SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 1-8668
December 30, 1994 Commission file number
____________________
FINGERHUT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1396490
(State of Incorporation) (I.R.S. Employer Identification No.)
4400 Baker Road, Minnetonka, Minnesota 55343
(Address of principal executive offices)
(612) 932-3100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1995, 45,762,968 shares of the Registrant's
Common Stock were outstanding and the aggregate market value of
Common Stock held by non-affiliates of the Registrant on that
date was approximately $686,451,368 based upon the New York Stock
Exchange closing price on February 27, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the
fiscal year ended December 30, 1994, are incorporated by
reference in Parts II and IV.
Certain portions of the Proxy Statement for the Annual Meeting of
Shareholders of Fingerhut Companies, Inc. to be held on May 18,
1995, which will be filed with the Securities and Exchange
Commission within 120 days after December 30, 1994, are
incorporated by reference in Part III.
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a
Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers
of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules 17
and Reports on Form 8-K
Signatures 18
Exhibit Index 20
PART I
Item 1. Business
General
Fingerhut Companies, Inc. (the "Company") is a direct-to-the-
consumer marketing company that sells a broad range of products
and services directly to consumers via catalogs, television and
other media. The Company had 1994 revenues of $1.934 billion.
Its principal subsidiaries are Fingerhut Corporation
("Fingerhut"), Figi's Inc. ("Figi's") and USA Direct Incorporated
("USA Direct"). Fingerhut has been in the direct mail marketing
business for over 45 years and sells general merchandise using
catalogs and other direct marketing solicitations. Fingerhut's
merchandise includes a broad mix of quality brand name and
private label products, many of which are specially manufactured
or packaged to appeal to its customers. Fingerhut's net sales
were $1.577 billion in 1994. Figi's markets specialty foods and
other gifts, primarily through catalogs, and had net sales of
approximately $70 million in 1994. USA Direct markets products
through direct response television advertisements, typically 30
minutes long. USA Direct's 1994 net sales were $59 million. The
Company, through subsidiaries, operates a joint venture with
Montgomery Ward & Co., Incorporated. The joint venture does
business as "Montgomery Ward Direct" and sells general
merchandise using specialty catalogs. The Company accounts for
its investment in Montgomery Ward Direct using the equity method
of accounting.
During 1993, the Company sold certain subsidiaries that did
not fit into its long-term strategic direction. The Company sold
the assets of COMB Corporation in September 1993 and sold the
assets of FDC, Inc., a subsidiary of Figi's, effective as of
December 31, 1993. In December 1993, the Company signed a letter
of intent to sell Figi's, but during the fourth quarter of 1994,
the purchaser was unable to complete its financing. As a result,
the Company reversed the impact of the sale. In November 1994,
the Company announced that it would scale back the operations of
USA Direct. In March 1995, USA Direct entered into an alliance
with Guthy-Renker Corporation, under which Guthy-Renker will
manage infomercial production, media placement and market
distribution and USA Direct will provide product development and
sourcing, customer service and fulfillment.
The Company is the successor to the business of several
related companies, the first of which was a partnership formed in
1948. Fingerhut became a publicly held corporation in 1970 and
was acquired by a predecessor of The Travelers Inc. ("Travelers")
in 1979. The Company was incorporated in 1978 in connection with
Travelers' acquisition of Fingerhut. In May 1990, the Company
became a publicly held company upon completion of a public
offering of a portion of the common stock held by Travelers
(which at that time held substantially all of the Company's
common stock). Travelers reduced its ownership to zero through
subsequent public offerings and sales in 1991, 1992 and 1993.
Unless the context otherwise indicates, references to the
Company refer to Fingerhut Companies, Inc. and its subsidiaries.
Fingerhut Corporation
Introduction
Fingerhut, one of the largest catalog marketers in the United
States, sells general merchandise and financial service products
to moderate income consumers. It is the only large general
merchandise retailer that serves this market exclusively through
catalog direct marketing. The median age of Fingerhut's
customers is slightly lower than the national average and young
families are a significant portion of its customer base.
Fingerhut offers extended payment terms on all purchases under
fixed term, fixed payment installment contracts and makes
substantially all of its sales on credit utilizing its own
closed-end credit. Fingerhut has used its extensive database,
credit programs and proprietary database segmentation software to
establish a dominant position in this market, with a large base
of loyal, repeat customers. Fingerhut has an active customer
base of approximately seven million established customers, which
account for approximately 80% of Fingerhut's net sales.
Marketing
Marketing activities are divided into three primary programs:
new customer acquisition, a transitional program and existing
customer programs. During 1994, Fingerhut mailed approximately
558 million catalogs and other promotions to existing and
prospective customers.
Fingerhut's new customer acquisition program is designed to
identify and attract new customers on a cost-effective basis.
The primary sources of new customers are rented lists,
advertisements in magazines and newspapers, television, catalog
requests and other direct marketing solicitations. Fingerhut
mails catalogs and other multi-product offerings to prospective
customers and adds them to its data base as responses are
received. These programs are intended to identify and target new
customers who will become long-term Fingerhut customers. New
customers account for approximately 20% of Fingerhut's net sales.
The decisions on which prospective customers to solicit,
which products to offer and which media to use are based upon the
projected long-term profitability and internal rates of return of
the program. Maintaining acceptable financial rates of return on
new customers depends on balancing the cost of acquisition of new
customers with their long-term profitability to Fingerhut. To
determine whether the cost to obtain new customers is acceptable,
Fingerhut maintains a system that monitors profitability by
source of new customers, by type of product and by type of
promotional media. Fingerhut also continuously tests various
media, products, offerings and incentives and analyzes the
results in order to maximize the effectiveness of its customer
acquisition efforts.
After first-time buyers commence payments on their initial
purchases, they are placed into a transitional program. The
amount of time a first-time buyer remains in a transitional
program and the number and type of products he or she is offered
depends on the buyer's purchasing and payment practices. A
customer is placed on Fingerhut's promotable customer list after
demonstrating his or her creditworthiness.
Fingerhut reaches its existing customers through extensive
promotional mailing efforts, primarily catalogs, and through
telemarketing. In 1994, Fingerhut mailed 154 different catalogs
and other promotions to its established customers. These
mailings included general merchandise catalogs, specialty
catalogs, small and large multi-product mailers and single
product promotions.
