance charge receivables, and thereafter
may change such percentage from time to
time. Such designation will increase the
percentage of collections on the
receivables that are treated as
collections of finance charge receivables,
which will increase the excess spread over
what it would otherwise be. As a result,
such designation should decrease the
likelihood of the occurrence of an early
amortization event based on the reduction
of the average excess spread for a certain
period. However, such designation will
also reduce the aggregate amount of
principal receivables, which may increase
the likelihood that the seller will be
required to add receivables to the trust.
If the seller were not able to add such
receivables and could not make a
sufficient cash deposit into the excess
funding account, such failure could cause
the occurrence of an early amortization
event.
PAYMENTS FROM TRUST ASSETS ARE THE SOLE SOURCE OF PAYMENTS ON YOUR CERTIFICATES.
The certificates will represent interests in
the trust only, and will not represent an
interest in or obligation of the
originator, the seller, the servicer, the
trustee or any of their affiliates and
will not be guaranteed or insured by any
of the foregoing. The certificates are not
deposits and neither the certificates nor
the underlying accounts or receivables are
insured or guaranteed by the FDIC or any
other government agency. A specified
percentage of collections and certain
amounts on deposit in the trust's accounts
will be the sole source of payment on the
certificates, and there will be no
recourse to the originator, the seller,
the servicer, the trustee or any other
entity if such proceeds are insufficient
or otherwise unavailable to make all
payments provided for under the
certificates.
OTHER LIENS MAY HAVE PRIORITY OVER THE TRUSTEE'S LIEN ON THE RECEIVABLES WHICH
MAY AFFECT THE TIMING AND AMOUNT OF PAYMENTS ON YOUR CERTIFICATES.
There are certain limited circumstances
under the UCC and applicable Federal law
in which prior or subsequent transferees
of receivables could have an interest in
such receivables with priority over the
trustee's interest. In addition, a tax or
other statutory lien on the property of
the originator or the
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<PAGE> 24
seller arising before any receivables come
into existence may have priority over the
seller's or the trustee's interests in
such receivables.
CREDIT CARD RATES MAY DECLINE WITHOUT A CORRESPONDING CHANGE IN AMOUNTS NEEDED
TO PAY YOUR CERTIFICATES.
The accounts generally have finance charges
set at a variable rate above the prime
rate or other specified index. The
certificates bear interest at a floating
rate based on a different floating rate
index. If there is a decline in the prime
rate or such other specified index, the
amount of collections of finance charge
receivables may be reduced, whereas the
amounts payable as interest with respect
to the certificates and other amounts
required to be funded out of collections
of finance charge receivables may not be
similarly reduced.
Additionally, when the seller is obligated
to designate additional accounts for the
trust because its interest has declined
below the required minimum interest, it
may elect to cure such deficiency by
making a cash deposit to the excess
funding account. If contributions are made
to the excess funding account, then the
trust may receive significantly less
finance charge receivables than it would
if the seller had designated additional
accounts. Additionally, amounts on deposit
in the excess funding account may accrue
interest at a lower rate than finance
charge receivables do. This will result in
less excess spread for application to
cover interest on the certificates, or to
reimburse loss amounts and dilution
amounts allocated to the certificates.
THE CREDIT ENHANCEMENT PROVIDED BY THE INTEREST RATE CAP AGREEMENTS MAY NOT
PREVENT YOU FROM INCURRING A LOSS ON YOUR INVESTMENT.
Fashion Service Corp. will provide
additional enhancement for you by entering
into and assigning to the trust interest
rate cap agreements that will require the
counterparties to make payments to the
trust if the rate of interest on the Class
A or Class B Certificates exceeds a
specified rate. There can be no assurance,
however, if the applicable rating agencies
downgrade the credit rating of any
counterparty to such agreements, that the
trust will be able to enter into
replacement interest rate cap agreements
or make other arrangements that will
forestall the occurrence of an early
amortization event.
Interest rate cap agreements are not traded
on markets regulated by the Securities and
Exchange Commission or the Commodity
Futures Trading Commission, but are
arranged through financial institutions
acting as principals or agents. In an
over-the-counter market many of the
protections afforded to exchange
participants are not available. For
example, there are no daily fluctuation
limits, and adverse market movements could
therefore continue to an unlimited extent
over a period of time. Because the
performance of over-the-counter interest
rate cap agreements is not guaranteed by
any settlement agency, there is also a
risk of counterparty default.
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You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms for Prospectus"
beginning on page __ in this document.
TRUST
The Charming Shoppes Master Trust (the "Trust") was formed in accordance
with the laws of the State of New York. It is operated pursuant to the Second
Amended and Restated Pooling Agreement, dated as of November 25, 1997 (as
amended prior to the date hereof and from time to time hereafter, the "Pooling
Agreement"), among Charming Shoppes Receivables Corp. (the "Seller"), the
Servicer (as hereinafter defined), and First Union National Bank, as Trustee (in
such capacity, together with its successors in such capacity, the "Trustee").
Spirit of America National Bank (the "Originator") was the initial servicer of
the Receivables in the Trust. Prior to the issuance of the Series 1999-1
Certificates, the Originator will be replaced as servicer under the Pooling
Agreement by Spirit of America, Inc., a Delaware corporation ("SOAI"). The
entity serving as servicer of the Receivables from time to time under the
Pooling Agreement is called the "Servicer".
The Trust, as a master trust, may issue Certificate Series and sell
Receivables Purchase Series from time to time. The Trust has not and will not
engage in any business activity other than acquiring and holding Trust assets,
issuing Certificate Series and the Exchangeable Seller Certificate, selling
Receivables Purchase Series, making payments thereon and engaging in related
activity.
Pursuant to the Series 1999-1 Supplement to the Pooling Agreement, the
following certificates ("Series 1999-1 Certificates") will be issued: (i)
Floating Rate Class A Asset Backed Certificates with an aggregate initial
principal balance of $[ ] (the "Class A Certificates"), (ii) Floating Rate Class
B Asset Backed Certificates with an aggregate initial principal balance of $[ ]
(the "Class B Certificates"), (iii) Floating Rate Class C Asset Backed
Certificates with an aggregate initial principal balance of $[ ] (the "Class C
Certificates"), and (iv) a Floating Rate Class D Asset Backed Certificate with
an aggregate initial principal balance of $[ ] (the "Class D Certificate"). The
issuance date for the Series 1999-1 Certificates is expected to be _______, 1999
(the "Closing Date"). The holders of the Series 1999-1 Certificates, and if the
context provides, holders of certificates of other Certificate Series issued by
the Trust are referred to herein as "Investor Certificateholders."
MATURITY CONSIDERATIONS
GENERALLY
The Pooling Agreement and the Series 1999-1 Supplement to be dated as of
the Closing Date (the "Series 1999-1 Supplement"), provide that the holders of
the Class A Certificates (the "Class A Certificateholders") will not begin to
receive payments of principal until the Distribution Date related to the Due
Period in which the controlled amortization period (the "Controlled Amortization
Period") commences, which is scheduled to be the [Month/Year] Distribution Date,
or earlier in the event of an Early Amortization Event that results in the
commencement of the Early Amortization Period. Similarly, the Pooling Agreement
and the Series 1999-1 Supplement provide that holders of the Class B
Certificates (the "Class B Certificateholders") will not begin to receive
payments of principal until the Class A Investor Interest has been paid in full.
Holders of the Class C Certificates will not begin to receive payments of
principal until the Class B Investor Interest has been paid in full. "Class A
Investor Interest" means, with respect to any determination date, an amount (not
less than zero) equal to (i) the Class A Initial Investor Interest, less (ii)
the aggregate amount of principal payments made to the Class A
Certificateholders prior to such date, less (iii) the aggregate amount of Class
A Investor Charge-Offs unreimbursed by Excess Spread and Shared Excess Finance
Charge Collections prior to such date. "Due Period" means the period from the
close of business on the last day of the last monthly billing cycle for a month
to the close of business on the last day of the last billing cycle for the
following month.
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<PAGE> 26
The ability of holders of the Class A Certificates and holders of the Class
B Certificates (the "Offered Certificateholders") to receive payments of
principal on any Distribution Date during the Controlled Amortization Period,
the Class A Expected Final Payment Date or Class B Expected Final Payment Date,
as applicable, depends on the payment rates on the Receivables, the amount of
outstanding Receivables, delinquencies, charge-offs and new borrowings on the
Accounts, the potential issuance by the Trust of additional Certificate Series
and sale of additional Receivables Purchase Series and the availability of
Shared Principal Collections. Monthly payment rates on the Receivables may vary
because, among other things, accountholders may fail to make required minimum
payments, may only make payments as low as the minimum required amount or may
make payments as high as the entire outstanding balance. Monthly payment rates
may also vary due to seasonal purchasing and payment habits of accountholders
and to changes in any terms of the Charming Shoppes merchandise return policies
or other programs in which accountholders participate. See the "Accountholder
Monthly Payment Rates for the Trust Portfolio" table under "Spirit of America's
Credit Card Activities -- Payment Rates."
In addition, the amount of outstanding Receivables and the delinquencies,
charge-offs and new borrowings on the Accounts may vary from month to month due
to seasonal variations, the availability of other sources of credit, legal
factors, general economic conditions and spending and borrowing habits of
individual accountholders. There can be no assurance that collections of
Principal Receivables with respect to the portfolio of revolving credit card
accounts owned by the Originator the Receivables arising under which have been
transferred to the Trust (the "Trust Portfolio"), and thus the rate at which the
holders of Series 1999-1 Certificates (the "Series 1999-1 Certificateholders")
can expect to receive payments of principal on their Series 1999-1 Certificates
during the Early Amortization Period or the rate at which the Controlled Payment
Amounts are paid during the Controlled Amortization Period, will be similar to
the historic experience set forth in the "Accountholder Monthly Payment Rates
for the Trust Portfolio" table under "Spirit of America's Credit Card Activities
- -- Payment Rates."
The Trust, as a master trust, has previously issued Certificate Series and
sold Receivables Purchase Series, and may issue additional Certificate Series
and sell additional Receivables Purchase Series from time to time, and there can
be no assurance that the terms of any such Certificate Series or Receivables
Purchase Series might not have an impact on the timing or amount of payments
received by the holders of Series 1999-1 Certificates. Further, if an Early
Amortization Event occurs, the average life and maturity of the Series 1999-1
Certificates could be significantly reduced.
Due to the reasons set forth above, there can be no assurance that payments
of principal to the Class A Certificateholders on any Distribution Date related
to the Controlled Amortization Period will be made in accordance with the
applicable Controlled Payment Amount. See "Risk Factors."
THE REVOLVING PERIOD
Except where collections of Principal Receivables are reallocated to fund
the Class A Required Amount, the Class B Required Amount or the Class C Required
Amount, during the period from the Closing Date to the earlier to occur of the
commencement of the Controlled Amortization Period and the Early Amortization
Period (the "Revolving Period"), collections of Principal Receivables will first
be applied on any Distribution Date as required by the Certificate Purchase
Agreement, with any remaining such collections to be treated as Shared Principal
Collections and applied on each Distribution Date to cover principal payments
due to or for the benefit of Investor Certificateholders of other Certificate
Series in Group One that are Principal Sharing Series. To the extent that
Available Principal Collections exceed the amounts required to fund such
principal payments and such excess is not required to cover any shortfalls in
the Excess Funding Account, such excess will be paid to the holder of the
Exchangeable Seller Certificate, up to the amount of the undivided interest in
the assets of the Trust consisting, at any time, of the aggregate amount of
Principal Receivables in the Trust plus amounts on deposit in the Excess Funding
Account, less the sum of the investor interest of all outstanding Series and of
all Enhancement allocated or assigned to any Series (the "Seller Interest").
"Available Principal Collections" means, with respect to any Distribution Date,
an amount equal to the sum of (a) the Principal Allocation Percentage of all
collections of Principal Receivables received during the related Due Period,
minus the amount of Reallocated Class D Principal Collections, Reallocated Class
C Principal Collections and Reallocated Class B Principal Collections with
respect to
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<PAGE> 27
such Due Period that are required to fund the Class A Required Amount, the Class
B Required Amount and the Class C Required Amount, (b) any Shared Principal
Collections with respect to other Certificate Series in Group One that are
allocated to Series 1999-1, (c) any collections of Finance Charge Receivables
available for application as collections of Principal Receivables with respect
to such Distribution Date and (d) any other amounts that pursuant to the Series
1999-1 Supplement are to be treated as Available Principal Collections with
respect to such Distribution Date. "Group One" means the group of Series
designated as being in "group one" for purposes of sharing Shared Excess Finance
Charge Collections and/or Shared Principal Collections.
THE CONTROLLED AMORTIZATION PERIOD
On each Distribution Date related to a Due Period falling in the Controlled
Amortization Period (scheduled to begin at the opening of business on [_______
1, _____]) prior to the payment of the Class A Investor Interest in full, an
amount equal to, for each Due Period, the least of (a) the Available Principal
Collections (after the determination and allocation of all Charge-Offs and all
Reallocated Principal Collections), (b) the "Controlled Payment Amount" for such
Due Period (which equals the sum of the Controlled Amortization Amount for such
Due Period and any portion of the Controlled Amortization Amount for any prior
Due Period that has not been previously distributed to the Class A
Certificateholders) and (c) the Class A Investor Interest will be distributed to
the Class A Certificateholders. "Controlled Amortization Amount" means $_____.
After the Class A Investor Interest has been paid in full, Available
Principal Collections, to the extent required, will be distributed to the Class
B Certificateholders on each Distribution Date until the earlier of the date the
Class B Investor Interest has been paid in full and the [Month/Year]
Distribution Date (the "Series 1999-1 Termination Date"). Although it is
anticipated that collections of Principal Receivables will be available on each
Distribution Date related to a Due Period falling in the Controlled Amortization
Period to make a distribution to the Class A Certificateholders of the
applicable Controlled Amortization Amount and that the Class A Investor Interest
will be paid to the Class A Certificateholders by the Class A Expected Final
Payment Date and the Class B Investor Interest will be paid in full to the Class
B Certificateholders on the Class B Expected Final Payment Date, respectively,
the Seller cannot give assurance in this regard. If the amount required to pay
the Class A Investor Interest or the Class B Investor Interest in full is not
available on the Class A Expected Final Payment Date or the Class B Expected
Final Payment Date, respectively, an Early Amortization Event will occur and the
Early Amortization Period will commence.
"Class B Investor Interest" means, with respect to any determination date,
an amount (not less than zero) equal to (i) the Class B Initial Investor
Interest, less (ii) the aggregate amount of principal payments made to the Class
B Certificateholders prior to such date, less (iii) the aggregate amount of
Class B Investor Charge-Offs for all prior Distribution Dates, less (iv) the
aggregate amount of Reallocated Class B Principal Collections for all prior
Distribution Dates, and plus (v) the aggregate 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 (iii) and (iv).
"Class C Investor Interest" means, with respect to any determination date,
an amount (not less than zero) equal to (i) the Class C Initial Investor
Interest, less (ii) the aggregate amount of principal payments made to the Class
C Certificateholders prior to such date, less (iii) the aggregate amount of
Class C Investor Charge-Offs for all prior Distribution Dates, less (iv) the
aggregate amount of Reallocated Class C Principal Collections on all prior
Distribution Dates and plus (v) the aggregate 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 (iii) and (iv).
"Class D Investor Interest" means, with respect to any determination date,
an amount (not less than zero) equal to (i) the Class D Initial Investor
Interest, less (ii) the aggregate amount of principal payments made to the Class
D Certificateholder prior to such date, less (iii) the aggregate amount of Class
D Investor Charge-Offs for all prior Distribution Dates, less (iv) the aggregate
amount of Reallocated Class D Principal Collections on all prior Distribution
Dates and plus (v) the aggregate amount of Excess Spread and Shared Excess
Finance Charge
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Collections allocated and available on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (iii)
and (iv).
THE EARLY AMORTIZATION PERIOD
Should an Early Amortization Event occur with respect to the Series 1999-1
Certificates, a period will commence on such date called the "Early Amortization
Period." During the Early Amortization Period, the holders of the Class A
Certificates will be entitled to receive all Available Principal Collections on
each Distribution Date with respect to the Early Amortization Period until the
Class A Investor Interest is paid in full or until the Series 1999-1 Termination
Date occurs. Thereafter on each Distribution Date during an Early Amortization
Period, and after taking into account any Class B Investor Charge-Offs and
Reallocated Principal Collections for such Distribution Date, the holders of the
Class B Certificates will receive all Available Principal Collections until the
Class B Investor Interest is paid in full or until the Series 1999-1 Termination
Date occurs. In addition, any amount on deposit in the Excess Funding Account
will be released and treated as Shared Principal Collections to the extent
needed to cover principal payments due to or for the benefit of any Certificate
Series entitled to the benefits of Shared Principal Collections. See
"Description of the Certificates -- Early Amortization Events."
PAIRED SERIES
The Seller may cause the Trust to issue another Series in Group One as a
Paired Series with respect to Series 1999-1. Although no assurance can be given
as to whether such other Series will be issued and, if issued, the specific
terms thereof, the outstanding principal amount of such Series may vary from
time to time whether or not an Early Amortization Event occurs with respect to
Series 1999-1, and the interest rate with respect to certificates of such other
Series will be established on their date of issuance and may be reset
periodically. Further, the early amortization events with respect to such other
Series may vary from the Early Amortization Events with respect to Series 1999-1
and may include early amortization events which are unrelated to the status of
the Seller, the Servicer or the Receivables, such as events related to the
continued availability and rating of certain Enhancement Providers to such other
Series. If an early amortization event does occur with respect to any such
Paired Series prior to the payment in full of the Series 1999-1 Certificates,
the final payment of principal to holders of the Class A Certificates and the
Class B Certificates may be delayed. In particular, the numerator of the Fixed
Allocation Percentage may be changed upon the occurrence of an early
amortization event with respect to a Paired Series resulting in a possible
reduction of the percentage of collections of Principal Receivables allocated to
the Offered Certificates and a possible delay in payments to such holders. See
"Description of the Certificates--Allocation Percentages" and "--Paired Series"
herein.
SPIRIT OF AMERICA'S CREDIT CARD ACTIVITIES
GENERAL
The Receivables currently transferred to the Trust pursuant to the Pooling
Agreement arise under "Fashion Bug" revolving private label credit card
accounts. These credit card accounts were established for the purpose of
permitting qualified customers to purchase merchandise and services from retail
stores affiliated with Charming Shoppes operating under the names of Fashion
Bug(R) and Fashion Bug Plus(R) (collectively, the "Fashion Bug Stores"). The
aggregate amount of Receivables in the Trust as of February 28, 1999 was
$[_____] million. Spirit of America, Inc., an affiliate of the Originator, is
currently responsible for all aspects of the credit card program, which include
the granting of credit, the issuance of credit cards, collections, account
processing and customer service, and will act as Servicer with regard to the
Trust Portfolio.
23
<PAGE> 29
NEW ACCOUNT UNDERWRITING
Originator credit card applications are currently available only in Fashion
Bug Stores. Store personnel offer credit card applications and information about
the credit card program to customers. A credit card application may be processed
either by (i) the store personnel telephoning the Originator at its operations
center located in Milford, Ohio, or (ii) the store personnel mailing the
application on behalf of the customer to the Originator at its operations
center. A complete application is required regardless of the method used to
process the application.
The Originator currently evaluates the creditworthiness of an applicant by
applying one of several credit scoring models. The credit scoring models are
currently the only method of approving credit. Such models use information
supplied by the applicant and information available from credit bureau reports.
The scoring of a credit card application in accordance with the selected credit
scoring model determines whether the application for credit is approved or
declined. In the event the application for credit is approved, the initial
credit limit will be based upon the results of the selected credit scoring
model. Periodically, the credit scoring models are revalidated and, if
appropriate, refined to take advantage of the most current statistical
information. No manual override is permitted by the credit scoring system,
although some applications may from time to time be manually checked to ensure
that the credit information is accurate.
In addition to applications generated from Fashion Bug Stores, the
Originator has issued in certain limited circumstances, and may issue in the
future, pre-approved credit card accounts through mail solicitations. Such
pre-approved accounts are based upon information received from credit services
and other entities in the business of selling customer lists. Before an account
is opened under the pre-approved program, the applicant's credit information is
reviewed for completeness and creditworthiness based upon independent credit
reporting bureau models that meet the Originator's standards for approving such
applications. The credit standards with respect to such pre-approved accounts
are similar to the standards established by the Originator for all other
accounts.
Credit limits are determined by policies established from time to time by
the Originator. The range of initial credit limits is $100 to $700. Credit
limits are automatically increased periodically, if warranted by the
accountholder's purchase and payment activities. Any request to increase an
accountholder's credit limit over $1,500 must be approved by a vice president of
the Originator or his or her designee. In addition to the automated credit limit
program described above, Fashion Bug Store personnel may also obtain, on behalf
of an accountholder, an increase in a credit limit through the use of a
toll-free 800 number. An increase in the accountholder's credit limit may also
be requested directly by the accountholder. The average credit limit for all
Accounts as of February 28, 1999 was $[_____].
Each grant of credit by the Originator to an accountholder is subject to
the terms and conditions contained in the Originator's Retail Installment Credit
Agreement in effect at that time. The Originator reserves the right to change or
terminate certain terms, conditions, services, or features of an account
(including increasing or decreasing periodic finance charges, late fees,
returned check charges, charges for credit protection services and other charges
requiring minimum payment), subject to the conditions set forth in the
applicable Retail Installment Credit Agreement. The Originator may elect, at any
time and without prior notice to the accountholder, to preclude or restrict
further credit card use by the accountholder, usually as a result of poor
payment performance or the Originator's concern over the creditworthiness of the
accountholder. The Originator has the ability to code such accounts within the
credit operating systems which will prevent the accountholder from utilizing his
or her credit card to make purchases at Fashion Bug Stores until the reason for
such restriction has been resolved.
All accounts are grouped into billing cycles. Each billing cycle has a
separate monthly billing date (which may vary slightly from month to month) on
which the activity in the account during the month ended prior to such billing
date is processed and billed to the accountholder. Payment is due within 25 days
after the billing date shown in the monthly statement, with a grace period of up
to 5 days for mailing time. A late fee of $20 is assessed, in most states, if
the minimum payment is not received within 30 days after it is due. As long as
the accountholder makes the minimum payment when due, his or her account remains
on current status.
24
<PAGE> 30
DESCRIPTION OF SUBSERVICER
The Servicer has entered into a multi-year agreement with Alliance Data
Systems, Inc. (the "Subservicer") pursuant to which the Subservicer has assumed
a portion of the Originator's account maintenance and service administration
responsibilities. The Subservicer provides customer and collection services for
delinquent accounts and other administrative services through its facilities
located in Voorhees, New Jersey. The Subservicer also provides billing, payment
processing, and account maintenance services through its facilities located in
Columbus, Ohio and Dallas and San Antonio, Texas. The Subservicer has been
performing such account servicing functions for the Servicer since October,
1988. The Servicer's contract with the Subservicer is scheduled to expire in
2002. At this time, the Servicer believes it will be able to enter into a
comparable servicing contract at comparable pricing either with the current
Subservicer or another servicing provider upon such expiration.
BILLING AND PAYMENTS
If an accountholder elects not to pay the entire amount due on a payment
due date, the Originator assesses finance charges and other related finance
charge activity on such account based upon the average daily balance outstanding
on the account during the monthly billing cycle. The average daily balance
outstanding on an account for any day during a monthly billing cycle is equal to
the sum of the beginning balance of the account during any day, increased by
purchases and unpaid finance charges posted to the account that day, decreased
by any payments and credits posted to the account that day, and divided by the
number of days in the billing cycle. Currently, the finance charge rate
established for all accountholders is 22.9% per annum, and accountholders must
make a minimum monthly payment equal to the greater of 1/20th of their statement
balance or $10.00.
No finance charges are assessed on new purchases if the accountholder's
previous balance is paid in full by the payment due date preceding the billing
of the new purchases and if the new purchases are paid in full by the next
payment due date after they are initially billed. If the entire outstanding
balance of an account is not paid in full by the payment due date, a finance
charge will be assessed on such balance from the date that each purchase is made
to the date of payment in respect of such purchase. The Originator generally
charges accountholders a late fee in an amount not to exceed $20.00 for each
late payment and a returned check fee in an amount not to exceed $20.00 for each
returned check. The Originator charges an annual membership fee to cardholders
in its premium account program. These fees are treated as principal receivables.
Although the Originator does not currently impose overlimit fees or other
transaction-related service fees, if such fees were imposed in the future, they
would be treated as principal receivables. Additionally, the Originator does not
currently charge any annual fees (other than annual membership fees referred to
above), but if in the future such fees were imposed, they would be treated as
finance charge receivables.
The Originator from time to time allows customers to make purchases on
their accounts without imposing any finance charges until payments are due at
some specified time in the future.
DELINQUENCIES AND COLLECTIONS -- COLLECTION EFFORTS
An account is considered delinquent when the minimum payment due is not
received by the payment due date specified in the accountholder's billing
statement. Messages regarding an accountholder's delinquent status are included
on the accountholder's billing statement beginning with the billing date
following the initial billing date. Collection actions are initiated no later
than five days after the date the accountholder's scheduled payment is due, and
such collection efforts escalate in intensity as the delinquency continues.
If 90 days have elapsed since the payment due date without payment of the
minimum amount due, the accountholder is not permitted to purchase on the credit
of such accountholder's account any additional merchandise or services from
Fashion Bug Stores. After 180 days have elapsed since the payment due date
without payment of the minimum amount due, the account is charged off and
referred to various outside collection agencies for recovery. In addition,
accounts are also charged off at the beginning of the first billing cycle
occurring after the Originator receives notice that (i) the accountholder is the
subject of a bankruptcy filing, (ii) the accountholder is deceased or
25
<PAGE> 31
imprisoned, or (iii) there has been fraudulent activity in connection with the
account. The Originator tracks the number of accounts and amounts outstanding in
six aging categories: 1-29 days past due; 30-59 days past due; 60-89 days past
due; 90-119 days past due; 120-149 days past due; and 150-179 days past due.
The Originator employs a monthly automated re-aging program that re-ages
Accounts to current upon receipt of at least three consecutive payments greater
than $10.00. If an Account was ever greater than 90 days past due, such Account
is not reopened to purchase privileges under this re-aging program.
CREDIT RETURN POLICY
The Company believes that its merchandise and credit return policy is
competitive with other specialty retailers. Return transactions are processed
nightly with sales and payment data. During the fiscal year of the Company that
ended on January 31, 1999, returns for credit represented approximately [___]%
of the average outstanding Receivables during such year.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth the delinquency and loss experience for the
Trust Portfolio for each of the periods shown. There can be no assurance that
the delinquency and loss experience for the Trust Portfolio in the future will
be similar to the historical experience set forth below.
DELINQUENCIES AS A PERCENTAGE OF THE TRUST PORTFOLIO (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT YEAR END DECEMBER 31,
AT MONTH END ---------------------------------------------------------------------------------
FEBRUARY 28, 1999 1998 1997 1996
------------------------- ----------------------- -------------------------- ------------------------
Number of Days Delinquent Delinquent Delinquent Delinquent
Delinquent Amount Percentage Amount Percentage Amount Percentage Amount Percentage
- ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 Days...... $ % $ % $ % $18,106 5.2%
60-89 Days...... 7,739 2.2
90-119 Days..... 5,492 1.6
120 + Days...... 5,332 1.5
------- ---
TOTAL........ $36,669 10.5%
======= ====
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------------------------- ---------------------------
Number of Days Delinquent Delinquent
Delinquent Amount Percentage Amount Percentage
- ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
30-59 Days...... $18,741 4.8% $19,895 4.7%
60-89 Days...... 7,521 1.9 6,996 1.7
90-119 Days..... 4,678 1.2 4,105 1.0
120 + Days...... 3,510 0.9 3,345 0.8
----- --- ------ ----
TOTAL........ $34,450 8.8% $34,341 8.2%
======= === ======= ===
</TABLE>
- ----------------------------
(1) The percentages are the result of dividing the delinquent amount by end of
the Due Period Receivables outstanding on the applicable date. The
delinquent amount is the dollar amount of monthly sum of cycles
delinquencies in each category on the applicable date. The respective
cycle-end Receivables outstanding for month end February 28, 1999 and at
year end December 1998, 1997, 1996, 1995 and 1994 were $[_____], $[_____],
$[_____], $348,124, $389,714 and $418,960, respectively. These amounts
represent the aggregation of the Receivable balances as of the close of the
respective monthly billing cycle periods, which may differ from the
respective month end outstanding Receivable balances.
26
<PAGE> 32
LOSS EXPERIENCE FOR THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
2 MONTHS ENDED ----------------------------------------------
FEBRUARY 28, 1999(1) 1998 1997 1996 1995 1994
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average Receivables Outstanding (2).. . . $351,560 $379,866 $392,301
Gross Losses............................... $40,914 $32,173 $28,194
Gross Losses as a Percentage of Average
Receivables Outstanding.............. 11.6% 8.5% 7.2%
Recoveries................................. $7,009 $7,095 $5,635
Net Losses................................. $33,905 $25,078 $22,559
Net Losses as a Percentage of Average
Receivables Outstanding.................. 9.6% 6.6% 5.8 %
</TABLE>
- ------------------------------
(1) The percentages reflected for the two months ended February 28, 1999 are
annualized figures. Annualized figures are not necessarily indicative of
results for the entire year.
(2) Represents an average for all Receivables outstanding for each account and
each billing cycle for January and February in 1999.
REVENUE EXPERIENCE
The following table sets forth the total revenues from finance charges and
fees billed with respect to the Trust Portfolio for the two months ended
February 28, 1999 and for each year during the five-year period ended December
31, 1998. The figures in the table are calculated on an as-billed basis and
represent amounts billed to accountholders before deductions for charge-offs,
returned merchandise, and customer disputes or other expenses and reductions due
to fraud.
REVENUE EXPERIENCE FOR THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
2 MONTHS ENDED --------------------------------------------
FEBRUARY 28, 1999(1) 1998 1997 1996 1995 1994
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average Receivables Outstanding (2)........ $351,560 $379,866 $392,301
Finance Charges and Fees (3)............... $86,354 $88,569 $89,691
Yield from Finance Charges and Fees........ 24.6% 23.3% 22.9%
</TABLE>
- ------------------------------
(1) The percentages reflected for the two months ended February 28, 1999 are
annualized figures. Annualized figures are not necessarily indicative of
results for the entire year.
(2) Represents an average for all Receivables outstanding at the corresponding
billing date.
(3) Finance Charges and Fees do not include interest on subsequent collections
on accounts previously charged off. Finance Charges and Fees includes
monthly periodic rate finance charges, late charges and returned check
charges.
The revenue for the Accounts in the Trust Portfolio shown in the above
table is comprised of three primary components: monthly periodic rate finance
charges and other service charges which include late charges and returned check
charges. If payment rates decline, the balances subject to monthly periodic rate
finance charges tend to grow, assuming no change in the level of purchasing
activity. Accordingly, under these circumstances, the yield related to monthly
periodic rate finance charges normally increases. Conversely, if payment rates
increase, the balances subject to monthly periodic rate finance charges tend to
fall, assuming no change in the level of purchasing activity. Accordingly, under
these circumstances, the yield related to monthly periodic rate finance charges
normally
27
<PAGE> 33
decreases. The yield related to service charges varies with the type and volume
of activity in and the amount of each account.
PAYMENT RATES
The following table sets forth the highest and lowest accountholder monthly
payment rates for the Trust Portfolio during any single month in the period
shown and the average of the accountholder monthly payment rates for all months
during the periods shown, in each case calculated as a percentage of the average
of the monthly account balances during the periods shown. Payment rates shown in
the table are based on amounts which would be payments of Principal Receivables
and Finance Charge Receivables with respect to the Account.
ACCOUNTHOLDER MONTHLY PAYMENT RATES
FOR THE TRUST PORTFOLIO (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
2 MONTHS ENDED ------------------------------------
FEBRUARY 28 , 1999(1) 1998 1997 1996 1995 1994
--------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lowest Month (2) (3)................. 9.5% 10.9% 10.6%
Highest Month (2).................... 12.2% 12.5% 12.8%
Average Payment for the Period....... 11.6% 11.9% 12.0%
</TABLE>
- --------------------------------
(1) The monthly payment rates include amounts which are payments of Principal
Receivables and Finance Charge Receivables with respect to the Accounts.
(2) The monthly payment rates are calculated as the total amount of payments
received during the billing cycles for a month, divided by the monthly
receivables outstanding at the beginning of each month.
(3) In July 1996, the Company made certain changes to its billing cycle dates.
The billing cycle date changes resulted in spreading its billing dates
evenly throughout the month to improve collections workload distribution.
This change resulted in moving one of its six billing cycles to the
following calendar reporting period. The Company is required to report in
its monthly servicer report the actual results during the reporting period
of the monthly payment rate, portfolio yield, net write-offs and net
portfolio excess spread for the 5 billing cycles in the reporting period
expressed as a percentage of the aggregate receivables in the Trust. The
resultant payment rate for July 1996 was 9.5%. Consequently, the resultant
effect produces an inconsistent comparison to previous and subsequent
reported data. If the sixth billing cycle had occurred in July 1996, the
monthly payment rate would have been 11.8%.
THE RECEIVABLES
The "Receivables," consisting of Finance Charge Receivables and Principal
Receivables, conveyed to the Trust arise in Accounts designated on the basis of
criteria set forth in the Pooling Agreement as applied on the close of the
Originator's business on November 28, 1992 (the "Initial Cut Off Date") and,
with respect to Additional Accounts, as of the related date of their
designation, and thereafter constitute assets of the Trust. Pursuant to the
Pooling Agreement, the Seller has the right, subject to certain limitations and
conditions set forth therein, to designate from time to time Additional Accounts
and to transfer to the Trust all Receivables of such Additional Accounts,
whether such Receivables are then existing or thereafter created. Any Additional
Accounts so designated must be Eligible Accounts as of the date of such
designation. See "The Pooling Agreement -- Addition of Accounts" and
"Description of the Certificates -- Limitations on Additions of Accounts."
In addition, on or prior to the Required Designation Date the Seller is
required to designate Additional Accounts, to the extent available, to enable
the Seller to meet the Seller Interest Test; provided, however, the Seller will
not be required to designate Additional Accounts on a Required Designation Date
if the Seller Interest Test is satisfied as of the close of business on any day
after the last Business Day of such Due Period and prior to such Required
Designation Date. Because the Seller Interest includes amounts on deposit in the
Excess Funding Account, the Servicer will deposit collections of Principal
Receivables payable to the Holder of the Exchangeable Seller Certificate into
the Excess Funding Account if the Seller does not designate Additional Accounts
in order to satisfy the Seller Interest Test and avoid the occurrence of an
Early Amortization Event related to such shortfall in the Seller Interest. See
"Maturity Considerations -- The Revolving Period."
28
<PAGE> 34
The "Accounts" currently consist of consumer revolving credit card accounts
originated by the Originator that, in each case, meet the criteria provided in
the Pooling Agreement for an Eligible Account and are designated by the Seller
as "Accounts" for purposes of the Pooling Agreement, but do not include any
Removed Accounts. The Accounts today primarily provide credit for the purchase
of merchandise or services at Fashion Bug Stores, but also provide credit for
the purchase of credit insurance on such Accounts as well as certain other
merchandise and services sold through direct mail advertising. The Originator
may in the future originate credit card accounts for the purpose of facilitating
credit purchases from vendors other than Fashion Bug Stores, which, subject to
limitations more fully described below, may be added to the Accounts, so that
the Receivables arising therefrom will be included as Trust Assets. See "The
Pooling and Servicing Agreement--Addition of Accounts." The Accounts are not
being sold or transferred to the Trust, and will continue to be controlled and
held by the Originator as owner of the Accounts.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York; Philadelphia, Pennsylvania; or
Milford, Ohio are authorized or obligated by law, executive order or
governmental decree to be closed.
"Finance Charge Receivables" consist of all amounts billed to cardholders
on any Account in the ordinary course of the Originator's business in respect of
(i) periodic rate finance charges, late payment fees, annual fees (if any, but
excluding any membership fees payable with respect to any special program credit
cards which will be deemed to be Principal Receivables), returned check charges,
and any other fees designated by the Seller as finance charge related items, all
amounts paid to the Originator in respect of allocated interchange and,
following any designation by the Seller, the amount of any Discount Option
Receivables.
"Principal Receivables" consist of all other amounts billed to a
cardholder on any Account, including amounts charged in respect of purchases of
merchandise, services or credit insurance premiums, and all other fees billed to
cardholders on the Accounts, less any Discount Option Receivables.
The "Series 1999-1 Investor Interest" for any date means an amount equal to
the sum of the Class A Investor Interest, the Class B Investor Interest, the
Class C Investor Interest and the Class D Investor Interest, each as of such
date.
The Minimum Seller Interest specified in the Series 1999-1 Supplement (the
"Series 1999-1 Minimum Seller Interest") will equal zero. Supplements for other
Certificate Series and Receivables Purchase Agreements may provide for Minimum
Seller Interests with respect to the adjusted investor interests represented
thereby that are greater than the Series 1999-1 Minimum Seller Interest.
Further, pursuant to the Pooling Agreement, under certain conditions, the
Seller has the right to designate certain Accounts to be removed from the Trust,
and to require the Trustee to reconvey all Receivables in such Removed Accounts
to the Seller, whether such Receivables are then existing or thereafter created.
See "The Pooling Agreement -- Removal of Accounts." Throughout the term of the
Trust, the Accounts from which the Receivables arise will be the Accounts
originally designated by the Originator on the Initial Cut Off Date plus any
Additional Accounts minus any Removed Accounts. As of the Initial Closing Date
and, with respect to Receivables in Additional Accounts, as of the related date
of their conveyance to the Trust, and on the date any new Receivables are
created, the Seller represents and warrants to the Trust that the Receivables
meet the eligibility requirements specified in the Pooling Agreement. See "The
Pooling Agreement -- Representations and Warranties."
The aggregate total Receivables outstanding in the Trust Portfolio as of
February 28, 1999 was approximately $[____] million. This amount represents the
aggregation of the Receivables balances as of the close of the respective
monthly billing cycle periods, which may differ from the February 28, 1999 month
end outstanding Receivables balance. The Accounts had an average Receivables
balance of $[___] and an average credit limit of $[___]. The aggregate total
Receivables outstanding as a percentage of the aggregate total credit limit was
[___]%. The average age of the Accounts was approximately [___] months. As of
February 28, 1999, accountholders whose
29
<PAGE> 35
Accounts are included in the Trust Portfolio had billing addresses as indicated
under "Geographic Distribution of Accounts -- Trust Portfolio" below.
The following tables summarize the Trust Portfolio by various criteria as
of February 28, 1999. References to "Receivables" in the following tables
include both Finance Charge Receivables and Principal Receivables. Because the
future composition of the Trust Portfolio may change over time, these tables are
not necessarily indicative of the composition of the Trust Portfolio at any
subsequent time.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL RECEIVABLES PERCENTAGE
ACCOUNTS NUMBER OF (DOLLARS IN OF TOTAL
ACCOUNT BALANCE RANGE (IN THOUSANDS) ACCOUNTS THOUSANDS) RECEIVABLES
- --------------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance........................... % $ %
No Balance...............................
$.01 to $99.99...........................
$100 to $199.99..........................
$200 to $299.99..........................
$300 to $399.99..........................
$400 to $499.99..........................
$500 and Over............................
TOTAL............................... 100% $ 100%
======== === ======== ===
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF RECEIVABLES PERCENTAGE
ACCOUNTS TOTAL NUMBER (DOLLARS IN OF TOTAL
CREDIT LIMIT RANGE (IN THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
- ------------------ -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Less than $300........................... % $ %
$300 to $499.............................
$500 to $699.............................
$700 to $999.............................
$1,000 and Over..........................
TOTAL............................... 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERIOD OF NUMBER OF
DELINQUENCY ACCOUNTS PERCENTAGE OF RECEIVABLES PERCENTAGE
(DAYS CONTRACTUALLY (IN TOTAL NUMBER (DOLLARS IN OF TOTAL
DELINQUENT) THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Not Delinquent................................. % $ %
Up to 29 Days..................................
30 to 59 Days..................................
60 to 89 Days..................................
90 + Days......................................
TOTAL 100.0% $ 100.0%
========== ===== = ========== =====
</TABLE>
30
<PAGE> 36
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF RECEIVABLES PERCENTAGE
ACCOUNTS TOTAL NUMBER (DOLLARS IN OF TOTAL
ACCOUNT AGE (IN THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
----------- -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months........................ % $ %
Over 6 Months to 12 Months....................
Over 12 Months to 24 Months...................
Over 24 Months to 36 Months...................
Over 36 Months................................
TOTAL 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
31
<PAGE> 37
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF RECEIVABLES PERCENTAGE
ACCOUNTS PERCENTAGE OF OUTSTANDING OF TOTAL
(IN TOTAL NUMBER (DOLLARS IN RECEIVABLES
STATE THOUSANDS) OF ACCOUNTS THOUSANDS) OUTSTANDING
----- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Alabama................................... % $ %
Alaska....................................
Arizona...................................
Arkansas..................................
California................................
Colorado..................................
Connecticut...............................
Delaware..................................
Florida...................................
Georgia...................................
Hawaii....................................
Idaho.....................................
Illinois..................................
Indiana...................................
Iowa......................................
Kansas....................................
Kentucky..................................
Louisiana.................................
Maine.....................................
Maryland..................................
Massachusetts.............................
Michigan..................................
Minnesota.................................
Mississippi...............................
Missouri..................................
Montana...................................
Nebraska..................................
Nevada....................................
New Hampshire.............................
New Jersey................................
New Mexico................................
New York..................................
North Carolina............................
North Dakota..............................
Ohio......................................
Oklahoma..................................
Oregon....................................
Pennsylvania..............................
Rhode Island..............................
South Carolina............................
South Dakota..............................
Tennessee.................................
Texas.....................................
Utah......................................
Vermont...................................
Virginia..................................
Washington................................
West Virginia.............................
Wisconsin.................................
Wyoming...................................
District of Columbia......................
Other (1).................................
TOTAL................................ 100.00% $ 100.00%
======== ====== ========= ======
</TABLE>
(1) Includes accounts which represent billing addresses in Canada and U.S.
Territories.
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USE OF PROCEEDS
The net proceeds from the sale of the Series 1999-1 Certificates will be
paid to the Seller. The Seller will use such net proceeds for its general
corporate purposes.
CHARMING SHOPPES PARTIES
GENERAL
The Originator is a subsidiary of Fashion Service Corp., a Delaware
corporation. Fashion Service Corp. is a subsidiary of Charming Shoppes. The
Originator is a national bank chartered by the Office of the Comptroller of the
Currency and was organized for the limited purposes of the origination and
purchase of credit card receivables and the establishment and operation of the
Charming Shoppes credit card programs. The principal executive office of the
Originator is located at 1103 Allen Drive, Milford, Ohio 45150.
The Seller is a Delaware corporation and a subsidiary of Fashion Service
Corp. that was organized to facilitate Receivables financing transactions by the
Originator. The principal executive office of the Seller is located at 3411
Silverside Road, Wilmington, Delaware 19810.
Fashion Service Corp.'s primary business is to provide credit-related
services to Charming Shoppes and its affiliated Fashion Bug Stores. Fashion
Service Corp. also provides a limited number of services with respect to the
establishment of collection and credit policies in connection with the credit
card program. The principal executive office of Fashion Service Corp. is located
at 3411 Silverside Road, Wilmington, Delaware 19810.
The Servicer is a Delaware corporation and is a subsidiary of Fashion
Service Corp. that was organized to service receivables generated by the
Originator, including the Receivables transferred to the Trust. The employees of
the Servicer are the same employees who previously serviced the Receivables when
Spirit of America National Bank acted as servicer. The principal executive
office of the Servicer is located at 1103 Allen Drive, Milford, Ohio 45150.
Charming Shoppes Inc. ("Charming Shoppes"), a Pennsylvania corporation,
provides for the overall management of approximately [_____] Fashion Bug Stores
throughout the United States. For the fiscal year ended February 1, 1999,
Charming Shoppes' net sales were approximately $[_____] billion and consolidated
assets were approximately $[_____] million. Charming Shoppes and its affiliated
companies employ more than [_____] people throughout [__] states in the United
States. The Fashion Bug Stores have concentrations in the Middle Atlantic, New
England and Midwest markets. Charming Shoppes has a significant network of
worldwide sourcing operations that provide apparel to its affiliated Fashion Bug
Stores. The principal executive office of Charming Shoppes is located at 450
Winks Lane, Bensalem, Pennsylvania 19020.
YEAR 2000 COMPLIANCE
Since the fiscal year ended February 1, 1997 ("Fiscal 1997"), Charming
Shoppes, the ultimate parent of the Seller and the Servicer, has been in the
process of modifying or replacing its existing computer systems, including the
existing computer systems of its subsidiaries (including the Servicer, the
Seller and the Originator), to make them Year 2000 compliant. It is anticipated
that this project will be completed during the fiscal year ending January 29,
2000 ("Fiscal 2000"). Charming Shoppes currently estimates that the total cost
of achieving compliance will be approximately $6,600,000 over the period from
Fiscal 1997 through Fiscal 2000. Charming Shoppes has also initiated discussions
with its significant vendors (including the Subservicer) to ensure that these
parties have appropriate plans to remediate Year 2000 issues.
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DESCRIPTION OF THE CERTIFICATES
The Series 1999-1 Certificates will be issued pursuant to the Pooling
Agreement and the Series 1999-1 Supplement, and will consist of the Class A
Certificates, the Class B Certificates, the Class C Certificates and the Class D
Certificate. Pursuant to the Pooling Agreement, the Seller and the Trustee may
execute further supplements in order to issue additional Certificate Series and
may enter into further Receivables Purchase Agreements to sell additional
Receivables Purchase Series. The following statements with respect to the Series
1999-1 Certificates summarize the material terms of the Pooling Agreement and
the Series 1999-1 Supplement, forms of which are filed as exhibits to the
registration statement of which this Prospectus forms a part.
GENERAL
The Class A Certificates and the Class B Certificates (collectively, the
"Offered Certificates") will evidence undivided beneficial interests in the
assets of the Trust, representing the right to receive from such assets funds up
to (but not in excess of) the amounts required to make payments of principal and
interest on such certificates. Each Class A Certificate represents the right to
receive interest at the Class A Certificate Rate on the principal amount of the
Class A Certificate for the related Interest Period and payments of principal on
each Distribution Date during the Controlled Amortization Period or to the
extent of the Class A Investor Interest, on each Distribution Date with respect
to the Early Amortization Period, funded from collections of Finance Charge
Receivables and Principal Receivables, respectively, allocated to the Class A
Investor Interest and certain other available amounts (including Class A Cap
Payments, if any). Each Class B Certificate represents the right to receive
payments of interest at the Class B Certificate Rate on the principal amount of
the Class B Certificate for the related Interest Period, and payments of
principal on the Class B Expected Final Payment Date or, to the extent of the
Class B Investor Interest, on each Distribution Date with respect to the Early
Amortization Period after the Class A Certificates have been paid in full,
funded from collections of Finance Charge Receivables and Principal Receivables,
respectively, allocated to the Class B Investor Interest and certain other
available amounts (including Class B Cap Payments, if any). See "Maturity
Considerations."
Amounts payable to the Class A Certificateholders may be paid from
collections of Finance Charge Receivables and Principal Receivables, Excess
Spread, funds on deposit in the Excess Funding Account, Reallocated Principal
Collections, Shared Principal Collections, Shared Excess Finance Charge
Collections and certain other available amounts. Amounts payable to the Class B
Certificateholders may be paid from collections of Finance Charge Receivables
and Principal Receivables, Excess Spread, Reallocated Class C Principal
Collections, Reallocated Class D Principal Collections, Shared Excess Finance
Charge Collections and Shared Principal Collections, funds on deposit in the
Excess Funding Account and certain other available amounts (including Class B
Cap Payments, if any). Payments of interest and principal will be made, to the
extent of funds available therefor, on each Distribution Date on which such
amounts are due to Offered Certificateholders in whose names the Offered
Certificates were registered on the last business day of the calendar month
preceding such Distribution Date (each a "Record Date").
In addition to the Class D Certificate to be issued to the Seller, the
Seller holds the Exchangeable Seller Certificate. The Exchangeable Seller
Certificate represents an undivided interest in the Receivables, including the
right to a percentage (the "Seller Percentage") of all accountholder payments on
the Receivables equal to 100% minus the sum of the applicable Investor/Purchaser
Percentages for all Certificate Series and Receivables Purchase Series then
outstanding. The Exchangeable Seller Certificate may be transferred in whole or
in part subject to certain limitations and conditions set forth in the Pooling
Agreement. See "The Pooling Agreement -- Certain Matters Regarding the Seller
and the Servicer."
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co. ("Cede") as nominee of DTC except as set
forth below. Beneficial interests in the Offered Certificates will be available
for purchase in minimum denominations of $1,000 and integral multiples thereof
in book-entry form only. Accordingly, Cede is expected to be the holder of the
Offered Certificates. Persons acquiring a beneficial interest in the Offered
Certificates ("Certificate Owners") will not be entitled to receive a
certificate representing such person's interest in the Offered Certificates
unless and until Definitive Certificates are issued under the limited
circumstances
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described herein under "The Pooling Agreement--Definitive Certificates." Unless
and until Definitive Certificates are offered to the Certificate Owners, all
references herein to actions by Offered Certificateholders will refer to actions
taken by DTC upon instructions from its Participants, and all references herein
to distributions, notices, reports and statements to Offered Certificateholders
will 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 the Certificate Owners in accordance with DTC procedures.
Distribution of principal and interest on the Offered Certificates will be
made by the Trustee directly to holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Pooling Agreement. Interest
payments and any principal payments on each Distribution Date will be made to
holders in whose names the Definitive Certificates were registered at the close
of business on the related Record Date. Distributions will be made by wire
transfer of federal funds to the account and number specified in the register
maintained by the Trustee or, if no account number is specified, by check mailed
to the address of such holder as it appears on the register maintained by the
Trustee. The final payment on any Offered Certificate (whether Definitive
Certificates or the Offered Certificates registered in the name of Cede),
however, will be made only upon presentation and surrender of such Offered
Certificate at the office or agency specified in the notice of final
distribution to Offered Certificateholders. The Trustee will provide such notice
to registered Offered Certificateholders not later than the fifth day of the
month of such final distributions.
INTEREST PAYMENTS
Interest will accrue on the Series 1999-1 Certificates during each Interest
Period at the respective interest rate for such certificates as described below,
with interest to be distributed on each Distribution Date to the registered
holders of the certificates at the close of business on the related Record Date.
Distributions of monthly interest payments on the Series 1999-1 Certificates
initially will be made on [____________ ___, 1999], and thereafter on the
fifteenth day of each calendar month, or if such fifteenth day is not a Business
Day, then on the next succeeding Business Day (each a "Distribution Date").
Notwithstanding the foregoing, if a Total Systems Failure exists on any
Distribution Date, then the Distribution Date may be postponed for a period of
not more than 10 Business Days. An "Interest Period" means, with respect to any
Distribution Date, the period from and including the previous Distribution Date
through the day preceding such Distribution Date, except that the initial
Interest Period means the period from and including the Closing Date through the
day preceding the initial Distribution Date.
The interest distributable on the Class A Certificates on any Distribution
Date ("Class A Monthly Interest") will be an amount equal to the product of (i)
a fraction the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, and (ii) the Class A
Certificate Rate, and (iii) the outstanding principal balance of the Class A
Certificates as of the preceding Record Date. With respect to the first
Distribution Date on [____________ ___, 1999], however, Class A Monthly Interest
will be an amount equal to the interest accrued on the outstanding principal
balance of the Class A Certificates for the period from the Closing Date to
[____________ ___, 1999] at the Class A Certificate Rate for such period, and
for the period from [____________ ___, 1999] through [____________ ___, 1999] at
the Class A Certificate Rate reset for such period.
The "Class A Certificate Rate" with respect to each Interest Period is a
rate per annum equal to LIBOR as determined on the related LIBOR Determination
Date plus [___]% (the "Class A Spread"); provided, that if the Class A
Certificates are not paid in full on [____________, ____] (the "Class A Expected
Final Payment Date"), the Class A Certificate Rate applicable to the Interest
Period commencing on such date and each Interest Period thereafter will not
exceed the per annum rate equal to the sum of [___]% plus the Class A Spread.
Accrued interest on the Class A Certificates not paid when due (a "Class A
Deficiency Amount") will itself accrue monthly interest in an amount (the "Class
A Additional Interest") computed as the product of (a) the Class A Deficiency
Amount, and (b) the sum of the Class A Certificate Rate and 1% per annum, and
(c) a fraction the numerator of which is the actual number of days in the
related Interest Period and the denominator of which is 360. Any Class A
Deficiency Amount and Class A Additional Interest thereon will be payable on the
next succeeding Distribution Date.
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<PAGE> 41
Similarly, the interest distributable on the Class B Certificates on any
Distribution Date ("Class B Monthly Interest") will be an amount equal to the
product of (i) a fraction the numerator of which is the actual number of days in
the related Interest Period and the denominator of which is 360, and (ii) the
Class B Certificate Rate, and (iii) the outstanding principal balance of the
Class B Certificates as of the preceding Record Date. With respect to the first
Distribution Date on [____________ ___, 1999], however, Class B Monthly Interest
will be an amount equal to the interest accrued on the outstanding principal
balance of the Class B Certificates for the period from the Closing Date through
[____________ ___, 1999] at the Class B Certificate Rate for such period, and
for the period from [____________ ___, 1999] through [____________ ___, 1999] at
the Class B Certificate Rate reset for such period.
The "Class B Certificate Rate" with respect to each Interest Period is a
rate per annum equal to LIBOR as determined on the related LIBOR Determination
Date plus [___]% (the "Class B Spread"); provided, that if the Class B
Certificates are not paid in full on [___________, ___] (the "Class B Expected
Final Payment Date"), the Class B Certificate Rate applicable to the Interest
Period commencing on such date and each Interest Period thereafter will not
exceed the per annum rate equal to the sum of [___]% plus the Class B Spread.
Accrued Interest on the Class B Certificates not paid when due (a "Class B
Deficiency Amount") will itself accrue monthly interest in an amount (the "Class
B Additional Interest") computed as the product of (a) the Class B Deficiency
Amount, (b) the sum of the Class B Certificate Rate and 1% per annum, and (c) a
fraction the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360. Any Class B Deficiency
Amount and Class B Additional Interest thereon will be payable on the next
succeeding Distribution Date.
The amount of monthly interest distributable on the Class C Certificates on
any Distribution Date (the "Class C Monthly Interest") will be an amount equal
to the product of (i) a fraction the numerator of which is the actual number of
days in the related Interest Period and the denominator of which is 360, (ii)
the Class C Certificate Rate in effect with respect to the related Interest
Period, and (iii) the Class C Investor Interest determined as of the Record Date
preceding such Distribution Date. In addition, any Class C Deficiency Amount
will be payable on the next succeeding Distribution Date. The "Class C
Certificate Rate" with respect to each Interest Period is the rate of interest
specified in the Certificate Purchase Agreement pursuant to which the Class C
Certificates will be sold (the "Certificate Purchase Agreement"). The "Class C
Deficiency Amount" for any Distribution Date is the amount by which the
aggregate amount of interest accrued on the Class C Certificates for all prior
Interest Periods exceeds the amount actually paid to the Class C
Certificateholders in respect of such amounts.
The amount of monthly interest distributable on the Class D Certificate on
any Distribution Date (the "Class D Monthly Interest") will be an amount equal
to the product of (i) a fraction the numerator of which is the actual number of
days in the related Interest Period and the denominator of which is 360, (ii)
the Class D Certificate Rate in effect with respect to the related Interest
Period, and (iii) the Class D Investor Interest determined as of the Record Date
preceding such Distribution Date. [The "Class D Certificate Rate" with respect
to any Interest Period is a rate per annum equal to [___]% in excess of the
Class C Certificate Rate.]
On each LIBOR Determination Date, the Trustee will determine "LIBOR" on the
basis of the rate for deposits in United States dollars for a one-month period
which appears on Telerate page 3750 as of 11:00 a.m., London time, on such date.
If such rate does not appear on Telerate Page 3750, the rate for that LIBOR
Determination Date 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 the quotations. If fewer than
two quotations are provided as requested, the rate for that LIBOR Determination
Date will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the 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
Dow Jones Telerate Service (or such other page as may replace that page on that
service for displaying comparable rates or prices).
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"LIBOR Determination Date" means [____________ ___, 1999] for the period
from the Closing Date through [____________ ___, 1999];[____________ ___, 1999]
for the period from [____________ ___, 1999] through [____________ ___, 1999];
and the second London Business Day (a day on which the Trustee and commercial
banks in the City of London are open for the transaction of commercial banking
business) prior to the commencement of the second and each subsequent Interest
Period.
"Reference Banks" means four major banks in the London interbank market
selected by the Servicer.
INTEREST RATE CAP AGREEMENTS
To provide additional enhancement for the Offered Certificates, on or
before the Closing Date Fashion Service Corp. will enter into, and will assign
to the Trust to be held as part of the assets of the Trust, interest rate cap
agreements with qualified counterparties with respect to the Class A
Certificates and the Class B Certificates. The interest rate cap agreement
entered into for the benefit of the Class A Certificates (such agreement and any
replacements therefor, the "Class A Cap Agreement") will have [an initial]
notional principal amount equal to the Class A Initial Investor Interest, and
will entitle the Trust to receive on each Distribution Date prior to the Class A
Expected Final Payment Date monthly payments from the counterparty thereto if at
any time prior to such date LIBOR should exceed [___]% per annum. The payment
(if any) to be made to the Trustee under the Class A Cap Agreement for any
Distribution Date (the "Class A Cap Payment") will be equal to the product of
(i) a fraction the numerator of which is the actual number of days in the
related Interest Period and the denominator of which is 360, (ii) the amount (if
any) by which LIBOR for the related Interest Period exceeds [___]%, and (iii)
the Class A Initial Investor Interest [less the aggregate Controlled Payment
Amounts actually paid to the Class A Certificateholders prior to such
Distribution Date]. The Trustee will maintain the Class A Cap Agreement in
effect only until the Class A Expected Final Payment Date, following which the
Class A Certificate Rate by its terms will not exceed a per annum rate equal to
the sum of [___]% plus the Class A Spread. The Class A Cap Payment for any
Interest Period will be included in Class A Available Funds distributed on the
following Distribution Date.
The Interest Rate Cap Agreement entered into for the benefit of the Class B
Certificates (such agreement and any replacements therefor, the "Class B Cap
Agreement," and together with the Class A Cap Agreement, the "Interest Rate Cap
Agreements") will have a notional principal amount equal to the sum of the Class
B Initial Investor Interest, Class C Initial Investor Interest and the Class D
Initial Investor Interest, and will entitle the Trust to receive on each
Distribution Date prior to the Class B Expected Final Payment Date monthly
payments from the counterparty thereto if at any time prior to such date LIBOR
should exceed [___]% per annum. The payment (if any) to be made to the Trustee
under the Class B Cap Agreement for any month (the "Class B Cap Payment") will
be equal to the product of (i) a fraction the numerator of which is the actual
number of days in the related Interest Period and the denominator of which is
360, (ii) the amount (if any) by which LIBOR for the related Interest Period
exceeds [___]%, and (iii) the sum of the Class B Initial Investor Interest, the
Class C Initial Investor Interest and the Class D Initial Investor Interest. The
Trustee will maintain the Class B Cap Agreement in effect only until the Class B
Expected Final Payment Date, following which the Class B Certificate Rate by its
terms will not exceed a per annum rate equal to the sum of [___]% plus the Class
B Spread. The Class B Cap Payment for any Interest Period will be included in
Class B Available Funds distributed on the following Distribution Date.
The Class A Cap Agreement and the Class B Cap Agreement may only be entered
into and maintained with counterparties whose unsecured, unguaranteed,
short-term debt carries a rating of P-1 by Moody's Investors Service, Inc.
("Moody's") and a rating of A-1 by Standard & Poor's or whose obligations are
guaranteed by an entity whose short-term debt carries such ratings. Failure by
the Servicer (and the applicable counterparty under its Interest Rate Cap
Agreement), within 30 days of the withdrawal or reduction of the foregoing
credit ratings with respect to any Interest Rate Cap Agreement counterparty, to
obtain a replacement Interest Rate Cap Agreement from a counterparty having such
required credit ratings, or to enter into an arrangement satisfactory to the
applicable Rating Agency, will result in the occurrence of a Series 1999-1 Early
Amortization Event. In addition, failure by an Interest Rate Cap Agreement
counterparty to make a Class A Cap Payment or a Class B Cap Payment to the Trust
within 5 calendar days of when due will also result in the occurrence of a
Series 1999-1 Early Amortization Event. See "-- Early Amortization Events"
below.
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PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before the commencement of the Controlled Amortization Period or, if
earlier, the Early Amortization Period), no principal payments will be made to
Series 1999-1 Certificateholders. All Available Principal Collections for a Due
Period during the Revolving Period will be applied in accordance with the terms
of the Certificate Purchase Agreement for the Class C Certificates and then will
either be applied on the related Distribution Date as Shared Principal
Collections applied to the Series in Group One (other than Series 1999-1) that
are Principal Sharing Series, and then will be paid to the Seller as holder of
the Exchangeable Seller Certificate (but in an amount not to exceed the Seller
Interest on such Distribution Date) except when necessary to fund a shortfall in
the Excess Funding Account. During the Controlled Amortization Period (on or
prior to the Class A Expected Final Payment Date), Available Principal
Collections will be distributed to the Class A Certificateholders as described
below and on the Distribution Date in the month following the commencement of
the Early Amortization Period will be distributed to Class A Certificateholders
up to the amount of the Class A Investor Interest. During the Controlled
Amortization Period, principal will be paid only to the Class A
Certificateholders. The Class B Certificateholders are expected to receive a
distribution of Available Principal Collections equal to the amount of the Class
B Investor Interest on the Class B Expected Final Payment Date. During the Early
Amortization Period, and until the Series 1999-1 Termination Date occurs,
principal will be paid first to the Class A Certificateholders until the Class A
Investor Interest has been paid in full or the Series 1999-1 Termination Date
occurs, and then to the Class B Certificateholders until the Class B Investor
Interest has been paid in full or the Series 1999-1 Termination Date occurs.
The Controlled Amortization Period is scheduled to commence on [_____ 1,
_____] [eight] months prior to the Class A Expected Final Payment Date.
If the Series 1999-1 Investor Interest has not been paid in full by the
Series 1999-1 Termination Date, then the Trustee will sell, or cause to be sold,
and will pay the proceeds to the holders of the Series 1999-1 Certificates pro
rata in full and final payment of all principal and accrued interest on the
Series 1999-1 Certificates, and all accrued and unpaid fees and expenses and
unreimbursed Series 1999-1 Investor Loss Amounts and Series 1999-1 Investor
Dilution Amounts (to the extent reimbursable) under the Series 1999-1
Supplement, an amount of Principal Receivables and related Finance Charge
Receivables up to 110% of the Series 1999-1 Investor Interest at the close of
business on such date. The Seller will be permitted to purchase such Receivables
being sold, and will have a right of first refusal with respect thereto.
The amount of monthly principal distributable with respect to the Class A
Certificates on each Distribution Date (the "Class A Monthly Principal"),
beginning with the Distribution Date in the month following the month in which
the earlier of the Controlled Amortization Period or the Early Amortization
Period commences, will be equal to the least of (i) the Available Principal
Collections on deposit in the Collection Account with respect to such
Distribution Date, (ii) for each Distribution Date with respect to the
Controlled Amortization Period prior to the Class A Expected Final Payment Date,
the Controlled Payment Amount for such Distribution Date, and (iii) the Class A
Investor Interest on such Distribution Date (after taking into account any
adjustments to be made on such Distribution Date for Charge-Offs on such
Distribution Date).
The amount of monthly principal distributable with respect to the Class B
Certificates on each Distribution Date (the "Class B Monthly Principal"),
beginning with the Distribution Date following the Due Period in which the Class
A Investor Interest has been paid in full, and during the Early Amortization
Period, beginning with the Distribution Date on which the Class A Investor
Interest has been paid in full, will be an amount equal to the lesser of (i) the
Available Principal Collections on deposit in the Collection Account with
respect to such Distribution Date (minus the portion of such Available Principal
Collections applied to Class A Monthly Principal on such Distribution Date), and
(ii) the Class B Investor Interest (after taking into account any adjustments to
be made on such Distribution Date for Charge-Offs and Reallocated Principal
Collections) on such Distribution Date.
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SUBORDINATION OF CERTAIN CLASSES
The Class B Certificates, the Class C Certificates, and the Class D
Certificate will each be subordinated to the extent necessary to fund certain
payments with respect to the Class A Certificates. In addition, the Class C
Certificates and the Class D Certificate will each be subordinated to the extent
necessary to fund certain payments with respect to the Class B Certificates.
Certain principal payments otherwise allocable to the Class B Certificates may
be reallocated to the Class A Certificates, and the Class B Investor Interest
may be reduced. Similarly, certain principal payments otherwise allocable to the
Class C Certificates and the Class D Certificate may be reallocated to the Class
A Certificates and the Class B Certificates, and the Class C Investor Interest
and Class D Investor Interest may be reduced. If the Class C Investor Interest
and the Class D Investor Interest are reduced to zero, the Class B
Certificateholders will bear directly the credit and other risks associated with
their interest in the Trust. To the extent the Class B Investor Interest is
reduced, the percentage of collections of Finance Charge Receivables allocated
to the Class B Certificateholders in subsequent Due Periods will be reduced.
Moreover, to the extent the amount of such reduction in the Class B Investor
Interest is not reimbursed, the amount of principal distributable to the Class B
Certificateholders will be reduced. If the Class B Investor Interest is reduced
to zero, the Class A Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust. In the event of a
reduction in the Class A Investor Interest, the Class B Investor Interest, the
Class C Investor Interest or the Class D Investor Interest, the amount of
principal and interest available to fund payments with respect to the Class A
Certificates and the Class B Certificates will be decreased. See "-- Allocation
Percentages," "--Reallocation of Cash Flows" and "--Application of Collections
- --Excess Spread; Shared Excess Finance Charge Collections" below.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate on each
Business Day to each Certificate Series outstanding (including Series 1999-1),
to each Receivables Purchase Series outstanding and to the Seller Interest all
collections of Finance Charge Receivables and Principal Receivables and Loss
Amounts with respect to any Due Period based on the Investor/Purchaser
Percentage (the "Investor/Purchaser Percentage") for each Certificate Series and
Receivables Purchase Series, as determined from the relevant Supplements and
Receivables Purchase Agreements, and based on the Seller Percentage for the
Exchangeable Seller Certificate. The Servicer will also allocate Dilution
Amounts to the Series 1999-1 Certificates on each Distribution Date in
accordance with the procedures described in "The Pooling Agreement--Loss
Amounts; Dilution Amounts" below.
The Investor/Purchaser Percentage with respect to allocating to Series
1999-1 collections of Finance Charge Receivables and the Loss Amount with
respect to any Due Period will be the Floating Allocation Percentage. The
"Floating Allocation Percentage" means, with respect to any day during a Due
Period, the percentage equivalent of a fraction, the numerator of which is the
Series 1999-1 Investor Interest as of the last day of the preceding Due Period
(or with respect to the first Due Period ending after the Closing Date, the
Series 1999-1 Initial Investor Interest), and the denominator of which is the
greater of (i) the sum of (A) the aggregate amount of Principal Receivables in
the Trust at the end of the day on such date (or with respect to the first Due
Period ending after the Closing Date, at the end of the day on the Closing Date)
and (B) the amount on deposit in the Excess Funding Account as of the close of
business of the last day of the prior Due Period, and (ii) the sum of the
numerators used to calculate the Investor/Purchaser Percentages with respect to
Finance Charge Receivables or Loss Amounts, as applicable, for all Certificate
Series and Receivables Purchase Series outstanding for such Due Period;
provided, that with respect to any Due Period in which an Addition Date or
Removal Date occurs, the amount in clause (i) (A) above will be (1) the
aggregate amount of Principal Receivables in the Trust at the end of the day on
the last day of the prior Due Period for the period from and including the first
day of such Due Period to but excluding the related Addition Date or Removal
Date and (2) the aggregate amount of Principal Receivables in the Trust at the
end of the day on the related Addition Date or Removal Date for the period from
and including the related Addition Date or Removal Date to and including the
last day of such Due Period; and provided further, that with respect to any Due
Period in which an Addition Date or a Removal Date occurs if the Servicer need
not make daily deposits of collections into the Collection Account, the amount
in clause (i) (A) above will be the Average Principal Balance.
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The Investor/Purchaser Percentage with respect to allocating to Series
1999-1 collections of Principal Receivables with respect to any Due Period will
be the Principal Allocation Percentage. The "Principal Allocation Percentage"
means, (A) with respect to any day during a Due Period occurring prior to the
Fixed Principal Allocation Date, the Floating Allocation Percentage for such Due
Period, and (B) with respect to any day during a Due Period occurring on or
after the Fixed Principal Allocation Date, the "Fixed Allocation Percentage,"
which is the percentage equivalent (which percentage may never exceed 100%) of a
fraction, the numerator of which is the Series 1999-1 Investor Interest as of
the last day of the Due Period occurring immediately prior to the Fixed
Principal Allocation Date, and the denominator of which is the greater of (x)
the sum of (i) the aggregate amount of Principal Receivables in the Trust at the
end of the day on the last day of the preceding Due Period and (ii) the amount
on deposit in the Excess Funding Account as of the end of the day on such date,
and (y) the sum of the numerators used to calculate the Investor/Purchaser
Percentages with respect to Principal Receivables for all Certificate Series and
Receivables Purchase Series outstanding for such Due Period; provided, that with
respect to any Due Period in which an Addition Date or Removal Date occurs, the
amount in clause (x) (i) above will be (1) the aggregate amount of Principal
Receivables in the Trust at the end of the day on the last day of the prior Due
Period for the period from and including the first day of such Due Period to but
excluding the related Addition Date or Removal Date and (2) the aggregate amount
of Principal Receivables in the Trust at the end of the day on the related
Addition Date or Removal Date for the period from and including the related
Addition Date or Removal Date to and including the last day of such Due Period;
provided further, that with respect to any Due Period in which an Addition Date
or a Removal Date occurs if the Servicer need not make daily deposits of
collections into the Collection Account, the amount in clause (x)(i) above will
be the Average Principal Balance.
"Average Principal Balance" means, for a Due Period in which an Addition
Date or a Removal Date occurs, the weighted average of the Principal Receivables
in the Trust at the end of the day on the last day of the prior Due Period and
the Principal Receivables in the Trust at the end of the day on the related
Addition Date or Removal Date, weighted, respectively, by a fraction, the
numerator of which is the number of days from and including the first day of
such Due Period to but excluding the related Addition Date or Removal Date, and
the denominator of which is the number of days in such Due Period, and by a
fraction, the numerator of which is the number of days from and including the
related Addition Date or Removal Date to and including the last day of such Due
Period, and the denominator of which is the number of days in such Due Period.
The "Fixed Principal Allocation Date" is the earlier of (a) the date on
which an Early Amortization Event with respect to Series 1999-1 is deemed to
have occurred, and (b) the date of commencement of the Controlled Amortization
Period.
"Series 1999-1 Initial Investor Interest" is $[______________], consisting
of $[_____] in aggregate initial principal amount of Class A Certificates (the
"Class A Initial Investor Interest"), $[_____] in aggregate initial principal
amount of Class B Certificates (the "Class B Initial Investor Interest"),
$[_____] in aggregate initial principal amount of Class C Certificates (the
"Class C Initial Investor Interest") and $[_____] in initial principal amount of
a Class D Certificate (the "Class D Initial Investor Interest").
Collections of Principal Receivables and Finance Charge Receivables, the
Series 1999-1 Investor Loss Amount and the Series 1999-1 Investor Dilution
Amount will be further allocated among the Series 1999-1 Certificateholders in
accordance with the Class A Investor Allocation, the Class B Investor
Allocation, the Class C Investor Allocation and the Class D Investor Allocation.
The allocation of collections among the holders of Series 1999-1 Certificates
will be made by the Servicer on a daily basis, with the Servicer to allocate
each days' collections prior to the close of business on which such collections
are deposited into the Collection Account.
The "Class A Investor Allocation" means, with respect to any Due Period,
(i) with respect to Series 1999-1 Investor Loss Amounts, Series 1999-1 Dilution
Amounts and collections of Finance Charge Receivables at any time and
collections of Principal Receivables during the Revolving Period, the Class A
Floating Allocation, and (ii) with respect to collections of Principal
Receivables during the Controlled Amortization Period or Early Amortization
Period, the Class A Fixed Allocation. "Class A Floating Allocation" means, with
respect to any Due Period, the percentage equivalent (which may not exceed 100%)
of a fraction the numerator of which is the Class A Investor
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<PAGE> 46
Interest as of the close of business on the last day of the preceding Due Period
and the denominator of which is equal to the Series 1999-1 Investor Interest as
of the close of business on such day; provided, however, that, with respect to
the first Due Period, the Class A Floating Allocation means the percentage
equivalent of a fraction the numerator of which is the Class A Initial Investor
Interest and the denominator of which is the Series 1999-1 Initial Investor
Interest. "Class A Fixed Allocation" means, with respect to any Due Period other
than a Due Period relating to the Revolving Period, the percentage equivalent
(which may not exceed 100%) of a fraction, (a) the numerator of which is the
Class A Investor Interest as of the close of business on the last day of the
Revolving Period; provided, however, that if Series 1999-1 is paired with a
Paired Series and an Early Amortization Event occurs with respect to such Paired
Series during the Controlled Amortization Period, then the Seller may, by
written notice delivered to the Trustee, the Servicer, and the Rating Agencies,
designate a different numerator (provided that such numerator is not less than
the Class A Investor Interest as of the last day of the revolving period for
such Paired Series), and (b) the denominator of which is equal to the Series
1999-1 Investor Interest as of the close of business on the last day of the Due
Period occurring immediately prior to the Fixed Principal Allocation Date.
The "Class B Investor Allocation" means, with respect to any Due Period,
(i) with respect to Series 1999-1 Investor Loss Amounts, Series 1999-1 Dilution
Amounts and collections of Finance Charge Receivables at any time and
collections of Principal Receivables during the Revolving Period, the Class B
Floating Allocation, and (ii) with respect to collections of Principal
Receivables during the Controlled Amortization Period or Early Amortization
Period, the Class B Fixed Allocation. "Class B Floating Allocation" means, with
respect to any Due Period, the percentage equivalent (which may not exceed 100%)
of a fraction the numerator of which is the Class B Investor Interest as of the
close of business on the last day of the preceding Due Period and the
denominator of which is equal to the Series 1999-1 Investor Interest as of the
close of business on such day; provided, however, that, with respect to the
first Due Period, the Class B Floating Allocation means the percentage
equivalent of a fraction the numerator of which is the Class B Initial Interest
and the denominator of which is the Series 1999-1 Initial Investor Interest.
"Class B Fixed Allocation" means, with respect to any Due Period other than a
Due Period relating to the Revolving Period, the percentage equivalent (which
may not exceed 100%) of a fraction, (a) the numerator of which is the Class B
Investor Interest as of the close of business on the last day of the Revolving
Period ending prior to such Due Period; provided, however, that if Series 1999-1
is paired with a Paired Series and an Early Amortization Event occurs with
respect to such Paired Series during the Controlled Amortization Period, the
Seller may, by written notice delivered to the Trustee, the Servicer, and the
Rating Agencies, designate a different numerator (provided that such numerator
is not less than the Class B Investor Interest as of the last day of the
revolving period for such Paired Series), and (b) the denominator of which is
equal to the Series 1999-1 Investor Interest as of the close of business on the
last day of the Due Period occurring immediately prior to the Fixed Principal
Allocation Date.
The "Class C Investor Allocation" means, with respect to any Due Period,
(i) with respect to Series 1999-1 Investor Loss Amounts, Series 1999-1 Dilution
Amounts and collections of Finance Charge Receivables at any time and
collections of Principal Receivables during the Revolving Period, the Class C
Floating Allocation, and (ii) with respect to collections of Principal
Receivables during the Controlled Amortization Period or Early Amortization
Period, the Class C Fixed Allocation. The "Class C Floating Allocation" means,
with respect to any Due Period, the percentage equivalent (which may not exceed
100%) of a fraction the numerator of which is the Class C Investor Interest as
of the close of business on the last day of the preceding Due Period and the
denominator of which is equal to the Series 1999-1 Investor Interest as of the
close of business on such day; provided, however, that, with respect to the
first Due Period, the Class C Floating Allocation means the percentage
equivalent of a fraction the numerator of which is the Class C Initial Investor
Interest and the denominator of which is the Series 1999-1 Initial Investor
Interest. The "Class C Fixed Allocation" means, with respect to any Due Period
other than a Due Period relating to the Revolving Period, the percentage
equivalent (which may not exceed 100%) of a fraction, (a) the numerator of which
is the Class C Investor Interest as of the close of business on the last day of
the Revolving Period ending prior to such Due Period; provided, however, that if
Series 1999-1 is paired with a Paired Series and an Early Amortization Event
occurs with respect to such Paired Series during the Controlled Amortization
Period, the Seller may, by written notice delivered to the Trustee, and the
Servicer, designate a different numerator (provided that such numerator is not
less than the Class C Investor Interest as of the last day of the revolving
period for such Paired Series), and (b) the denominator of which is equal to the
Series 1999-1 Investor Interest as of the close of business on the last day of
the Due Period occurring immediately prior to the Fixed Principal Allocation
Date.