Management believes that the key factors in maximizing the
profitability of its existing customer list are developing
long-term repeat buyers and balancing customer response with
appropriate credit losses and customer return rates for each
segment of its customer list. Fingerhut promotes customer
satisfaction and loyalty by extending credit; by using a number
of marketing devices, including targeted promotions, deferred
payments, 30-day free home trials, a "satisfaction assured"
policy, free gifts, merchandise giveaways, and personalized
mailings; and by offering attractive brand name and private label
merchandise.
Fingerhut is a leader in the development and use of
information-based marketing concepts and management believes that
Fingerhut's extensive data base and proprietary data base
segmentation software afford it a significant competitive
advantage within its market niche. The data base contains names,
addresses, behavioral characteristics, general demographic
information, information provided by the customer and information
on the sources of the customers' initial responses. The data
base is continually updated as new information is obtained.
Credit Management
Fingerhut generally does not require its customers to provide
traditional credit information in order to approve purchases on
credit. Instead of using traditional credit applications,
Fingerhut has developed sophisticated and highly automated
proprietary techniques for evaluating the creditworthiness of new
and existing customers and for selecting those customers who will
receive various categories of mailings. Management believes that
Fingerhut's more than 45 years' experience in the mail order
business, its data base containing purchase and payment histories
of more than 30 million people and its significant investment in
computer technology and proprietary analytical models give
Fingerhut a unique ability to analyze the creditworthiness of
customers in its market. The goal of the analysis is not to
achieve the lowest possible credit losses but to balance credit
losses and return rates with customer response, thereby
optimizing profitability. Consequently, Fingerhut's planned
credit losses typically are higher than other direct mail and
retail companies.
Once a customer places an order, Fingerhut employs
proprietary techniques designed to identify customers whose
orders can be automatically shipped, customers from whom
additional information, including credit applications, must be
obtained and reviewed and customers to whom credit is declined.
After purchases are shipped, customer payments are continuously
monitored to identify credit problems as early as possible.
Fingerhut has a flexible policy of working with certain
delinquent customers, including adjusting their payment
schedules, which Fingerhut believes reduces default rates and
maintains customer loyalty.
Substantially all of Fingerhut's sales are made utilizing its
own closed-end credit program, which uses fixed term, fixed
payment installment plans. Monthly payments are made by
customers and processed by Fingerhut through the use of coupons
contained in payment books delivered with each order shipment.
Payment terms to existing customers generally range from 4 to 32
monthly payments. In addition, a majority of sales are to
customers who receive a deferred payment option, which extends
the due date of the first payment by approximately four to five
months. Many customers pay their accounts in full before the end
of the scheduled payment term.
Merchandising
Fingerhut offers a broad mix of brand name and private label
consumer products, including electronics, housewares, home
textiles, apparel, furniture, home accessories, jewelry, sporting
goods and toys, tools, automotive, lawn and garden, and financial
service products. In 1994, Fingerhut offered nearly 15,000
different products. Fingerhut's sales mix by product category
for 1994 is shown in the following table:
Fingerhut Corporation 1994 Product Mix
Percent of
Gross Retail Sales
Electronics 20
Home Textiles 18
Housewares 17
Furniture/Home Accessories 11
Apparel 9
Jewelry 8
Leisure 8
Tools/Automotive/Lawn & Garden 6
Financial Service Products and Other 3
====
100%
Fingerhut selects merchandise to be offered to its customers
by evaluating historical product and category demand and
analyzing emerging merchandise trends in conjunction with
proprietary marketing information. Fingerhut is constantly
developing unique brand name and private label product groupings,
such as coordinated kitchen ensembles, coordinated bed and bath
ensembles and tool sets, targeted to appeal to its customers and
to add value and/or style to its merchandise.
Fingerhut's general merchandise catalogs feature a wide array
of products; they are updated and published throughout the year,
including a 448-page holiday big book. Specialty catalogs mailed
to targeted portions of Fingerhut's customer list permit
Fingerhut to expand the product selection and intensify the
growth opportunities for certain product categories. These
specialty catalogs include outdoor living, jewelry, electronics,
domestics/housewares, gifts, juvenile, seniors, home fitness,
home improvement and Spanish-language catalogs.
Financial Services
Fingerhut also offers its customers various financial service
products, including credit insurance for life, property and
disability, extended property insurance, accidental death,
hospital income, whole life, and term life insurance.
Additionally, merchandise service contracts are sold to customers
that extend a manufacturer's warranty on labor and parts.
Additional programs are being tested and, if successful, will be
expanded in the near future. During 1994, the Company tested and
monitored the results of a Fingerhut co-branded MasterCard issued
by a third party bank. In 1994, the Company formed Direct
Merchants Credit Card Bank, N.A. to expand the types of financial
services products that may be offered to its customers. During
1995, Direct Merchants Credit Card Bank, N.A. will offer the
Fingerhut co-branded MasterCard on a rollout basis and will also
offer its own MasterCard to individuals who may not already be
Fingerhut customers. The Bank has a contract with First Data
Resources for credit card processing.
Management Information Systems
Fingerhut pioneered the use of information-based marketing
concepts in the mail order industry, using computer technology
and related software developed by the Company. The Company
continues to be highly dependent on information systems and its
computer operations are among the largest and most sophisticated
in the direct marketing industry. Management believes that these
operations, combined with Fingerhut's extensive data base and
advanced information systems, have been key factors in its growth
and profitability.
Fingerhut's management information systems provide data
processing capabilities to Fingerhut, Figi's, USA Direct and
Montgomery Ward Direct and support all areas of the Company,
including marketing, credit, order fulfillment, customer service,
inventory control and finance. Fingerhut's management
information systems currently operate on mainframe computers
connected to on-line terminals and client-server systems used in
all aspects of the Company's business.
Preparation and Mailing of Promotional Materials
Fingerhut performs a large portion of the production process
for its promotional materials in house. The creative department
uses desktop publishing for the design and production of all
Fingerhut's mailings. A substantial portion of the color
photographs used in Fingerhut's catalogs and other marketing
materials are taken at the Company's in-house photo studio and
Fingerhut prepares color separations for approximately 35% of its
promotional materials. In addition, Fingerhut's eight-color web
printing presses print more than half of its catalog "wraps", the
personalized outside cover used on Fingerhut catalogs.
Substantially all of the Company's promotional materials, except
the wraps, are printed at outside vendors.
Fingerhut's mailing operations are designed to provide the
flexibility and rapid response time required to keep pace with
its changing marketing and merchandising needs. Fingerhut has
two mailing facilities in Minnesota that cut, fold, insert, sort
and deliver to the post office its single and multiple product
promotions. For catalog mailings, Fingerhut personalizes the
catalog wraps and delivers them to its outside printers
pre-sorted for mailing.