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<PAGE> 47
The "Class D Investor Allocation" means, with respect to any Due Period,
(i) with respect to Series 1999-1 Investor Loss Amounts, Series 1999-1 Dilution
Amounts and collections of Finance Charge Receivables at any time and
collections of Principal Receivables during the Revolving Period, the Class D
Floating Allocation, and (ii) with respect to collections of Principal
Receivables during the Controlled Amortization Period or Early Amortization
Period, the Class D Fixed Allocation. The "Class D Floating Allocation" means,
with respect to any Due Period, the percentage equivalent (which may not exceed
100%) of a fraction the numerator of which is the Class D Investor Interest as
of the close of business on the last day of the preceding Due Period and the
denominator of which is equal to the Series 1999-1 Investor Interest as of the
close of business on such day; provided, however, that, with respect to the
first Due Period, the Class D Floating Allocation means the percentage
equivalent of a fraction the numerator of which is the Class D Initial Investor
Interest and the denominator of which is the Series 1999-1 Initial Investor
Interest. The "Class D Fixed Allocation" means, with respect to any Due Period
other than a Due Period relating to the Revolving Period, the percentage
equivalent (which may not exceed 100%) of a fraction, (a) the numerator of which
is the Class D Investor Interest as of the close of business on the last day of
the Revolving Period ending prior to such Due Period; provided, however, that if
Series 1999-1 is paired with a Paired Series and an Early Amortization Event
occurs with respect to such Paired Series during the Controlled Amortization
Period, then the Seller may, by written notice delivered to the Trustee, the
Servicer, and the Rating Agencies, designate a different numerator (provided
that such numerator is not less than the Class D Investor Interest as of the
last day of the revolving period for such Paired Series), and (b) the
denominator of which is equal to the Series 1999-1 Investor Interest as of the
close of business on the last day of the Due Period occurring immediately prior
to the Fixed Principal Allocation Date.
REALLOCATION OF CASH FLOWS
On each day that collections are deposited into the Collection Account, the
Servicer will allocate to the Series 1999-1 Certificateholders on a preliminary
basis the Investor/Purchaser Percentage for Series 1999-1 of collections
processed in respect of Principal Receivables on such day so as to determine the
Allocated Class B Principal Collections, the Allocated Class C Principal
Collections and the Allocated Class D Principal Collections for such day. The
collections of Principal Receivables so allocated will then be subject to
reallocation as described in this section below and under "--Application of
Collections--Reallocations and Payments of Principal."
The "Class A Required Amount" is the amount, with respect to any
Distribution Date, by which (i) the sum of (a) Class A Monthly Interest for such
Distribution Date, (b) any Class A Deficiency Amount for such Distribution Date,
(c) any Class A Additional Interest for such Distribution Date, (d) the Class A
Servicing Fee for the prior Due Period, (e) the Class A Servicing Fee due but
not paid to the Servicer on any prior Distribution Date, (f) the Class A
Investor Loss Amount, if any, for the preceding Due Period and (g) the Class A
Investor Dilution Amount, if any, for the preceding Due Period, exceeds (ii) the
Class A Available Funds for the related Due Period. "Class A Available Funds"
means, with respect to any Distribution Date, an amount equal to the sum of (1)
the Class A Floating Allocation of the collections of Finance Charge Receivables
allocated to the Series 1999-1 Certificates and deposited in the Collection
Account for the related Due Period (including certain other amounts that are to
be treated as collections of Finance Charge Receivables in accordance with the
Pooling Agreement), and (2) if such Distribution Date is on or prior to the
Class A Expected Final Payment Date, the amount of any Class A Cap Payment with
respect to such Distribution Date and the amount of any payments due from the
Class A Cap Agreement counterparty but not paid with respect to any prior date
(to the extent received by the Trustee). If the Class A Required Amount for any
Distribution Date is greater than zero, all or a portion of the Excess Spread
and Shared Excess Finance Charge Collections allocated to Series 1999-1 with
respect to such Distribution Date will be used to fund the Class A Required
Amount. If such Excess Spread and Shared Excess Finance Charge Collections are
insufficient to fully fund the Class A Required Amount, then collections of
Principal Receivables allocable first to the Class D Certificates, then to the
Class C Certificates and then to the Class B Certificates for the related Due
Period will be used to fund the remaining Class A Required Amount. See
"--Application of Collections--Reallocations and Payments of Principal" below.
The "Class B Required Amount" is the amount, with respect to any
Distribution Date, equal to the sum of (A) the amount, if any, by which (i) the
sum of (a) Class B Monthly Interest for such Distribution Date, (b) any Class B
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<PAGE> 48
Deficiency Amount for such Distribution Date, (c) any Class B Additional
Interest for such Distribution Date, (d) the Class B Servicing Fee for the prior
Due Period, and (e) the Class B Servicing Fee due but not paid to the Servicer
on any prior Distribution Date, exceeds (ii) the Class B Available Funds for the
related Due Period plus (B) the sum of the Class B Investor Loss Amount, if any,
for the preceding Due Period plus the Class B Investor Dilution Amount, if any,
for the preceding Due Period. "Class B Available Funds" means, with respect to
any Distribution Date, an amount equal to the sum of (1) the Class B Floating
Allocation of the collections of Finance Charge Receivables allocated to the
Series 1999-1 Certificates and deposited in the Collection Account for the
related Due Period (including certain other amounts that are to be treated as
collections of Finance Charge Receivables in accordance with the Pooling
Agreement), and (2) if such Distribution Date is on or prior to the Class B
Expected Final Payment Date, the amount of any Class B Cap Payment with respect
to such Distribution Date and the amount of any payments due from the Class B
Cap Agreement counterparty but not paid with respect to any prior date (to the
extent received by the Trustee). If the Class B Required Amount for any
Distribution Date is greater than zero, all or a portion of the Excess Spread
and Shared Excess Finance Charge Collections allocated to Series 1999-1 with
respect to such Distribution Date will be used to fund the Class B Required
Amount. If such Excess Spread and Shared Excess Finance Charge Collections are
insufficient to fully fund the Class B Required Amount, then collections of
Principal Receivables allocable first to the Class D Certificates, and then to
the Class C Certificates (after application, in each case, to the Class A
Required Amount pursuant to the preceding paragraph) will be used to fund the
remaining Class B Required Amount. See "-- Application of Collections --
Reallocations and Payments of Principal" below.
The Class B Investor Interest will be reduced by the amount of any
Reallocated Class B Principal Collections.
SERVICING FEES
The portion of the monthly servicing fee payable by Series 1999-1 to the
Servicer with respect to any Due Period (the "Series 1999-1 Servicing Fee") will
be equal to one-twelfth of the product of (a) 2% and (b) an amount equal to the
Series 1999-1 Investor Interest determined as of the last day of such Due
Period, provided, however, that with respect to the first Due Period the Series
1999-1 Servicing Fee will be prorated. The Series 1999-1 Servicing Fee with
respect to any Distribution Date will be allocated among the Series 1999-1
Certificateholders and payable out of Available Funds as described below under
"-- Application of Collections -- Available Funds" and out of Excess Spread
and Shared Excess Finance Charge Collections as described below under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections."
The share of the Series 1999-1 Servicing Fee allocable to the Class A
Investor Interest with respect to any Due Period (the "Class A Servicing Fee")
will be equal to the product of the Series 1999-1 Servicing Fee with respect to
such Due Period and the Class A Floating Allocation as of the last day of such
Due Period, provided, however, that with respect to the first Due Period ending
after the Closing Date the Class A Servicing Fee will be prorated. The share of
the Series 1999-1 Servicing Fee allocable to the Class B Investor Interest with
respect to any Due Period (the "Class B Servicing Fee") will be equal to the
product of the Series 1999-1 Servicing Fee with respect to such Due Period and
the Class B Floating Allocation as of the last day of such Due Period, provided,
however, that with respect to the first Due Period ending after the Closing Date
the Class B Servicing Fee will be prorated. The Series 1999-1 Servicing Fee will
be similarly allocated to the Class C Investor Interest and to the Class D
Investor Interest based on the Class C Floating Allocation and the Class D
Floating Allocation, respectively.
The Series 1999-1 Servicing Fee payable by the holders of any class of
Series 1999-1 Certificates will be payable solely to the extent that amounts are
available for distribution in respect thereof out of allocations of Available
Funds, Excess Spread and Shared Excess Finance Charge Collections allocated to
such holders for such purpose as described under "-- Application of Collections"
below.
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APPLICATION OF COLLECTIONS
Available Funds. On each Distribution Date, the Trustee, acting pursuant to
the Servicer's instructions, will apply the Available Funds (see "-- Interest
Payments" above) on deposit in the Collection Account in the following order of
priority:
(A) On each Distribution Date, an amount equal to the Class A Available
Funds for the related Due Period will be distributed in the following
priority:
(i) an amount equal to the sum of the Class A Monthly Interest,
Class A Deficiency Amount and any Class A Additional Interest for such
Distribution Date will be distributed to the Class A
Certificateholders;
(ii) an amount equal to the sum of the Class A Servicing Fee for
such Distribution Date plus the amount of any Class A Servicing Fee due
but not paid to the Servicer on any prior Distribution Date will be
distributed to the Servicer;
(iii) an amount equal to the Class A Investor Loss Amount, if any,
for the preceding Due Period will be treated as a portion of Available
Principal Collections for such Distribution Date;
(iv) an amount equal to the Class A Investor Dilution Amount, if
any, for the preceding Due Period will be treated as a portion of
Available Principal Collections for such Distribution Date; and
(v) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections" below.
(B) On each Distribution Date, an amount equal to the Class B Available
Funds for the related Due Period will be distributed in the following order
of priority:
(i) an amount equal to the sum of the Class B Monthly Interest,
any Class B Deficiency Amount and any Class B Additional Interest for
such Distribution Date will be distributed to the Class B
Certificateholders;
(ii) an amount equal to the Class B Servicing Fee for such
Distribution Date, plus the sum of the amount of any Class B Servicing
Fee due but not paid to the Servicer on any 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" below.
(C) On each Distribution Date, an amount equal to the Class C Available
Funds for the related Due Period will be distributed in the following
priority:
(i) an amount equal to the sum of the Class C Servicing Fee for
such Distribution Date plus the amount of any Class C Servicing Fee due
but not paid to the Servicer on any 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" below.
(D) On each Distribution Date, an amount equal to the Class D Available
Funds for the related Due Period will be distributed in the following
priority:
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(i) an amount equal to the sum of the Class D Servicing Fee for
such Distribution Date plus the amount of any Class D Servicing Fee due
but not paid to the Servicer on any 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" below.
"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clauses (A)(v), (B)(iii), (C)(ii)
and (D)(ii) above.
"Class C Available Funds" means, with respect to any Distribution Date, an
amount equal to the Class C Floating Allocation of collections of Finance Charge
Receivables allocated to the Series 1999-1 Certificates and deposited in the
Collection Account for the related Due Period (including certain other amounts
that are to be treated as collections of Finance Charge Receivables in
accordance with the Pooling Agreement).
"Class D Available Funds" means, with respect to any Distribution Date, an
amount equal to the Class D Floating Allocation of collections of Finance Charge
Receivables allocated to the Series 1999-1 Certificates and deposited in the
Collection Account for the related Due Period (including certain other amounts
that are to be treated as collections of Finance Charge Receivables in
accordance with the Pooling Agreement).
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 allocated
to Series 1999-1 with respect to the related Due Period to make the following
distributions on each Distribution Date in the following order of priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Distribution Date will be used to fund the Class A Required
Amount in the order of the payments comprising such amount as set forth in
section (A) above under "--Available Funds;"
(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 "--Reallocations and Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Distribution Date will be (I) used to fund any deficiency
pursuant to clauses (B) (i) and (ii) above under "--Available Funds" in the
order of priority specified above and (II) then applied, up to the sum of
the Class B Investor Loss Amount and the Class B Investor Dilution Amount
as a portion of Available Principal Collections for such Distribution Date
as described under "--Reallocations and Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the Class B Initial Investor
Interest for reasons other than the payment of principal to the Class B
Certificateholders (but not in excess of the unreimbursed amount of such
reductions) will be treated as a portion of Available Principal Collections
for such Distribution Date;
(e) an amount equal to the excess, if any, of the Class C Servicing Fee
for such Distribution Date plus the amount of any Class C Servicing Fee due
but not paid to the Servicer on any prior Distribution Date over the Class
C Available Funds for such Distribution Date will be paid to the Servicer;
(f) an amount equal to the sum of the Class C Monthly Interest plus the
Class C Deficiency Amount for such Distribution Date will be distributed to
the Class C Certificateholders in accordance with the Certificate Purchase
Agreement;
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<PAGE> 51
(g) an amount equal to the Class C Investor Loss Amount, if any, for
the prior Due Period will be treated as a portion of Available Principal
Collections for such Distribution Date;
(h) an amount equal to the Class C Investor Dilution Amount, if any,
for the prior Due Period will be treated as a portion of Available
Principal Collections for such Distribution Date;
(i) an amount equal to the aggregate amount by which the Class C
Investor Interest has been reduced below the Class C Initial Investor
Interest for reasons other than payment of principal to the Class C
Certificateholders (but not in excess of the unreimbursed amount of such
reductions) will be treated as a portion of Available Principal Collections
for such Distribution Date;
(j) an amount equal to the aggregate of any other amounts then due to
the Class C Certificateholders or required to be applied pursuant to the
Certificate Purchase Agreement out of Excess Spread and Shared Excess
Finance Charge Collections allocated to Series 1999-1 will be distributed
to the Class C Certificateholders for application in accordance with the
Certificate Purchase Agreement;
(k) an amount equal to the excess, if any, of the Class D Servicing Fee
over the Class D Available Funds for such Distribution Date will be paid to
the Servicer;
(l) an amount equal to the Class D Monthly Interest plus the amount of
any past due Class D Monthly Interest for such Distribution Date will be
distributed to the Class D Certificateholder;
(m) an amount equal to the Class D Investor Loss Amount, if any, for
the prior Due Period will be treated as a portion of Available Principal
Collections for such Distribution Date;
(n) an amount equal to the Class D Investor Dilution Amount, if any,
for the prior Due Period will be treated as a portion of Available
Principal Collections for such Distribution Date;
(o) an amount equal to the aggregate amount by which the Class D
Investor Interest has been reduced below the Class D Initial Investor
Interest for reasons other than the payment of principal to the Class D
Certificateholder (but not in excess of the unreimbursed amount of such
reductions) will be treated as a portion of Available Principal Collections
for such Distribution Date;
(p) an amount equal to the excess of distributions required to be made
from collections of Principal Receivables on such Distribution Date over
Available Principal Collection for such Distribution Date shall be treated
as Available Principal Collections and applied as described in
"--Reallocations and Payments of Principal" below; and
(q) the balance, if any, will constitute a portion of Shared Excess
Finance Charge Collections for such Distribution Date and will be available
for allocation to other Series in Group One and, to the extent not required
to be applied as Shared Excess Finance Charge Collections with respect to
any Series in Group One, will be distributed to the holder of the
Exchangeable Seller Certificate or any other person then entitled to such
amounts. See "The Pooling Agreement--Shared Excess Finance Charge
Collections."
Reallocations and Payments of Principal. On each Distribution Date, and
following the allocation of Available Funds described above, the Trustee, acting
pursuant to the Servicer's instructions, will distribute collections of
Principal Receivables (see "--Principal Payments" above) on deposit in the
Collection Account in the following order of priority:
(A) On each Distribution Date, and following the determination and
allocation of all Charge-Offs and the preliminary allocation of collections
of Principal Receivables for such Distribution Date as described under
"--Reallocation of Cash Flows" above, collections of Principal Receivables
allocated to Series 1999-1 for the
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<PAGE> 52
related Due Period will be reallocated and distributed on such Distribution
Date in the following order of priority:
(i) to the extent that Class A Available Funds, Excess Spread and
Shared Excess Finance Charge Collections available to fund the Class A
Required Amount for the related Due Period are not sufficient to reduce
the Class A Required Amount to zero on such Distribution Date, then
collections of Principal Receivables allocated to Series 1999-1 for the
related Due Period will be reallocated and distributed to Class A
Certificateholders in the order of (a) Allocated Class D Principal
Collections for such Due Period (until fully applied), (b) Allocated
Class C Principal Collections for such Due Period (until fully
applied), and (c) Allocated Class B Principal Collections for such Due
Period (until fully applied), in payment of the elements of the Class A
Required Amount in the order of clauses (A) (i), (ii), (iii) and (iv)
under "--Available Funds" above until the Class A Required Amount has
been reduced to zero;
(ii) to the extent that Class B Available Funds, Excess Spread and
Shared Excess Finance Charge Collections available to fund the Class B
Required Amount for the related Due Period are not sufficient to reduce
the Class B Required Amount to zero on such Distribution Date, then
collections of Principal Receivables allocated to Series 1999-1 for the
related Due Period will be reallocated and distributed to Class B
Certificateholders in the order of (a) any remaining Allocated Class D
Principal Collections for such Due Period (until fully applied), and
(b) any remaining Allocated Class C Principal Collections for such Due
Period (until fully applied), in payment of the elements of the Class B
Required Amount in the order of clauses (B) (i) and (ii) under
"--Available Funds" above and then (c) (II) above under "--Excess
Spread; Shared Excess Finance Charge Collections" above until the Class
B Required Amount has been reduced to zero; and
(iii) to the extent that Class C Available Funds, Excess Spread
and Shared Excess Finance Charge Collections available to fund the
Class C Required Amount for the related Due Period are not sufficient
to reduce the Class C Required Amount to zero on such Distribution
Date, then any remaining Allocated Class D Principal Collections for
such Due Period (until fully applied) will be reallocated and
distributed to Class C Certificateholders in payment of the elements of
the Class C Required Amount in the following order until the Class C
Required Amount has been reduced to zero: (1) the Class C Servicing Fee
for such Distribution Date plus the amount of any Class C Servicing Fee
due but not paid to the Servicer on any prior Distribution Date, (2)
Class C Monthly Interest plus the Class C Deficiency Amount for such
Distribution Date, (3) the Class C Investor Loss Amount for the
preceding Due Period and (4) the Class C Investor Dilution Amount for
the preceding Due Period.
On each Distribution Date, the Class D Investor Interest will be
reduced by the amount of Reallocated Class D Principal Collections for such
Distribution Date, the Class C Investor Interest will be reduced by the
amount of Reallocated Class C Principal Collections for such Distribution
Date, and the Class B Investor Interest will be reduced by the amount of
Reallocated Class B Principal Collections for such Distribution Date.
As used above and elsewhere herein, the following terms have the
following definitions:
"Allocated Class B Principal Collections" means, with respect to any
date, the product of (i) the aggregate amount of collections processed in
respect of Principal Receivables on such date, (ii) the Investor/Purchaser
Percentage on such date, and (iii) the Class B Investor Allocation on such
date.
"Allocated Class C Principal Collections" means, with respect to any
date, the product of (i) the aggregate amount of collections processed in
respect of Principal Receivables on such date, (ii) the Investor/Purchaser
Percentage on such date, and (iii) the Class C Investor Allocation on such
date.
"Allocated Class D Principal Collections" means, with respect to any
date, the product of (i) the aggregate amount of collections processed in
respect of Principal Receivables on such date, (ii) the Investor/Purchaser
Percentage on such date, and (iii) the Class D Investor Allocation on such
date.
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The "Class C Required Amount" means the amount, if any, equal to the
sum of (a) the amount, if any, by which the sum of (i) the Class C Monthly
Interest for such Distribution Date, (ii) the Class C Deficiency Amount, if
any, for such Distribution Date, (iii) the Class C Loss Amount, if any, for
the prior Due Period and (iv) the Class C Investor Dilution Amount, if any,
for the prior Due Period exceeds the amount of Excess Spread available to
be applied to such amounts pursuant to clauses (f), (g) and (h) under
"--Excess Spread; Shared Excess Finance Charge Collections" above, plus (b)
the amount, if any, by which the sum of (i) the Class C Servicing Fee for
the prior Due Period plus (ii) the Class C Servicing Fee, if any, due but
not paid on any prior Distribution Date, exceeds the Class C Available
Funds for the related Due Period and the amount of any Excess Spread
available to be applied to such amount pursuant to clause (e) under
"--Excess Spread; Shared Excess Finance Charge Collections" above.
"Reallocated Class B Principal Collections" means, with respect to any
Distribution Date, the amount of Allocated Class B Principal Collections
with respect to the Due Period relating to such Distribution Date that is
reallocated pursuant to subsection (A) above under this section
"--Reallocations and Payments of Principal;" provided, however, that such
amount may not exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for such Distribution Date.
"Reallocated Class C Principal Collections" means, with respect to any
Distribution Date, the amount of Allocated Class C Principal Collections
with respect to the Due Period relating to such Distribution Date that is
reallocated pursuant to subsection (A) above under this section
"--Reallocations and Payments of Principal;" provided, however, that such
amount may not exceed the Class C Investor Interest after giving effect to
any Class C Investor Charge-Offs for such Distribution Date.
"Reallocated Class D Principal Collections" means, with respect to any
Distribution Date, the amount of Allocated Class D Principal Collections
with respect to the Due Period relating to such Distribution Date that is
reallocated pursuant to subsection (A) above under this section
"--Reallocations and Payments of Principal;" provided, however, that such
amount may not exceed the Class D Investor Interest after giving effect to
any Class D Investor Charge-Offs for such Distribution Date.
"Reallocated Principal Collections" means the sum of (a) Reallocated
Class B Principal Collections, (b) Reallocated Class C Principal
Collections, and (c) Reallocated Class D Principal Collections.
(B) On each Distribution Date during the Revolving Period, following
the reallocations and distributions made pursuant to subsection (A) above,
Available Principal Collections will be distributed to the extent thereof
in the following order of priority:
(i) an amount equal to any amounts required to be applied on such
date from Available Principal Collections pursuant to the Certificate
Purchase Agreement will be so applied;
(ii) an amount equal to the lesser of (A) the product of the
Cumulative Principal Shortfall multiplied by a fraction the numerator
of which is remaining Available Principal Collections on such
Distribution Date and the denominator of which is the sum of the
Available Principal Collections available for sharing with respect to
each Certificate Series and Receivables Purchase Series in Group One
(including Series 1999-1) that is a Principal Sharing Series, and (B)
remaining Available Principal Collections on such Distribution Date,
will then be treated as Shared Principal Collections and applied to
Series in Group One that are Principal Sharing Series other than Series
1999-1; and
(iii) remaining Available Principal Collections on such
Distribution Date will then be paid to the holder of the Exchangeable
Seller Certificate in an amount up to the Seller Interest on such
Distribution Date, except when necessary to fund a shortfall in the
Excess Funding Account.
(C) On each Distribution Date during the Controlled Amortization Period
(beginning with the Distribution Date in the month following the month in
which the Controlled Amortization Period begins) or the Early
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Amortization Period, following the determination and allocation of all
Charge-Offs for such Distribution Date, and the reallocations and
distributions made pursuant to subsection (A) above, Available Principal
Collections for the related Due Period will be distributed, in each case to
the extent thereof, in the following order of priority:
(i) an amount equal to the Class A Monthly Principal will be
distributed to the Class A Certificateholders;
(ii) during the Controlled Amortization Period, beginning with the
Distribution Date following the Due Period in which the Class A
Investor Interest has been paid in full, and, during the Early
Amortization Period, beginning with the Distribution Date on which the
Class A Investor Interest has been paid in full, an amount equal to the
Class B Investor Interest will then be distributed to the Class B
Certificateholders;
(iii) beginning with the Distribution Date on which the Class B
Investor Interest has been paid in full, an amount equal to the Class C
Investor Interest will then be distributed to the Class C
Certificateholders in accordance with the Certificate Purchase
Agreement;
(iv) beginning with Distribution Date on which the Class C
Investor Interest has been paid in full, an amount equal to the Class D
Monthly Principal will then be distributed to the Class D
Certificateholder;
(v) an amount equal to any amounts required to be applied from
Available Principal Collections on such date pursuant to the
Certificate Purchase Agreement will be so applied;
(vi) an amount equal to the lesser of (A) the product of the
Cumulative Principal Shortfall multiplied by a fraction the numerator
of which is Available Principal Collections remaining after the
application specified in the preceding clauses of this subsection (C)
above, and the denominator of which is the sum of the Available
Principal Collections available for sharing with respect to each Series
in Group One (including Series 1999-1) that is a Principal Sharing
Series, and (B) Available Principal Collections, will be treated as
Shared Principal Collections and applied to Series in Group One which
are Principal Sharing Series other than Series 1999-1; and
(vii) any remaining Available Principal Collections for such
Distribution Date will be paid to the holder of the Exchangeable Seller
Certificate in an amount up to the Seller Interest on such Distribution
Date, except when necessary to fund a shortfall in the Excess Funding
Account.
To the extent that the aggregate amount received (net of out-of-pocket
costs of collection), with respect to Receivables previously charged off as
uncollectible ("Recoveries"), including amounts recovered pursuant to any credit
life, credit disability or unemployment insurance policies covering any obligor
on an Account with respect to Receivables under such obligor's Account to the
extent such amounts are used to make payments on such Account ("Insurance
Proceeds"), and other Recoveries received in respect of Receivables during any
Due Period exceeds the Loss Amount for such Due Period and any prior Due
Periods, such excess will not constitute collections of either Finance Charge
Receivables or Principal Receivables (and therefore will not be included in
either Available Funds or Available Principal Collections available for payment
of principal and interest on the Offered Certificates), but will rather be
distributed to the Seller on the related Distribution Date. A collection
processed on an Account in excess of the aggregate amount of Receivables in such
Account as of the date of receipt by the Originator, Seller, Servicer or Trustee
of such collection will be deemed to be a payment in respect of Principal
Receivables to the extent of such excess.
SERIES SHARED EXCESS FINANCE CHARGE COLLECTIONS
The balance (if any) of Available Funds on deposit in the Collection
Account after giving effect to the distributions described in clauses (a)
through (p) under "--Application of Collections--Excess Spread; Shared Excess
Finance Charge Collections" above, will constitute a portion of Shared Excess
Finance Charge Collections
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for such Distribution Date and will be available for allocation to other Series
in Group One and, to the extent not required to be applied as Shared Excess
Finance Charge Collections with respect to any Series in Group One, will be
distributed to the holder of the Exchangeable Seller Certificate or any other
person then entitled to such amount.
Series 1999-1 is included in Group One. Subject to the general provisions
for the sharing of Shared Excess Finance Charge Collections described herein
under "The Pooling Agreement -- Shared Excess Finance Charge Collections" below,
Shared Excess Finance Charge Collections with respect to the Series in Group One
for any Distribution Date will be allocated to Series 1999-1 in an amount equal
to the product of (i) the aggregate amount of Shared Excess Finance Charge
Collections with respect to all Series in Group One for such Distribution Date
and (ii) a fraction the numerator of which is the Series 1999-1 Finance Charge
Shortfall for such Distribution Date and the denominator of which is the
aggregate amount of Finance Charge Shortfalls for all Series in Group One for
such Distribution Date. The "Series 1999-1 Finance Charge Shortfall" for any
Distribution Date will be equal to the amount by which the full amount to be
paid (without duplication) pursuant to clauses (a) through (p) under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections" above on such Distribution Date exceeds the Excess Spread for such
Distribution Date. "Finance Charge Shortfall" means as to Series 1999-1, the
Series 1999-1 Finance Charge Shortfall, and as to any other Certificate Series,
the amount specified in the related Supplement as a "Finance Charge Shortfall"
for such Certificate Series. Shared Excess Finance Charge Collections allocated
to Series 1999-1 will be distributed to the holders of Series 1999-1
Certificates as provided above under "-- Application of Collections -- Excess
Spread; Shared Excess Finance Charge Collections." "Available Funds" is the sum
of the Class A Available Funds, Class B Available Funds, Class C Available Funds
and Class D Available Funds.
SERIES SHARED PRINCIPAL COLLECTIONS
Subject to the general provisions for the sharing of Shared Principal
Collections described herein under "The Pooling Agreement -- Shared Principal
Collections" below, Shared Principal Collections for any Distribution Date will
be allocated to Series 1999-1 in an amount equal to the product of (i) the
aggregate amount of Shared Principal Collections with respect to all Series in
Group One that are, pursuant to the Supplements therefor, entitled to receive
Shared Principal Collections (each a "Principal Sharing Series") for such
Distribution Date, and (ii) a fraction the numerator of which is the Series
1999-1 Principal Shortfall for such Distribution Date and the denominator of
which is the Cumulative Principal Shortfall for such Distribution Date.
A "Series 1999-1 Principal Shortfall" includes: (a) on any Distribution
Date with respect to the Controlled Amortization Period, the amount by which the
Controlled Payment Amount for the prior Due Period exceeds the amount of
Available Principal Collections for such Distribution Date (excluding any
portion thereof attributable to Shared Principal Collections); (b) on the Class
B Expected Final Payment Date, the amount by which the Class B Investor Interest
exceeds the amount of Available Principal Collections for such Distribution Date
(excluding any portion thereof attributable to Shared Principal Collections);
and (c) on any Distribution Date with respect to the Early Amortization Period,
the amount by which the Series 1999-1 Investor Interest exceeds the Available
Principal Collections for such Distribution Date (excluding any portion thereof
attributable to Shared Principal Collections). The "Cumulative Principal
Shortfall" means the sum of the Series 1999-1 Principal Shortfall plus the
Principal Shortfalls (as such term is defined in each of the related Supplements
or Receivables Purchase Agreements) for each other Series in Group One that is a
Principal Sharing Series. Shared Principal Collections allocated to Series
1999-1 with respect to any Distribution Date will be treated as part of
Available Principal Collections with respect to such Distribution Date and
distributed among the holders of Series 1999-1 Certificates as described above
under "-- Application of Collections -- Reallocations and Payments of
Principal."
On the second Business Day preceding each Distribution Date during the
Controlled Amortization Period or during any Early Amortization Period, the
Servicer will determine whether a Principal Shortfall exists for any Series. If
a Principal Shortfall does exist, then the Servicer will instruct the Trustee to
withdraw from the Excess Funding Account an amount equal to such Principal
Shortfall on the succeeding Distribution Date and include such amount in Shared
Principal Collections for such Distribution Date, to be distributed among each
Certificate Series (including Series 1999-1) entitled to share in Shared
Principal Collections on such Distribution Date.
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To the extent not needed to fund any Series 1999-1 Principal Shortfall
amounts, Shared Principal Collections allocated to Series 1999-1 will be
distributed to the holder of the Exchangeable Seller Certificate, except where
necessary to fund a shortfall in the Excess Funding Account. See "The Pooling
Agreement -- Excess Funding Account."
LOSS AMOUNTS; DILUTION AMOUNTS; INVESTOR CHARGE-OFFS
On or before each Distribution Date, the Servicer will calculate the Loss
Amount allocable to Series 1999-1 for the preceding Due Period (the "Series
1999-1 Investor Loss Amount") as the product of (i) the Floating Allocation
Percentage with respect to such Due Period and (ii) the Loss Amount for such Due
Period. The Series 1999-1 Investor Loss Amount for any Due Period will be
allocated to each of the Class A Certificates (the "Class A Investor Loss
Amount"), the Class B Certificates (the "Class B Investor Loss Amount"), the
Class C Certificates (the "Class C Investor Loss Amount") and the Class D
Certificate (the "Class D Investor Loss Amount") on the related Distribution
Date in an amount equal to the product of such Series 1999-1 Investor Loss
Amount and the Class A Floating Allocation, the Class B Floating Allocation, the
Class C Floating Allocation and the Class D Floating Allocation, respectively,
for the related Due Period.
On or before each Distribution Date, the Servicer will also calculate the
Series 1999-1 Dilution Amount allocable to the Series 1999-1 Certificates for
the preceding Due Period (the "Series 1999-1 Investor Dilution Amount") as
described in "The Pooling Agreement -- Loss Amounts; Dilution Amounts" below.
The Series 1999-1 Investor Dilution Amount for any Due Period will be allocated
to each of the Class A Certificates (the "Class A Investor Dilution Amount"),
the Class B Certificates (the "Class B Investor Dilution Amount"), the Class C
Certificates (the "Class C Investor Dilution Amount") and the Class D
Certificate (the "Class D Investor Dilution Amount") on the related Distribution
Date in an amount equal to the product of such Series 1999-1 Investor Dilution
Amount and the Class A Floating Allocation, the Class B Floating Allocation, the
Class C Floating Allocation and the Class D Floating Allocation, respectively,
for the related Due Period.
An amount equal to the sum of the Class A Investor Loss Amount and the
Class A Investor Dilution Amount for each Due Period will be paid from Class A
Available Funds, Excess Spread and Shared Excess Finance Charge Collections
allocated to Series 1999-1 and from Reallocated Principal Collections, if
applicable, and applied as described above under "-- Application of
Collections." An amount equal to the sum of the Class B Investor Loss Amount and
the Class B Investor Dilution Amount for each Due Period will be paid from
Excess Spread and Shared Excess Finance Charge Collections allocated to Series
1999-1 and from Reallocated Class C Principal Collections and Reallocated Class
D Principal Collections, if applicable, and applied as described above under
"-- Application of Collections." An amount equal to the sum of the Class C
Investor Loss Amount and the Class C Investor Dilution Amount will be paid from
Excess Spread and Shared Excess Finance Charge Collections allocated to Series
1999-1 and from Reallocated Class D Principal Collections, if applicable, and
applied as described above under "-- Application of Collections." An amount
equal to the sum of the Class D Investor Loss Amount and the Class D Investor
Dilution Amount will be paid solely from Excess Spread and Shared Excess Finance
Charge Collections allocated to Series 1999-1.
If on any Distribution Date the Class A Investor Loss Amount for the prior
Due Period exceeds the sum of the amounts allocated with respect thereto from
Class A Available Funds, Excess Spread and Shared Excess Finance Charge
Collections and Reallocated Principal Collections with respect to such Due
Period, then the Class D Investor Interest (after giving effect to reductions
for any Class D Investor Charge-Offs and any Reallocated Class D Principal
Collections on such Distribution Date) will be reduced by the amount of such
excess. If such reduction would cause the Class D Investor Interest to be a
negative number, then the Class D Investor Interest will be reduced to zero, and
the Class C Investor Interest (after giving effect to reductions for any Class C
Investor Charge-Offs and any Reallocated Class C Principal Collections on such
Distribution Date) will be reduced by the amount by which the Class D Investor
Interest would have been reduced below zero. If such reduction would cause the
Class C Investor Interest to be a negative number, then the Class C Investor
Interest will be reduced to zero, and the Class B Investor Interest (after
giving effect to reductions for any Class B Investor Charge-Offs and any
Reallocated Class B Principal Collections on such Distribution Date) will be
reduced by the amount by which the Class C Investor
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Interest would have been reduced below zero. If such reduction would cause the
Class B Investor Interest to be a negative number, the Class B Investor Interest
will be reduced to zero, and the Class A Investor Interest will be reduced by
the amount by which the Class B Investor Interest would have been reduced below
zero, but not by more than the Class A Investor Loss Amount. Additionally, the
Class A Investor Interest will be reduced by the amount of any Unfunded Seller
Dilution Amount remaining after giving effect to any related Class B Investor
Charge-Off, Class C Investor Charge-Off and Class D Investor Charge-Off for such
Distribution Date. These reductions to the Class A Investor are referred to as
"Class A Investor Charge-Offs." If the Class A Investor Interest has been
reduced by the amount of any Class A Investor Charge-Offs, it will be reimbursed
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 allocated and available for such purpose as described in
clause (b) above under "-- Application of Collections -- Excess Spread; Shared
Excess Finance Charge Collections."
If on any Distribution Date the Class B Investor Loss Amount for the prior
Due Period exceeds the sum of the amounts allocated with respect thereto from
Excess Spread and Shared Excess Finance Charge Collections and Reallocated
Principal Class C Principal Collections and Reallocated Class D Principal
Collections with respect to such Due Period, then the Class D Investor Interest
(after giving effect to reductions for any Class D Investor Charge-Offs, any
Reallocated Class D Principal Collections and any reductions in the Class D
Investor Interest pursuant to the preceding paragraph of this section on such
Distribution Date) will be reduced by the amount of such excess. If such
reduction would cause the Class D Investor Interest to be a negative number,
then the Class D Investor Interest will be reduced to zero, and the Class C
Investor Interest (after giving effect to reductions for any Class C Investor
Charge-Offs, any Reallocated Class C Principal Collections and any reductions in
the Class C Investor Interest pursuant to the preceding paragraph of this
section on such Distribution Date) will be reduced by the amount by which the
Class D Investor Interest would have been reduced below zero. If such reduction
would cause the Class C Investor Interest to be a negative number, then the
Class C Investor Interest will be reduced to zero, and the Class B Investor
Interest will be reduced by the amount by which the Class C Investor Interest
would have been reduced below zero, but not by more than the Class B Investor
Loss Amount. Additionally, the Class B Investor Interest will be reduced by the
amount of any Unfunded Seller Dilution Amount remaining after giving effect to
any related Class C Investor Charge-Off and Class D Investor Charge-Off for such
Distribution Date. These reductions, together with all reductions to the Class B
Investor Interest referred to in the preceding paragraph are referred to as
"Class B Investor Charge-Offs." If the Class B Investor Interest has been
reduced by the amount of any Class B Investor Charge-Offs, it may be reimbursed
on any Distribution Date (but not in excess of the unreimbursed amount of such
reductions) by Excess Spread and Shared Excess Finance Charge Collections
allocated and available for such purpose as described in clause (d) above under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections."
If on any Distribution Date the Class C Investor Loss Amount for the prior
Due Period exceeds the sum of the amounts allocated with respect thereto from
Excess Spread and Shared Excess Finance Charge Collections and Reallocated Class
D Principal Collections with respect to such Due Period, then the Class D
Investor Interest (after giving effect to reductions for any Class D Investor
Charge-Offs, any Reallocated Class D Principal Collections and any reductions in
the Class D Investor Interest pursuant to the two preceding paragraphs of this
section on such Distribution Date) will be reduced by the amount of such excess.