The Company substantially reduces mailing costs by
effectively using discounts offered by the United States Postal
Service from the basic postal rates. For example, Fingerhut
sorts mailings by zip code to the carrier route level and also
prints the "zip plus four" barcode to obtain optimum postal
discounts, resulting in savings not always available to smaller
direct mail companies. In January 1995, the United States Postal
Service increased its first class, third class and fourth class
postage rates, which will increase the Company's overall postage
rates by approximately 12%. In addition, the cost of paper has
also increased. To reduce the effect of the postal and paper
increases, Fingerhut will begin printing its catalogs on lighter
weight paper, will work to improve the efficiency of its mailings
by reviewing mailing depth and criteria and will also take steps
to reduce its other operating expenses. The Company will adopt
new innovations in mail processing techniques, as appropriate,
and believes that the increasing cost and complexity of the
postal rate structure will strengthen the long-term competitive
position of larger, more sophisticated mail order firms such as
Fingerhut.
Order Processing and Fulfillment
Fingerhut provides order processing and fulfillment services
for USA Direct and Montgomery Ward Direct. Although most of
Fingerhut's customer orders are received by mail, telephone
ordering has become a more important part of Fingerhut's
business. The majority of USA Direct's and Montgomery Ward
Direct's customers place their orders by telephone. Fingerhut
also offers its customers the option to place orders by telephone
in selected promotions. In 1994, Fingerhut processed
approximately 25 million Fingerhut, USA Direct and Montgomery
Ward Direct orders and approximately 53 million Fingerhut, USA
Direct and Montgomery Ward Direct customer payments.
In 1994, Fingerhut shipped approximately 30 million
Fingerhut, USA Direct and Montgomery Ward Direct packages from
its warehouse and distribution facilities in Minnesota and
Tennessee. In order to minimize shipping costs, packages are
trucked to drop points throughout the country where they enter
the USPS or the United Parcel Service systems for delivery to the
customer. In addition, Fingerhut offers optional express
delivery in selected promotions.
Customer Service
Management has continued its strong emphasis on customer
service and retention. In 1993, the Company implemented phase
one of a new Customer Contact System. For inbound callers, the
system consolidates data from several databases into one format
that puts more information on the telephone representative's
screen, facilitating faster order taking and better customer
service. Fingerhut offers special customer services to the top
segment of its customers and has other programs to monitor
customer satisfaction. Management believes these measures have
resulted in increased effectiveness in handling customer
communications, a higher overall level of customer satisfaction
and improved customer retention.
Figi's Inc.
Figi's is a mail order retailer of specialty food gifts (such
as quality cheeses, smoked meats, candies and baked goods) and
other gifts headquartered in Marshfield, Wisconsin. The Company
acquired Figi's in 1981. Figi's is one of the largest direct
mail food gifts marketers in the United States, with 1994 net
sales of approximately $70 million.
New customers are acquired from sources similar to those used
by Fingerhut, although Figi's customers include both moderate
income consumers attracted by Figi's in-house credit terms and
more affluent customers who use credit cards. Sales using Figi's
interest-free, three payment credit terms constituted
approximately 78% of its net sales in 1994.
Figi's offerings are made predominantly in catalogs mailed
prior to holidays and other gift-giving occasions such as
Christmas, Easter, Valentine's Day and Mother's Day. Figi's
business is highly seasonal, with approximately 82% of its net
sales in the fourth quarter. Like Fingerhut, Figi's seeks to
develop repeat business from customers by offering a
"satisfaction assured" policy. During 1994, Figi's sales mix by
product category was as follows:
Figi's Inc. 1994 Product Mix
Percent of
Gross Retail Sales
Cheese/Meat Selections 48%
Baked Goods 14%
Candy 8%
Nuts/Snack Foods 7%
Non-Food Gifts 7%
Other Food Gifts 16%
===
100%
Figi's uses marketing techniques similar to those developed
by Fingerhut, such as sweepstakes and in-house credit terms, to
improve customer response and expand its customer base. Figi's
also uses mailing list evaluation and segmentation techniques
similar to those used by Fingerhut. In addition, Figi's offers
its customers the opportunity to place orders by telephone and
accepts payment by major credit card.
In December 1993, the Company signed a letter of intent to
sell Figi's, but during the fourth quarter of 1994, the purchaser
was unable to complete its financing. As a result, the Company
reversed the impact of the sale.
USA Direct Incorporated
USA Direct markets specially selected products primarily
through 30-minute direct response television advertisements
commonly known as "infomercials." These advertisements provide
entertaining and informative product demonstrations and often
feature a well known entertainer or other recognized individual.
USA Direct's advertisements are distributed through cable
networks and broadcast television stations. During 1994, these
products included Body by Jake(R) Hip and Thigh Machine(TM), Bissell(R)
Little Green Clean Machine(TM), Denise Austin(TM) Tone-up 1-2-3 and
Body by Jake(R) Ab and Back Plus. USA Direct's sales mix by
product category in 1994 was: 12% health and beauty, 72%
fitness/leisure and 16% housewares. USA Direct's 1994 net sales
were approximately $59 million.
USA Direct promotes payment by major credit card and also
offers its customers the option to pay for their purchases by
credit card installment billing. USA Direct features a 30-day
refund policy on all of its products. Products featured in USA
Direct's television advertisements are later included in
Fingerhut's and Montgomery Ward Direct's catalogs and identified
"As seen on TV." In addition, USA Direct may receive royalties
on successful products later sold in non-affiliated retail
stores.
In November 1994, the Company announced that it would scale
back the operations of USA Direct in connection with cancellation
of the startup of S The Shopping Network, a television shopping
channel that was expected to support the operations of USA
Direct. In March 1995, USA Direct entered into an alliance with
Guthy-Renker Corporation, under which Guthy-Renker will manage
infomercial production, media placement and market distribution
and USA Direct will provide product development and sourcing,
customer service and fulfillment.
Montgomery Ward Direct
The Company has a joint venture limited partnership with
Montgomery Ward & Co., Incorporated ("Montgomery Ward"). The
partnership is structured as a Delaware limited partnership in
which the Company and Montgomery Ward, through subsidiaries, each
have a 50% interest and conducts business under the name
"Montgomery Ward Direct". Montgomery Ward Direct mails its
catalogs primarily to Montgomery Ward credit card holders and
certain outside rented lists and accepts payment through bank
credit cards and the Montgomery Ward credit card. Receivables
generated by sales made through the Montgomery Ward credit card
are sold through Montgomery Ward to Montgomery Ward Credit
Corporation in accordance with a previously existing agreement
between Montgomery Ward and Montgomery Ward Credit Corporation.