If such reduction would cause the Class D Investor Interest to be a negative
number, then the Class D Investor Interest will be reduced to zero, and the
Class C Investor Interest (after giving effect to reductions for any Class C
Investor Charge-Offs, any Reallocated Class C Principal Collections and any
reductions in the Class C Investor Interest pursuant to the two preceding
paragraphs of this section on such Distribution Date) will be reduced by the
amount by which the Class D Investor Interest would have been reduced below
zero, but not by more than the Class C Investor Loss Amount. Additionally, the
Class C Investor Interest will be reduced by the amount of any Unfunded Seller
Dilution Amount remaining after giving effect to any related Class D Investor
Charge-Off for such Distribution Date. These reductions, together with all
reductions to the Class C Investor Interest referred to in the preceding two
paragraphs are referred to as "Class C Investor Charge-Offs." If the Class C
Investor Interest has been reduced by the amount of any Class C Investor
Charge-Offs, it may be reimbursed on any Distribution Date (but not in excess of
the unreimbursed amount of such reductions) by Excess Spread and Shared Excess
Finance Charge Collections allocated and available for such
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purpose as described in clause (i) above under "-- Application of Collections
- -- Excess Spread; Shared Excess Finance Charge Collections."
If on any Distribution Date the Class D Investor Loss Amount for the prior
Due Period exceeds the amount allocated thereto from Excess Spread and Shared
Excess Finance Charge Collections, then the Class D Investor Interest will be
reduced by the amount of such excess, but not by more than the Class D Investor
Loss Amount. Additionally, the Class D Investor Interest will be reduced by the
amount of any Unfunded Seller Dilution Amount for such Distribution Date. These
reductions, together with all reductions to the Class D Investor Interest
referred to in the preceding three paragraphs are referred to as "Class D
Investor Charge-Offs." If the Class D Investor Interest has been reduced by the
amount of any Class D Investor Charge-Offs, it will be reimbursed on any
Distribution Date (but not in excess of the unreimbursed amount of such
reductions) by the Excess Spread and Shared Excess Finance Charge Collections as
described in clause (o) above under "-- Application of Collections -- Excess
Spread; Shared Excess Finance Charge Collections."
The Class A Investor Charge-Off, Class B Investor Charge-Off, Class C
Investor Charge-Off and Class D Investor Charge-Off are referred to,
collectively, as the "Charge-Offs."
PAIRED SERIES
With the consent of the Class C Certificateholders, the Series 1999-1
Certificates may be paired with one or more other Series in Group One (such
other Series a "Paired Series"). Such Paired Series will be either prefunded
with an initial deposit to a prefunding account in an amount up to the initial
principal balance of such Paired Series and primarily from the sale of such
Paired Series, or will have a variable principal amount. Any such prefunding
account will be held for the benefit of the Paired Series and not for the
benefit of Series 1999-1 Certificateholders. As funds in the Collection Account
are allocated for distribution as Available Principal Collections during the
Early Amortization Period or Controlled Amortization Period, either (1) in the
case of a prefunded Paired Series, an equal amount of funds in any prefunding
account for such Paired Series will be released and distributed pursuant to the
terms of the Paired Series, or (2) in the case of a Paired Series having a
variable principal amount, an interest in such variable Paired Series in an
equal to or lesser amount may be sold by the Trust and the proceeds thereof will
be distributed pursuant to the terms of the Paired Series, and, in either case,
the Series investor interest of such Paired Series will increase by a
corresponding amount. Upon payment in full of the Series 1999-1 Certificates,
assuming that there have been no unreimbursed Loss Amounts or Dilution Amounts
with respect to any related Paired Series, the aggregate amount of such Paired
Series will have been increased by an amount up to an aggregate amount equal to
the Series 1999-1 Investor Interest paid to the Series 1999-1 Certificateholders
after the Series 1999-1 Certificates were paired with the Paired Series (or such
other amount as the holders of such Paired Series agree). The issuance of a
Paired Series will be subject to the conditions described under "The Pooling
Agreement -- Exchanges" herein. There can be no assurance, however, that the
terms of any Paired Series might not have an impact on the calculation of the
Fixed Allocation Percentage or the timing or amount of payments received by the
Offered Certificateholders. The full extent by which the timing or amount of
payments received by a Series 1999-1 Certificateholder may be affected will be
dependent on a number of factors and will not be readily determinable by the
change that may occur in the Fixed Allocation Percentage.
LIMITATIONS ON ADDITION OF ACCOUNTS
In addition to such limitations on the Seller's ability to designate
Additional Accounts as are set forth below under "The Pooling
Agreement -- Addition of Accounts," the Seller has agreed for the benefit of
Series 1999-1 Certificateholders that it will not exercise its option to
designate any Additional Accounts unless on or prior to the related Addition
Date the Seller provides the Trustee and Class C Certificateholders with an
officer's certificate to the effect that such designation of Additional Accounts
to the Trust will not, as of the related Addition Date, (i) be reasonably
expected by the Seller to result in a Rating Agency reducing or withdrawing its
rating on any then outstanding Certificate Series or Receivables Purchase Series
as to which it is a Rating Agency (such reduction or withdrawal, a "Ratings
Effect") with respect to the Offered Certificates, (ii) cause the occurrence of
a Series 1999-1
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Early Amortization Event, or (iii) be reasonably expected by the Seller to
materially adversely affect in any manner the timing or amount of payments to
the Class C Certificateholders.
EARLY AMORTIZATION EVENTS
An "Early Amortization Event" refers to any of the following events:
(a) failure on the part of the Seller or the Originator (i) to make any
payment or deposit required under the Pooling Agreement, the Series 1999-1
Supplement or the Purchase Agreement within five days after the date such
payment is required to be made, or (ii) duly to observe or perform in any
material respect any of its covenants or agreements set forth in the
Pooling Agreement, the Series 1999-1 Supplement or the Purchase Agreement,
which failure has a material adverse effect on the Series 1999-1
Certificateholders (determined without regard to the amount of the Class C
Investor Interest or the Class D Investor Interest for such period) and
which continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, has been
given to the Seller by the Trustee, or to the Seller and Trustee by the
Controlling Certificateholders, and which continues to materially and
adversely affect the interests of the Series 1999-1 Certificateholders for
such period (determined without regard to the amount of the Class C
Investor Interest or the Class D Investor Interest for such period);
(b) any representation or warranty made by the Seller or the Originator
in the Pooling Agreement, the Series 1999-1 Supplement or the Purchase
Agreement, or any information required to be given by the Seller to the
Trustee or by the Originator to the Seller to identify the Accounts (i)
proves to have been incorrect in any material respect when made or when
delivered and 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, has been given to the Seller by the
Trustee, or to the Seller and Trustee by the Controlling
Certificateholders, and (ii) as a result of which the interests of the
Series 1999-1 Certificateholders are materially and adversely affected
(determined without regard to the amount of the Class C Investor Interest
or the Class D Investor Interest) and continue to be materially and
adversely affected for such period; provided, however, that an Early
Amortization Event pursuant to this subsection (b) will not be deemed to
occur if the Seller has accepted reassignment of the related Receivable or
all such Receivables, if applicable, during such period in accordance with
the Pooling Agreement;
(c) the average Portfolio Yield for any three consecutive Due Periods
is reduced to a rate which is less than the average Base Rate for such
period;
(d) the Seller fails to convey Receivables arising under Additional
Accounts to the Trust when required by the Pooling Agreement;
(e) any Servicer Default occurs which would have a material adverse
effect on the Class A Certificateholders or Class B Certificateholders;
(f) the failure to pay in full the Class A Investor Interest on the
Class A Expected Final Payment Date or the failure to pay in full the Class
B Investor Interest on the Class B Expected Final Payment Date;
(g) the failure on the part of any counterparty to an Interest Rate Cap
Agreement with the Seller to make a Class A Cap Payment or a Class B Cap
Payment, as applicable, in full within five calendar days of the date on
which such Class A Cap Payment or Class B Cap Payment was due;
(h) the failure on the part of the Servicer (and any counterparty to an
Interest Rate Cap Agreement pursuant to its obligations thereunder), within
30 days of the withdrawal or reduction below A-1 in the unsecured,
unguaranteed, short-term debt rating of such counterparty by Standard &
Poor's or a withdrawal or reduction below P-1 in the unsecured,
unguaranteed, short-term debt rating of such counterparty by Moody's, to
(i) obtain a replacement interest rate cap agreement having substantially
similar terms and conditions as the Interest Rate
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Cap Agreement being replaced, or (ii) enter into any other arrangement
satisfactory to the applicable Rating Agency such that the rating of the
Class A Certificates or Class B Certificates by the applicable Rating
Agency will not be withdrawn or reduced;
(i) the Seller, the Originator, the Servicer (if an affiliate of the
Originator) or Charming Shoppes consents to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to all or substantially all of its property, or a decree or order
of a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, has been entered against the Seller, the Originator or Charming
Shoppes; or the Seller, the Originator or Charming Shoppes admits in
writing its inability to pay its debts generally as they become due,
commence or have commenced against it (unless dismissed within thirty days)
as a debtor a proceeding under any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations;
(j) the Originator becomes unable for any reason to convey Receivables
to the Seller pursuant to the Purchase Agreement, or the Seller becomes
unable for any reason to convey Receivables to the Trust pursuant to the
Pooling Agreement; or
(k) the Trust or the Seller becomes subject to regulation as an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
In the case of any event described in subsection (a), (b), (e), (g) or (h)
above, an Early Amortization Event will be deemed to have occurred only if,
after the applicable grace period set forth in such clauses, either the Trustee
or the Controlling Certificateholders, by written notice to the Seller and the
Servicer (and to the Trustee if given by the holders of Series 1999-1
Certificates) declare that an Early Amortization Event has occurred as of the
date of such notice. In the case of any event described in subsection (c), (d)
or (f) above, an Early Amortization Event with respect to only the Series 1999-1
Certificates, and in the case of any event described in subsection (i), (j) or
(k) above, an Early Amortization Event with respect to all Certificate Series
and Receivables Purchase Series then outstanding, will be deemed to have
occurred without any notice or other action on the part of the Trustee, any
Series 1999-1 Certificateholders, or the holders of any Certificate Series or
Receivables Purchase Series, immediately upon the occurrence of such event. The
occurrence of any of the events in subsections (a) through (h) above will be
referred to as a "Series 1999-1 Early Amortization Event."
Upon the occurrence of any Early Amortization Event an Early Amortization
Period will commence with regard to Series 1999-1, beginning as of the close of
business on the Business Day immediately preceding the day that the Early
Amortization Event occurred and ending on the Series 1999-1 Termination Date.
During an Early Amortization Period, the Servicer will allocate and pay to the
Series 1999-1 Certificateholders on each Distribution Date their share (based on
the daily Floating Allocation Percentage) of collections of Finance Charge
Receivables processed each day, plus their share (based on the daily Principal
Allocation Percentage) of collections of Principal Receivables processed each
day. At such time as the aggregate of such collections deposited into the
Collection Account and allocated to the Series 1999-1 Certificateholders equals
the then Series 1999-1 Investor Interest, all future allocations of Principal
Receivables will be treated as Shared Principal Collections on the related
Distribution Date. If, because of the occurrence of an Early Amortization Event,
the Early Amortization Period begins earlier than the Class A Expected Final
Payment Date or Class B Expected Final Payment Date, Offered Certificateholders
will begin receiving distributions of principal earlier than they otherwise
would have, which may shorten the average life of the Offered Certificates.
For the purpose of the Early Amortization Event described in clause (d)
above, the terms "Base Rate" and "Portfolio Yield" will be defined as follows
with respect to the Series 1999-1 Certificates:
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"Base Rate" means, with respect to any Due Period, the product of 12
multiplied by a fraction, the numerator of which is the sum of the Monthly
Interest for the related Distribution Date and the Series 1999-1 Servicing
Fee for such Due Period, and the denominator of which is the Series 1999-1
Investor Interest as of the last day of the prior Due Period.
"Controlling Certificateholders" means (a) on any date of determination
on which the Class A Investor Interest or the Class B Investor Interest is
greater than zero, the holders of Class A Certificates and Class B
Certificates evidencing more than 50% of the sum of the Class A Investor
Interest and the Class B Investor Interest, and (b) thereafter, the holders
of Class C Certificates evidencing more than 50% of the Class C Investor
Interest.
"Monthly Interest" means, with respect to any Distribution Date, the
sum of (a) the Class A Monthly Interest, the Class A Additional Interest,
if any, and the unpaid Class A Deficiency Amount, if any; (b) the Class B
Monthly Interest, the Class B Additional Interest, if any, and the unpaid
Class B Deficiency Amount, if any, (c) the Class C Monthly Interest and the
unpaid Class C Deficiency Amount, if any, and (d) the Class D Monthly
Interest, each with respect to such Distribution Date.
"Portfolio Yield" means, with respect to any Due Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the
sum of (a) the Floating Allocation Percentage of collections of Finance
Charge Receivables allocated to Series 1999-1 Certificates for such Due
Period (including certain other amounts that are to be treated as
collections of Finance Charge Receivables in accordance with the Pooling
Agreement), plus (b) any Shared Excess Finance Charge Collections that are
allocated to Series 1999-1 for the related Distribution Date, such sum to
be calculated on a cash basis after subtracting the Series 1999-1 Investor
Loss Amount for such Due Period, and the denominator of which is the Series
1999-1 Investor Interest as of the last day of the preceding Due Period (or
with respect to the initial Due Period, the Series 1999-1 Initial Investor
Interest).
In addition to the consequences of an Early Amortization Event discussed
above, if an Insolvency Event with respect to the Seller or the Originator
occurs, the Seller will immediately cease to transfer Principal Receivables to
the Trust and promptly give notice to the Trustee, the Rating Agencies, each
provider of Enhancement to any Series (an "Enhancement Provider") and each
Purchaser Representative of such event. Notwithstanding any such transfer
termination, Finance Charge Receivables (whenever created) accrued in respect of
Principal Receivables previously conveyed to the Trust will continue to be part
of the assets of the Trust, with collections thereof to be allocated and
distributed as provided in the Pooling Agreement and the Series 1999-1
Supplement. Within 15 days of such occurrence, the Trustee will publish and give
to each Investor Certificateholder, to each Purchaser Representative and to each
Enhancement Provider written notice of the Insolvency Event stating that the
Trustee intends to sell, dispose of, or otherwise liquidate the Receivables in a
commercially reasonable manner. Unless within 90 days from the day such notice
is first published the Trustee is instructed by Investor Certificateholders
representing more than 50% of the investor interest of each Certificate Series,
by each Enhancement Provider who has outstanding an Enhancement Invested Amount
with respect to any Certificate Series, and by each Purchaser Representative,
that they wish to continue having Principal Receivables conveyed to the Trust as
before such Insolvency Event, the Trustee will use its best efforts to sell,
dispose of, or otherwise liquidate the Receivables in a commercially reasonable
manner and on commercially reasonable terms (including the solicitation of
competitive bids). The proceeds from the sale, disposition or liquidation of the
Receivables will be treated as collections of the Receivables and applied as
provided in the Pooling Agreement, any Supplement and any Receivables Purchase
Agreement; provided, that the Trustee will determine conclusively in its sole
discretion the amount of such proceeds which are allocable to Finance Charge
Receivables and the amount thereof allocable to Principal Receivables. Unless
the Trustee receives written instructions from Investor Certificateholders,
Enhancement Providers and Purchaser Representatives as provided in the preceding
sentence, then on the day following the last Distribution Date in the Due Period
during which such proceeds are distributed to the Investor Certificateholders of
each Certificate Series and the Receivables Purchasers of each Receivables
Purchase Series, the Trust will terminate.
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If the only Early Amortization Event to occur is either the insolvency of
the Seller or the appointment of a conservator or receiver for the Seller, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Early
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Series 1999-1 Certificates.
SERIES TERMINATION
The right of Series 1999-1 Certificateholders to receive payments from the
Trust will terminate on the first Business Day following the earliest to occur
of (i) the Distribution Date on which the Series 1999-1 Certificates are paid in
full, (ii) the [Month/Year] Distribution Date (the "Series 1999-1 Termination
Date"), and (iii) the date of termination of the Trust in accordance with the
Pooling Agreement. If the Series 1999-1 Termination Date occurs and the Series
1999-1 Investor Interest has not been paid in full, then the Trustee will sell,
or cause to be sold, and will pay the proceeds to the Series 1999-1
Certificateholders pro rata in full and final payment of all principal and
accrued interest on Series 1999-1 Certificates, and all accrued and unpaid fees
and expenses and unreimbursed Loss Amounts and Dilution Amounts (to the extent
reimbursable) under the Series 1999-1 Supplement, an amount of Principal
Receivables and the related Finance Charge Receivables up to 110% of the Series
1999-1 Investor Interest at the close of business on such date. The Seller will
be permitted to purchase such Receivables being sold, and will have a right of
first refusal with respect thereto. See "The Pooling Agreement -- Optional
Repurchase; Final Payment of Principal; Termination."
THE POOLING AGREEMENT
TRANSFER AND ASSIGNMENT OF RECEIVABLES
On the Initial Closing Date, the Originator transferred and assigned to the
Trust all of its right, title and interest in and to the Receivables in the
Accounts designated as of the Initial Cut Off Date and all Receivables
thereafter created in such Accounts. The Originator also transferred and
assigned to the Trust all of its right, title and interest in and to the
Receivables in certain Additional Accounts thereafter designated by it as such,
and in all Receivables thereafter created in such Additional Accounts. In
connection with the transfer of the Receivables to the Trust on the Initial
Closing Date, the Originator indicated in its computer files that the
Receivables had been conveyed to the Trust. In addition, the Originator provided
to the Trustee computer files or microfiche lists containing a true and complete
list showing each Account, identified by account number and by total outstanding
Receivables balances on the relevant cut-off date.
Pursuant to the Purchase Agreement, dated as of November 27, 1997 (the
"Purchase Agreement"), between the Originator and the Seller, the Originator
conveyed to the Seller all of its interest in the Receivables (subject to the
prior right of the Trust therein), together with certain other assets of the
Originator relating to its credit card business and its interest in the Trust,
and the Seller assumed all of the Originator's duties under the Prior Pooling
Agreement, except with respect to the Originator's duties thereunder as
Servicer. See "Description of the Purchase Agreement -- Restructuring of Trust."
The Seller will not deliver to the Trustee any other records or agreements
relating to the Accounts or the Receivables, except in connection with additions
or removals of Accounts. Except as stated above, the records and agreements
relating to the Accounts and the Receivables maintained by the Seller or the
Servicer are not segregated by the Seller or the Servicer from other documents
and agreements relating to other credit card accounts and receivables and are
not stamped or marked to reflect the transfer of the Receivables to the Trust,
but the computer records of the Seller are required to be marked to evidence
such transfer. The Originator has filed UCC financing statements with respect to
the transfer of the Receivables by it to the Seller meeting the requirements of
applicable state law, and the Seller has filed UCC financing statements with
respect to the transfer of the Receivables by it to the Trust meeting the
requirements of applicable state law. See "Risk Factors -- Insolvency Laws
Affecting Transfers" and "Certain Legal Aspects of the Receivables."
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EXCHANGES
The Pooling Agreement provides for the Trust to issue two types of
certificates: (i) one or more series of investor certificates (each, a
"Certificate Series") which are transferable and have the characteristics
described below and (ii) the Exchangeable Seller Certificate, a certificate
which evidences the Seller Interest, which is currently held by the Seller and
is transferable thereafter only as provided in the Pooling Agreement. The
Pooling Agreement also provides that pursuant to any one or more Supplements the
Seller may cause the Trust to issue one or more Certificate Series, which will
be effected by an "Exchange" consisting of either (i) the holder of the
Exchangeable Seller Certificate tendering the Exchangeable Seller Certificate to
the Trustee for a reissued Exchangeable Seller Certificate, representing a
reduced Seller Interest, and one or more newly issued Certificate Series, or
(ii) the Investor Certificateholders of a Certificate Series tendering their
investor certificates and the holder of the Exchangeable Seller Certificate
tendering the Exchangeable Seller Certificate to the Trustee for one or more
newly issued Certificate Series and a reissued Exchangeable Seller Certificate.
Under the Pooling Agreement, the Seller may define, with respect to any newly
issued Certificate Series, certain terms including: (i) its name or designation;
(ii) its initial investor interest (or method for calculating such amount);
(iii) its certificate rate (or formula for the determination thereof); (iv) the
closing date; (v) the rating agency or agencies, if any, rating the Certificate
Series; (vi) the interest payment date or dates and the date or dates from which
interest will accrue; (vii) the name of the clearing agency, if any; (viii) the
method for allocating collections to Investor Certificateholders of such
Certificate Series with respect to Principal Receivables, Finance Charge
Receivables, Loss Amounts and Dilution Amounts and the method by which the
principal amount of such Certificate Series will amortize or accrete; (ix) the
names of any accounts to be used by such Certificate Series and the terms
governing the operation of any such accounts; (x) the percentage used to
calculate investor servicing fees; (xi) the Minimum Seller Interest (if any);
(xii) the Enhancement Provider, if applicable, and the terms of any Enhancement
with respect to such Certificate Series; (xiii) the base rate applicable to such
Certificate Series; (xiv) the terms on which the certificates of such
Certificate Series may be repurchased or remarketed to other investors; (xv) the
termination date of such Certificate Series; (xvi) any deposit into any account
provided for such Certificate Series; (xvii) the priority of such Certificate
Series with respect to any other Certificate Series; (xviii) the rights, if any,
of the holder of the Exchangeable Seller Certificate that have been transferred
to the holders of such Certificate Series; (xix) the pool factor (consisting of
a seven-digit decimal expressing the ratio of the investor interest to the
initial investor interest); (xx) whether such Certificate Series will be part of
a group; and (xxi) any other relevant terms (including whether or not such
Certificate Series will be pledged as collateral for an issuance of any other
securities, including commercial paper) (all such terms, the "Principal Terms"
of such Certificate Series). None of the Seller, the Servicer, the Trustee or
the Trust is required or intends to obtain the consent of any Investor
Certificateholder of any Series to issue any additional Certificate Series.
However, as a condition of an Exchange, the Seller will deliver to the Trustee
written confirmation that the Exchange will not result in any Rating Agency
reducing or withdrawing its rating of any outstanding Certificate Series,
including the Series 1999-1 Certificates, or Receivables Purchase Series as to
which it is a Rating Agency. The Seller may offer any Certificate Series under
an appropriate disclosure document in transactions either registered under the
Securities Act of 1933, as amended (the "Securities 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 Certificate Series may be issued in fully registered or book-entry form in
minimum denominations determined by the Seller. The Seller expects to cause the
Trust to offer, from time to time, additional Certificate Series.
The term "Enhancement" means, with respect to any Certificate Series or
Receivables Purchase Series, any cash collateral account, letter of credit,
surety bond, guaranteed rate agreement, maturity guaranty facility, tax
protection agreement, interest rate swap or other contract or agreement for the
benefit of Investor Certificateholders or Receivables Purchasers of such Series
(including any subordinated interest and any subordination of one Series to
another), as designated in the applicable Supplement or Receivables Purchase
Agreement. The benefits of any Enhancement issued with respect to any Series or
class of Investor Certificateholders will not be available to the Investor
Certificateholders of any other Series or class. The Series 1999-1 Certificates
will not be entitled to the benefits of any Enhancement provided to any other
Series. The Series 1999-1 Certificates will not be subordinated to any other
Series, nor will the Investor Certificateholders or Receivables Purchasers of
any other Series be entitled to the benefits of any Enhancement provided for the
Series 1999-1 Certificates.
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The Pooling Agreement provides that the Seller may perform Exchanges and
define Principal Terms such that each Certificate Series has a period during
which amortization 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 Certificate Series. Further, one or more Certificate Series may be in
their amortization periods while other Certificate Series are not. Thus, certain
Certificate Series may not be amortizing while other Certificate Series are
amortizing. Moreover, each Certificate Series may have the benefit of an
Enhancement which is available only to such Certificate Series. Under the
Pooling Agreement, the Trustee will hold any such form of Enhancement only on
behalf of the Certificate Series with respect to which it relates. Likewise,
with respect to each such form of Enhancement, the Seller may deliver a
different form of Enhancement agreement. The Pooling Agreement also provides
that the Seller may specify different coupon rates and investor servicing fees
with respect to each Certificate Series. Collections allocated to Finance Charge
Receivables not used to pay interest on the certificates, the investor servicing
fee, the investor default amount and the investor charge-offs with respect to
any Certificate Series may be allocated as provided in such Enhancement
agreement, if applicable. The Seller also has the option under the Pooling
Agreement to vary between Certificate Series the terms upon which a Certificate
Series may be repurchased by the Seller or remarketed to other investors.
Additionally, certain Certificate Series may be subordinated to other
Certificate Series. The Series 1999-1 Supplement does not permit the
subordination of Series 1999-1 to any other Certificate Series which may be
issued by the Trust. There is no limit to the number of Exchanges that may be
performed under the Pooling Agreement. The Trust will terminate only as provided
in the Pooling Agreement.
Under the Pooling Agreement and pursuant to a Supplement thereto, an
Exchange may only occur upon the satisfaction of certain conditions provided in
the Pooling Agreement. Under the Pooling Agreement, the holder of the
Exchangeable Seller Certificate may perform an Exchange by notifying the Trustee
at least five days in advance of the date upon which the Exchange is to occur.
Such notice will state the designation of any Certificate Series to be issued on
the date of the Exchange and, with respect to each such Certificate Series: (a)
its initial investor interest (or method for calculating such amount) which
amount may not be greater than the current principal amount of the Exchangeable
Seller Certificate, (b) its certificate rate (or method of calculating such
rate) and (c) the provider of the Enhancement, if any, which is expected to
provide credit support with respect to it. On the date of the Exchange, the
Pooling Agreement provides that the Trustee will authenticate any such
Certificate Series only upon delivery to it of the following materials, among
others: (i) a supplement to the Pooling Agreement specifying the Principal Terms
of such Certificate Series; (ii) if any Certificate Series or Receivables
Purchase Series is outstanding, an opinion of counsel to the effect (A) that the
issuance of such new Certificate Series will not cause the Trust to be treated
as an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes, and (B) that the issuance of such Certificate
Series will not adversely affect the federal income tax characterization of any
outstanding Certificate Series or Receivables Purchase Series; provided, that if
any outstanding Series is rated then such opinion must be delivered to each
Rating Agency as well; (iii) if required by the related Supplement, the
applicable Enhancement and an appropriate Enhancement agreement with respect
thereto executed by the Seller and the Enhancement Provider; (iv) written
confirmation from each Rating Agency that the Exchange will not have a Ratings
Effect; (v) the existing Exchangeable Seller Certificate and, if applicable, the
investor certificates representing the Certificate Series to be exchanged; and
(vi) an officer's certificate of the Seller to the effect that on the date of
the Exchange, after giving effect to the Exchange, the Seller Interest will be
at least equal to the Aggregate Minimum Seller Interest. Upon satisfaction of
such conditions, the Trustee will cancel the existing Exchangeable Seller
Certificate and the investor certificates of the exchanged Certificate Series,
if applicable, and authenticate the new Certificate Series and a new
Exchangeable Seller Certificate.
RECEIVABLES PURCHASE SERIES
The Trust, as a master trust, has previously sold, and may from time to
time in the future sell, a series of Receivables purchase interests (a
"Receivables Purchase Series") pursuant to the Pooling Agreement and a
receivables purchase agreement (together with certain related documents, a
"Receivables Purchase Agreement"). Receivables Purchase Series and Certificate
Series are collectively referred to herein as "Series." Each Receivables
Purchase Series represents a fluctuating undivided ownership interest in certain
assets of the Trust (including the Receivables and certain accounts of the
Trust) held by the related purchaser thereof or its permitted assigns (a
"Receivables Purchaser") pursuant to the Pooling Agreement and the Receivables
Purchase Agreement related
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thereto. Each Receivables Purchase Agreement will provide that no Investor
Certificateholder or Enhancement Provider will be a third-party beneficiary
thereof or have any benefit or any legal or equitable right, remedy or claim
under such Receivables Purchase Agreement. Conversely, no Receivables Purchase
Series will represent any interest in any Enhancement for the benefit of any
Certificate Series or in any Certificate Series account or, except as provided
in the Supplement for a Certificate Series, in any collections allocated to that
Certificate Series. Further, unless otherwise specifically provided for in the
Supplement for any Certificate Series, no Certificate Series will be
subordinated to or senior to any Receivables Purchase Series. The Series 1999-1
Certificates are not subordinated to any Certificate Series or Receivables
Purchase Series.
The Trustee, on behalf of the Trust, at the direction of the Servicer, may
enter into a Receivables Purchase Agreement if the Servicer notifies the Trustee
in writing at least five days in advance of the date upon which the initial
conveyance of interests in such Receivables Purchase Series pursuant to the
related Receivables Purchase Agreement will occur. On the date of the initial
conveyance of interests in a Receivables Purchase Series, the Trustee will
execute and deliver the related Receivables Purchase Agreement only upon
delivery to it of: (a) a Receivables Purchase Agreement specifying the principal
terms of the Receivables Purchase Series, (b) the applicable Enhancement, if
any, and the agreement, if any, pursuant to which the Enhancement Provider
agrees to provide the Enhancement, if any, (d) written confirmation from each
Rating Agency that such conveyance of interests in a Receivables Purchase Series
will not have a Ratings Effect, (e) an officer's certificate of the Seller, a
copy of which is delivered to the Trustee and each Purchaser Representative,
that on the date of conveyance, after giving effect to such conveyance, the
Seller Interest will be at least equal to the Aggregate Minimum Seller Interest
and (f) if any Certificate Series is then outstanding, an opinion of counsel
that such conveyance will not adversely affect the federal income tax
characterization of investor certificates of such Certificate Series. It is a
condition to the sale of any Receivables Purchase Series that, if any
Certificate Series or Receivables Purchase Series is outstanding, the Trustee
and (if any outstanding Series is rated) each Rating Agency receive an opinion
of counsel that the issuance of such new Receivables Purchase Series will not
cause the Trust to be treated as an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes, and that the issuance
of such Receivables Purchase Series will not adversely affect the federal income
tax characterization of any outstanding Certificate Series or Receivables
Purchase Series.
BOOK-ENTRY REGISTRATION
Certificate Owners may hold their interests in the Offered Certificates
through DTC (in the United States) or Cedel or Euroclear (in Europe) if they are
participants in such systems, or indirectly through organizations that are
participants in such systems. Cede & Co. ("Cede"), as nominee for The Depository
Trust Company ("DTC"), will hold the Offered Certificates. Cedel Bank, societe
anonyme ("Cedel") and the Euroclear System ("Euroclear") will hold omnibus
positions on behalf of the Cedel Participants and the Euroclear Participants,
respectively, through customers' securities accounts in Cedel's and Euroclear's
names on the books of their respective depositaries (collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, 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 of
1934, as amended (the "Exchange Act"). DTC holds securities for its Participants
("DTC Participants") and facilitates the clearance and settlement among DTC
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic book-entry changes in DTC Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to the DTC system is also available to others such as securities brokers
and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and DTC Participants are
on file with the Securities and Exchange Commission.
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Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
participants or Euroclear Participants, on the other, will be effected by DTC in
accordance with 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 of 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.
Purchases of Offered Certificates under the DTC system must be made by or
through DTC Participants, which will receive a credit for the Offered
Certificates on DTC's records. The ownership interest of each actual Certificate
Owner is in turn to be recorded on the DTC Participants' and Indirect
Participants' records. Certificate Owners will not receive written confirmation
from DTC of their purchase, but Certificate Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect Participant
through which the Certificate Owner entered into the transaction. Transfers of
ownership interests in the Offered Certificates are to be accomplished by
entries made on the books of DTC Participants acting on behalf of Certificate
Owners. Certificate Owners will not receive certificates representing their
ownership interest in Offered Certificates, except in the event that use of the
book-entry system for the Offered Certificates is discontinued.
To facilitate subsequent transfers, all securities deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede. The
deposit of securities with DTC and their registration in the name of Cede
effects no change in beneficial ownership. DTC has no knowledge of the actual
Certificate Owners of the Offered Certificates; DTC's records reflect only the
identity of the DTC Participants to whose accounts such Offered Certificates are
credited, which may or may not be the Certificate Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede will consent or vote with respect to Offered
Certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede's
consenting or voting rights to those DTC Participants to whose accounts the
Offered Certificates are credited on the record date (identified in a listing
attached thereto).
Principal and interest payments on the Offered Certificates will be made to
DTC. DTC's practice is to credit Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date.
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Payments by DTC Participants to Certificate Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name" and will
be the responsibility of such DTC Participant and not of DTC, the Trustee or the
Seller, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal and interest to DTC is the
responsibility of the Trustee, disbursement of such payments to DTC Participants
shall be the responsibility of DTC, and disbursement of such payments to
Certificate Owners shall be the responsibility of DTC Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the Offered Certificates at any time by giving reasonable notice to
the Seller or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Seller and, upon the occurrence of a
Servicer Default, a specified percentage of each class of Certificate Owners may
decide to discontinue use of the system of book-entry transfers through DTC (or
a successor securities depository). In that event, Definitive Certificates will
be delivered to Certificate Owners. See "--Definitive Certificates."
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") 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 (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), 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 DTC's direct and indirect participants and 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 the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) 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 such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 32
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates
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and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 32 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in 25
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator"), under
contract with Euroclear Clearance System, Societe Cooperative, a Belgium
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative Board establishes policy for the Euroclear System.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries. Indirect
access to the Euroclear System is also available to other firms that maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgium 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 Belgium Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System (collectively, the "Terms
and Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions with respect to Offered Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "U.S. Federal Income Tax Consequences." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Certificateholder on behalf of a Cedel Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered 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.
DEFINITIVE CERTIFICATES
The Offered Certificates will be issued in fully registered, certificated
form to Certificate Owners or their nominees ("Definitive Certificates"), rather
than to DTC or its nominees, only if (i) the Seller advises the Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Offered Certificates, and the
Trustee or the Seller is unable to locate a qualified successor, (ii) the
Seller, 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, Series 1999-1 Certificate Owners representing more than
66-2/3% of the Class A Investor Interest or the Class B Investor Interest, as
applicable, advise the Trustee and DTC through clearing agency 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 of Class A
Certificates or the Certificate Owners of Class B Certificates, as applicable.
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 certificates representing the Offered Certificates and
instructions for re-registration, the Trustee will issue
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the Offered Certificates as Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as the registered
holders thereof under the Pooling Agreement.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which is initially 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. The
Transfer Agent and Registrar will not be required to register the transfer or
exchange of Definitive Certificates for a period of fifteen days preceding the
due date for any payment with respect to such Definitive Certificates.
REPRESENTATIONS AND WARRANTIES
On the Closing Date the Seller will represent and warrant to the Trust,
among other things, that as of the Initial Closing Date, as of the Closing Date
and, with respect to any Additional Accounts, as of the related Addition Date
(a) each Receivable then existing has been conveyed to the Trust free and clear
of any lien, mortgage, pledge, security interest or other encumbrance (each a
"Lien") in favor of any Person claiming through or under the Seller, the
Originator, or any of their affiliates and in compliance, in all material
respects, with all requirements of law applicable to the Seller, and (b) each
Receivable is the legal, valid and binding payment obligation of the account
debtor thereon, enforceable against such account debtor in accordance with its
terms, except as such enforceability may be affected by bankruptcy, liquidation,
receivership, insolvency, reorganization or similar debtor relief laws from time
to time affecting the rights of creditors, and general principals of equity
("Debtor Relief Laws"). In the event of a breach of either of these
representations and warranties, the affected Receivable will be automatically
removed from the Trust on the terms and conditions set forth in the succeeding
paragraph upon the earlier to occur of the discovery of such breach or event by
the Seller or the Servicer or receipt by the Seller of written notice of such
breach or event given by the Trustee if any of the following three conditions
are met: (i) as a result of such breach or event such Receivable is charged off
as uncollectible or the Trust's rights in, to or under such Receivable or its
proceeds are impaired or the proceeds of such Receivable are not available for
any reason to the Trust free and clear of any Lien, (ii) the Lien upon the
subject Receivable (A) arises in favor of the United States of America or any
state or any agency or instrumentality thereof and involves taxes or liens
arising under Title IV of ERISA, or (B) has been consented to by the Originator
or the Seller, or (iii) the unsecured short-term debt rating of the Originator
is not at least P-1 by Moody's and the Lien upon the subject Receivable ranks
prior to the Lien created thereon pursuant to the Pooling Agreement.
Notwithstanding the foregoing, if such Lien does not have a material adverse
effect on the collectibility of the Receivables or on any holder of an interest
in any Certificate Series or Receivables Purchase Series, or on any Enhancement
Provider, then the Seller will have 10 days within which to remove any such
Lien. The automatic removal of a Receivable from the Trust as described herein
is the sole remedy respecting any breach of the representations and warranties
set forth in this paragraph with respect to such Receivable available to the
Series 1999-1 Certificateholders or the Trustee on behalf of the Series 1999-1
Certificateholders.
On the Closing Date the Seller will further represent and warrant to the
Trust, among other things, that as of the Initial Closing Date, as of the
Closing Date and, with respect to any Additional Accounts, as of the related
Addition Date (a) each Receivable is an Eligible Receivable (as defined below),
(b) all consents, licenses, approvals or authorizations of or registrations or
declarations with any governmental authority required to be obtained, effected
or given by the Seller in connection with the conveyance of such Receivable to
the Trust have been duly obtained, effected or given and are in full force and
effect, (c) as of the date of creation of any new Receivable, such Receivable
(i) is an Eligible Receivable, (ii) was conveyed to the Trust free and clear of
any Lien, (iii) was conveyed with all required governmental authority approvals
as described in clause (b) of this paragraph, and (iv) the representation and
warranty set forth in clause (b) of the succeeding paragraph is true and correct
with respect to such Receivable. In the event of a breach of any representation
and warranty set forth in this paragraph as a result of which the Receivable
becomes charged off as uncollectible, or the Trust's rights in, to or under the
Receivable or its proceeds are impaired or the proceeds of such Receivable are
not available for any reason to the Trust free and clear of any Lien, then upon
the expiration of 60 days from the earlier to occur of the discovery of such
breach by the Seller or the Servicer or receipt by the Seller of written notice
of such breach given by the Trustee, then the Seller will accept reassignment of
each Receivable as to which such breach relates (an "Ineligible Receivable") on
the
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terms and conditions set forth below; provided, however, that no such
reassignment will be required to be made with respect to such Ineligible
Receivable if, on any day within the applicable period as if such Receivable had
been created on such day, the representations and warranties with respect to
such Ineligible Receivable are then true and correct in all material respects.
The Seller will accept reassignment of each such Ineligible Receivable by
directing the Servicer to deduct the amount of each such Ineligible Receivable
from the aggregate amount of Principal Receivables used to calculate any
Investor/Purchaser Percentage, the Seller Percentage or the Seller Interest and
to decrease the Seller Interest by such amount (but not below zero). If the
exclusion of an Ineligible Receivable from the calculation of the Seller
Interest would cause the Seller Interest to be reduced below the Aggregate
Minimum Seller Interest, the Seller will within ten Business Days of such event
(or the next succeeding Distribution Date, if earlier) make a deposit in the
Excess Funding Account (except that the portion of such amount allocable to any
Receivables Purchase Series will be deposited in the Collection Account for the
benefit of such Receivables Purchase Series) in immediately available funds in
an amount equal to the amount by which the Seller Interest would be reduced
below the Aggregate Minimum Seller Interest. Any such deduction or deposit will
be considered a repayment in full of the Ineligible Receivable. The obligation
of the Seller to accept reassignment 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 the Series 1999-1
Certificateholders or the Trustee on behalf of Series 1999-1 Certificateholders.
In addition to the foregoing, the Seller will represent and warrant to the
Trust to the effect, among other things, that (a) as of the Initial Closing Date
and as of the date of issuance of each Certificate Series or sale of each
Receivables Purchase Series, the Pooling Agreement, the Purchase Agreement, the
Security Agreement, each Supplement, each Receivables Purchase Agreement, and
all documents and instruments executed in connection therewith (collectively,
the "Transaction Documents") each constituted a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms, except as such enforceability may be affected by Debtor Relief Laws, and
(b) as of the Initial Closing Date and as of the Closing Date, and with respect
to Receivables in Additional Accounts, as of the Addition Date, the transfer of
Receivables by it to the Trust under the Pooling Agreement constituted either
(i) a valid sale to the Trust of all right, title and interest of the Seller in
and to the Receivables, whether then existing or thereafter created and arising
from time to time in connection with the Accounts until termination of the
Trust, all monies due or to become due with respect thereto, all amounts
received in respect of the Receivables, all Recoveries, all rights, remedies,
powers and privileges with respect to the Receivables or under the Purchase
Agreement, and all proceeds of the foregoing, free and clear of any Lien of any
person or entity claiming through or under the Seller or any of its affiliates,
or (ii) the grant of a perfected security interest in such Receivables and such
other property (except for certain permitted Liens) and the proceeds thereof
(including amounts in any of the accounts established for the benefit of
certificateholders), which is effective as to each such Receivable and such
other property upon the creation thereof. In the event of a breach of any of the
representations and warranties described in this paragraph, any of the Trustee
or Investor Certificateholders whose certificates evidence undivided interests
in the Trust aggregating more than 50% of the aggregate investor interest of all
Certificate Series outstanding or any Purchaser Representative, by written
notice to the Seller (and to the Trustee and the Servicer if given by the
requisite percentage of Investor Certificateholders or any Purchaser
Representative), may direct an entity designated by the Seller to accept
reassignment of Receivables within 60 days of such notice; or within such longer
period specified in such notice. Such designee will be obligated to accept
reassignment of such Receivables on a Distribution Date occurring within such
applicable period. Such reassignment will not be required to be made, however,
if at any time during such applicable period, the representations and warranties
are then true and correct in all material respects. The deposit amount for such
reassignment will be an amount equal to the amounts specified therefor with
respect to each outstanding Certificate Series or Receivables Purchase Series in
the related Supplement or Receivables Purchase Agreement. Unless otherwise
specified in any Supplement, the deposit amount for such reassignment with
respect to each Certificate Series of investor certificates will be equal to the
investor interest for such Certificate Series and, if applicable the Enhancement
Invested Amount, required to be repurchased on the last day of the Due Period
preceding the Distribution Date on which the reassignment is scheduled to be
made less the amount, if any, previously allocated for payment of principal to
such Investor Certificateholders on the related Distribution Date, plus an
amount equal to all interest accrued but unpaid on such investor certificates
(and, if applicable, enhancement investor amount) of such Series at the
applicable certificate rate through the last day of such Due Period. The payment
of the reassignment deposit amount will be considered a
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payment in full of the investor interest for all Certificate Series of investor
certificates required to be repurchased and will be distributed upon
presentation and surrender of the investor certificates for each such
Certificate Series. If the Trustee or Investor Certificateholders give a notice
as provided above, the obligation of the Seller to make any such deposit will
constitute the sole remedy respecting a breach of the representations and
warranties available to the Trustee or such Investor Certificateholders.
Under the terms of the Purchase Agreement the Originator has made
substantially similar representations and warranties to the Seller regarding the
Receivables as the Seller has made to the Trust as described in the foregoing
paragraphs, and the Originator has agreed to accept the reassignment from the
Seller of any Receivable with respect to which any of the Originator's
representations and warranties were false. Any such reassignment of a Receivable
by the Seller to the Originator will be made on substantially similar terms on
which the Trust has made a reassignment thereof to the Seller as set forth in
the preceding paragraphs. The Seller has assigned to the Trust all of the
Seller's rights under the Purchase Agreement, thereby permitting the Trust to
enforce, for the Trust's benefit, the Seller's reassignment rights against the
Originator. See "Description of the Purchase Agreement -- Representations and
Warranties."
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 Seller's representations and warranties or for any other
purpose. The Servicer, however, will deliver to the Trustee on or before March
31 of each year an opinion of counsel with respect to the validity of the
security interest of the Trust in and to the Receivables and certain other
components of the Trust.
ELIGIBLE ACCOUNTS; ELIGIBLE RECEIVABLES
An "Eligible Account" means, as of the Initial Cut Off Date (or, with
respect to Additional Accounts, as of their date of designation for inclusion in
the Trust Portfolio), each Account (a) which is payable in United States
dollars, (b) which is a Specified Program Account, (c) which has not been
classified by the Originator on its electronic records as canceled, counterfeit
or fraudulent, and with respect to which any credit card issued in connection
therewith has not been stolen or lost, (d) which has not been charged off by the
Originator in its customary and usual manner for charging off such Accounts as
of the Initial Cut Off Date or, with respect to Additional Accounts, as of the
relevant Addition Cut Off Date inclusion in the Trust Portfolio, (e) the obligor
on which has provided, as his or her most recent billing address, an address
that is located in the United States; provided that an Account the obligor on
which has provided, as his or her most recent billing address, an address that
is located in Canada, will be an Eligible Account only to the extent that the
aggregate amount of Principal Receivables in all such Accounts is less than 1.0%
of the aggregate Principal Receivables of all Accounts averaged as of the last
day of any two consecutive Due Periods; provided further, that the Receivables
of any such Account will not be treated as Receivables for purposes of
calculating the Seller Interest, Aggregate Minimum Seller Interest or the
Investor/Purchaser percentage for any Certificate Series or Receivables Purchase
Series, and (f) with respect to which all filings, consents, licenses, approvals
or authorizations of, or registrations or declarations with, any United States
federal, state or local governmental authority required to be obtained, effected
or given by the Originator in connection with the creation of the underlying
Receivable in such Account or the execution, delivery and performance by the
Originator of the cardholder agreement pursuant to which such underlying
Receivable was created, have been duly obtained, effected or given and are in
full force and effect as of such date of creation.
With respect to inclusion as an Eligible Account, a "Specified Program
Account" is any Account which has been originated in connection with the
extension of credit through a Specified Program to an Obligor whose application
for the extension of credit was processed through the Originator or an affiliate
thereof or which has been acquired by the Originator from a third party and
determined by the Originator to be in compliance with the Originator's
cardholder guidelines relating to operation of its credit card business
("Cardholder Guidelines"), including those relating to the extension of credit;
provided, that an Account originated in a Specified Program other than the
Private Label Program will be an Eligible Account only if its designation as
such will not have a Ratings Effect.
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The "Specified Programs" consist of the Originator's Private Label Program,
its Co-Branded Program, its Secured Account Program and its Unaffiliated
Retailer Program, each as specified in the Cardholder Guidelines, together with
any other credit card origination programs initiated by the Originator. Only
Receivables generated under the Private Label Program are currently included as
Trust Assets. The "Private Label Program" is a program of the Originator to
originate private label credit card receivables primarily from sales at Fashion
Bug and Fashion Bug Plus stores. The "Secured Account Program" is a credit card
program of the Originator under which the Obligors are required to maintain a
security deposit against amounts charged. Although the Secured Account Program
is operational, Receivables generated under this program are not currently
included as Trust Assets. The "Co-Branded Program" is a program contemplated by
the Originator to originate charges on a general purpose credit card under the
Visa or MasterCard system, which credit card will be co-branded with Fashion
Bug. The "Unaffiliated Retailer Program" is a program contemplated by the
Originator to allow holders of its private label Fashion Bug credit card to use
the card at unaffiliated retail locations. Receivables generated under the
Secured Account Program, the Co-Branded Program and the Unaffiliated Retailer
Program will not be included as Trust Assets unless the Seller receives
confirmation from the Rating Agencies that their inclusion would not cause a
Ratings Effect.
An "Eligible Receivable" means each Receivable (a) which has arisen under
an Eligible Account, (b) which was created in compliance, in all material
respects, with all requirements of law applicable to the Originator, and
pursuant to a credit card agreement which complies in all material respects with
all requirements of law applicable to the Originator, (c) as to which, at the
time of and at all times after the creation of such Receivable, the Originator,
the Seller or the Trust had good and marketable title free and clear of all
Liens arising under or through the Originator, the Seller or any of their
affiliates (other than certain permitted Liens), (d) which is the legal, valid
and binding payment obligation of the Obligor thereon, enforceable against such
Obligor in accordance with its terms (subject to Debtor Relief Laws), and (e)
which constitutes an "account" or a "general intangible" under Article 9 of the
UCC as then in effect in any applicable jurisdiction.
ADDITION OF ACCOUNTS
As described above in "The Receivables," the Seller has the right, and in
some circumstances is obligated, to designate from time to time Additional
Accounts to be included as Accounts. The Seller will convey to the Trust its
interest in all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created, subject to the conditions
specified below. If on the last Business Day of any Due Period (i) the average
of the Seller Interest over the 30-day period then ended is less than the
Aggregate Minimum Seller Interest (the "Seller Interest Test") then on or prior
to the close of business on the 10th Business Day following the last day of such
Due Period (the "Required Designation Date"), unless the Seller Interest exceeds
the Aggregate Minimum Seller Interest as of the close of business on any
Business Day after the last Business Day of such Due Period and prior to the
related Required Designation Date, the Seller will designate additional Eligible
Accounts to be included as Accounts (the "Additional Accounts") effective as of
the Required Designation Date or any earlier date (the "Addition Date") in a
sufficient amount such that after giving effect to such addition the Seller
Interest as of the close of business on the Addition Date is at least equal to
the Aggregate Minimum Seller Interest on the Addition Date. The failure by the
Seller to transfer Receivables to the Trust as provided in this paragraph solely
as a result of the unavailability of a sufficient amount of Eligible Receivables
will not constitute a breach of the Pooling Agreement, but will (unless timely
cured) constitute an Early Amortization Event with respect to Series 1999-1.
The "Aggregate Minimum Seller Interest" is the greater of (i) the sum of
the Minimum Seller Interests specified for each Series in the applicable
Supplement and Receivables Purchase Agreement (each a "Minimum Seller
Interest"), and (ii) zero.
Because the Seller Interest includes amounts on deposit in the Excess
Funding Account, the Servicer will deposit collections of Principal Receivables
payable to the Holder of the Exchangeable Seller Certificate into the Excess
Funding Account if the Seller does not designate Additional Accounts in order to
meet the Seller Interest Test and thereby forestall the occurrence of an Early
Amortization Event.
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The Seller may designate, from time to time at its sole discretion,
Eligible Accounts to be included as Accounts ("Automatic Additional Accounts"),
subject to the limitation that, unless each Rating Agency otherwise consents,
the Automatic Additional Accounts plus the Receivables in Additional Accounts
added pursuant to the first paragraph under this Section, without the Seller
receiving written evidence that such additions will not cause a Ratings Effect,
will not exceed during any calendar quarter an amount of Receivables equal to
10% of the Receivables as of the first day of the calendar year in which such
calendar quarter commences, and during each 12 month period ending as of the
most recent Addition Date will not exceed an amount of Receivables equal to 15%
of the Receivables as of the first day of such 12 month period (collectively,
the "Aggregate Addition Limit"). The Aggregate Addition Limit is intended to
limit the extent to which the Seller, by designating Automatic Additional
Accounts, may alter the composition of the Accounts without Rating Agency
confirmation or consent of Enhancement Providers. If the aggregate number of
Automatic Additional Accounts designated to be included as Accounts plus the
number of Accounts added pursuant to the first paragraph under this Section
without prior review by each Rating Agency with respect to any of the periods
specified in the Pooling Agreement would exceed the Aggregate Additional Limit,
then no Automatic Additional Accounts may be added during such periods without
the consent of each Rating Agency and Enhancement Provider. On or before each
Addition Date (or such later time as may be permitted under the Pooling
Agreement), the Seller will deliver to the Trustee an opinion of outside counsel
addressed to the Trustee, each Rating Agency, Purchaser Representative and
Enhancement Provider with respect to the Automatic Additional Accounts included
as Accounts during the preceding Due Period (or such other time period as may be
permitted under the Pooling Agreement) confirming the validity and perfection of
each transfer of Receivables arising from such Automatic Additional Accounts. If
such opinion of counsel with respect to any Automatic Additional Accounts is not
so received, the ability of the Seller to designate Automatic Additional
Accounts will be suspended until such time as the Rating Agency otherwise
consents in writing. In addition, the ability of the Seller to designate
Additional Accounts is limited under the terms of the Series 1999-1 Supplement.
See "Description of the Certificates -- Limitation on Addition of Accounts."
In connection with an Additional Account, the Seller will convey to the
Trust the Receivables arising in such Additional Account subject to the
following conditions, among others (provided that the conditions set forth in
clauses (a) and (c) will not apply to the transfer to the Trust of Receivables
in Automatic Additional Accounts): (a) on or before the 10th Business Day
immediately preceding the addition of any Additional Account, the Seller has
given the Trustee, the Servicer, the Rating Agencies, each Purchaser
Representative, and each Enhancement Provider written notice that the
Receivables arising in the Additional Accounts will be conveyed to the Trust;
(b) on or before the date on which any such Receivables are added to the Trust,
the Seller has delivered to the Trustee a written assignment and the Servicer
has indicated in its computer files that such conveyance has been effected, and
within 5 business days thereafter the Servicer (on behalf of the Seller) has
delivered to the Trustee a computer file or microfiche or written list
containing a true and complete list of the related Additional Accounts,
specifying for each such Account its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal Receivables
outstanding in such Account; (c) the Seller has received confirmation from each
Rating Agency that such addition of Accounts will not have a Ratings Effect; (d)
prior to or on the date any such Receivables are added to the Trust, the Seller
has delivered to the Trustee a certificate of an authorized officer stating that
(i) any related Additional Accounts are Eligible Accounts, (ii) that the Seller
reasonably believes that such Addition will not cause an early amortization
event to occur with respect to any Certificate Series, and (iii) that no
selection procedure was utilized by the Seller that would result in a selection
of Additional Accounts (from the available Eligible Accounts owned by the
Seller) that would be materially adverse to the interests of the Investor
Certificateholders of any Certificate Series, any Receivables Purchasers or any
Enhancement Provider; and (e) the Seller has delivered an opinion of outside
counsel with respect to the Receivables in such Additional Accounts confirming
the validity and perfection of the transfer of such Receivables at such times as
are required by the Pooling Agreement.
Each Additional Account must be an Eligible Account at the time of its
designation. However, Additional Accounts may not be of the same credit quality
as the initial Accounts. Additional Accounts may have been originated by the
Seller using credit criteria different from those which were applied by the
Seller to the initial Accounts or may have been acquired by the Seller from a
third-party who had different credit criteria. In addition, there is no
assurance that the Seller will be able to designate Additional Accounts to be
included as Accounts.
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The Originator has recently developed a secured card program and is
currently contemplating the development of certain other new products, including
(but not limited to) a co-branded VISA or MasterCard, and a credit card that may
be used at stores other than Fashion Bug. In addition, the Seller is considering
acquiring receivables originated through such new products and transferring them
to the Trust. Receivables from such new accounts will not be transferred to the
Trust, however, unless the Trustee receives prior written confirmation from the
Rating Agencies that such addition will not have a Ratings Effect. See
"--Eligible Accounts; Eligible Receivables."
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding sentence, the
Seller may, but is not obligated to, designate from time to time all Receivables
from certain Accounts to be deleted and removed from the Trust and reassigned to
the Seller (such Accounts, the "Removed Accounts"); provided, however, that the
Seller may not make more than one such designation in any Due Period. The Seller
will be permitted to designate and require reassignment to it of the Receivables
from Removed Accounts only upon satisfaction of the following conditions: (i)
the removal of any Receivables of any Removed Accounts will not, in the
reasonable belief of the Seller, cause an Early Amortization Event to occur, or
result in the failure to make any payment specified in the related Supplement or
Receivables Purchase Agreement with respect to any Certificate Series or
Receivable Purchase Series; (ii) the Seller has delivered to the Trustee (with a
copy to each Purchaser Representative) for execution a written assignment,
together with a computer file or microfiche or written list containing a true
and complete list of all Removed Accounts identified by account number and the
aggregate amount of the Receivables in such Removed Accounts; (iii) the Seller
will represent and warrant that no selection procedures believed by the Seller
to be materially adverse to the interests of the holders of an interest in any
Certificate Series or Receivables Purchaser Series, or to the interests of any
Enhancement Provider, were utilized in selecting the Removed Accounts to be
removed from the Trust; (iv) each Rating Agency has received notice of such
proposed removal of Accounts and the Seller has received written evidence from
each Rating Agency that such proposed removal will not have a Ratings Effect;
(v) the Seller has delivered to the Trustee, each Purchaser Representative and
each Enhancement Provider an officer's certificate confirming the items set
forth in clauses (i) through (iii) above; and (vi) no Early Amortization Event
has occurred with respect to any Certificate Series or Receivable Purchase
Series or, as a result of such removal, will occur.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
customary and usual procedures for servicing credit card receivables comparable
to the Receivables and in accordance with the Cardholder Guidelines. The
Servicer has entered into a multi-year agreement with the Subservicer to handle
a portion of the Servicer's account maintenance and service administration
responsibilities. See "Spirit of America's Credit Card Activities -- Description
of Subservicer."
COLLECTION ACCOUNT
The Servicer has established and maintains, in the name of the Trust and
for the benefit of all Investor Certificateholders and Receivables Purchasers, a
"Collection Account," which is a segregated account established and maintained
with a "Qualified Depository Institution," defined as the Trustee or a
depository institution or trust company organized under the laws of the United
States or any one of the states thereof or the District or Columbia (or the
domestic branch of a foreign depository institution), the short-term deposits of
which have a rating of P-1 by Moody's and of A-1+ by Standard & Poor's and
deposit insurance provided by either the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"), each administered by the FDIC.
Funds in the Collection Account will be invested, at the direction of the
Servicer, in (i) direct obligations of and obligations fully guaranteed by the
United States of America, (ii) (A) demand or time deposits in, certificates of
deposit of, bankers' acceptance issued by, or federal funds sold by, any
depository institution or trust company (including the Trustee or any agent of
the Trustee acting in their respective commercial capacities) incorporated under
the laws of the United States of America, any state thereof or the District of
Columbia or any foreign depository institution with a branch or agency licensed
under the laws of the United States of America or any state, subject to
supervision and examination
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by federal or state banking authorities and having a short-term rating of P-1 by
Moody's and A-1+ by Standard & Poor's at the time of investment or contractual
commitment providing for such investment or otherwise approved in writing by
each Rating Agency and each Purchaser Representative or (B) any other demand or
time deposit that is fully insured by the FDIC, (iii) repurchase obligations
with respect to (A) any security described in clause (i) above or (B) any other
security issued or guaranteed by an agency or instrumentality of the United
States of America, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (ii) (A) above, (iv)
short term securities bearing interest or sold at a discount issued by any
corporation incorporated under the United States of America or any state, the
short-term unsecured obligations of which are rated P-1 by Moody's and A-1+ by
Standard & Poor's at the time of investment, subject to a ten percent
concentration limit in any one corporation, (v) commercial paper having, at the
time of the Trust's investment, a rating of P-1 by Moody's and A-1+ by Standard
& Poor's, and (vi) any other investment approved in writing by each Rating
Agency and each Purchaser Representative (such investments, "Permitted
Investments"). Any earnings (net of losses and investment expenses) on funds in
the Collection Account will be treated as collections of Finance Charge
Receivables. The Servicer has the revocable power to instruct any Qualified
Depository Institution to make withdrawals and payments from the Collection
Account for the purpose of carrying out the Servicer's duties under the Pooling
Agreement, the Supplements and the Receivables Purchase Agreements. The Paying
Agent has the revocable power to withdraw funds from the Collection Account for
the purpose of making distributions to the Series 1999-1 Certificateholders.
The Trustee is the initial Paying Agent.
DEPOSITS IN COLLECTION ACCOUNT
The Seller and the Servicer have agreed in the Pooling Agreement (i) (A) to
cause all collections on the Receivables that may be sent by accountholders by
mail to be delivered to the Subservicer, (B) to cause the Subservicer to deposit
all such collections into a lockbox account within two Business Days of receipt
by the Subservicer, and (C) upon the occurrence of an early amortization event
with respect to any Certificate Series or Receivables Purchase Series, to cause
all such collections to be deposited into an account established for the deposit
of collections (the "Collection Account") within two Business Days of deposit of
such payment into a lockbox account; and (ii)(A) to cause all payments by
accountholders on account of a Receivable made by means of cash or check
delivered in person by such accountholder to an employee at any Fashion Bug
Store to be deposited into a deposit account established by such Fashion Bug
Store (a "Store Account") for the purpose of collecting such payments ("Store
Payments"), (B) to cause all such Store Payments to be deposited into a lockbox
account within two Business Days of deposit of such payments into a Store
Account, and (C) upon the occurrence of an early amortization event with respect
to any Certificate Series or Receivables Purchase Series, to cause all such
Store Payments to be deposited into the Collection Account within two Business
Days of deposit of such Store Payments into a lockbox account. Notwithstanding
the above, unless the Servicer has and maintains a certificate of deposit,
short-term deposit or commercial paper rating of P-1 by Moody's and of A-1+ by
Standard & Poor's or a commercial paper rating of A-1 by Standard & Poor's, and
a long-term unsecured debt obligation rating of at least Aa3 by Moody's and AA-
by Standard & Poor's, all amounts deposited into the lockbox account on any
Business Day will on the same Business Day be withdrawn from the lockbox account
and deposited into the Collection Account.
Throughout the existence of the Trust, unless otherwise stated in the
Pooling Agreement, in any Supplement or in any Receivables Purchase Agreement,
the Servicer will pay to the holder of the Exchangeable Seller Certificate an
amount equal to the sum of (i) the product of the Seller Percentage and the
aggregate amount of collections on Principal Receivables and Finance Charge
Receivables and (ii) any additional amounts that pursuant to the Supplements and
the Receivables Purchase Agreements are allocated to the holder of the
Exchangeable Seller Certificate. Collections of Finance Charge Receivables so
payable to the Seller as holder of the Exchangeable Seller Certificate may
instead under certain circumstances be paid to any other person then entitled to
such amount.
Collections of Receivables deposited into the Collection Account will not
include Insurance Proceeds and other amounts constituting Recoveries to the
extent that the aggregate Insurance Proceeds and other Recoveries received in
respect of Receivables during any Due Period exceed the Loss Amount for such Due
Period and any prior Due Periods, which excess will be distributed to the Seller
on the Distribution Date related to such Due Period. A
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collection processed on an Account in excess of the aggregate amount of
Receivables in such Account as of the date of receipt by the Originator, Seller,
Servicer or Trustee of such collection will be deemed to be a payment in respect
of Principal Receivables to the extent of such excess.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Certificate Series may be included in a group of Certificate Series.
Upon issuance of the Series 1999-1 Certificates, Group One will consist solely
of Series 1999-1, Series 1997-1 and Series 1994-2, the last of which is
scheduled to be paid in full and terminated on the May 1999 Distribution Date.
Each Certificate Series in Group One will be entitled to share Shared Excess
Finance Charge Collections in the manner, and to the extent, described below
with each other Certificate Series, if any, in Group One. All or some of the
subsequently issued Certificate Series may also be included in Group One.
Collections of Finance Charge Receivables and certain other amounts allocable to
the investor interest of any Certificate Series which is included in Group One
in excess of the amounts necessary to make required payments with respect to
such Certificate Series (including payments to any related Enhancement Provider)
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 Certificate Series included in Group One, pro rata based
upon the amount of the shortfall, if any, with respect to each other Certificate
Series in Group One, provided, however, that the sharing of Shared Excess
Finance Charge Collections among Certificate Series in Group One will continue
only until such time, if any, at which the Seller delivers to the Trustee a
certificate of an authorized officer to the effect that, in the reasonable
belief of the Seller or its counsel, the continued sharing of Shared Excess
Finance Charge Collections among Certificate Series in any Group would have
adverse regulatory implications with respect to the Seller or the Originator.
Following the delivery by the Seller of any such certificate to the Trustee
there will not be any further sharing of Shared Excess Finance Charge
Collections among the Certificate Series in Group One. In all cases, any Shared
Excess Finance Charge Collections remaining after covering shortfalls with
respect to all outstanding Certificate Series in Group One will be paid to the
holder of the Exchangeable Seller Certificate or any other person then entitled
to such amounts. While any Certificate Series may be included in Group One,
there can be no assurance that (i) any other Certificate Series will be included
in Group One, (ii) there will be any Shared Excess Finance Charge Collections
with respect to Group One for any Due Period, or (iii) the Seller will not at
any time deliver a certificate as described above. While the Seller believes
that, based upon applicable rules and regulations as currently in effect, the
sharing of Shared Excess Finance Charge Collections among Certificate Series in
Group One will not have adverse regulatory implications for it or the
Originator, there can be no assurance that this will continue to be true in the
future.
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables and certain other amounts for any Due
Period allocated to the investor interest of any Certificate Series in Group One
will first be used to cover certain amounts described in the related Supplements
(including any required deposits into a principal funding account or required
distributions to Investor Certificateholders of such Certificate Series). The
Servicer will determine the amount of collections of Principal Receivables for
any Due Period (plus certain other amounts required by the related Supplement)
allocated to each Certificate Series remaining after covering such required
deposits and distributions and any similar amount remaining for Certificate
Series in Group One that the applicable Supplements for such Series specify are
to be treated as "Shared Principal Collections" (collectively, "Shared Principal
Collections"), and will allocate the Shared Principal Collections to cover any
principal distributions to Investor Certificateholders and deposits to principal
funding accounts for any Certificate Series in Group One which are either
scheduled or permitted and which have not been covered out of the investor
principal collections and certain other amounts for such Certificate Series,
provided that the Supplement for such Certificate Series so provides ("Principal
Shortfalls"). If Principal Shortfalls exceed Shared Principal Collections for
any Due Period, Shared Principal Collections will be allocated pro rata among
the Certificate Series in Group One entitled to the benefits thereof based on
the respective Principal Shortfalls of such Certificate Series. To the extent
that Shared Principal Collections exceed Principal Shortfalls, the balance will
be allocated to the holder of the Exchangeable Seller Certificate, provided,
however, that such Shared Principal Collections will be distributed to the
holder of the Exchangeable Seller Certificate only to the extent the Seller
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Interest is greater than the Aggregate Minimum Seller Interest. Any such
reallocation of collections of Principal Receivables and other amounts will not
result in a reduction in the investor interest of the Certificate Series to
which such collections were initially allocated. There can be no assurance that
(i) any future Certificate Series will be included in Group One or (ii) there
will be any Shared Principal Collections with respect to Group One for any Due
Period.
EXCESS FUNDING ACCOUNT
If on any date the Seller Interest is less than the Aggregate Minimum
Seller Interest, the Servicer will not distribute to the holder of the
Exchangeable Seller Certificate any collections of Principal Receivables that
otherwise would be distributed to the holder of the Exchangeable Seller
Certificate, but will rather deposit such funds in a deposit account established
and maintained by the Servicer for the benefit of the Investor
Certificateholders of each Certificate Series entitled to the benefits thereof,
in the name of the Trustee, on behalf of the Trust, with the Trustee or a
Qualified Depository Institution and bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Investor
Certificateholders of each Certificate Series (the "Excess Funding Account").
Funds on deposit in the Excess Funding Account will be withdrawn and paid to the
holder of the Exchangeable Seller Certificate on any Distribution Date to the
extent that the Seller Interest exceeds the Aggregate Minimum Seller Interest on
such date; provided, however, that if an accumulation period, controlled
amortization period or early amortization period commences with respect to any
Certificate Series in Group One entitled to the benefits of Shared Principal
Collections, any funds on deposit in the Excess Funding Account will be released
and treated as Shared Principal Collections to the extent needed to cover
principal payments due to or for the benefit of such Certificate Series, if the
Supplement with respect to such Certificate Series so provides.
Funds on deposit 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) earned on amounts on deposit in
the Excess Funding Account during any Due Period will be withdrawn from the
Excess Funding Account and applied as collections of Finance Charge Receivables
with respect to such Due Period (allocable to the Certificate Series pro rata
based on the Investor/Purchaser Percentage of each Certificate Series until paid
in full).
LOSS AMOUNT; DILUTION AMOUNTS
"Defaulted Receivables" for any Due Period are Principal Receivables that
were charged off as uncollectible in such Due Period, or consistent with the
Cardholder Guidelines should have been written off as uncollectible in such Due
Period, in accordance with the Servicer's customary and usual servicing
procedures for servicing its consumer revolving credit account receivables.
The "Loss Amount" for any Due Period will be an amount (not less than zero)
equal to (a) the aggregate principal balance of Accounts, or any portion
thereof, which became Defaulted Receivables for such Due Period minus (b) the
aggregate amount of Recoveries received in such Due Period with respect to both
Finance Charge Receivables and Principal Receivables previously charged off as
uncollectible, or as otherwise defined in the applicable Series Supplement. The
current policy of the Seller is to charge off as uncollectible an account 180
days after a customer has failed to make the minimum payment due, unless the
Seller receives notice that (i) the accountholder is the subject of a bankruptcy
filing, (ii) the accountholder is deceased or imprisoned, or (iii) there has
been fraudulent activity in connection with such account, in which case the
Seller will charge off such account as soon as practicable but generally no
later than five business days after the Seller receives such notice.
The Servicer may adjust downward the amount of any Principal Receivable
(other than Ineligible Receivables which have been, or are to be, reassigned to
the Seller) because of a rebate, refund, chargeback, or error, or such Principal
Receivable was created as a result of a fraudulent or counterfeit charge or in
respect of merchandise which was refused or returned by an accountholder or as
to which the accountholder thereunder has asserted a counterclaim or defense, or
the Servicer otherwise adjusts downward the amount of any Principal Receivable
without receiving collections therefor or charging off such amount as
uncollectible. The aggregate amount of such reductions in Principal Receivables
for any Due Period is referred to herein as the "Dilution Amount" for such Due
Period.
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The Dilution Amount for any Due Period will be initially allocated to the
Seller Interest if and to the extent that as of the last day of such Due Period,
the Seller Interest is greater than the Aggregate Minimum Seller Interest, and
the aggregate amount of Principal Receivables used to calculate the Seller
Interest will be reduced by an amount equal to the Dilution Amount so allocated.
Any remaining Dilution Amount will be allocated to each Certificate Series
and Receivable Purchase Series based upon the percentage equivalent of a
fraction, the numerator of which is the adjusted investor interest or
Receivables purchase interest, as the case may be, for such Certificate Series
or Receivables Purchase Series as of the last day of the immediately preceding
Due Period and the denominator of which is the sum of the adjusted investor
interests and Receivables purchase interests for all Certificate Series and
Receivables Purchase Series outstanding, in each case as of the last day of the
immediately preceding Due Period.
The Dilution Amount so allocated to Series 1999-1(the "Series 1999-1
Dilution Amount"), will be allocated among each Class as described in
"Description of the Certificates--Loss Amount; Dilution Amounts; Investor
Charge-Offs."
If Available Funds, Reallocated Principal Collections, Excess Spread and
Shared Excess Finance Charge Collections allocated and available to make
payments on Series 1999-1 Certificates on any Distribution Date are insufficient
to cover the Series 1999-1 Dilution Amount on such Distribution Date, the
remaining Series 1999-1 Dilution Amount will be allocated to the Seller
Interest.
Because such allocation will cause the Seller Interest to be less than the
Aggregate Minimum Seller Interest, the Seller, on or prior to the Required
Designation Date, will be required to make a payment to the Trust in the amount
of such deficiency by (i) making a deposit in the Excess Funding Account in
immediately available funds, (ii) conveying Receivables arising in Additional
Accounts to the Trust, and/or (iii) instructing the Servicer to deposit (or
cause to be deposited) all or a portion of the Seller allocations in the Excess
Funding Account such that, upon such deposit or conveyance, the Seller Interest
will be at least equal to the Aggregate Minimum Seller Interest. See "--Addition
of Accounts." If the Seller fails to make all or a portion of such payment, the
unpaid portion thereof (the "Unfunded Seller Dilution Amount") shall cause an
Investor Charge-Off as described in "Description of the Certificates--Loss
Amount; Dilution Amounts; Investor Charge-Offs" above.
DISCOUNT OPTION
The Pooling Agreement provides that the Seller may at any time designate a
fixed or variable percentage of up to 4% (the "Discount Percentage") of the
amount of Principal 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"). Any Discount Option Receivables will be subtracted from the total
amount of Principal Receivables in the Trust Portfolio. The Seller must provide
30 days' prior written notice to the Servicer, the Trustee, each Purchaser
Representative, each Enhancement Provider, and each Rating Agency of any such
designation, and such designation will become effective on the date specified
therein only if (i) in the reasonable belief of the Seller such designation
would not cause an early amortization event to occur or an event which, with
notice or the lapse of time or both, would constitute an early amortization
event in either case with respect to any Certificate Series or Receivables
Purchase Series, and (ii) each Rating Agency confirms in writing that such
designation will not have a Ratings Effect on any outstanding Certificate
Series. On the date of processing of any collections, the product of the
Discount Percentage and collections of Receivables that arise in the Accounts on
such day on or after the date such option is exercised that otherwise would be
Principal Receivables will be deemed "Discount Option Receivables Collections."
An amount equal to the product of (i) the Investor/Purchaser Percentage with
respect to Finance Charge Receivables for each Certificate Series issued and
outstanding and (ii) the amount of such Discount Option Receivables Collections
will be deposited by the Seller into the Collection Account and an amount equal
to the product of (iii) the Seller Percentage and (iv) the amount of the
Discount Option Receivables Collections will be paid to the holder of the
Exchangeable Seller Certificate. The former amount deposited into the Collection
Account will be deemed collections of Finance Charge Receivables and applied as
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provided above under "-- Application of Collections -- Available Funds"
regarding distribution of Finance Charge Receivables.
DEFEASANCE
Pursuant to the Pooling Agreement, the Seller and any affiliate of the
Seller that is a holder of the Exchangeable Seller Certificate may, at the
Seller's option, terminate its substantive obligations under the Pooling
Agreement in respect of a Certificate Series, including Series 1999-1 (the
"Defeased Series"), by depositing with the Trustee, under the terms of an
irrevocable trust agreement satisfactory to the Trustee, from amounts
representing or acquired with collections on the Receivables (allocable to the
Defeased Series and available to purchase additional Receivables) monies or
Permitted Investments sufficient to make all remaining scheduled interest and
principal payments on the Defeased Series on the dates scheduled for such
payments and to pay all amounts owing to any Enhancement Provider with respect
thereto. To achieve that end, the Seller has the right to use collections on
Receivables to purchase Permitted Investments rather than additional
Receivables. Prior to its first exercise of its right to substitute monies or
Permitted Investments for Receivables, the Seller must deliver to the Trustee an
opinion of tax counsel that such deposit and termination of obligations will not
adversely affect the federal income tax characterization of investor
certificates of any outstanding Certificate Series that were characterized as
debt at the time of their issuance, and to the Servicer and the Trustee written
notice from each Rating Agency that such transaction will not have a Ratings
Effect. In addition, the Seller must comply with certain other requirements set
forth in the Pooling Agreement, including requirements that the Seller 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" with the meaning of the Investment Company Act of 1940, as
amended, and that the Seller deliver to the Trustee and each Enhancement
Provider a certificate of an authorized officer stating that, based on the facts
known to such officer at the time, in the reasonable opinion of the Seller, such
deposit and termination of obligations will not at the time of its occurrence
cause an early amortization event or an event that, after the giving of notice
or the lapse of time, would constitute an early amortization event, to occur
with respect to any Certificate Series or Receivable Purchase Series. If the
Seller discharges its substantive obligations in respect of the Defeased Series,
any Enhancement for the affected Certificate Series might no longer be available
to make payments with respect thereto.
OPTIONAL REPURCHASE; FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Series 1999-1 Certificates will be subject to optional repurchase by
the Seller on any Distribution Date on or after the Distribution Date on which
the Series 1999-1 Investor Interest is reduced to an amount less than or equal
to 10% of the Series 1999-1 Initial Investor Interest, if the Seller deposits
into the Collection Account, not later than such Distribution Date, for final
payment on the Series 1999-1 Certificates, an amount equal to the sum of the
Series 1999-1 Investor Interest plus accrued and unpaid interest on the Series
1999-1 Certificates through the day preceding the Distribution Date on which the
optional repurchase occurs. The Series 1999-1 Certificates will be retired on
the day following the Distribution Date on which the final payment of principal
is made to the Series 1999-1 Certificateholders, whether as a result of optional
repurchase by the Seller or otherwise. The investor interest of each Certificate
Series which is redeemed by the Trust, and of each Receivables purchase interest
which is repurchased by the Trust, will, for purposes of the definition of
"Seller Interest," be deemed to be equal to zero on the Distribution Date
following the making of the deposit, and the Seller Interest will thereupon be
deemed to have been increased by the investor interest of such Certificate
Series or repurchased Receivables purchase interest.