Montgomery Ward and the Company have agreed that the
partnership will be, subject to certain exceptions, the exclusive
vehicle for each to conduct the business of the partnership.
During such time as the Company or one of its subsidiaries is a
partner and for a period of up to three years thereafter
(depending on the circumstance), the Company's direct mail
marketing activities will be limited, with certain exceptions, to
the extent that they would compete with the partnership. The
business conducted by the partnership is not expected to
materially affect the businesses of Fingerhut, Figi's or USA
Direct.
Montgomery Ward provides, without cost to the partnership,
the use of the Montgomery Ward(R) tradename, certain information
related to its active credit card account holders and has agreed
to provide similar information with respect to future Montgomery
Ward credit card account holders. Fingerhut provides certain
customer names and certain creative, buying, order processing,
customer service, computer services and warehousing services and
facilities. During 1994, Fingerhut generally was reimbursed by
the partnership for its costs incurred in providing the services
and facilities.
The Company and Montgomery Ward each contributed an initial
$5 million to the partnership's capital and from time to time,
have made short-term working capital loans. At December 30,
1994, the Company's aggregate investment in Montgomery Ward
Direct was $5 million. The Company accounts for Montgomery Ward
Direct using the equity method of accounting; accordingly, 50% of
Montgomery Ward Direct's profits or losses are recorded in
administrative expenses included in "Administrative and selling
expenses" in the Company's Consolidated Statements of Earnings
contained in the Company's consolidated financial statements. In
1994, Montgomery Ward Direct mailed 124 million catalogs
generating net sales of $188 million.
Other Business Activities
The Company derives additional revenues from manufacturing
plastic products, wholesaling excess merchandise and list rental
and package inserts. Taken together, such activities accounted
for less than 3% of the Company's 1994 net sales.
Divested Subsidiaries
Certain assets and liabilities of COMB Corporation, a
subsidiary of the Company, were sold on September 3, 1993. In
addition, the Company sold certain assets and liabilities of FDC,
Inc., a subsidiary of Figi's, effective as of December 31, 1993.
These businesses did not fit into the Company's long-term
strategic direction. In November 1994, the Company cancelled the
launch of S The Shopping Network, its proposed 24-hour cable
television shopping channel.
Competition
The direct marketing industry includes a wide variety of
specialty and general merchandise retailers and is both highly
fragmented and highly competitive. The Company sells its
products to customers in all states of the United States and
competes in the purchase and sale of merchandise with all
retailers. Fingerhut's traditional principal competitor in the
business of direct marketing general merchandise to moderate
income customers is J.C. Penney Company, Inc., which operates a
large number of retail stores in addition to its mail order
businesses and generates substantial catalog sales at its retail
premises in addition to direct mail marketing. In the direct
marketing retail industry, Fingerhut also competes with
television shopping marketers, such as QVC Network, Inc. and Home
Shopping Network, Inc. Fingerhut also competes with retail
department stores, discount department stores and variety stores,
many of which are national chains, for the general merchandise
spending of its customers.
The principal methods of competition within the direct
marketing industry and in the Company's market segments include
purchasing convenience, extension of credit, customer service,
free trial and merchandise value. The Company believes that it
is able to compete on the strength of its marketing strategy
despite strong competitive pressures. Although barriers to
entering the direct marketing business are minimal and many new
companies have entered and may continue to enter the industry in
competition with the Company, a substantial capital investment
would be required to develop customer databases and software
capabilities comparable to those of the Company. The Company
believes that these assets are necessary to compete effectively
in the Company's market niche, where the predictability of
response rates and combined credit and return losses is critical.
Other Information
Seasonality
The Company's business is seasonal. In 1994, approximately
36% of the Company's net sales and approximately 49% of its net
earnings (excluding unusual charges) occurred in the fourth
quarter. In addition to seasonal variations, the Company
experiences variances in quarterly results from year to year that
result from changes in the timing of its promotions and the types
of customers and products promoted and, to some extent,
variations in dates of holidays and the timing of quarter ends
resulting from a 52/53 week year. Accordingly, the results of
interim periods are not necessarily indicative of the results for
the year.
Costs of Mailing
In 1994, the Company spent an aggregate of $256 million on
postage (including the cost of parcel shipments that were passed
on to customers) of which 45% was attributable to parcel
shipments, 47% was attributable to the mailing of promotional
materials and 8% was attributable to various correspondence with
customers. As is customary in the direct mail industry, the
Company passes on the cost of parcel shipments directly to the
customer as part of the shipping and handling charge. The costs
of mailing promotional material and certain other correspondence
(including postage) are not directly passed on to customers, but
are considered in the Company's overall product pricing and
mailing strategies.
In January 1995, the United States Postal Service increased
its first class, third class and fourth class postage rates,
which will increase the Company's overall postage rates by
approximately 12%. In addition, the cost of paper has also
increased. To reduce the effect of the postal increase,
Fingerhut will begin printing its catalogs on lighter weight
paper, will work to improve the efficiency of its mailings by
reviewing mailing depth and criteria and will also take steps to
reduce its other operating expenses. The Company will adopt new
innovations in mail processing techniques, as appropriate.
Vendor Relations
The Company purchases products from approximately 2,500
different suppliers and maintains strong relations with its
vendors. In 1994, the top ten vendors accounted for
approximately 21% of the Company's total merchandise purchases,
with Thomson Consumer Electric Inc. and Springs Industries Inc.
each accounting for approximately 4% of the total merchandise
purchases and Regency Bedspread Corporation and Diversified
Products each accounting for approximately 2% of the total
merchandise purchases.
The Company maintains close relations with overseas
representatives in Hong Kong, Taiwan, Korea, Philippines,
Thailand and Europe. In 1994, approximately 19% of the Company's
merchandise was imported directly from foreign vendors and
approximately an additional 30% was purchased through importers.
Employees
As of December 30, 1994, the Company had approximately 9,000
employees, of whom approximately 3300 were represented by the
Midwest Regional Joint Board or the Tennessee/Kentucky District _
Southern Regional Joint Board of the Amalgamated Clothing and
Textile Workers Union. The Company's principal collective
bargaining agreements expire on February 1, 1996 and February 2,
1997. The Company considers its relations with its employees and
the union to be satisfactory.