Unless the Servicer and the holder of the Exchangeable Seller Certificate
instruct the Trustee otherwise, the Trust will terminate on the earlier of (a)
the day following the last Distribution Date in the Due Period during which the
proceeds of the sale, disposition or liquidation of Receivables required
pursuant to the Pooling Agreement upon the occurrence of certain Insolvency
Events with respect to the Originator or the Seller have been distributed to the
Investor Certificateholders and Receivables Purchasers, unless the Investor
Certificateholders, Enhancement Providers and Purchaser Representatives provide
otherwise as described under "Description of the Certificates--Early
Amortization Events," (b) the day after the Distribution Date with respect to
any Certificate Series or Receivables Purchase Series following the date on
which funds have been deposited in the Collection Account for the payment to
certificateholders of each Certificate Series outstanding sufficient to pay in
full the aggregate investor
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interest of all Certificate Series outstanding plus interest thereon at the
applicable certificate rates through the end of the related Due Period (and
including any Enhancement Invested Amount and unreimbursed Loss Amounts and
Dilution Amounts) and all amounts required to be paid with respect to all
Receivables Purchase Series have been paid, and (c) December 24, 2007. Upon the
termination of the Trust and the surrender of the Exchangeable Seller
Certificate, the Trustee will convey to the holder of the Exchangeable Seller
Certificate all right, title and interest of the Trust in and to the Receivables
and other funds of the Trust (other than funds on deposit in bank accounts of
the Trust designated under any Certificate Series).
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses will take the form of the payment to it of a monthly servicing
fee. The monthly servicing fee will be allocated between the Seller Interest and
the investor interest for all Certificate Series and Receivables Purchase Series
(including Series 1999-1). The portion of the monthly servicing payable by
Series 1999-1 for each month to the Servicer on each Distribution Date will be
funded from collections of Finance Charge Receivables allocated to Series
1999-1, and will be paid each month from the amount so allocated and on deposit
in the Collection Account. The portion of the Investor Servicing Fee to be paid
by Series 1999-1 Certificateholders is described under "Description of the
Certificates--Servicing Fees" above. The remainder of the servicing fee will be
allocable to the Seller Interest and the investor interests of other Certificate
Series and Receivables Purchase Series. Neither the Trust nor the Series 1999-1
Certificateholders will have any obligation to pay the portion of the servicing
fee allocable to the Seller Interest or any other Certificate Series or
Receivables Purchase Series.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and the
Subservicer and independent public accountants and other fees which are not
expressly stated in the Pooling Agreement to be payable by the Trust or the
Series 1999-1 Certificateholders or the Investor Certificateholders of any other
Certificate Series or the Receivables Purchasers other than federal, state and
local income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE SELLER AND THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling Agreement, except upon determination that performance of its duties is
no longer permissible under applicable law, and that there is no reasonable
action which the Servicer could take to make the performance of its duties
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Pooling Agreement. Spirit of America,
Inc. as Servicer, has delegated some of its servicing duties to the Subservicer;
however, such delegation will not relieve it of its obligation to perform such
duties in accordance with the Pooling Agreement.
The Pooling Agreement provides that the Servicer will indemnify the Trust
and the Trustee, its officers, directors, employees and agents, from and against
any loss, liability, expense, damage or injury suffered or sustained by reason
of any acts or omissions or alleged acts or omissions of the Servicer with
respect to the activities of the Trust or the Trustee; provided, however, that
the Servicer will not indemnify (a) the Trustee for liabilities imposed by
reason of fraud, gross negligence, or willful misconduct by the Trustee, (b) the
Trust, the Series 1999-1 Certificateholders or the Certificate Owners for
liabilities arising from actions taken by the Trustee at the request of Series
1999-1 Certificateholders (which costs, expenses or other liabilities will be
the expense of the Series 1999-1 Certificateholders or Certificate Owners, as
applicable), (c) the Trust for any liabilities, costs or expenses of the Trust
with respect to any action taken by the Trustee at the request of any other
Investor Certificateholders, or any Receivables Purchasers or any Purchaser
Representative (which costs, expenses or other liabilities will be the expense
of such other Investor Certificateholders, Receivables Purchasers or Purchaser
Representative, as applicable), or (d) the Trust or the Trustee for any
liabilities, costs or expenses of the Trust arising under any tax law, including
without limitation, any federal, state or local income or franchise tax or any
other tax imposed on or measured by income (or any interest or penalties with
respect thereto or arising from a failure to comply therewith)
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required to be paid by the Trust in connection with the Pooling Agreement to any
taxing authority. Any such indemnification will not be payable from the assets
of the Trust.
In addition, the Pooling Agreement provides that, subject to certain
exceptions, the Seller will indemnify the Trust and the Trustee, its officers,
directors, employees and agents, from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of any acts or omissions or
alleged acts or omissions arising out of or based upon the arrangement created
by the Pooling Agreement, any Supplement or any Receivables Purchase Agreement
arising out of any third-party action, claim, suit or proceeding, including in
connection with the defense of any actual or threatened claim that the Pooling
Agreement created a partnership under the New York Uniform Partnership Law in
which the Seller is a general partner. Notwithstanding the foregoing, the Seller
will not indemnify (a) the Trustee if such acts, omissions or alleged acts or
omissions constitute or are caused by fraud, gross negligence, or willful
misconduct by the Trustee, (b) the Trust or the Trustee for any liabilities,
costs or expenses with respect to any action taken by the Trustee at the request
of the Investor Certificateholders or Receivables Purchasers, and (c) the Trust
or the Trustee for any liabilities, costs or expenses of the Trust or the
Trustee arising under any tax law, including without limitation any federal,
state, local or foreign income or franchise taxes or any other tax imposed on or
measured by income (or any interest or penalties with respect thereto or arising
from a failure to comply therewith) required to be paid by the Trust in
connection herewith to any taxing authority. Any such indemnification will not
be payable from the assets of the Trust.
The Pooling Agreement provides that neither the Seller nor the Servicer nor
any of their respective directors, officers, employees or agents will be under
any other liability to the Trust, the Trustee, the Series 1999-1
Certificateholders, any Enhancement Provider, any Receivables Purchaser or any
other person for any action taken, or for refraining from taking any action, in
good faith pursuant to the Pooling Agreement. Neither the Seller, the Servicer,
nor any of their respective directors, officers, employees or agents will be
protected against any liability which would otherwise be imposed by reason of
willful misconduct, bad faith or gross negligence of the Seller, the Servicer or
any such person in the performance of its duties or, with respect to the
Servicer and its directors, officers, employees or agents, by reason of reckless
disregard of obligations and duties thereunder. In addition, the Pooling
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 Agreement and which in its opinion only
exposes it to any expense or liability.
The Pooling Agreement provides that, except for Exchanges, the Exchangeable
Seller Certificate or any interest therein may not be transferred to any person
(other than the Seller or any of its affiliates) unless the Seller has consented
in writing to such transfer, and the Trustee has received a written opinion of
counsel to the effect that for United States federal income tax purposes such
action will not adversely affect the federal income tax characterization of the
certificates of any outstanding Certificate Series.
Any person into which, in accordance with the Pooling Agreement, the Seller
or the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Seller or the Servicer is a party, or any
person succeeding to the business of the Seller or the Servicer, upon execution
of a supplement to the Pooling Agreement and delivery of an opinion of counsel
with respect to the compliance of the transaction with the applicable provisions
of the Pooling Agreement, will be the successor to the Seller or the Servicer,
as the case may be, under the Pooling Agreement.
SERVICER DEFAULT
If any Servicer Default occurs and is continuing, (i) the Trustee or (ii)
Investor Certificateholders and Purchaser Representatives representing undivided
Trust interests aggregating more than 66 2/3% of an amount (the "Aggregate
Investor Purchaser Interest") equal to the sum of the aggregate investor
interests for all outstanding Certificate Series, the aggregate Enhancement
Invested Amounts (if any) and the aggregate amount of receivables purchase
interests of all outstanding Receivables Purchase Series, by written notice to
the Servicer and each Purchaser Representative (and to the Trustee if given by
the Investor Certificateholders or the Purchaser Representatives), may terminate
all of the rights and obligations of the Servicer as Servicer under the Pooling
Agreement and the Trustee
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may appoint a new Servicer (a "Servicer Transfer"). The rights and interest of
the Seller under the Pooling Agreement will not be affected by such Termination.
The Trustee will as promptly as possible appoint a successor Servicer. Any
successor Servicer may not be an affiliate of any Purchaser Representative so
long as any Certificate Series is outstanding. If no such Servicer has been
appointed 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 Agreement will pass to and be vested in the Trustee. 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
Servicer Default which gave rise to a transfer of servicing, and if the Trustee
is legally unable to act as successor Servicer, then the Trustee will notify
each Investor Certificateholder, Purchaser Representative and Enhancement
Provider of the proposed sale of Receivables, and will provide each Receivables
Purchaser and Enhancement Provider with an opportunity to bid on the
Receivables, and will offer the Seller a right of first refusal to purchase the
Receivables on terms equivalent to the best purchase Offer. The purchase price
for the Receivables may not be less than an amount equal to the Aggregate
Investor Purchaser Interest on the date of such purchase (including any Loss
Amounts and Dilution Amounts required to be reimbursed pursuant to any
Supplement or Receivables Purchase Agreement), plus all accrued and unpaid
interest on all outstanding certificates and receivables purchase interests, and
all unpaid fees and expenses under any Supplement or Receivables Purchase
Agreement.
A "Servicer Default" means any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit,
or to give instructions or notice to the Trustee to make certain payments,
transfers or deposits, or to instruct the Trustee to make any required
drawing, withdrawal or payment under any Enhancement, in each case within
one Business Day after the date of the receipt by the Servicer of written
notice from the Trustee or any Purchaser Representative that such payment,
transfer, deposit, withdrawal or drawing or such instruction or notice is
required to be made or given, as the case may be, under the Pooling
Agreement, any Supplement or any Receivables Purchase Agreement;
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer set forth in
the Pooling Agreement, any Supplement or any Receivables Purchase Agreement
which has a material adverse effect on (i) the Servicer's ability to
collect the Receivables or otherwise perform its obligations under the
Pooling Agreement, any Supplement or any Receivables Purchase Agreement or
(ii) the collectibility or value of the Receivables, and which continues
unremedied for a period of 45 days after written notice of such failure,
requiring the same to be remedied, has been given to the Servicer by the
Trustee, any Enhancement Provider, or any Purchaser Representative, or to
the Servicer and the Trustee by Investor Certificateholders whose investor
certificates evidence not less than 25% of the investor interest of any
Certificate Series, or an Enhancement Provider, and which material adverse
effect continues for such period; or the delegation by the Servicer of its
duties under the Pooling Agreement, except as specifically permitted
thereunder;
(c) any representation, warranty or certification made by the Servicer
in the Pooling Agreement, any Supplement or any Receivables Purchase
Agreement, or in any certificate delivered pursuant to any of the
foregoing, proves to have been incorrect when made which has a material
adverse effect on (i) the Servicer's ability to collect the Receivables or
otherwise perform its obligations under the Pooling Agreement, any
Supplement or any Receivables Purchase Agreement or (ii) the collectibility
or value of the Receivables, and which continues to be incorrect in any
material respect for a period of 45 days after written notice of such
failure, requiring the same to be remedied, has been given to the Servicer
by the Trustee, any Enhancement Provider, or any Purchaser Representative,
or to the Servicer and the Trustee by Investor Certificateholders whose
investor certificates evidence not less than 25% of the investor interest
of any Certificate Series, or an Enhancement Provider, and which material
adverse effect continues for such period; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (a) above for a period of 10 Business Days, or referred to
under clause (b) or (c) for a cumulative period of 60 business days, will not
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constitute a Servicer Default if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Servicer and such delay or failure
was caused by certain natural and man-made disasters. In addition, if there is a
Total Systems Failure, the Distribution Date may be postponed for not more than
10 Business Days. A "Total Systems Failure" means a total failure of the
computer system (including off-site backup systems) of the Servicer or the
Subservicer that contains records relating to the Receivables, the effect of
which would make it impossible or impracticable for the Servicer or the
Subservicer to perform the acts required to be performed on or in anticipation
of a Distribution Date. Upon the occurrence of any of the foregoing events, the
Servicer will not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling
Agreement, and the Servicer will provide the Trustee, any Enhancement Provider,
and each Purchaser Representative prompt notice of such failure or delay by it,
together with a description of the cause of such failure or delay and its
efforts to perform its obligations.
In the event of a Servicer Default, if a conservator or receiver is
appointed for the Servicer and no Servicer Default other than such
conservatorship or receivership or the insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
required percentage of the Investor Certificateholders and Receivables
Purchasers from effecting a Servicer Transfer.
REPORTS TO SERIES 1999-1 CERTIFICATEHOLDERS
On each Distribution Date, the paying agent (appointed under the Pooling
Agreement, and who will initially be the Trustee, the "Paying Agent") will
forward to each Series 1999-1 Certificateholder and each Rating Agency a
statement prepared by the Servicer setting forth, among other things: (a) the
amount of the distribution on such Distribution Date allocable to principal on
the Series 1999-1 Certificates, (b) the amount of such distribution allocable to
interest on the Series 1999-1 Certificates, (c) the amount of collections of
Principal Receivables and Finance Charge Receivables processed during the
preceding Due Period and the amount allocated in respect of the Series 1999-1
Certificates, (d) the Series 1999-1 Investor Interest, the investor interests
for each class of Series 1999-1, and various of the allocation percentages
described under "Description of the Certificates - Allocation Percentages", (e)
the aggregate outstanding balance of Accounts which were 30 to 59, 60 to 89, 90
to 119, and 120 or more days past due as of the end of the last day of the
preceding Due Period, (f) the Series 1999-1 Investor Loss Amount and the Series
1999-1 Investor Dilution Amount, and the amounts thereof allocated to each class
of Series 1999-1 for the preceding Due Period, (g) the amount of Charge-Offs,
the amount thereof allocated to each class of Series 1999-1 for the preceding
Due Period, the amount of reimbursements of previous Charge-Offs for the
preceding Distribution Date and the aggregate amount of unreimbursed Investor
Charge-Offs incurred because of Unfunded Seller Dilution Amounts, (h) the amount
of the Investor Servicing Fee, and amount allocated to each class of Series
1999-1, for the preceding Due Period, (i) the Reallocated Principal Collections,
and amounts allocated to the Class B Certificates, the Class C Certificates and
the Class D Certificate, (j) the Portfolio Yield for the preceding Due Period,
(k) LIBOR on such Distribution Date, and (l) the Available Funds allocable to
each class of Series 1999-1.
On or before January 31 of each calendar year, beginning in the year 2000,
the Trustee will furnish to each person who at any time during the preceding
calendar year was an Offered Certificateholder of record a statement prepared by
the Servicer containing the information required to be contained in the regular
monthly report to Offered Certificateholders, as set forth in clauses (a) and
(b) of the foregoing paragraph, aggregated for such calendar year or the
applicable portion thereof during which such person was a Series 1999-1
Certificateholder, together with such other customary information (consistent
with the treatment of the Offered Certificates as debt) as the Servicer deems
necessary or desirable to enable the Offered Certificateholders to prepare their
tax returns.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that on or before May 30 of each calendar
year the Servicer will cause a firm of independent certified public accountants
(who may also render other services to the Servicer, the Seller and the
Originator) to furnish a report to the Trustee to the effect that such
accounting firm has made a study and evaluation of the Servicer's internal
accounting controls relative to the servicing of the Accounts for the prior
calendar year and
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that, on the basis of such examination, such firm is of the opinion that,
assuming the accuracy of reports by the Servicer's third party agents, the
system of internal accounting controls in effect on the date of such statement
relating to servicing procedures performed by the Servicer, taken as a whole,
was sufficient for the prevention and detection of errors in amounts that would
be material to the financial statements of Charming Shoppes or the assets of the
Trust and that such servicing was conducted in compliance with the sections of
the Pooling Agreement with which the independent certified public accountants
possess adequate professional knowledge and which are reasonably subject to
positive assurance by them, except for such exceptions or errors as such firm
believes to be immaterial and such other exceptions as are set forth in such
statement. A copy of such report may be obtained by any Investor
Certificateholder upon written request to the Trustee.
The Pooling Agreement provides for delivery to the Trustee on or before May
30 of each calendar year, of an annual statement signed by an officer of the
Servicer to the effect that, to the best of such officer's knowledge, the
Servicer has fully performed its obligations under the Pooling Agreement
throughout the preceding year, or, if there has been a default in the
performance of any such obligation, specifying the nature and status of the
default.
AMENDMENTS
The Pooling Agreement and any Supplement (including the Series 1999-1
Supplement) may be amended in writing by the Seller, the Servicer, the holder of
the Exchangeable Seller Certificate and the Trustee, upon 10 Business Days'
notice to each Purchaser Representative (along with a copy of the form of the
proposed amendment), without the consent of Investor Certificateholders of any
Certificate Series then outstanding or any Purchaser Representative or
Receivables Purchaser, for any purpose; provided, that (a) (i) the Seller
delivers an opinion of counsel acceptable to the Trustee and each Purchaser
Representative to the effect that such amendment will not adversely affect in
any material respect the interest of any Investor Certificateholder, any
Receivables Purchaser, or any Enhancement Provider, and (ii) such amendment will
not have a Ratings Effect on any outstanding Certificate Series or (b) such
amendment is to the Series 1999-1 Supplement and is made to conform the terms of
such Supplement to the terms described in this Prospectus.
The Pooling Agreement and any Supplement may be amended by the Seller, the
Servicer, the holder of the Exchangeable Seller Certificate and the Trustee upon
10 Business Days' notice to each Purchaser Representative (along with a copy of
the form of the proposed amendment) with the consent of Investor
Certificateholders holding investor certificates evidencing undivided Trust
interests aggregating not less than 66 2/3% of the investor interests of each
Certificate Series adversely affected by such amendment, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of the Pooling Agreement or any Supplement or modifying in any manner
the rights of Investor Certificateholders of any then outstanding Certificate
Series; provided, that if any such amendment adversely affects any Receivables
Purchase Series, such amendment will require the consent of the related
Purchaser Representative. No such amendment, however, may (a) reduce in any
manner the amount of, or delay the timing of, distributions required to be made
on any such Certificate Series, (b) change the definition of or the manner of
calculating the interest, the Loss Amount or the Investor/Purchaser Percentage
of any Investor Certificateholder of such Certificate Series, or (c) reduce the
aforesaid percentage of undivided interests the holders of which are required to
consent to any such amendment, in each case without the consent of all Investor
Certificateholders of all Certificate Series adversely affected. Promptly
following the execution of any amendment to the Pooling Agreement or any
Supplement, the Servicer will furnish written notice of the substance of such
amendment to each Investor Certificateholder of each Certificate Series
adversely affected thereby, as well as to each Enhancement Provider, each Rating
Agency and each Purchaser Representative. Any Supplement or Receivables Purchase
Agreement entered into in accordance with the terms of the Pooling Agreement,
and any amendments regarding the addition or removal of Receivables from the
Trust will not be considered an amendment requiring Investor Certificateholder
consent under the provisions of the Pooling Agreement and any Supplement.
In addition, the Pooling Agreement or any Supplement may also be amended in
writing from time to time by the Servicer, the Seller, the holder of the
Exchangeable Seller Certificate and the Trustee upon 10 Business Days' notice to
each Purchaser Representative (along with a copy of the form of the proposed
amendment), without the consent of any Purchaser Representative, Investor
Certificateholder or Receivables Purchaser, if the Seller provides the Trustee
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with: (i) an opinion of counsel to the effect that such amendment or
modification would (A) permit the Trust or a relevant portion thereof to be
treated as a FASIT, and (B)(1) would not cause the Trust to be classified, for
United States Federal income tax purposes, as an association (or publicly traded
partnership) taxable as a corporation, and (2) would not cause or constitute an
event in which gain or loss would be recognized by any Investor
Certificateholder; (ii) a certificate that such amendment or modification would
not materially and adversely affect any Investor Certificateholder, Receivables
Purchaser or any Enhancement Provider; provided that no such amendment will be
deemed effective without the Trustee's consent, if the Trustee's rights, duties
and obligations thereunder are thereby modified; and (iii) evidence of that
there would be no Ratings Effect as to the investor certificates of any
Certificate Series.
LIST OF INVESTOR CERTIFICATEHOLDERS
Upon written request of Series 1999-1 Certificateholders of record
representing undivided interests in the Trust aggregating not less than 10% of
the Series 1999-1 Investor Interest, the Trustee, after having been adequately
indemnified by such Investor Certificateholders for its costs and expenses, and
having given the Servicer notice that such request has been made, will afford
such Investor Certificateholders access during business hours to the current
list of Investor Certificateholders of the Trust for purposes of communicating
with other Investor Certificateholders with respect to their rights under the
Pooling Agreement. See "--Book-Entry Registration" and "--Definitive
Certificates" above.
THE TRUSTEE
First Union National Bank is the Trustee under the Pooling Agreement. The
Corporate Trust Department of First Union National Bank is located at 123 S.
Broad Street, Philadelphia, Pennsylvania 19109, telephone number (215) 985-7585.
The Seller, the Servicer and their respective affiliates may from time to time
enter into normal banking and trustee relationships with the Trustee and its
affiliates. The Trustee, the Seller, the Servicer and any of their respective
affiliates may hold Series 1999-1 Certificates in their own names. In addition,
for purposes of meeting the legal requirements of certain local jurisdictions,
the Trustee will have the power to appoint a co-trustee or separate trustees of
all or any part of the Trust. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Pooling Agreement will be conferred or imposed upon the Trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Trustee is incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee, who will 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 Servicer 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 Agreement or if the Trustee becomes insolvent. In such circumstances,
the Seller or the Servicer will be obligated to appoint a successor Trustee. 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.
DESCRIPTION OF THE PURCHASE AGREEMENT
RESTRUCTURING OF TRUST
Upon formation of the Trust pursuant to the Pooling and Servicing Agreement
(the "Prior Pooling Agreement") dated as of December 24, 1992 (the "Initial
Closing Date"), the Originator conveyed to the Trust, without recourse (except
as expressly provided in the Prior Pooling Agreement), all of its right, title
and interest in and to (i) the Receivables then existing and thereafter created
and arising from time to time in connection with the Accounts, until the
termination of the Trust, and (ii) the following assets with respect thereto
(collectively, the "Related Assets"): all monies due or to become due with
respect thereto, all amounts received in respect thereof, all Recoveries
(including all Insurance Proceeds) relating to such Receivables, all rights,
remedies, powers and privileges with respect to the Receivables, and all
proceeds of the foregoing.
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In November of 1997, the current Pooling Agreement was executed to, among
other things, cause transfers from the Originator to be made initially to the
Seller rather than the Trust. In connection with such restructuring, the
Originator conveyed to the Seller pursuant to the Purchase Agreement, without
recourse (except as expressly provided in the Purchase Agreement), all of the
Originator's right, title and interest in and to (i) the Receivables then
existing and arising from the Accounts, all Related Assets with respect thereto
(subject, in each case, to the prior rights of the Trust therein pursuant to the
Prior Pooling Agreement), the Exchangeable Seller Certificate, and all of its
right, title and interest in its capacity as seller (but not as servicer) under
the Prior Pooling Agreement (collectively, the "Existing Assets"), and (ii) all
Receivables then existing and arising from time to time from the Accounts and
Related Assets with respect thereto (other than the Existing Assets), other than
Principal Receivables originated after the Purchase Termination Date or the
occurrence of certain Insolvency Events with respect to the Seller.
In connection with such conveyance to the Seller, the Originator has filed
such financing statements and has agreed to file continuation statements with
respect thereto as are necessary to perfect the conveyance to the Seller of the
Receivables then existing and thereafter created and the first priority nature
of the Seller's interest therein. In addition, the Originator has (a) indicated
in its computerized pool index file (identifying revolving credit card accounts
of the Originator) that Receivables created in connection with the Accounts have
been conveyed to the Seller pursuant to the Purchase Agreement and conveyed by
the Seller to the Trustee pursuant to the Pooling Agreement, and (b) delivered
to the Seller and the Trustee a computer file or microfiche or written list
containing a true and complete list of all such Accounts, identified by account
number, obligor name and address, and setting forth the Receivables balance as
of a specified date. The Originator has agreed not to alter its pool index file
with respect to any Account during the term of the Purchase Agreement unless and
until such Account becomes a Removed Account.
The Originator and the Seller intend under the Purchase Agreement that if,
and to the extent that, such conveyance of assets pursuant to the Purchase
Agreement is not deemed to be a sale of such assets, then the Originator will
deemed thereunder to have granted to the Seller a first priority perfected
security interest in all of the Originator's right, title and interest in, to
and under the Receivables then existing and thereafter created and arising from
time to time in connection with the Accounts, all monies due or to become due
with respect thereto, all amounts received in respect of the Receivables, all
Recoveries, all rights, remedies, powers and privileges with respect to the
Receivables, and all proceeds of the foregoing.
PURCHASE PRICE FOR RECEIVABLES
The purchase price for each Receivable (and the Related Assets with respect
thereto) conveyed to the Seller will be calculated to provide the Originator
with a reasonable return on the sale of such Receivable.
On each Distribution Date, the Originator and the Seller settle as to the
purchase price for Receivables and Related Assets conveyed to the Seller during
the related Due Period. If, on any Distribution Date, the amount of cash
available to the Seller to pay the purchase price owed to the Originator on that
day is less than such purchase price, then the Seller will account for such
amount on its books and records as deferred purchase price payable to the
Originator. Such deferred purchase price, along with any accrued interest
thereon will be paid on the next Distribution Date on which the Seller has cash
available prior to any payment with respect to Receivables conveyed to the
Seller during the Due Period related to such Distribution Date. The Seller will
pay interest on the deferred purchase price outstanding from time to time under
the Purchase Agreement at a variable rate per annum equal to the rate of
interest published in The Wall Street Journal as the "prime rate" as of the last
Business Day of the most recent Due Period. Such interest will be computed on
the basis of the actual number of days elapsed and a 365-day year.
With respect to each Due Period, the purchase price that otherwise would be
paid to the Originator with respect to Receivables subsequently generated by the
Originator will be decreased by an amount equal to the Dilution Amount. If any
decrease is required in the purchase price with respect to subsequently
generated Receivables pursuant to the preceding sentence at any time (i) when an
Early Amortization Event exists or (ii) on or after the
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Purchase Termination Date, then, in lieu of such reduction, the amount by which
the purchase price due to the Originator should have been so reduced will be
deposited by the Originator in same day funds into the Collection Account for
application by the Servicer to the same extent as if collections of the
applicable Receivable in such amount had actually been received on such date.
REPRESENTATIONS AND WARRANTIES
The Originator will represent and warrant to the Seller as of the Initial
Closing Date and as of the Closing Date that, among other things, (a) the
Originator is a national banking association duly organized and validly existing
under the laws of the United States of America and has full corporate power,
authority and legal right to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted, and to
execute, deliver and perform its obligations under the Purchase Agreement and
each other Transaction Document to which it is a party; (b) the execution and
delivery by the Originator of the Purchase Agreement and each other Transaction
Document to which it is a party and the consummation of the transactions
provided for thereunder have been duly authorized by the Originator by all
necessary corporate action, and the Purchase Agreement and each other
Transaction Document will remain, from the time of its execution, an official
record of the Originator, and will constitute a legal, valid and binding
obligation of the Originator, enforceable against the Originator in accordance
with its terms, except as such enforceability may be limited by applicable
Debtor Relief Laws; (c) the execution, delivery and performance by the
Originator of the Purchase Agreement and each other Transaction Document will
not conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any indenture, contract, agreement, mortgage, deed of trust, or
other instrument to which the Originator is a party or by which it or any of its
properties are bound, and will not conflict with or violate in any material
respect any legal requirements applicable to the Originator; (d) all appraisals,
authorizations, consents, orders or other actions of any person or of any
governmental body or official required in connection with the execution,
delivery and performance by the Originator of the Purchase Agreement and each
other Transaction Document have been obtained; (e) as of the Initial Cut Off
Date (or in the case of an Additional Account, the applicable cut off date
therefor (the "Addition Cut Off Date")), each Account was an Eligible Account
and no selection procedures adverse to Investor Certificateholders (including
Series 1999-1 Certificateholders) or Receivables Purchasers have been employed
by the Originator in selecting the Accounts from among the Eligible Accounts in
the Originator's credit card account portfolio; (f) as of the Initial Closing
Date and as of the Closing Date, deposits in the Originator's deposit accounts
were insured to the limits provided by law by the Bank Insurance Fund
administered by the FDIC; and (g) the Originator is not insolvent and no
Insolvency Event with respect to the Originator has occurred, and the transfer
of Receivables by the Originator has not been made in anticipation of any such
insolvency or Insolvency Event. "Insolvency Event" means the occurrence of
certain events of bankruptcy, insolvency or receivership, subject to grace
periods in the case of involuntary events.
In addition, the Originator will represent and warrant to the Seller as of
the Initial Closing Date, as of the Closing Date, and with respect to any
Additional Accounts as of the related Addition Date, that the Purchase Agreement
constitutes either (a) a valid sale to the Seller of all right, title and
interest of the Originator in and to the Receivables then existing and
thereafter created and arising from time to time in connection with the
Accounts, all monies due or to become due with respect thereto, all amounts
received in respect of the Receivables, all Recoveries, all rights, remedies,
powers and privileges with respect to the Receivables, and all proceeds of the
foregoing, and such property will be held by the Seller free and clear of any
Lien of any person claiming through or under the Originator or any of its
affiliates, or (b) a grant of a security interest (as defined in the UCC as in
effect in any applicable jurisdiction) in such property to the Seller, which is
enforceable with respect to the Receivables then existing and thereafter created
and arising from time to time in connection with the Accounts, all monies due or
to become due with respect thereto, all amounts received in respect of the
Receivables, all Recoveries, all rights, remedies, powers and privileges with
respect to the Receivables, and all proceeds of the foregoing, upon such
creation. The Originator will further represent and warrant that to the extent
the Purchase Agreement constitutes the grant of a security interest to the
Seller in such property, the Seller has a first priority perfected security
interest in such property (subject to applicable provisions of the UCC relating
to perfected security interests in proceeds). See "Certain Legal Aspects of the
Receivables" and "Risk Factors."
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The Originator will further represent and warrant to the Seller as of the
Initial Closing Date, as of the Closing Date, and with respect to any Additional
Accounts as of the related Addition Date, that (a) each Receivable then existing
has been conveyed to the Seller free and clear of any Lien of any person
claiming through or under the Originator or any of its affiliates and in
compliance, in all material respects, with all legal requirements applicable to
the Originator; (b) with respect to each Receivable, all consents, licenses,
approvals or authorizations of or registrations or declarations with any
governmental authority required to be obtained, effected or given by the
Originator in connection with the conveyance of such Receivable to the Seller
have been duly obtained, effected or given and are in full force and effect; (c)
on each day on which any new Receivable is created, that (i) each Receivable
created on such day is an Eligible Receivable, (ii) each Receivable created on
such day has been conveyed to the Purchaser in compliance, in all material
respects, with all legal requirements applicable to the Originator, (iii) with
respect to each such Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with, any governmental
authority required to be obtained, effected or given by the Originator in
connection with the conveyance of such Receivable to the Seller have been duly
obtained, effected or given and are in full force and effect, and (iv) the
representations and warranties set forth in the preceding paragraph are true and
correct with respect to each Receivable created on such day as if made on such
day; and (d) as of the Initial Cut Off Date, and with respect to Additional
Accounts as of the related Addition Cut Off Date, the schedules to the Purchase
Agreement and the related computer file or microfiche or written list delivered
to Seller in connection therewith is an accurate and complete listing in all
material respects of all of the Accounts, and the information contained therein
with respect to the identity of such Accounts and the Receivables existing
thereunder is true and correct in all material respects as of the Initial Cut
Off Date or such applicable Addition Cut Off Date.
The foregoing representations and warranties of the Originator under the
Purchase Agreement are substantially similar to the representations and
warranties that will be made by the Seller to the Trust under the terms of the
Pooling Agreement. If the Seller has an obligation under the Pooling Agreement
to remove Receivables for breaches of certain of its representations and
warranties with respect thereto, or in some cases to accept reassignment of the
entire Trust Portfolio, the Originator will have a corresponding obligation
under the Purchase Agreement to accept the reassignment of such Receivables or
reassignment of the entire Trust Portfolio, as the case may be. In each such
case, this will constitute the Seller's sole remedy in the event of a breach by
the Originator of such representations and warranties. See "The Pooling
Agreement -- Representations and Warranties." If any Receivables (but less than
the entire Trust Portfolio) are to be reassigned to the Originator, the
Originator will pay to the Seller an amount equal to the outstanding unpaid
balance for the Receivable so reassigned. The Originator will make such payment
in cash if the Seller is obligated to pay the Trust in cash therefor under the
Pooling Agreement, with such payment to be made directly by the Originator into
the Collection Account; otherwise, the Originator will make payment for
reassigned Receivables by reducing the purchase price that the Seller must pay
for new Receivables or the amount then owing with respect to any deferred
purchase price; provided, that if such amount is paid to in cash, then the
Originator will deposit such amount to the Collection Account in immediately
available funds no later than the date on which the Seller is required to make
cash payment with respect to such ineligible Receivables pursuant to the Pooling
and Servicing Agreement. If the Originator is required to accept the
reassignment of the entire Trust Portfolio, then it will deposit into the
Collection Account the entire outstanding unpaid balance of the Receivables
being so reassigned.
CERTAIN COVENANTS
The Originator agrees in the Purchase Agreement that it will comply with
and perform its obligations under the cardholder agreements relating to the
Accounts and the Cardholder Guidelines except insofar as any failure to comply
or perform would not materially and adversely affect the rights of the Seller,
Trust, the Investor Certificateholders, any Enhancement Provider or any
Receivables Purchasers. The Originator may change the terms and provisions of
the cardholder agreements or the Cardholder Guidelines in any respect
(including, without limitation, the reduction of the required minimum monthly
payment, the calculation of the amount, or the timing, of charge-offs and the
periodic finance charges and other fees to be assessed thereon), unless such
change would have a material adverse effect on the collectibility of the
Receivables; provided, however, that the Originator may not change the required
minimum monthly payment or periodic finance charge unless, after five Business
Days' prior
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written notice to the Rating Agency of any such change, the Rating Agency has
provided written notice to the Originator that there will be no Ratings Effect
or unless such change is mandated by applicable law.
Following the Purchase Termination Date and to the extent permitted by
applicable law, the Originator agrees that payments on each Account with respect
to the principal balance of such Account will be allocated first to the oldest
principal balance of such Account. The Originator and Seller have agreed that
Finance Charge Receivables, whenever created or accrued in respect of Principal
Receivables which have been conveyed to the Seller (and by the Seller to the
Trust) will continue to be a part of the Trust notwithstanding any cessation of
the transfer of additional Principal Receivables to the Seller, and collections
with respect thereto will continue to be allocated and paid in accordance with
the Pooling Agreement and the Series 1999-1 Supplement.
In addition to the foregoing covenants, the Originator has covenanted with
the Seller in the Purchase Agreement that, among other things, that (a) the
Originator will take no action to cause any Receivable to be evidenced by any
instrument (as defined in the UCC as in effect in any applicable jurisdiction);
each Receivable is payable pursuant to a contract which does not create a Lien
on any goods purchased thereunder; and the Originator will take no action to
cause any Receivable to be anything other than an "account," or a "general
intangible" or the "proceeds" of either for purposes of the UCC as in effect in
any applicable jurisdiction; (b) except for the conveyances contemplated in the
Purchase Agreement, the Originator will not sell, pledge, assign or transfer to
any other Person, or grant, create, incur, assume or suffer to exist any Lien on
any Receivable, whether then existing or thereafter created, or any interest
therein; the Originator will promptly notify the Seller of the existence of any
Lien on any Receivable; and the Originator will defend the right, title and
interest of the Seller in, to and under the Receivables, whether then existing
or thereafter created, against all claims of third parties claiming through or
under the Originator, subject in each case to certain permitted liens; (c) the
Originator agrees to pay to the Servicer all payments received by the Originator
in respect of the Receivables as soon as practicable after receipt thereof by
the Originator; (d) the Originator covenants and agrees that it will not convey
the Accounts to any person prior to the termination of the Purchase Agreement
and the Pooling Agreement; (e) the Originator will keep its principal place of
business and chief executive office and the office where it keeps its records
concerning the Receivables at the address of the Originator set forth in the
Purchase Agreement or, upon 30 days' prior written notice to the Seller, the
Trustee and each Purchaser Representative, at any other locations in
jurisdictions where all actions reasonably requested by the Seller or the
Trustee to protect and perfect the interest in the Receivables have been taken
and completed; and (f) the Originator will take all reasonable steps to maintain
its existence as a corporation separate and apart from the Seller and to make it
apparent to third persons that the Originator is an entity with assets and
liabilities distinct from those of the Seller and that the Seller is not a
division of the Originator.
ADDITION AND REMOVAL OF ACCOUNTS
In the event the Seller is required under the Pooling Agreement to
designate additional Eligible Accounts as Additional Accounts, the Originator
(if it so elects) will designate such Eligible Accounts as Additional Accounts
and will convey to the Seller Receivables in such Additional Accounts subject to
the same qualifications and restrictions as are set forth in the Pooling
Agreement with respect to the Seller; provided, that the failure of the
Originator to transfer Receivables to the Seller solely as a result of the
unavailability of a sufficient amount of Eligible Receivables will not
constitute a breach of the Purchase Agreement; provided further, that any such
failure which has not been timely cured will nevertheless result in the
occurrence of an Early Amortization Event with respect to each Series for which,
pursuant to a supplement to the Pooling Agreement (a "Supplement") the
Supplement therefor, a failure by the Seller to timely convey Receivables in
Additional Accounts to the Trust constitutes a "Series Early Amortization Event"
(as defined in such Supplement).
On any day of any Due Period if so requested by the Originator (such day, a
"Removal Date"), and if such request is permitted under the Pooling Agreement,
the Seller will require the reassignment to it, which the Seller will reassign
to a person designated by the Originator, of all of the Seller's and the
Trustee's right, title and interest in, to and under the Receivables in the
Removed Accounts, upon satisfaction of the following conditions: (i) the removal
of any Receivables of any Removed Accounts on any Removal Date will not, in the
reasonable belief of the Originator, cause an Early Amortization Event to occur,
or result in the failure of the Seller to make any payment
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specified in the related Supplement or Receivables Purchase Agreement with
respect to any Series; (ii) on or prior to the date of removal, the Originator
has delivered to the Seller and the Trustee (with a copy to each Purchaser
Representative) for execution a written assignment, together with a computer
file or microfiche or written list containing a true and complete list of all
Removed Accounts identified by account number and the aggregate amount of
Receivables in such Removed Accounts; (iii) the Originator will represent and
warrant that no selection procedures believed by it to be materially adverse to
the Investor Certificateholders or any Receivables Purchasers or any Enhancement
Provider were utilized in selecting the Removal Accounts; (iv) the Originator
has provided to the Seller such information, certificates, opinions and other
materials as are reasonably necessary to enable the Seller to satisfy its
obligations under the Pooling Agreement with respect to such Removed Accounts;
(v) the Originator has delivered to the Seller, the Trustee, each Purchaser
Representative and each Enhancement Provider an officer's certificate confirming
the items set forth in clauses (i) through (iii) above; and (vi) no Early
Amortization Event has occurred with respect to any Series.
The Originator will pay the Seller, for each Receivable arising in the
Removed Accounts, a reassignment price equal to the unpaid amount owed in
respect of each such Receivable, which payment will be made in cash in
immediately available funds by the Originator depositing such funds to the
Collection Account no later than the time such reassignments become effective.
No Account may be reassigned under the Purchase Agreement if such removal would
be prohibited by or inconsistent with the terms of any Supplement or Receivables
Purchase Agreement.
TERMINATION OF PURCHASE AGREEMENT
So long as no Series is outstanding, the Originator may terminate its
agreement to sell Receivables under the Purchase Agreement to the Seller by
giving Seller and the Trustee not less than 15 days' prior written notice (or
such shorter time as is acceptable to the Trustee) of its election not to
continue to sell Receivables to the Seller; provided, that such notice specifies
the effective date of such termination.
Unless otherwise agreed to by the Originator and the Seller in writing, the
agreement of the Originator to sell Receivables under the Purchase Agreement,
and the agreement of the Seller to purchase Receivables from the Originator
under the Purchase Agreement, will terminate automatically upon the termination
of the Trust as provided under the Pooling Agreement. Also, Principal
Receivables originated after the occurrence of an Insolvency Event with respect
to the Originator will not be conveyed to the Seller under the Purchase
Agreement.
The "Purchase Termination Date" means the earlier to occur of the (a) the
date specified by the Originator pursuant to the first paragraph of this
section, or (b) any event referred to in the second paragraph of this section.
DESCRIPTION OF THE SECURITY AGREEMENT
As additional protection for the Series 1999-1 Certificateholders if the
transfers effected pursuant to the Purchase Agreement are characterized as other
than an absolute sale of Receivables (whether in the context of insolvency,
liquidation or similar proceedings regarding the Originator or otherwise), the
Originator has executed a Security Agreement in favor of the Trustee (the
"Security Agreement") pursuant to which the Originator granted to the Trustee,
for the benefit of all Secured Parties, a security interest in its right, title
and interest in the Receivables then existing and thereafter arising, all
collections due or to become due with respect thereto, including, without
limitation, Recoveries, all rights, remedies, powers and privileges with respect
to the Receivables, and all proceeds of the foregoing, to secure the Secured
Obligations.
A "Secured Party" is any Investor Certificateholder (including any Series
1999-1 Certificateholder), any Receivables Purchaser, and any Enhancement
Provider, other than, in each case, any person that is an affiliate of the
Originator.
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"Secured Obligations" means (a) the rights of each Secured Party (i) if an
Investor Certificateholder (including a Series 1999-1 Certificateholder), to be
paid its share of the applicable series investor interest under the applicable
Supplement (in the case of Series 1999-1, the Series 1999-1 Investor Interest),
interest thereon at the rate specified in such Supplement, and any other amounts
owed to it under the terms of such Supplement, (ii) if a Receivables Purchaser
or a Purchaser Representative, to be paid an amount equal to the interest in the
Receivables Purchase Series held by it, yield on such interest at the rate
specified in the applicable Receivables Purchase Agreement and other amounts
owed to it under such Receivables Purchase Agreement, and (iii) if an
Enhancement Provider, to be paid any Enhancement Invested Amount specified in
the applicable Supplement, yield thereon as provided in such Supplement and
other amounts payable to the Enhancement Provider under such Supplement, and (b)
all other obligations of the Originator under the Transaction Documents if such
obligations are to or for the benefit of any Secured Party; provided, however,
that no holder of a Secured Obligation will be entitled to receive proceeds of
the security interest created under the Security Agreement in excess of the
amount such holder would have received if the transfer of assets under the
Purchase Agreement were determined to be an absolute sale of such assets by the
Originator to the Seller.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
INSOLVENCY LAWS AFFECTING TRANSFERS
In connection with the Purchase Agreement and the Pooling Agreement, there
are three transfers of Receivables to consider: the transfer by the Originator
to the Seller pursuant to the Purchase Agreement; the transfer by the Seller to
the Trustee pursuant to the Pooling Agreement; and the transfer by the
Originator to the Trustee pursuant to the Security Agreement. While the
Originator and the Seller intend the transfer from the Originator to the Seller
pursuant to the Purchase Agreement to be an absolute conveyance, it is possible
that creditors or other persons (including a trustee, receiver or conservator of
the Originator, or the Originator as debtor-in-possession) could take the
position that such transfer instead constituted a grant of a security interest
in the Receivables. The Seller intends the transfer of Receivables to the
Trustee to be either an absolute conveyance or the grant of a security interest.
The transfer by the Originator to the Trustee under the Security Agreement is
intended to be characterized as the grant of a security interest. The effect of
characterizing any of the foregoing transfers as the grant of a security
interest is discussed below.
Transfers by the Originator. Under the Federal Deposit Insurance Act, as
amended, a conservator or receiver for a federally insured bank can avoid
certain security interests granted by the bank. In its 1993 policy statement
regarding security interests, the FDIC indicated that it would not seek to avoid
a security interest that was validly perfected before the insolvency of the bank
if certain other conditions were satisfied, including that such security
interest was not granted or taken in contemplation of insolvency or with the
intent to hinder, delay or defraud such bank or its creditors. One of such
conditions was that the security interest not be granted for the benefit of any
affiliate of the bank. Consequently, if the transfer by the Originator to the
Seller under the Purchase Agreement were characterized as the grant of a
security interest, it may not benefit from the policy statement. To provide
additional protection to holders of Series 1999-1 Certificates (and to carry out
the intent of the parties), the Originator has granted a security interest
directly to the Trustee under the Security Agreement for the benefit of (among
others) the Series 1999-1 Certificateholders (other than affiliates of the
Originator). It is possible, however, that a conservator or receiver for the
Originator could assert a position contrary to the policy statement and seek to
avoid the security interest and/or recover payments to the Seller or the Trustee
with respect to Receivables. In addition, a conservator or receiver would
require the Seller or the Trustee to establish its right to payments on the
Receivables by submitting to and completing the administration claims procedures
under the FDIA, or may request a stay of proceedings with respect to the
Originator as provided under the FDIA. In any or all of such events, delays in
payments on the Series 1999-1 Certificates and possible reductions in the amount
of those payments could occur.
Notwithstanding the foregoing, the FDIC may repudiate contracts determined
by it to be burdensome and, in such case, claims (and therefore any security
interests securing such claims) would be limited to "actual direct compensatory
damages". While a 1990 policy statement of the RTC regarding direct
collateralized borrowings of
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savings associations indicated that "actual direct compensatory damages" would
include outstanding principal plus interest accrued to the date of payment in
the case of a secured loan, in one case a federal district court held that such
damages constituted the fair market value of the repudiated bonds as of the date
of repudiation in the case of a direct issuance by a bank of securities. The
FDIC has not adopted a policy statement on direct collateralized borrowings by
banks. However, the FDIC in its 1993 policy statement regarding security
interests, indicated that in the case of repudiation of a secured obligation by
the FDIC, as conservator or receiver, the liability for such repudiation is
limited to actual direct compensatory damages, as provided in the FDIA,
determined as of the date of appointment.
In addition, the appointment of a receiver or conservator could result in
administrative expenses of the receiver or conservator having priority over the
interests of the Seller or the Trustee in the Receivables. The FDIC, as
conservator or receiver, would also have the rights and powers conferred under
applicable federal or state laws. If the FDIC were appointed as conservator or
receiver of the Originator, certain administrative expenses of the conservator,
receiver or banking authorities may have priority over the interest of the
Seller or the Trustee in the Receivables.
If the only triggering event to occur is the insolvency of the Seller or
the appointment of a conservator or receiver for the Originator, the FDIC, as
conservator or receiver of the Originator, would have the power to prevent the
early sale, liquidation or disposition of the Receivables. The conservator or
receiver may also have the power to cause the early sale of the Receivables and
therefore the early retirement of the Series 1999-1 Certificates, and to
prohibit the continued transfer of Receivables to the Seller.
Transfers by the Seller. The Seller will warrant in the Pooling Agreement
that the transfer of the Receivables is either a sale to the Trustee or a grant
of a first priority perfected security interest in the Receivables to the
Trustee. The Seller will take certain actions under the UCC in effect in
Delaware (the principal place of business of the Seller) to perfect the
Trustee's interest in the Receivables. Nevertheless, a tax or other statutory or
nonconsensual lien on the property of the Originator or the Seller arising
before an interest in a Receivable is transferred to the Trustee may have
priority over the Trustee's interest in such Receivable. If the Seller were to
become a debtor in a bankruptcy case and a bankruptcy trustee or creditor of the
Seller were to take the position that the transfer of an interest in the
Receivables to the Trustee should be recharacterized as a pledge of such
Receivables, then delays in distributions on the Series 1999-1 Certificates or
reductions in such distributions could result.
Upon the occurrence of an Early Amortization Event, if the Seller were the
subject of bankruptcy or insolvency proceedings, the bankruptcy court may have
the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of an Early Amortization Period.
OTHER ISSUES UNDER INSOLVENCY LAWS
While the Originator or any of its affiliates is the Servicer, cash
collections held by such entity may, subject to certain conditions, be
commingled and used for the benefit of such entity prior to the date on which
such collections are required to be deposited in the Collection Account. In the
event of the insolvency or receivership of such servicing entity or, in certain
circumstances, the lapse of certain time periods provided for in the UCC, the
Trust may not have a perfected interest in such collections and, in such event,
the Trust may suffer a loss of all or part of such collections which may result
in a loss to Series 1999-1 Certificateholders.
If an Insolvency Event were to occur with respect to the Originator or the
Seller, then an Early Amortization Event would occur with respect to each Series
and, pursuant to the terms of the Pooling Agreement, new Principal Receivables
would not be transferred to the Trust and the Trustee would sell the Receivables
(unless Investor Certificateholders holding certificates of each Certificate
Series evidencing more than 50% of the aggregate unpaid principal amount of each
such Certificate Series and, in the case of any Certificate Series with respect
to which there is an Enhancement Invested Amount, any Enhancement Provider with
respect thereto, and each Purchaser Representative instruct otherwise), thereby
causing early termination of the Trust. The proceeds of the sale of Receivables
will be treated as collections on the Receivables and allocated accordingly
among the investor certificates of each Certificate Series, the Receivables
Purchase Series and the Exchangeable Seller Certificate.
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Series 1999-1 Certificateholders will experience a loss if the sum of (a) the
portion of the proceeds of such sale allocable to the Series 1999-1
Certificateholders and (b) the proceeds of any collections on the Receivables in
the Collection Account allocated to the Series 1999-1 Certificates is
insufficient to pay such Series 1999-1 Certificateholders in full. Upon the
occurrence of an Insolvency Event with respect to the Originator or the Seller,
if no Early Amortization Event other than such Insolvency Event with respect to
the Originator or the Seller exists, the FDIC or the relevant court may have the
power to continue to require the Originator to transfer new Principal
Receivables to the Seller (and require the Seller to transfer such Receivables
to the Trust) and to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of the Early Amortization Period.
In the event of a Servicer Default, if a conservator, receiver or
liquidator is appointed for the Servicer, and no Servicer Default other than
such conservatorship, receivership, liquidation or insolvency of the Servicer
exists, the conservator, receiver or liquidator may have the power to prevent
either the Trustee, Investor Certificateholders and Receivables Purchasers from
appointing a successor Servicer.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interest of Series 1999-1 Certificateholders in the Receivables if
such laws result in any Receivables being charged off as uncollectible.
CONSUMER PROTECTION LAWS
The Accounts and Receivables are subject to numerous Federal and state
consumer protection laws which impose requirements on the making, enforcement
and collection of consumer loans. The United States Congress and the states may
enact laws and amendments to existing laws to regulate further the credit card
and consumer revolving loan industry or to reduce finance charges or other fees
or charges applicable to credit card and other consumer revolving loan accounts.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the Servicer's ability to collect on the Receivables or
maintain the current level of periodic rate finance charges and other fees and
charges with respect to the Accounts. In addition, failure by the Servicer to
comply with such requirements could adversely affect the Servicer's ability to
enforce the Receivables.
Pursuant to the Pooling Agreement and the Purchase Agreement, the Seller
and the Originator, respectively, make certain representations and warranties
relating to the validity and enforceability of the Accounts and the Receivables.
The Trustee will not, however, make any examination of the Receivables or the
records relating thereto for purposes of establishing the presence or absence of
defects, compliance with such representations or 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 Receivables
affected thereby will be reassigned to the Seller under the Pooling Agreement
for reassignment, in turn, by the Seller to the Originator under the Purchase
Agreement. In addition, in the event of the breach of certain representations
and warranties the Seller and Originator may be obligated to accept the
reassignment of the entire Trust portfolio of Receivables. Payments made in
respect of any such reassignment of Receivables by the Seller or the Originator
may be recoverable by or on behalf of the payor thereof in the event of the
payor's bankruptcy, where such payments were made within one year prior to the
filing of a bankruptcy case with respect to such payor.
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material Federal income tax
consequences 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"), proposed, temporary and final Treasury regulations
thereunder, and published rulings and court decisions in effect as of the date
hereof, all of which are subject to change, possibly retroactively. To the
extent that the following summary relates to matters of law or legal conclusions
with respect thereto, such summary represents the opinion of Mayer, Brown &
Platt, special United States Federal tax counsel for the Seller subject to the
qualifications set forth herein. Mayer, Brown & Platt have prepared or reviewed
the statements in this
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prospectus under the heading "U.S. Federal Income Tax Consequences," and are of
the opinion that such statements are correct in all material respects. This
discussion does not address every aspect of the Federal income tax laws that may
be relevant to holders of Offered Certificates in light of their personal
investment circumstances or to certain types of Certificate Owners subject to
special treatment under the Federal income tax laws such as banks, insurance
companies, holders that will hold the Offered Certificates as a position in a
"straddle" for tax purposes or as a part of a "synthetic security" or
"conversion transaction" or other integrated investment comprised of the Offered
Certificates and one or more other investments, certain financial institutions,
dealers in securities, or holders that have a functional currency other than the
United States dollar. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below and no
assurance can be given that the IRS will not take contrary positions.
Accordingly, investors should consult their own tax advisors regarding Federal,
state, local, foreign and any other tax consequences to them of any investment
in the Offered Certificates. 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 SERIES 1999-1 SENIOR CERTIFICATES, AS
WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, FOREIGN
COUNTRY, OR OTHER TAXING JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Mayer, Brown & Platt will act as special tax counsel to the Seller
("Special Tax Counsel") and will, upon issuance of Offered Certificates, render
an opinion to the Seller based on the assumptions and qualifications set forth
therein that, 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 treated as indebtedness for
United States Federal income tax purposes. A copy of such opinion will be
available to investors in Offered Certificates upon request. 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 Seller expresses in the Pooling Agreement its intent that for United
States federal, state and local income and franchise tax purposes, the Offered
Certificates will be indebtedness. The Seller, the Servicer and each Offered
Certificateholder and Certificate Owner, by acquiring an interest in a Series
1999-1 Certificate, agrees or will be deemed to agree to treat the Series 1999-1
Certificates as indebtedness for United States Federal, state and local income
or franchise tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transactions
contemplated by the Pooling Agreement, the Seller expects to treat such
transactions, for regulatory and financial accounting purposes, as a sale of an
ownership interest in the Receivables and not as a debt obligation.
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 and the substance of the transaction in which the Series
1999-1 Certificates are issued is consistent with the treatment of the Series
1999-1 Certificates as debt for United States federal income tax purposes.
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 transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the benefits of ownership thereof. Special Tax Counsel has concluded that the
characterization of the Series 1999-1 Certificates, for United States federal
income tax purposes, would be governed by the substance of the transaction,
which is the issuance of debt.
Although there are certain judicial precedents holding that, under
appropriate circumstances, a taxpayer should be required to treat a transaction
in accordance with the form chosen by the taxpayer, regardless of the
transaction's substance, Special Tax Counsel has concluded that these
authorities should not be applied to the Offered Certificates in this case to
require the issuance of such Certificates to be treated as a sale rather than as
an issuance of indebtedness.
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Except as otherwise expressly indicated, the balance of this discussion
assumes that the Offered Certificates will be treated as debt obligations for
federal income tax purposes.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, Special Tax Counsel will render an opinion to the
Seller that the Offered Certificates will constitute indebtedness for United
States Federal income tax purposes, and accordingly, interest thereon generally
will be includible in income by the holders thereof 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. Interest received on the Offered Certificates may also constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
It is not anticipated that the Offered Certificates will be issued with
original issue discount ("OID") within the meaning of Section 1273 of the Code.
If, however, the Offered Certificates are issued at a greater than de minimis
discount or are treated as having been issued with OID under the Treasury
Regulations, then the following rules will apply. The excess of the payments
other than "qualified stated interest" with respect to the Offered Certificates
over their original issue price (in this case, the initial offering price at
which a substantial amount of the Offered Certificates are sold to the public)
will constitute OID. Qualified stated interest generally includes stated
interest that is payable unconditionally at least annually at a single fixed
rate that appropriately takes into account the length of the interval between
payments. The owner of an Offered Certificate must include OID in income as
interest over the term of the certificate under a constant yield method. In
general, OID must be included in income in advance of the receipt of cash
representing that income. Accordingly, cash basis taxpayers would effectively be
treated as being on the accrual method and therefore be required to include
interest in income prior to the receipt of cash representing that income. Under
the Code, special rules relating to original issue discount, market discount and
acquisition premium apply with respect to debt obligations that are subject to
acceleration as a result of prepayments of other obligations securing the debt
obligation. It is uncertain whether such special rules apply to the Offered
Certificates. If they were to apply, the Seller would calculate and report
original issue discount, if any, based upon a reasonable prepayment assumption.
A holder who purchases an Offered Certificate at a discount from its
adjusted issue price 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 Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of the Offered
Certificate in accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued interest) and (ii) the Certificate Owner's tax basis in the Offered
Certificate (as increased by any OID or market discount previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such certificate). Subject to the market discount rules
discussed above, any such gain or loss generally will be long-term capital gain
or loss, provided that the Offered Certificate was held for more than one year
and was held as a capital asset. The maximum ordinary income rate for
individuals, estates, and trusts exceeds the maximum long-term capital gains
rate for such taxpayers. In addition, any capital losses realized generally may
be used by a corporate taxpayer only to offset capital gains and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
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TAX CLASSIFICATION OF TRUST
In connection with the issuance of the Offered Certificates, Special Tax
Counsel will render an opinion to the Seller, based on the assumptions and
qualifications set forth therein, that under current law the issuance of the
Offered Certificates will not cause the Trust to be classified for United States
federal income tax purposes as an association (or publicly traded partnership)
taxable as a corporation.
FASIT LEGISLATION
Recent legislation created a new type of entity for United States Federal
income tax purposes called a "financial asset securitization investment trust"
or "FASIT." Certain arrangements similar to the Trust may elect to be treated as
a FASIT, which would enable it to avoid United States Federal income taxation
and to issue securities substantially similar to the Offered Certificates, and
those securities would be treated as debt for United States Federal income tax
purposes. If so specified in the related Supplement, the Trust may make an
election for the newly-authorized Trust interests to be treated as a FASIT. The
Pooling Agreement may contain any such terms and provide for the issuance of
certificates in any newly-authorized Certificate Series on such terms and
conditions as are permitted to a FASIT and described in the related Supplement.
In addition, from and after the Series termination date for any Certificate
Series outstanding on the Closing Date, the Seller, Servicer, the holder of the
Exchangeable Seller Certificate and the Trustee may amend the Pooling Agreement
or any Supplement (including the Series 1999-1 Supplement) in order to enable
all or a portion of the Trust to qualify as a FASIT and to permit a FASIT
election to be made with respect thereto, and to make such modifications to the
Pooling Agreement and any Supplement as may be permitted by reason of the making
of such an election. However, there can be no assurance that the Seller will or
will not cause any permissible FASIT election to be made with respect to the
Trust or any Certificate Series thereof, or amend the Pooling Agreement or any
Supplement in connection with any election. As a condition to making an FASIT
election, the Seller will provide the Trustee with (1) an opinion of counsel to
the effect that such amendment (a) would permit the Trust or a relevant portion
thereof to be treated as a FASIT, (b) would not cause the Trust to be classified
as an association (or publicly traded partnership) taxable as a corporation for
United States Federal income tax purposes, and (c) would not cause or constitute
an event in which gain or loss would be recognized by any holder of investor
certificates in the Trust (including Offered Certificateholders), and (2) a
certificate that such amendment would not materially and adversely affect any
holder of an interest in any Certificate Series, Receivables Purchase Series or
any Enhancement Provider. Additionally, any such election and any related
amendments to the Pooling Agreement or any Supplement may have other tax and
non-tax consequences to Series 1999-1 Senior Certificateholders. Accordingly,
prospective purchasers of Offered Certificates should consult their tax advisors
with regard to the effects of any such election and any permitted related
amendments on them in their particular circumstances.
POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR AS AN ASSOCIATION TAXABLE AS A
CORPORATION
The opinion of Special Tax Counsel with respect to Offered Certificates
will not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for purposes of the Code, the transactions contemplated by the
Transaction Documents constitute a sale of the Receivables (or an interest
therein) to the Certificate Owners and that the proper classification of the
legal relationship between the Seller and some or all of the Offered
Certificateholders resulting from such transactions is that of a partnership
(including a publicly traded partnership) or a publicly traded partnership
taxable as a corporation. The Seller currently does not intend to comply with
the United States Federal income tax reporting requirements that would apply if
any Offered Certificates were treated as interests in a partnership or a
publicly traded partnership or an association taxable as a corporation.
If the Transaction Documents were treated as creating a partnership
between the Seller and Offered Certificateholders, 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 or Offered
Certificateholders, 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
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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
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. Furthermore, such deductions would be eliminated
altogether for purposes of the alternative minimum tax. As a result, the
individual might be taxed on a greater amount of income than the stated rate on
the Offered Certificates. Finally, assuming the Transaction Documents were
treated as creating a partnership, 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 under the Code.
If it were determined that a transaction created an entity classified as a
publicly traded partnership taxable as a corporation, the Trust would be subject
to United States 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. If the Offered Certificates were treated
as partnership interests in a publicly traded partnership or as equity interests
in such an association, distributions to the Offered Certificateholders
generally would not be deductible in computing the taxable income of the
publicly traded partnership or association. Such classification may also have
adverse state and local tax consequences that would reduce amounts available for
distribution to Certificate Owners. Cash distributions to the Certificate Owners
(except any class thereof not recharacterized as an equity interest) generally
would be treated as dividends for tax purposes to the extent of such deemed
corporation's earnings and profits.
FOREIGN INVESTORS
As set forth above, Special Tax Counsel will render an opinion, upon
issuance, that the Offered Certificates will be treated as debt for U.S. Federal
income tax purposes. The following information describes the United States
Federal income tax treatment of investors that are not United States persons
("Foreign Investors") if the Offered Certificates are treated as debt. The term
"Foreign Investor" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof, or
(iii) an estate or trust the income of which is includible in gross income for
United States Federal income tax purposes, regardless of its source.
Interest, including OID, paid to a Foreign Investor will be subject to
United States withholding taxes at a rate of 30% (unless such rate is reduced
under an applicable treaty) unless (i) the income is "effectively connected"
with the conduct by such Foreign Investor of a trade or business in the United
States as evidenced by IRS Form 4224, signed by the Certificate Owner or its
agent, claiming exemption from withholding tax on income effectively connected
with the conduct of a trade or business in the United States; (ii) the Foreign
Investor delivers IRS Form 1001, signed by the Certificate Owner or its agent,
claiming exemption from withholding under an applicable tax treaty; or (iii) the
Foreign Investor and each securities clearing organization, bank, or other
financial institution that holds the Offered Certificates on behalf of the
customer in the ordinary course of its trade or business, in the chain between
the Certificate Owner and the United States person otherwise required to
withhold the United States 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 Seller (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
holder of such Offered Certificates. Applicable identification requirements
generally will be satisfied if there is delivered to a securities clearing
organization and to the United States entity otherwise required to withhold tax
an IRS Form W- 8 signed under penalties of perjury by the Certificate Owner,
stating that such Certificate Owner is not a United States person and providing
such Certificate Owner's name and address. In the case of (i), (ii) or (iii)
above, the appropriate form will be effective provided, that (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 United States person.
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A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States Federal income tax on gain realized upon
the sale, exchange, or redemption of an Offered Certificate, provided that (i)
such gain is not effectively connected with the conduct of a trade or business
in the United States, (ii) in the case of a Certificate Owner that is an
individual, such Certificate Owner is not present in the United States for 183
days or more during the taxable year in which such sale, exchange, or redemption
occurs, and (iii) in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are satisfied.
If the interests of a Certificate Owner in the Trust were reclassified as
interests in a partnership (not taxable as a corporation), a Certificate Owner
that is a Foreign Investor might be required to file a United States federal
income tax return and pay tax on its share of partnership income at regular
United States rates, including the branch profits tax in the case of an
Certificate Owner that is a corporation, and would be subject to withholding tax
(currently at a rate of 39.6% in the case of individuals and 35% in the case of
corporations) on its share of the partnership's "effectively connected taxable
income." If the Series 1999-1 Certificates were recharacterized as equity
interests in an association taxable as a corporation or in a publicly traded
partnership taxable as a corporation, distributions on the Series 1999-1
Certificates treated as dividends generally would be subject to withholding tax
on the gross amount of such dividends at the rate of 30% unless such rate were
reduced by an applicable treaty or another exemption applied.
New Withholding Regulations. The Treasury Department has issued new
regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described
herein. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their tax advisors regarding the New
Regulations.
BACKUP WITHHOLDING
A Certificate Owner may be subject to backup withholding at the rate of
31% with respect to interest paid (and original issue discount accrued, if any)
on the Offered Certificates if the Certificate Owner, upon issuance, fails to
supply the Trustee or its broker with its 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
its broker with a certified statement, under penalty of perjury, that it is not
subject to backup withholding. Information returns will be sent annually to the
IRS and to each Certificate Owner setting forth the amount of interest paid (and
original issue discount accrued, if any) on the Offered Certificates and the
amount of tax withheld thereon.
ERISA CONSIDERATIONS
Offered Certificates may not be acquired by or for the account of any
employee benefit plan, trust or account (including an individual retirement
account) that is subject to the requirements of Title I of the Employee
Retirement Income Security Act of 1974 or that is described in Section
4975(e)(1) of the Internal Revenue Code of 1986 (each a "Benefit Plan"), or by
or for the account of any entity whose underlying assets include any Benefit
Plan assets by reason of a Benefit Plan's investment in such entity. By
accepting and holding any Offered Certificate, the holder thereof will be deemed
to have represented and warranted that either (i) it is not a Benefit Plan, and
that its acquisition and holding thereof is in compliance with the foregoing
restrictions on Benefit Plan assets or (ii) it is an insurance company
purchasing the Offered Certificates with assets of its general account, and at
the time of acquisition and throughout the period of holding, (A) it meets all
of the requirements of and is eligible for exemptive relief under Prohibited
Transaction Class Exemption 95-60 and (B) less than 25% of the assets of such
account are Benefit Plan assets.
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UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement (the "Underwriting Agreement") for the sale of the Offered
Certificates, (x) the Seller has agreed to sell and Bear, Stearns & Co., Inc.
and [Others] (the "Class A Underwriters") have agreed to purchase the principal
amount of the Class A Certificates set forth opposite their names below and (y)
the Seller has agreed to sell and Bear, Stearns & Co., Inc. (the "Class B
Underwriter," and together with the Class A Underwriter, the "Underwriters") has
agreed to purchase the entire principal amount of the Class B Certificates.
<TABLE>
<CAPTION>
Principal Amount of Underwriter' Price to
Underwriters of Class A Certificates Class A Certificates Commission Public
- ------------------------------------ -------------------- ---------- ------
<S> <C> <C> <C>
Bear, Stearns & Co. Inc.
[Others]
</TABLE>
<TABLE>
<CAPTION>
Principal Amount of Underwriter' Price to
Underwriters of Class B Certificates Class B Certificates Commission Public
- ------------------------------------ -------------------- ---------- ------
<S> <C> <C> <C>
Bear, Stearns & Co. Inc.
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any of the Offered Certificates are purchased.
The Seller has been advised by Bear, Stearns & Co. Inc., as representative
of the Class A Underwriters, that the Class A Underwriters propose initially to
offer the Class A Certificates to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price, less a concession not in excess of [____]% per Class A Certificate. The
Class A Underwriters may allow, and such dealers may reallow, concessions not in
excess of [____]% of the principal amount of the Class A Certificates to certain
brokers and dealers.
The Seller has been advised by the Class B Underwriter, that the Class B
Underwriter proposes initially to offer the Class B Certificates to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price, less a concession not in excess of [____]% per
Class B Certificate. The Class B Underwriter may allow, and such dealers may
reallow, concessions not in excess of [____]% of the principal amount of the
Class B Certificates to certain brokers and dealers.
Additional offering expenses are estimated to be $[____________].
The Seller and the Originator 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.
The Trust has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Offered Certificates, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in the Offered Certificates and any such market making may be
discontinued at any time at the sole discretion of either Underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Offered Certificates.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering 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 creates a syndicate short position. Stabilizing transactions permit
bids to purchase the Offered Certificates so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the
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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 Seller nor any of the Underwriters
represent that the Underwriters will engage in any such transactions or that
such transactions, once commenced, will not be discontinued without notice at
any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Certificates
will be passed upon for the Seller by Colin D. Stern, Executive Vice President
and General Counsel of Charming Shoppes, and by Mayer, Brown & Platt, Chicago,
Illinois, special counsel to the Seller. Certain legal matters relating to the
federal tax consequences of the issuance of the Offered Certificates will be
passed upon for the Seller by Mayer, Brown & Platt. Certain legal matters
relating to the issuance of the Offered Certificates will be passed upon for the
Underwriters by Orrick, Herrington & Sutcliffe LLP, Washington, D.C.
CERTIFICATE RATINGS
Any rating of your certificates by a Rating Agency will indicate:
- its view on the likelihood that you will receive interest payments
and principal payments by the Series 1999-1 Termination Date; and
- its evaluation of the Receivables and the availability of the credit
enhancement for your certificates.
Among the things a rating will not indicate are:
- the likelihood that principal payments will be paid on a scheduled
date prior to the Series 1999-1 Termination Date;
- the likelihood that an early amortization event will occur;
- the likelihood that a United States withholding tax will be imposed
on non-U.S. certificateholders;
- the marketability of your certificates;
- the market price of your certificates; or
- whether your certificates are an appropriate investment for
any purchaser.
A rating will not be a recommendation to buy, sell or hold the
certificates. A rating may be lowered or withdrawn at any time by a Rating
Agency.
The Seller will request a rating of the Class A and Class B Certificates
from at least one Rating Agency. Rating agencies other than those requested
could assign a rating to the certificates and such a rating could be lower than
any rating assigned by a Rating Agency chosen by the Seller.
REPORTS TO CERTIFICATEHOLDERS
The Servicer will prepare monthly and annual reports that will contain
information about the Trust. The financial information contained in the reports
will not be prepared in accordance with generally accepted accounting
principals. Unless and until Definitive Certificates are issued, the reports
will be sent to Cede & Co., the nominee of DTC and the registered holder of the
Certificates. No financial reports will be sent to you. See "Description of the
Certificates--Book-Entry Registration," and "-- Reports to Series 1999-1
Certificateholders."
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WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the certificates with the
SEC. This prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the Trust.
You may read and copy any reports, statements or other information we file
at the SEC's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at (800) SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings are also available to the public
on the SEC internet site (http://www.sec.gov).
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounts ................................................................ 29
Addition Cut Off Date ................................................... 82
Addition Date ........................................................... 67
Additional Accounts ..................................................... 67
Aggregate Addition Limit ................................................ 68
Aggregate Investor Purchaser Interest ................................... 76
Aggregate Minimum Seller Interest ....................................... 67
Allocated Class B Principal Collections ................................. 47
Allocated Class C Principal Collections ................................. 47
Allocated Class D Principal Collections ................................. 47
Automatic Additional Accounts ........................................... 68
Available Funds ......................................................... 50
Available Principal Collections ......................................... 21
Average Principal Balance ............................................... 40
Base Rate ............................................................... 56
Benefit Plan ............................................................ 93
BIF ..................................................................... 69
Business Day ............................................................ 29
Cardholder Guidelines ................................................... 66
Cede .................................................................... 34,60
Cedel ................................................................... 60
Cedel Participants ...................................................... 62
Certificate Owners ...................................................... 34
Certificate Purchase Agreement .......................................... 36
Certificate Series ...................................................... 58
Charge-Offs ............................................................. 53
Charming Shoppes ........................................................ 33
Class A Additional Interest ............................................. 35
Class A Available Funds ................................................. 42
Class A Cap Agreement ................................................... 37
Class A Cap Payment ..................................................... 37
Class A Certificate Rate ................................................ 35
Class A Certificateholders .............................................. 20
Class A Certificates .................................................... 20
Class A Deficiency Amount ............................................... 35
Class A Expected Final Payment Date ..................................... 35
Class A Fixed Allocation ................................................ 41
Class A Floating Allocation ............................................. 40
Class A Initial Investor Interest ....................................... 40
Class A Investor Allocation ............................................. 40
Class A Investor Charge-Off ............................................. 52
Class A Investor Dilution Amount ........................................ 51
Class A Investor Interest ............................................... 20
Class A Investor Loss Amount ............................................ 51
Class A Monthly Interest ................................................ 35
Class A Monthly Principal ............................................... 38
Class A Required Amount ................................................. 42
Class A Servicing Fee ................................................... 43
Class A Spread .......................................................... 35
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class A Underwriters .................................................... 94
Class B Additional Interest ............................................. 36
Class B Available Funds ................................................. 43
Class B Cap Agreement ................................................... 37
Class B Cap Payment ..................................................... 37
Class B Certificate Rate ................................................ 36
Class B Certificateholders .............................................. 20
Class B Certificates .................................................... 20
Class B Deficiency Amount ............................................... 36
Class B Expected Final Payment Date ..................................... 36
Class B Fixed Allocation ................................................ 41
Class B Floating Allocation ............................................ 41
Class B Initial Investor Interest ....................................... 40
Class B Investor Allocation ............................................. 41
Class B Investor Charge-Off ............................................. 52
Class B Investor Dilution Amount ........................................ 51
Class B Investor Interest ............................................... 22
Class B Investor Loss Amount ............................................ 51
Class B Monthly Interest ................................................ 36
Class B Monthly Principal ............................................... 38
Class B Required Amount ................................................. 42
Class B Servicing Fee ................................................... 43
Class B Spread .......................................................... 36
Class B Underwriter ..................................................... 94
Class C Available Funds ................................................. 45
Class C Certificate Rate ................................................ 36
Class C Certificates .................................................... 20
Class C Deficiency Amount ............................................... 36
Class C Fixed Allocation ................................................ 41
Class C Floating Allocation ............................................. 41
Class C Initial Investor Interest ....................................... 40
Class C Investor Allocation ............................................. 41
Class C Investor Charge-Off ............................................. 52
Class C Investor Dilution Amount ........................................ 51
Class C Investor Interest ............................................... 22
Class C Investor Loss Amount ............................................ 51
Class C Monthly Interest ................................................ 36
Class C Required Amount ................................................. 48
Class D Available Funds ................................................. 45
Class D Certificate ..................................................... 20
Class D Certificate Rate ................................................ 36
Class D Fixed Allocation ................................................ 42
Class D Floating Allocation ............................................. 42
Class D Initial Investor Interest ....................................... 40
Class D Investor Allocation ............................................. 42
Class D Investor Charge-Off ............................................. 53
Class D Investor Dilution Amount ........................................ 51
Class D Investor Interest ............................................... 22
Class D Investor Loss Amount ............................................ 51
Class D Monthly Interest ................................................ 36
Closing Date ............................................................ 20
</TABLE>
98
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Co-Branded Program ...................................................... 67
Code .................................................................... 88
Collection Account ...................................................... 70
Controlled Amortization Amount .......................................... 22
Controlled Amortization Period .......................................... 20
Controlled Payment Amount ............................................... 22
Controlling Certificateholders .......................................... 56
Cooperative ............................................................. 63
Cumulative Principal Shortfall .......................................... 50
Debtor Relief Laws ...................................................... 64
Defaulted Receivables ................................................... 72
Defeased Series ......................................................... 74
Definitive Certificates ................................................. 63
Depositaries ............................................................ 60
Dilution Amount ......................................................... 72
Dilution Payment ........................................................ 73
Discount Option Receivables ............................................. 73
Discount Option Receivables Collections ................................. 73
Discount Percentage ..................................................... 73
Distribution Date ....................................................... 35
DTC ..................................................................... 60
DTC Participants ........................................................ 60
DTC Services ............................................................ 62
Due Period .............................................................. 20
Early Amortization Event ................................................ 54
Early Amortization Period ............................................... 23
Eligible Account ........................................................ 66
Eligible Receivable ..................................................... 67
Enhancement ............................................................. 58
Enhancement Provider .................................................... 56
Euroclear ............................................................... 60,63
Euroclear Operator ...................................................... 63
Euroclear Participants .................................................. 62
Excess Funding Account .................................................. 72
Excess Spread ........................................................... 45
Exchange Act ............................................................ 60
Existing Assets ......................................................... 81
Fashion Bug Stores ...................................................... 23
FASIT ................................................................... 91
FDIA .................................................................... 12
FDIC .................................................................... 12
Finance Charge Receivables .............................................. 29
Finance Charge Shortfall ................................................ 50
Fiscal 1997 ............................................................. 33
Fiscal 2000 ............................................................. 33
Fixed Allocation Percentage ............................................. 40
Fixed Principal Allocation Date ......................................... 40
Floating Allocation Percentage .......................................... 39
Foreign Investor ........................................................ 92
Foreign Investors ....................................................... 92
Group One ............................................................... 22
</TABLE>
99
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Indirect Participants ................................................... 60
Industry ................................................................ 62
Ineligible Receivable ................................................... 64
Initial Closing Date .................................................... 80
Initial Cut Off Date .................................................... 28
Insolvency Event ........................................................ 82
Insurance Proceeds ...................................................... 49
Interest Period ......................................................... 35
Interest Rate Cap Agreements ............................................ 37
Investor Certificateholders ............................................. 20
Investor/Purchaser Percentage ........................................... 39
IRS ..................................................................... 89
LIBOR ................................................................... 36
LIBOR Determination Date ................................................ 37
Lien .................................................................... 64
Loss Amount ............................................................. 72
Minimum Seller Interest ................................................. 67
Monthly Interest ........................................................ 56
Moody's ................................................................. 37
New Regulations ......................................................... 93
Offered Certificateholders .............................................. 21
Offered Certificates .................................................... 34
OID ..................................................................... 90
Originator .............................................................. 20
Paired Series ........................................................... 53
Paying Agent ............................................................ 78
Permitted Investments ................................................... 70
Pooling Agreement ....................................................... 20
Portfolio Yield ......................................................... 56
Principal Allocation Percentage ......................................... 40
Principal Receivables ................................................... 29
Principal Sharing Series ................................................ 50
Principal Shortfalls .................................................... 71
Principal Terms ......................................................... 58
Prior Pooling Agreement ................................................. 80
Private Label Program ................................................... 67
Purchase Agreement ...................................................... 57
Purchase Termination Date ............................................... 85
Qualified Depository Institution ........................................ 69
Rating Agency ........................................................... 10
Ratings Effect .......................................................... 53
Reallocated Class B Principal Collections ............................... 48
Reallocated Class C Principal Collections ............................... 48
Reallocated Class D Principal Collections ............................... 48
Reallocated Principal Collections ....................................... 48
Receivables ............................................................. 28
Receivables Purchase Agreement .......................................... 59
Receivables Purchase Series ............................................. 59
Receivables Purchaser ................................................... 59
Record Date ............................................................. 34
Recoveries .............................................................. 49
</TABLE>
100
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Reference Banks ......................................................... 37
Related Assets .......................................................... 80
Removal Date ............................................................ 84
Removed Accounts ........................................................ 69
Required Designation Date ............................................... 67
Revolving Period ........................................................ 21
SAIF .................................................................... 69
Secured Account Program ................................................. 67
Secured Obligations ..................................................... 86
Secured Party ........................................................... 85
Securities Act .......................................................... 58
Security Agreement ...................................................... 85
Seller .................................................................. 20
Seller Interest ......................................................... 21
Seller Interest Test .................................................... 67
Seller Percentage ....................................................... 34
Series .................................................................. 59
Series 1999-1 Certificateholders ........................................ 21
Series 1999-1 Certificates .............................................. 20
Series 1999-1 Dilution Amount ........................................... 73
Series 1999-1 Early Amortization Event .................................. 55
Series 1999-1 Finance Charge Shortfall .................................. 50
Series 1999-1 Initial Investor Interest ................................. 40
Series 1999-1 Investor Dilution Amount .................................. 51
Series 1999-1 Investor Interest ......................................... 29
Series 1999-1 Investor Loss Amount ...................................... 51
Series 1999-1 Minimum Seller Interest ................................... 29
Series 1999-1 Principal Shortfall ....................................... 50
Series 1999-1 Servicing Fee ............................................. 43
Series 1999-1 Supplement ................................................ 20
Series 1999-1 Termination Date .......................................... 22,57
Servicer ................................................................ 20
Servicer Default ........................................................ 77
Servicer Transfer ....................................................... 77
Shared Excess Finance Charge Collections ................................ 71
Shared Principal Collections ............................................ 71
SOAI .................................................................... 20
Special Tax Counsel ..................................................... 89
Specified Program Account ............................................... 66
Specified Programs ...................................................... 67
Store Account ........................................................... 70
Store Payments .......................................................... 70
Subservicer ............................................................. 25
Supplement .............................................................. 84
Systems ................................................................. 62
Telerate Page 3750 ...................................................... 36
Terms and Conditions .................................................... 63
Total Systems Failure ................................................... 78
Transaction Documents ................................................... 65
Trust ................................................................... 20
Trust Portfolio ......................................................... 21
</TABLE>
101
<PAGE> 107
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Trustee ................................................................. 20
UCC ..................................................................... 13
Unaffiliated Retailer Program ........................................... 67
Underwriters ............................................................ 94
Underwriting Agreement .................................................. 94
Unfunded Seller Dilution Amount ......................................... 73
</TABLE>
102
<PAGE> 108
ANNEX I
OTHER SERIES OUTSTANDING
The table below sets forth the principal characteristics of the three other
series previously issued by the Trust, Series 1994-2, Series 1997-1 and the 1996
Receivables Purchase Series, as well as Series 1999-2, being issued concurrently
with Series 1999-1. Each of these series are in Group One for purposes of
sharing Shared Excess Finance Charge Collections and Shared Excess Principal
Collections. For more specific information with respect to any series, any
prospective investor should contact Charming Shoppes at [_________]. An asterisk
appearing before any series name or any class was issued in a private
transaction, thus limiting the disclosure we have made available for such
series.