Trademarks and Tradenames
The Company has registered and continues to register, when
appropriate, various trademarks, tradenames and service marks
used in connection with its business and for private label
marketing of certain of its products. The Company considers its
various trademarks and service marks to be readily identifiable
with, and valuable to its business.
Governmental Matters
The Company's business is subject to regulation by a variety
of state and federal laws and regulations related to, among other
things, advertising, time payment pricing, offering and extending
of credit, charging and collecting state sales and use taxes and
product safety. The Company's practices in certain of these
areas are subject to periodic inquiries and proceedings by
various regulatory agencies. None of these actions has had a
material adverse effect upon the Company. In addition, the
operations of Fingerhut have been subject to certain federal and
state consent decrees, the most recent dating back to 1978.
These decrees regulate the manner in which products and gifts may
be described by the Company and specific aspects of credit,
advertising and merchandise substitution policies. The Company
does not consider the existence of these decrees to be a
significant impediment to its profitability or operations.
As a nationally chartered credit card bank, Direct Merchants
Credit Card Bank, N.A. is subject to federal and certain state
banking laws and regulations, as well as those relating to
offering and extending credit.
From time to time the Company has received notices and
inquiries from states with respect to collection of use taxes for
sales to residents of these states. To the extent that any
states are successful in such claims, the Company's cost of doing
business could be increased, although it does not believe any
increase would be material.
Fingerhut relies on the Minnesota "time-price" doctrine in
establishing and collecting installment payments on products sold
in many states. Under this doctrine, the difference between the
time price and the cash price for the same goods is not treated
as interest subject to regulation under laws governing the
extension of credit. In other states, Fingerhut is subject to
regulations that limit maximum finance charges and require
refunding of finance charges to customers under certain
circumstances. Fingerhut believes that its time payment pricing
and credit practices are in compliance with applicable state
requirements. Any change of law that would negatively affect
Fingerhut's pricing policies could have an adverse effect on the
Company's profitability.
Executive Officers of the Registrant
Name Age Present Office
Theodore Deikel 59 Chairman of the Board,
Chief Executive Officer and
President
Rakesh K. Kaul 43 Vice Chairman and Chief
Operating Officer
Elizabeth A. Bothereau 43 Senior Vice President,
Customer Services,
Corporate and Environmental
Affairs
John K. Ellingboe 44 Senior Vice President,
Business Development,
General Counsel and
Secretary
Glenn L. Habern 50 Senior Vice President,
Chief Information and
Business Process Officer
Richard B. Hoffmann 48 Senior Vice President,
Credit
Andrew V Johnson 39 Senior Vice President,
Marketing
Daniel J. McAthie 44 Senior Vice President, Chief
Financial Officer
James B. Moran 58 Senior Vice President,
Operations and
President, Fingerhut
Fulfillment Services
Richard L. Tate 49 Senior Vice President,
Merchandising
Ronald N. Zebeck 40 President, Fingerhut
Financial Services Corporation
Robert W. Oberrender 35 Vice President, Treasurer
Thomas C. Vogt 48 Corporate Controller
Theodore Deikel has served as Chairman of the Board, Chief
Executive Officer and President since 1989. From 1985 until
rejoining the Company, Mr. Deikel served as Chairman and CEO of
CVN Companies, Inc. ("CVN"), a direct marketing company using
television and direct mail. From 1979 to 1983, Mr. Deikel was
Executive Vice President of American Can Company (a predecessor
to Travelers) and Chairman of American Can Company's specialty
retailing division, which included the Company. In addition, Mr.
Deikel was Chief Executive Officer of Fingerhut from 1975 to
1983.
Rakesh K. Kaul was appointed Chief Operating Officer in March
1995 and has been Vice Chairman since May 1994; he was Executive
Vice President and Chief Administrative Officer from January 1992
to May 1994. Prior to joining the Company, Mr. Kaul held several
positions at Shaklee Corporation, a direct marketing company: he
was Chief Financial and Strategy Officer from 1990 to April 1991
and Senior Vice President, Corporate Development and Planning
from 1989 to 1990.
Elizabeth A. Bothereau has been Senior Vice President,
Customer Services, Corporate and Environmental Affairs of the
Company since October 1993. Prior to that time, she held the
positions of Vice President, Consumer and Environmental Affairs
of the Company from January 1991 to October 1993; and Director,
Business Development of Fingerhut from June 1990 to January 1991.
Ms. Bothereau was Senior Vice President, Administration of
MedTrac, a health care cost containment company, from July 1989
to June 1990.
John K. Ellingboe has been Senior Vice President, Business
Development, since October 1993, General Counsel of the Company
since June 1990 and Secretary of the Company since April 1990.
Prior to that time he was a shareholder of Briggs and Morgan,
Professional Association, a law firm, from 1987 to April 1990.
Glenn L. Habern has been Senior Vice President and Chief
Information Officer of the Company since April 1991. Mr. Habern
was a Partner and was Director of Retail Systems Consulting of
Ernst & Young, independent accountants, from 1987 to April 1991.
Richard B. Hoffmann has been Senior Vice President, Credit of
the Company since October 1993 and in March 1995 was also given
responsibility for New Ventures. Prior to that time, he was Vice
President, Credit of the Company from November 1989 to October
1993.
Andrew V Johnson has been Senior Vice President, Marketing of
the Company since January 1993. Prior to that time, he was Vice
President, Marketing of the Company from November 1989 to January
1993 and held various marketing positions at Fingerhut prior to
1989.
Daniel J. McAthie became Senior Vice President, Chief
Financial Officer of the Company in January 1994. Prior to that
time he was Vice President and Treasurer of the Company from June
1990 to December 1993 and Vice President and Treasurer of CVN
from 1987 to 1990. Mr. McAthie has resigned effective as of
April 1, 1995.
James B. Moran has been Senior Vice President, Operations
since January 1992 and was Senior Vice President, Subsidiaries
from September 1991 to January 1992. From 1988 until joining the
Company, Mr. Moran was President and Chief Executive Officer of
Tru-Part Manufacturing, a wholesale distribution company.
Richard L. Tate has been Senior Vice President, Merchandising
of the Company since October 1993. Prior to that time he was
Vice President, Merchandising of the Company from December 1989
to October 1993. He was Vice President, Merchandising of CVN
from March to December, 1989.