1.*SERIES 1994-2
Initial Investor Interest..................................$13,250,000
Expected Final Payment Date.................May 1999 Distribution Date
Series 1994-2 Termination Date............April 2003 Distribution Date
Series Issuance Date...................................August 15, 1994
Minimum Required Seller Interest..............................$280,000
2.*SERIES 1997-1
Class A Initial Investor Interest..........................$56,000,000
Class B Initial Investor Interest............................$8,500,000
Class C Initial Investor Interest............................$9,500,000
Class D Initial Investor Interest............................$9.500,000
Class A Expected Final Payment Date.....December 2002 Distribution Date
Class B Expected Final Payment Date......January 2003 Distribution Date
Class C Expected Final Payment Date........March 2003 Distribution Date
Class D Expected Final Payment Date........April 2003 Distribution Date
Series 1997-1 Termination Date.............April 2006 Distribution Date
Series Issuance Date..................................November 25, 1997
Minimum Required Seller Interest....2% of outstanding investor interest
3.*1996 RECEIVABLES PURCHASE SERIES
Maximum Investor Interest...................................$50,000,000
Current outstanding amount..................................$
Minimum Required Seller Interest....2% of outstanding investor interest
4.*SERIES 1999-1 (VARIABLE FUNDING SERIES)
Maximum Investor Interest..................................$50,000,000
Current outstanding amount..........................................$0
Minimum Required Seller Interest.[2% of outstanding investor interest]
103
<PAGE> 109
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, Offered Certificates (the "Global
Certificates") will be available only in book-entry form. Certificate Owners in
the Global Certificates may hold such Global Certificates through any of DT,
Cedel or Euroclear. The Global Certificates 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 Certificates
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 Certificates
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 Global 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 Certificates 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 Certificates will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Certificate Owners' interests in the Global
Certificates will be represented through financial institutions acting on their
behalf as direct 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.
Certificate Owners electing to hold their Global Certificates through DTC
will follow the settlement practices applicable to U.S. corporate debt
obligations. Certificate Owner securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Certificate Owners electing to hold their Global Certificates 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 Certificates 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.
104
<PAGE> 110
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Certificates 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 Certificates against payment. Payment will include interest accrued on
the Global Certificates 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
Certificates. After settlement has been completed, the Global Certificates 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 Certificates credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Certificates 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
Certificates 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 that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Certificates would incur overdraft charges for one day, assuming they cleared
the overdraft when the Global Certificates were credited to their accounts.
However, interest on the Global Certificates would accrue from the value date.
Therefore, in many cases the investment income on the Global Certificates 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 Certificates
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
Certificates 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 bonds to the DTC Participant's account against payment. Payment will include
interest accrued on the Global Certificates 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 Certificates 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:
105
<PAGE> 111
(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 Certificates in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Certificates 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 Certificates 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 Global
Certificates that are non-U.S. Persons can obtain a complete exemption form 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 for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Certificates
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 beneficial owner of a
Global Certificate or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Certificates. Certificate Owners are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Certificates.
106
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CHARMING SHOPPES MASTER TRUST
ISSUER
CHARMING SHOPPES RECEIVABLES CORP.
SELLER
SPIRIT OF AMERICA INC.
SERVICER
SERIES 1999-1
$[_________] FLOATING RATE CLASS A ASSET BACKED CERTIFICATES
$[_________] FLOATING RATE CLASS B ASSET BACKED CERTIFICATES
------------------------
PROSPECTUS
------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
BEAR, STEARNS & CO. INC.
[OTHERS]
UNDERWRITER OF THE CLASS B CERTIFICATES
BEAR, STEARNS & CO. INC.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Class A Certificates or the Class B Certificates in
any state where the offer is not permitted.
Dealers will deliver a prospectus when acting as underwriters of the Class A
Certificates or the Class B Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the Class A or the
Class B Certificates will deliver a prospectus until [___________, 1999].
107
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Certificates being
registered herein are estimated as follows:
SEC registration fee $[_________]
Legal fees and expenses [_________]
Accounting fees and expenses [_________]
Blue sky fees and expenses [_________]
Rating agency fees [_________]
Trustee fees and expenses [_________]
Printing [_________]
Miscellaneous [_________]
Total $[_________]
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the General Corporation Law of Delaware provides that a Delaware corporation may
indemnify any director or officer who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was an officer or director of the corporation, or is or was serving at the
request of the corporation as an officer or director of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful. A corporation may
also indemnify any officer or director in an action by or in the right of the
corporation under the same conditions, except that no such indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. If an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify such person against the expenses (including attorneys' fees) actually
and reasonably incurred by such officer or director in connection therewith.
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware General Corporation Law.
II-1
<PAGE> 114
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits filed herewith is contained in the Exhibit Index,
which is incorporated herein by reference.
(b) Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by a registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(c) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 115
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BENSALEM
AND STATE OF PENNSYLVANIA, ON THE 4TH DAY OF FEBRUARY, 1999.
CHARMING SHOPPES RECEIVABLES CORP.,
By: /s/ Eric M. Specter
Name: Eric M. Specter
Title: President and Assistant Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kirk R. Simme and Colin D. Stern and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Charming Shoppes Receivables Corp.), to sign and file any and all amendments
(including post-effective amendments) to this registration statement or any
registration statement relating to this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters as
he might or could do in person and hereby ratifying and confirming all that each
such attorney-in-fact and agent or their or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Eric M. Specter Director, President and Assistant February 4, 1999
Secretary (Principal Executive
Officer and Principal Financial and
Accounting Officer)
/s/ Kirk R. Simme Director February 4, 1999
/s/ Colin D. Stern Director February 4, 1999
</TABLE>
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1* -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of Charming Shoppes Receivables
Corp.
3.2 -- Bylaws of Charming Shoppes Receivables Corp.
4.1* -- Second Amended and Restated Pooling and Servicing Agreement,
as amended, among Charming Shoppes Master Trust, Spirit of
America, Inc., as successor Servicer, and First Union National
Bank, as the Trustee
4.3* -- Form of Series 1999-1 Supplement between Charming Shoppes Master
Trust, Spirit of America, Inc., as Servicer, and First Union
National Bank, as the Trustee
4.3* -- Form of Series 1999-1 Floating Rate Class A Asset Backed
Certificate (included in Exhibit 4.3)
4.3* -- Form of Series 1999-1 Floating Rate Class B Asset Backed
Certificate (included in Exhibit 4.3)
5.1* -- Opinion of Mayer, Brown & Platt with respect to the validity of
the securities being offered
8.1* -- Opinion of Mayer, Brown & Platt with respect to federal income
tax matters
10.1* -- Purchase and Sale Agreement between Spirit of America National
Bank and Charming Shoppes Receivables Corp.
10.2* -- Class A Interest Rate Cap Agreement.
10.3* -- Class B Interest Rate Cap Agreement.
23.1* -- Consent of Mayer, Brown & Platt (included in Exhibit 5.1)
24 -- Powers of attorney (contained on the signature page to this
Registration Statement)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
*****
FASHION SPC, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of said corporation:
RESOLVED, that the certificate of Incorporation of FASHION
SPC, INC. be amended by changing the First and Third Article
thereof so that, as amended, said Article shall be and read
as follows:
"FIRST: The name of the corporation is Charming Shoppes
Receivables Corp."
"THIRD: The purposes for which this corporation is formed are:
(a) to purchase, own, acquire interests in, hold, sell,
transfer and pledge accounts receivable ("Receivables")
generated or acquired by entities affiliated with the
Corporation; (b) to enter into and perform its obligations in
accordance with an agreement that effectuates the purchase,
ownership, acquisition, holding, sale, transfer or pledge of
Receivables or an interest therein; (c) to dividend, loan or
otherwise divest proceeds from Receivables and any other
income as determined by the Corporation's Board of Directors,
and (d) to engage in any lawful act or activity and to
exercise any powers permitted to corporations organized under
the General Corporation Law of the State of Delaware that are
incidental to and necessary, suitable or convenient for the
accomplishment of the purposes specified in the foregoing
clauses (a), (b), or (c), except that the Corporation shall
not incur any of the following types of indebtedness: (i)
indebtedness for borrowed money other than to the extent
incurred in transactions related to the financing of the
Receivables; (ii) obligations as lessee under leases which
shall have been or should be, in accordance with generally
accepted accounting
<PAGE> 2
principles, recorded as capital leases; and (iii) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) and (ii) above."
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said FASHION SPC, INC. has caused this
certificate to be signed by Eric M. Specter its President, this 20th day of
August, 1997.
FASHION SPC, INC.
By______________________
Eric M. Specter, President
2
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
FASHION SPC, INC.
FIRST: The name of the corporation is FASHION SPC, INC.
SECOND: The registered office of the corporation is to be
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the County of New Castle, in the State of Delaware. The name of
its registered agent at that address in The Corporation Trust Company.
THIRD: The purposes for which this corporation is formed are:
(a) to purchase, own, acquire interests in, hold, sell,
transfer and pledge accounts receivable ("Receivables") generated or acquired by
entities affiliated with the Corporation; (b) to enter into and perform its
obligations in accordance with any agreement that effectuates the purchase,
ownership, acquisition, holding, sale, transfer or pledge of Receivables or an
interest therein; (c) to dividend, loan or otherwise divest proceeds from
Receivables and any other income as determined by the Corporation's Board of
Directors; and (d) to engage in any lawful act or activity and to exercise any
powers permitted to corporations organized under the General Corporation Law of
the State of Delaware that are incidental to and necessary, suitable or
convenient for the accomplishment of the purposes specified in the foregoing
clauses (a), (b) or (c), except that the Corporation shall. not incur any of the
following types of indebtedness: (i) indebtedness for borrowed money; (ii)
obligations evidenced by bonds, debentures, notes or other similar instruments;
(iii) obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases; and (iv) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iii)
above.
FOURTH: The corporation shall be authorized to issue 1000 shares of
stock all of which are to be of one class and without par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Address
Kathleen H. Lieberman 450 Winks Lane
1
<PAGE> 4
Bensalem, PA 18977
SIXTH: Elections of directors need not be by written ballot, unless the
bylaws so provide.
SEVENTH: The original by-laws of the corporation shall be adopted by
the initial incorporator named herein. Thereafter the board of directors shall
have the power, in addition to the stockholders, to make, alter, or repeal the
by-laws of the corporation.
EIGHTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such as from
time to time shall be fixed by, or in the manner provided in, the by-laws. The
number of directors constituting the initial board of directors shall be three.
(2) At all times, at least one of the directors of the Corporation
shall be an Independent Director. Such Independent Director must also, at all
times as he or she serves as a Director, be one of the executive officers of the
Corporation. "Independent Director" shall mean a director of the Corporation who
shall at no time be or have been, within the five year period preceding
election, a director, officer or employee of the Corporation or any Affiliate of
the Corporation and who shall at no time hold any beneficial interest in the
Corporation or any beneficial interest in any Affiliate which beneficial
interest in the Affiliate exceeds a market value of Ten Thousand Dollars.
"Affiliate" means, with respect to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person. For purposes of this definition, control of a Person shall
mean the power, direct or indirect, (i) to vote 5% or more of the securities
having ordinary voting power for the election of directors of such Person or
(ii) to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise. "Person" means an individual, a
corporation (including a business trust), a company, a voluntary association, a
partnership, a trust, an unincorporated organization or a government or any
agency, instrumentally or political subdivision thereof.
(3) Notwithstanding any of the foregoing, the Corporation will conduct
its affairs in the following manner: (i) the Corporation's assets will not be
commingled with the assets of any other Person; (ii) the Corporation will
maintain corporate records and financial and accounting books and records
separate from those of any other Person; and (iii) the Corporation shall pay
from its assets all obligations and indebtedness of any kind incurred by the
Corporation, and shall not pay from its assets any obligations or indebtedness
of any other Person. If the Corporation shall share office facilities with
Affiliates, the Corporation shall be obligated to pay a fair market rent for
the space it occupies.
2
<PAGE> 5
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
NINTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability,(i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit, it being the intention of the foregoing provision to eliminate
the liability of the Corporation's directors to the Corporation or its
stockholders to the fullest extent permitted by Section 102 (b) (7) and 145 of
the Delaware General Corporation Law, as amended from tine to time. The
Corporation shall indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law, as amended from tine
to time, each person that such Sections grant the Corporation the power to
indemnify.
TENTH: Subject to Article ELEVENTH of this Certificate of
Incorporation, the corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders are granted subject to this reservation; provided however, that any
action in respect of this Certificate of Incorporation that bears upon whether
the separate corporate identity of the Corporation and its Affiliates (as
defined in Article EIGHTH hereof) will be respected and the assets of the
Corporation not consolidated with those of any Affiliate under applicable
federal or state bankruptcy or insolvency law must receive the prior consent of
the Independent Director (as defined in Article EIGHTH hereof).
ELEVENTH: The corporation shall not, without the unanimous consent of
all the directors including the consent of the Independent Director both in his
or her capacity as a director and as an executive officer, (i) make an
assignment for the benefit of creditors, (ii) file a petition in bankruptcy,
(iii) petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or for a substantial part of its property, (iv)
commence any proceeding under any bankruptcy, reorganization, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, whether now
or hereinafter in effect, (v) consent or acquiesce in the filing of any such
petition, application, proceeding or appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the corporation or any substantial part of its property,
(vi) except as required by law, admit its inability to pay its debts generally
as they become due, or (vii) authorize any of the foregoing to
3
<PAGE> 6
be done or taken on behalf of the corporation. The corporation shall not,
without the unanimous consent of all of the directors and the consent of any
collateral agent holding a security interest in assets of the corporation, amend
the provisions of either Article THIRD, Article EIGHTH or this Article ELEVENTH
of this Certificate of Incorporation.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and that the facts herein stated are true, and
accordingly have hereunto set my hand and seal this 16th day of December, 1992.
---------------------
Incorporator
4
<PAGE> 1
EXHIBIT 3.2
B Y L A W S
OF
Fashion SPC, Inc.
(a Delaware Corporation)
... 00000 ...
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. Registered Office.--The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by resolution of the board of directors,
and a certificate certifying the change is filed in the manner provided by
statute.
SECTION 1.02. Other Offices.--The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year.--The fiscal year of the corporation shall
end on the last Saturday of January closest to January 31st.
ARTICLE II
Notice - Waivers - Meetings
SECTION 2.01. Notice, What Constitutes.--Whenever, under the provisions
of the Delaware General Corporation Law ("GCL") or the certificate of
incorporation or of these bylaws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission to the address (or to the telex, TWX,
facsimile or telephone number) of the person appearing on the books of the
corporation, or in the case of
<PAGE> 2
directors, supplied to the corporation for the purpose of notice. If the notice
is sent by mail, telegraph or courier service, it shall be deemed to be given
when deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched, or in the case of facsimile transmission, when received.
SECTION 2.02. Notice of Meetings of Board of Directors.--Notice of a
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
board need be specified in a notice of the meeting.
SECTION 2.03. Notice of Meetings of Stockholders.--Written notice of
the place, date and hour of every meeting of the stockholders, whether annual or
special, shall be given to each stockholder of record entitled to vote at the
meeting not less than ten nor more than 60 days before the date of the meeting.
Every notice of a special meeting shall state the purpose or purposes thereof.
If the notice is sent by mail, it shall be deemed to have been given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at the address of the stockholder as it appears on the records of
the corporation.
SECTION 2.04. Waivers of Notice.
(a) Written Waiver.--Whenever notice is required to be given under any
provisions of the GCL or the certificate of incorporation or these bylaws, a
written waiver, signed by the person or persons entitled to the notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice of such meeting.
(b) Waiver by Attendance.--Attendance of a person at a meeting, either
in person or by proxy, shall constitute a waiver of notice of such meeting,
except where a person attends a meeting for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened.
SECTION 2.05. Exception to Requirements of Notice.
(a) General Rule.--Whenever notice is required to be given, under any
provision of the GCL or of the certificate of incorporation or these bylaws, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to
2
<PAGE> 3
give such notice to such person. Any action or meeting which shall be taken or
held without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given.
SECTION 2.06. Conference Telephone Meetings.--One or more directors may
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
ARTICLE III
Meetings of Stockholders
SECTION 3.01. Place of Meeting.--All meetings of the stockholders of
the corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 3.02. Annual Meeting.--The board of directors may fix and
designate the date and time of the annual meeting of the stockholders, but if no
such date and time is fixed and designated by the board, the meeting for any
calendar year shall be held on the third Tuesday of June in such year, if not a
legal holiday under the laws of Delaware, and, if a legal holiday, then on the
next succeeding business day, not a Saturday, at 10:00 o'clock A.M., and at said
meeting the stockholders then entitled to vote shall elect directors and shall
transact such other business as may properly be brought before the meeting.
SECTION 3.03. Special Meetings.--Special meetings of the stockholders
of the corporation may be called at any time by the chairman of the board, a
majority of the board of directors, the president, or at the request, in
writing, of stockholders entitled to cast at least a majority of the votes that
all stockholders are entitled to cast at the particular meeting. At any time,
upon the written request of any person or persons who have duly called a special
meeting, which written request shall state the purpose or purposes of the
meeting, it shall be the duty of the secretary to fix the date of the meeting
which shall be held at such date and time as the secretary may fix, not less
than ten nor more than 60 days after the receipt of the request, and to give due
notice thereof. If the secretary shall neglect or refuse to fix the time and
date of such meeting and give notice thereof, the person or persons calling the
meeting may do so.
SECTION 3.04. Quorum, Manner of Acting and Adjournment.
3
<PAGE> 4
(a) Quorum.--The holders of a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders except as otherwise provided by the GCL, by the
certificate of incorporation or by these bylaws. If a quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At any such adjourned
meeting at which a quorum is present or represented, the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(b) Manner of Acting .--Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy at the meeting and entitled to vote thereon shall
be the act of the stockholders, unless the question is one upon which, by
express provision of the applicable statute, the certificate of incorporation or
these bylaws, a different vote is required in which case such express provision
shall govern and control the decision of the question. The stockholders present
in person or by proxy at a duly organized meeting can continue to do business
until adjournment, notwithstanding withdrawal of enough stockholders to leave
less than a quorum.
SECTION 3.05. Organization.--At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order of rank or seniority, a chairman
designated by the board of directors or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in the absence of the secretary, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 3.06. Voting.
(a) General Rule.--Unless otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of capital stock having voting power held by such
stockholder.
(b) Voting and Other Action by Proxy.--
4
<PAGE> 5
(1) A stockholder may execute a writing authorizing another
person or persons to act for the stockholder as proxy. Such execution
may be accomplished by the stockholder or the authorized officer,
director, employee or agent of the stockholder signing such writing or
causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
A stockholder may authorize another person or persons to act for the
stockholder as proxy by transmitting or authorizing the transmission of
a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized
by the person who will be the holder of the proxy to receive such
transmission if such telegram, cablegram or other means of electronic
transmission sets forth or is submitted with information from which it
can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder.
(2) No proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period.
(3) A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only so long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy
may be made irrevocable regardless of whether the interest with which
it is coupled is an interest in the stock itself or an interest in the
corporation generally.
SECTION 3.07. Consent of Stockholders in Lieu of Meeting.--Unless
otherwise provided by the Certificate of Incorporation, any action required to
be taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within 60
days of the earliest dated consent delivered in the manner required in this
section to the corporation, written consents signed by a sufficient number of
holders to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
5
<PAGE> 6
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 3.08. Voting Lists.--The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 3.09. Inspectors of Election.
(a) Appointment.--All elections of directors shall be by written
ballot, unless otherwise provided in the certificate of incorporation; the vote
upon any other matter need not be by ballot. In advance of any meeting of
stockholders the board of directors may appoint inspectors, who need not be
stockholders, to act at the meeting. If inspectors are not so appointed, the
chairman of the meeting may, and upon the demand of any stockholder or his proxy
at the meeting and before voting begins shall, appoint inspectors. The number of
inspectors shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as an inspector. In
case any person appointed as an inspector fails to appear or fails or refuses to
act, the vacancy may be filled by appointment made by the board of directors in
advance of the convening of the meeting, or at the meeting by the chairman of
the meeting.
(b) Duties.--If inspectors are appointed, they shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies, shall receive votes or ballots, shall hear and
determine all challenges and questions in any way arising in connection with the
right to vote, shall count and tabulate all votes, shall determine the result,
and shall do such acts as may be proper to conduct the election or vote with
fairness to all stockholders. If there be three inspectors of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
(c) Report.--On request of the chairman of the meeting or of any
stockholder or his proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them.
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<PAGE> 7
ARTICLE IV
Board of Directors
SECTION 4.01. Powers.--All powers vested by law in the corporation
shall be exercised by or under the authority of, and the business and affairs of
the corporation shall be managed under the direction of, the board of directors.
SECTION 4.02. Number and Term of Office.--Subject to the applicable
provisions of the Certificate of Incorporation, the board of directors shall
consist of such number of directors, not less than three nor more than five, as
may be determined from time to time by resolution of the board of directors.
Each director shall hold office until the expiration of the term for which he or
she was selected and until a successor shall have been elected and qualified or
until his or her earlier death, resignation or removal. Directors need not be
residents of Delaware or stockholders of the corporation. At all times at least
one of the directors shall be an Independent Director. "Independent Director"
shall mean a director of the corporation who shall at no time be or have been,
within the five year period preceding election, a director, officer or employee
of the corporation or any Affiliate of the corporation and who shall at no time
hold any beneficial interest in the corporation or any beneficial interest in
any Affiliate which beneficial interest in the Affiliate exceeds a market value
of Ten Thousand Dollars. "Affiliate" means, with respect to any Person, any
other Person which, directly or indirectly, is in control of, is controlled by,
or is under common control of such Person. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (i) to vote 5% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Person" means an individual, a corporation (including a business trust), a
company, a voluntary association, a partnership, a trust, an unincorporated
organization or a government or any agency, instrumentality or political
subdivision thereof.
SECTION 4.03. Vacancies.--Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having a right to vote as a single class may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
their successors are elected and qualified or until their earlier death,
resignation or removal. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. Whenever the holders of
any class or classes of stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate of incorporation, vacancies
and newly created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board
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<PAGE> 8
(as constituted immediately prior to any such increase), the Court of Chancery
may, upon application of any stockholder or stockholders holding at least ten
percent of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
SECTION 4.04. Resignations.--Any director may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation and, unless otherwise specified in the
notice, the acceptance of the resignation shall not be necessary to make it
effective.
SECTION 4.05. Removal.--Any director or the entire board of directors
may be removed, with or without cause, by the holders of shares entitled to cast
a majority of the votes which all stockholders are entitled to cast at an
election of directors. The Independent Director may not be removed until the
vacancy will be filled by another Independent Director immediately thereafter.
SECTION 4.06. Organization.--At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a chairman chosen by a majority of the directors present, shall
preside, and the secretary, or, in the absence of the secretary, an assistant
secretary, or in the absence of the secretary and the assistant secretaries, any
person appointed by the chairman of the meeting, shall act as secretary.
SECTION 4.07. Place of Meeting.--Meetings of the board of directors
shall be held at such place within or without the State of Delaware as the board
of directors may from time to time determine, or as may be designated in the
notice of the meeting.
SECTION 4.08. Regular Meetings.--Regular meetings of the board of
directors shall be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors.
SECTION 4.09. Special Meetings.--Special meetings of the board of
directors shall be held whenever called by the president or by two or more of
the directors.
SECTION 4.10. Quorum, Manner of Acting and Adjournment.
(a) General Rule.--At all meetings of the board a majority of the total
number of directors shall constitute a quorum for the transaction of business
provided that such majority shall include the Independent Director on all
matters that require the vote of the Independent
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Director. The vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
may be otherwise specifically provided by the GCL or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
(b) Unanimous Written Consent.--Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board.
SECTION 4.11. Executive and Other Committees.
(a) Establishment.--The board of directors may, by resolution adopted
by a majority of the whole board, establish an Executive Committee and one or
more other committees, each committee to consist of one or more directors. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee and the
alternate or alternates, if any, designated for such member, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member.
(b) Powers.--The Executive Committee, if established, and any such
other committee to the extent provided in the resolution establishing such
committee shall have and may exercise all the power and authority of the board
of directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the GCL, fix the designation and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of shares of any series), adopting an agreement of merger or
consolidation under Section 251 or 252 of the GCL, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation. The Executive Committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger pursuant to Section 253 of the GCL. Such
committee or
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committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee so formed shall
keep regular minutes of its meetings and report the same to the board of
directors when required.
(c) Committee Procedures.--The term "board of directors" or "board,"
when used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall be
construed to include and refer to the Executive Committee or other committee of
the board.
SECTION 4.12. Compensation of Directors.--Unless otherwise restricted
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors.
ARTICLE V
Officers
SECTION 5.01. Number, Qualifications and Designation.--The officers of
the corporation shall be chosen by the board of directors and shall be a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers as may be elected in accordance with the provisions of section 5.03 of
this Article. Any number of offices may be held by the same person. Officers
may, but need not, be directors or stockholders of the corporation. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the corporation. The
chairman of the board or the president, as designated from time to time by the
board of directors, shall be the chief executive officer of the corporation. At
all times at least one of the executive officers of the corporation shall be an
Independent Officer who may be the same person as the Independent Director.
"Independent officer" shall mean an officer of the corporation who shall at no
time be or have been, within the five year period preceding election, a
director, officer or employee of the corporation or any Affiliate of the
corporation and who shall at no time hold any beneficial interest in the
corporation or any beneficial interest in any Affiliate which beneficial
interest in the Affiliate exceeds a market value of Ten Thousand Dollars.
"Affiliate" means, with respect to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control of
such Person. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (i) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. "Person" means an individual, a corporation
(including a business trust), a company, a voluntary association, a partnership,
a trust, an unincorporated organization or a government or any agency,
instrumentality or political subdivision thereof.
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SECTION 5.02. Election and Term of Office.--The officers of the
corporation, except those elected by delegated authority pursuant to section
5.03 of this Article, shall be elected annually by the board of directors, and
each such officer shall hold office for a term of one year and until a successor
is elected and qualified, or until his or her earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents.--The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 5.04. The Chairman and Vice Chairman of the Board.--The
chairman of the board, if there be one, or in the absence of the chairman, the
vice chairman of the board, if there be one, shall preside at all meetings of
the stockholders and of the board of directors, and shall perform such other
duties as may from time to time be assigned to them by the board of directors.
SECTION 5.05. The President.--The president shall have general
supervision over the business and operations of the corporation, subject,
however, to the control of the board of directors. The president shall, in
general, perform all duties incident to the office of president, and such other
duties as from time to time may be assigned by the board of directors and, if
the chairman of the board is the chief executive officer, the chairman of the
board.
SECTION 5.06. The Vice Presidents.--The vice presidents shall perform
the duties of the president in the absence of the president and such other
duties as may from time to time be assigned to them by the board of directors or
by the president.
SECTION 5.07. The Secretary.--The secretary, or an assistant secretary,
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or the president.
SECTION 5.08. The Treasurer.--The treasurer, or an assistant treasurer,
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and
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receive or provide for the collection and receipt of moneys earned by or in any
manner due to or received by the corporation; shall deposit all funds in his or
her custody as treasurer in such banks or other places of deposit as the board
of directors may from time to time designate; whenever so required by the board
of directors, shall render an account showing his or her transactions as
treasurer and the financial condition of the corporation; and, in general, shall
discharge such other duties as may from time to time be assigned by the board of
directors or the president.
SECTION 5.09. Officers' Bonds.--No officer of the corporation need
provide a bond to guarantee the faithful discharge of the officer's duties
unless the board of directors shall by resolution so require a bond in which
event such officer shall give the corporation a bond (which shall be renewed if
and as required) in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of office.
SECTION 5.10. Salaries.--The salaries of the officers and agents of the
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. Form and Issuance.
(a) Issuance.--The shares of the corporation shall be represented by
certificates unless the board of directors shall by resolution provide that some
or all of any class or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the corporation. Notwithstanding the adoption of
any resolution providing for uncertificated shares, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or vice president, and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary, representing the number of shares
registered in certificate form.
(b) Form and Records.--Stock certificates of the corporation shall be
in such form as approved by the board of directors. The stock record books and
the blank stock certificate books shall be kept by the secretary or by any
agency designated by the board of directors for that purpose. The stock
certificates of the corporation shall be numbered and registered in the stock
ledger and transfer books of the corporation as they are issued.
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(c) Signatures.--Any of or all the signatures upon the stock
certificates of the corporation may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be issued
with the same effect as if the signatory were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. Transfer.--Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates.--The
board of directors may direct a new certificate of stock or uncertificated
shares to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the legal representative of the owner,
to give the corporation a bond sufficient to indemnify against any claim that
may be made against the corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate or
uncertificated shares.
SECTION 6.04. Record Holder of Shares.--The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.05. Determination of Stockholders of Record.
(a) Meetings of Stockholders.--In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors, and which record
date shall not be more than 60 nor less than ten days before the date of such
meeting. If no record date is fixed by the board of directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
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stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting unless the board of
directors fixes a new record date for the adjourned meeting.
(b) Consent of Stockholders.--In order that the corporation may
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record date has been fixed by the board of
directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by the GCL, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by the GCL, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the board of directors adopts the resolution
taking such prior action.
(c) Dividends.--In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings.--The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized
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representative of the corporation, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such third party proceeding if such person acted in good faith
and in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal third party
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any third party proceeding by judgement, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the authorized representative did not act in
good faith and in a manner which such person reasonably believed to be in or not
opposed to, the best interests of the corporation, and, with respect to any
criminal third party proceeding, had reasonable cause to believe that such
conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings.--The corporation shall indemnify any person who was or is
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate proceeding if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such corporate proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized
Representatives.--To the extent that an authorized representative or other
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith.
SECTION 7.04. Determination of Entitlement to Indemnification.--Any
indemnification under section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
or other employee or agent is proper in the circumstances because such person
has either met the applicable standard of conduct set forth in section 7.01 or
7.02 or has been successful on the merits or otherwise as set forth in section
7.03 and that the amount requested has been actually and reasonably incurred.
Such determination shall be made:
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(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such third party or
corporate proceeding; or
(2) if such a quorum is not obtainable, or even if obtainable,
a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(3) by the stockholders.
SECTION 7.05. Advancing Expenses.--Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of an authorized representative by the corporation in advance of the
final disposition of such third party or corporate proceeding upon receipt of an
undertaking by or on behalf of the authorized representative to repay such
amount if it shall ultimately be determined that the authorized representative
is not entitled to be indemnified by the corporation as authorized in this
Article. The financial ability of any authorized representative to make a
repayment contemplated by this section shall not be a prerequisite to the making
of an advance. Expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
SECTION 7.06. Definitions.--For purposes of this Article:
(1) "authorized representative" shall mean any and all
directors and officers of the corporation and any person designated as
an authorized representative by the board of directors of the
corporation (which may, but need not, include any person serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise) ;
(2) "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employee or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Article with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if
its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor or investigative proceeding by the
corporation;
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(4) "criminal third party proceeding" shall include any action
or investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorneys' fees and
disbursements;
(6) "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation"
shall include actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the corporation which
imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants, or
beneficiaries; and
(11) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or
in the right of the corporation.
SECTION 7.07. Insurance.--The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
the person and incurred by the person in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
or the obligation to indemnify such person against such liability under the
provisions of this Article.
SECTION 7.08. Scope of Article.--The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall, unless otherwise
provided when authorized
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or ratified, continue as to a person who has ceased to be an authorized
representative and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 7.09. Reliance on Provisions.--Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
ARTICLE VIII
Transactions with Affiliates
SECTION 8.01. Transactions with Affiliates. Except as otherwise
provided in these Bylaws or in the Certificate of Incorporation, all business
transactions entered into by the corporation with any Affiliate shall be on
terms and conditions that are not more or less favorable to the corporation than
terms and conditions available at the time to the corporation for comparable
transactions with unaffiliated persons, and except as otherwise provided in
these Bylaws or in the Certificate of Incorporation, must be approved by a
majority of the Board of Directors, including the Independent Director.
SECTION 8.02. Separate Offices, Etc. The corporation shall at all times
(a) maintain the corporation's principal executive office distinct from that of
any Affiliate, but may lease office space at fair market rates from any such
Affiliate, (b) maintain the corporation's financial statements, accounting
records and other corporate documents separate from those of any Affiliate or
other entity, (c) not commingle the corporation's assets with those of any
Affiliate or other entity, (d) maintain the corporation's bank accounts and
books of account separate from those of any Affiliate or other entity, (e) act
solely on its corporate name and through its own authorized officers and agents,
(f) make investments directly or by brokers engaged and paid by the corporation
or its agents, (g) separately manage the corporation's liabilities from those of
any Affiliate and pay its own liabilities, including all administrative
expenses, from its own assets, and (h) pay from the corporation's assets all
obligations and indebtedness of any kind incurred by the corporation; provided,
however, the corporation shall not pay for any liabilities of others.
ARTICLE IX
General Provisions
SECTION 9.01. Dividends.--Subject to the restrictions contained in the
GCL and any restrictions contained in the certificate of incorporation, the
board of directors may declare and pay dividends upon the shares of capital
stock of the corporation.
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SECTION 9.02. Contracts.--Except as otherwise provided in these bylaws,
the board of directors may authorize any officer or officers including the
chairman and vice chairman of the board of directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.
SECTION 9.03. Corporate Seal.--The corporation shall have a corporate
seal, which shall have inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal, Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
SECTION 9.04. Deposits.--All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 9.05. Corporate Records.
(a) Examination by Stockholders.--Every stockholder shall, upon written
demand under oath stating the purpose thereof, have a right to examine, in
person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, list of stockholders, books or records of
account, and records of the proceedings of the stockholders and directors of the
corporation, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) that the stockholder has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents; and (2) that the inspection sought is for a proper
purpose. Where the stockholder seeks to inspect the stock ledger or list of
stockholders of the corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors.--Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to the person's position as a
director.
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SECTION 9.06. Amendment of Bylaws.--Subject to the restrictions set
forth in the Certificate of Incorporation, these bylaws may be altered, amended
or repealed or new bylaws may be adopted either (1) by vote of the stockholders
at a duly organized annual or special meeting of stockholders, or (2) by vote of
a majority of the board of directors at any regular or special meeting of
directors.
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