Ronald N. Zebeck was hired as President of Fingerhut Financial
Services Corporation in March 1994 and is also a Senior Vice
President of the Company. He was Managing Director, GM Card
Operations of General Motors Corporation from 1991 to 1993 and
director of marketing of Advanta Corporation from 1987 to 1991.
Robert W. Oberrender has been Vice President, Treasurer of the
Company since July 1994. Prior to that time, he was Assistant
Treasurer of the Company from February 1993 to July 1994 and was
Vice President, Corporate Finance & Banking Group of Chemical
Bank for more than five years prior to February 1993.
Thomas C. Vogt has been Corporate Controller since November
1994. Prior to that time, he was Assistant Controller,
Operations of the Company from August 1991 to October 1994 and
was Vice President and Controller of Hanover Direct, Inc. from
April 1989 to July 1991. He held various financial positions at
Fingerhut from October 1973 to March 1989.
Officers of the Company are elected by, and hold office at
the will of, the Board of Directors and do not serve a "term of
office" as such.
Item 2. Properties
The Company's executive and administrative offices and
warehouse and distribution facilities are located in a number of
facilities in Minnesota, Tennessee, Utah and Wisconsin. The
total facilities presently used by the Company's continuing
operations have an aggregate of approximately 4.9 million square
feet, including a 547,000 square foot expansion to its St. Cloud
warehouse and distribution center that became operational in the
fourth quarter of 1994. Of these, Fingerhut owns buildings in
St. Cloud with an aggregate of approximately 1.5 million square
feet, in Alexandria with an aggregate of approximately 53,000
square feet, and in Mora with approximately 160,000 square feet.
Figi's owns buildings in Marshfield, Wisconsin with an aggregate
of approximately 317,000 square feet. Tennessee Distribution,
Inc., a subsidiary of the Company, owns a one million square foot
warehouse and distribution facility near Bristol, Tennessee.
The Company leases the remainder of the facilities it uses,
which consist of office, operations and warehouse space,
including a 188,000 square foot office building in Minnetonka.
The lessor of such facilities has exercised its right to require
the Company to purchase those facilities for approximately $15
million in 1995.
In order to improve efficiency and accommodate future
growth, the Company is constructing a new 185,000 square foot
data and technology center in Plymouth, Minnesota, which is
expected to open in mid-1995. In addition, the Company has begun
constructing a one million square foot warehouse and distribution
center in Spanish Fork, Utah.
Item 3. Legal Proceedings
The Company is a party to various claims, legal actions,
sales/use tax disputes and other complaints arising in the
ordinary course of business. In the opinion of management, any
losses that may occur are adequately covered by insurance, are
provided for in the financial statements, or are without merit
and the ultimate outcome of these matters will not have a
material effect on the financial position or operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ended December
30, 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is set forth in
"Quarterly Financial and Stock Data" on page 31 of the Company's
Annual Report to Shareholders for the fiscal year ended December
30, 1994 (the "1994 Annual Report") and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required by this item is set forth under the
caption "Five Year Summary of Selected Consolidated Financial
Data" on page 14 of the 1994 Annual Report and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 15 to 18 of the 1994
Annual Report and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The audited Consolidated Financial Statements of the
Registrant and independent auditors' report thereon and the
unaudited Quarterly Financial and Stock Data set forth on pages
19 to 31 of the 1994 Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to
directors is set forth under "Proposal 1: Election of Directors"
in the Company's proxy statement for the annual meeting of
shareholders to be held on May 18, 1995, which will be filed
within 120 days of December 30, 1994 (the "Proxy Statement") and
is incorporated herein by reference. The information required by
this item with respect to executive officers is, pursuant to
instruction 3 of Item 401(b) of Regulation S-K, set forth in Part
I of this Form 10-K under "Business--Executive Officers of the
Registrant." The information required by this item with respect
to reports required to be filed under Section 16(a) of the
Securities Exchange Act of 1934 is set forth under "Security
Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement and is incorporated by reference.
Item 11. Executive Compensation
The information required by this item is set forth under
"Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is set forth under
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under
"Arrangements and Transactions with Related Parties" in the Proxy
Statement and is incorporated herein by reference.
With the exception of the information incorporated by
reference in Items 10-13 above, the Proxy Statement is not to be
deemed filed as part of this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are made part of this report:
1. Consolidated Financial Statements.
The following consolidated financial statements, the
related notes and the report of the Company's
independent auditors are incorporated herein by
reference from the 1994 Annual Report as part of
this report at Item 8 hereof:
Independent Auditors' Report dated January 23,
1995.
Consolidated Statements of Earnings for the three
fiscal years ended December 30, 1994.
Consolidated Statements of Financial Position at
December 30, 1994 and December 31, 1993.
Consolidated Statements of Changes in
Stockholders' Equity for the three fiscal years
ended December 30, 1994.
Consolidated Statements of Cash Flows for the
three fiscal years ended December 30, 1994.
Notes to Consolidated Financial Statements.
With the exception of the foregoing information and
the information incorporated by reference in Items 5-
8 of this Part II, the 1994 Annual Report is not to
be deemed filed as part of this Form 10-K.
2. Financial Statement Schedule: The following schedule
for the three years ended December 30, 1994 is
included in this Form 10-K:
Independent Auditors' Report on consolidated
financial statement schedule dated January 23,
1995.
Schedule VIII - Valuation and Qualifying
Accounts.
Certain schedules have been omitted because they are
not required under the related instructions or are
inapplicable, or because the required information is
included elsewhere in the financial statements or
related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index on page 20 of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 29th day of March, 1995.
FINGERHUT COMPANIES, INC.
(Registrant)
By /s/ Theodore Deikel
Theodore Deikel
Chairman of the Board, Chief
Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Fingerhut Companies, Inc., the Registrant, and in
the capacities and on the dates indicated.
Signature Title Date
Principal executive Chairman of the Board, March 29, 1995
officer and director: Chief Executive Officer
and President
/s/ Theodore Deikel
Theodore Deikel
Principal financial officer: Senior Vice President, March 29, 1995
Chief Financial Officer
/s/ Daniel J. McAthie
Daniel J. McAthie
Principal accounting officer:Corporate Controller March 29, 1995
/s/ Thomas C. Vogt
Thomas C. Vogt
Directors:
/s/ Wendell R. Anderson Director March 29, 1995
Wendell R. Anderson
/s/ Edwin C. Gage Director March 29, 1995
Edwin C. Gage
/s/ Stanley S. Hubbard Director March 29, 1995
Stanley S. Hubbard
/s/ Rakesh K. Kaul Director March 29, 1995
Rakesh K. Kaul
/s/ Richard M. Kovacevich Director March 29, 1995
Richard M. Kovacevich
/s/ Dudley C. Mecum Director March 29, 1995
Dudley C. Mecum
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
Articles of Incorporation and Bylaws
3.a Amended and Restated Articles of Incorporation of
the Registrant (restated in electronic format as
amended to July 29, 1993)(Incorporated by reference
to Exhibit 3.a to Registrant's Annual Report on
Form 10-K (File No. 1-8668) for the fiscal year
ended December 31, 1993).
3.b Bylaws of the Registrant (restated in electronic
format as amended to July 29, 1993)(Incorporated by reference
to Exhibit 3.b to Registrant's Annual Report on
Form 10-K (File No. 1-8668) for the fiscal year
ended December 31, 1993).
Material Contracts
10.a Pooling and Servicing Agreement dated as of June 29, 1994
among Fingerhut Receivables, Inc., as Transferor, Fingerhut
Corporation, as Servicer, and The Bank of New York (Delaware),
as Trustee (Incorporated by reference to Exhibit 10.b to
Registrant's Quarterly Report on Form 10-Q (File No. 1-8668)
for the fiscal quarter ended July 1, 1994).
(i) Series 1994-1 Supplement dated as of June 29, 1994
(Incorporated by reference to Exhibit 10.b(i) to
Registrant's Quarterly Report on Form 10-Q (File No. 1-8668)
for the fiscal quarter ended July 1, 1994).
(ii)Series 1994-2 Supplement dated as of November 15, 1994.
10.b Purchase Agreement dated as of June 29, 1994 between
Fingerhut Receivables, Inc., as Buyer, and
Fingerhut Corporation, as Seller (Incorporated by
reference to Exhibit 10.a. to Registrant's
Quarterly Report on Form 10-Q (File No. 1-8668) for
the fiscal quarter ended July 1, 1994).
10.c Six Lease and Option Agreements, each effective
January 1, 1990, and each between the Registrant and
Transport Life Insurance Company (Incorporated
by reference to Exhibit 10(c) to Registrant's Registration
Statement on Form S-1 (No. 33-33923)).
10.d* Fingerhut Corporation Profit Sharing Plan 1989 Revision
(Incorporated by reference to Exhibit 10(d) to Registrant's
Registration Statement on Form S-1 (No. 33-33923)).
10.e* Fingerhut Companies, Inc. and Subsidiaries 1994 Key
Management Incentive Bonus Plan for Designated Corporate
Officers (Incorporated by reference to Exhibit 10.e
to Registrant's Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year ended December 31, 1993).
10.f* Fingerhut Corporation Pension Plan 1990 Revision
(Incorporated by reference to Exhibit 10(f) to
Registrant's Registration Statement on Form S-1 (No.
33-33923)).
10.g* Fingerhut Companies, Inc. Stock Option Plan (Incorporated
by reference to Exhibit 10(h) to Registrant's Registration
Statement on Form S-1 (No. 33-33923)).
10.h* Executive Tax Planning/Preparation and Financial
Planning Policy.
10.i Intentionally left blank.
10.j* Fingerhut Companies, Inc. 1992 Long-Term Incentive
and Stock Option Plan. (Incorporated by reference
to (Exhibit 10(j) to Registrant's Annual Report on
Form 10-K (File No. 1-8668) for the fiscal year ended
December 25, 1992).
10.k* Fingerhut Companies, Inc. and Subsidiaries Annual Incentive
Bonus Plan for Designated Corporate Officers (Incorporated
by reference to Exhibit 10.k to Registrant's Annual Report
on Form 10-K (File No. 1-8668) for the fiscal year ended
December 31, 1993).
10.l* Fingerhut Companies, Inc. Performance Enhancement Investment
Plan. (Incorporated by reference to Exhibit 10(l) to
Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 25, 1992).
10.m* Fingerhut Companies, Inc. Directors' Retainer Stock
Deferral Plan (Incorporated by reference to Exhibit 10.m to
Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 31, 1993).
10.n Amended and Restated Revolving Credit and Letter of
Credit Facility dated as of October 17, 1994, among
Fingerhut Companies, Inc., the Guarantors party thereto,
the Lenders party thereto, the Issuing Banks party
thereto, Chemical Bank as Agent and NationsBank of
North Carolina N.A., as Co-Agent (Incorporated
by reference to Exhibit 10.n to Registrant's Quarterly
Report on Form 10-Q (File No. 1-8668) for
the fiscal quarter ended September 30, 1994).
10.o Form of Purchase Agreement dated as of January 14, 1991,
relating to the sale of $65,000,000 of 9.81% Senior
Notes, Series A, due June 30, 1996 and $25,000,000
of 10.12% Senior Notes, Series B, due December 30, 1997
(Incorporated by reference to Exhibit 10(o) to
Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 28, 1990).
(i) First Amendment Agreement dated as of March 1, 1992.
(Incorporated by reference to Exhibit 10(o)(i)
to Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 27, 1991).
(ii) Second Amendment Agreement dated as of June 17, 1994.
10.p Purchase Agreement dated as of February 15, 1991, relating
to the sale of $20,000,000 of 9.74% Senior Notes, Series C,
due August 15, 1996 (Incorporated by reference to
Exhibit 10(p) to Registrant's Annual Report on Form 10-K
(File No. 1-8668) for the fiscal year ended December
28, 1990).
(i) First Amendment Agreement dated as of March 1, 1992.
(Incorporated by reference to Exhibit 10(p)(i)
to Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 27, 1991).
(ii) Second Amendment Agreement dated as of June 17, 1994.
This document is being omitted from filing pursuant to
Instruction 2 to Item 601 of Regulation S-K.
10.q Purchase Agreement dated as of January 15, 1992, relating to
the sale of $15,000,000 of 6.96% Senior Notes, Series D, due
August 15, 1996. (Incorporated by reference to Exhibit 10(q)
to Registrant's Annual Report on Form 10-K (File No. 1-8668)
for the fiscal year ended December 27, 1991).
(i) First Amendment Agreement dated as of March 1, 1992.
(Incorporated by reference to Exhibit 10(q)(i)
to Registrant's Annual Report on From 10-K (File No. 1-8668)
for the fiscal year ended December 27, 1991).
(ii) Second Amendment Agreement dated as of June 17, 1994. This
document is being omitted from filing pursuant to
Instruction 2 to Item 601 of Regulation S-K.
10.r Pledge Agreement dated as of March 20, 1992, securing the
Company's obligations under the Credit Agreement and its
Senior Notes, Series A, B, C and D. (Incorporated by reference
to Exhibit 10(r) to Registrant's Annual Report on Form 10-K
(File No. 1-8668 for the fiscal year ended December 27, 1991).
10.s Purchase Agreement dated as of June 15, 1992, relating to the
sale of $60,500,000 of 8.92% Senior Unsecured Notes, Series A,
due June 15, 2002 and $14,500,000 of 8.92% Senior Unsecured
Notes, Series B, due June 15, 2004 (Incorporated by reference
to Exhibit 10(s) to Registrant's Quarterly Report on form 10-Q
(File No. 1-8668) for the fiscal quarter ended June 26, 1992.
(i) First Amendment Agreement dated as of June 17, 1994. This
document is being omitted from filing pursuant to
Instruction 2 to Item 601 of Regulation S-K.
10.t Purchase Agreement dated as of August 1, 1993, relating to
the sale of $45,000,000 of 6.83% Senior Unsecured Notes,
Series C, due August 1, 2000 (Incorporated by reference
to Exhibit 10.t to Registrant's Quarterly Report on
Form 10-Q (File 1-8668) for the fiscal quarter ending
September 24, 1993).
(i) First Amendment Agreement dated as of June 17, 1994.
This document is being omitted from filing
pursuant to Instruction 2 to Item 601 of Regulation S-K.
Other Exhibits
11 Computation of Earnings per Share
13 Pages 14 to 31 of the 1994 Annual Report to Shareholders.
The 1994 Annual Report shall not be deemed to be filed
with the Commission except to the extent that
information is specifically incorporated herein by reference.
Exhibit 13 also includes a financial statement schedule, and
independent auditors' report thereon, that was not part of
the 1994 Annual Report.
22 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedules
______
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form
10-K.
EXHIBIT 10.a(ii)
SERIES 1994-2
SUPPLEMENT, dated as of November 15, 1994 (this "Series
Supplement") by and among FINGERHUT RECEIVABLES, INC., a
corporation organized and existing under the laws of the
State of Delaware, as Transferor (the "Transferor"),
FINGERHUT CORPORATION, a corporation organized and
existing under the laws of Minnesota, as Servicer (the
"Servicer"), and THE BANK OF NEW YORK (DELAWARE), a
Delaware banking corporation organized and existing under
the laws of Delaware, as trustee (together with its
successors in trust thereunder as provided in the
Agreement referred to below, the "Trustee") under the
Pooling and Servicing Agreement dated as of June 29, 1994
as amended, supplemented or otherwise modified from time
to time (the "Agreement") among the Transferor, the
Servicer and the Trustee.
Section 6.9 of the Agreement provides, among
other things, that the Transferor and the Trustee may at
any time and from time to time enter into a supplement to
the Agreement for the purpose of authorizing the issuance
by the Trustee to the Transferor, for execution and
redelivery to the Trustee for authentication, of one or
more Series of Certificates.
Pursuant to this Series Supplement, the
Transferor and the Trustee shall create a new Series of
Investor Certificates and shall specify the Principal
Terms thereof.
1. Designation. There is hereby created a
Series of Investor Certificates to be issued pursuant to
the Agreement and this Series Supplement to be known
generally as the "Series 1994-2 Certificates." The Series
1994-2 Certificates shall be issued in four Classes, which
shall be designated generally as the Variable Funding
Trust Certificate, Series 1994-2, Class A (the "Class A
Certificate"), the Floating Rate Accounts Receivable Trust
Certificates, Series 1994-2, Class B (the "Class B
Certificates"), the Floating Rate Accounts Receivable
Trust Certificates, Series 1994-2, Class C (the "Class C
Certificates") and the Variable Funding Trust
Certificates, Series 1994-2, Class D (the "Class D
Certificates").
2. Definitions. In the event that any term
or provision contained herein shall conflict with or be
inconsistent with any provision contained in the
Agreement, the terms and provisions of this Series
Supplement shall govern with respect to the Series 1994-2
Certificates. All Article, Section or subsection
references herein shall mean Article, Section or
subsections of the Agreement, as amended or supplemented
by this Series Supplement, except as otherwise provided
herein. All capitalized terms not otherwise defined
herein are defined in the Agreement. Each capitalized
term defined herein shall relate only to the Series 1994-2
Certificates and no other Series of Certificates issued by
the Trust.
"ABC Fixed/Floating Allocation Percentage" shall
mean for any Business Day the percentage equivalent of a
fraction, the numerator of which is the sum of the Class A
Adjusted Invested Amount, the Class B Invested Amount and
the Class C Invested Amount at the end of the last day of
the Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account at the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Receivables for all Series; provided, however,
that during any Class A Pay Down Period, the numerator
used in the above calculation shall be the sum of the
Class A Invested Amount, the Class B Invested Amount and
the Class C Invested Amount as of the day immediately
preceding the commencement of the Class A Pay Down Period.
"ABC Investor Default Amount" shall mean an
amount equal to the product of (a) the sum of the Class A
Floating Allocation Percentage, the Class B Floating
Allocation Percentage and the Class C Floating Allocation
Percentage applicable on such Business Day and (b) the
aggregate Default Amount identified since the prior
reporting date.
"ABC Revolving Principal Collections" shall
have the meaning specified in Section 4.9(b) of the
Agreement.
"Additional Class A Invested Amounts" shall have
the meaning specified in Section 6.15 of the Agreement.
"Additional Class D Invested Amounts" shall have
the meaning specified in Section 6.16 of the Agreement.
"Additional Interest" shall mean, at any time of
determination, the sum of Class B Additional Interest and
Class C Additional Interest.
"Adjusted Portfolio Yield" shall mean for the
Series 1994-2 Certificates, with respect to any Monthly
Period, the annualized percentage equivalent of a
fraction, the numerator of which is an amount equal to the
sum of the aggregate amount of Available Series 1994-2
Imputed Yield Collections (without giving effect to any
portion thereof representing amounts withdrawn from the
Payment Reserve Account) for such Monthly Period (minus
the Floating Allocation Percentage of the portion of
Imputed Yield Collections for such period described in
clause (D) of the definition thereof), minus the aggregate
Investor Default Amount for such Monthly Period and the
Series Allocation Percentage of any Adjustment Payments
which the Transferor is required but fails to make
pursuant to the Pooling and Servicing Agreement for such
Monthly Period, and the denominator of which is the
average daily sum of the Class A Invested Amount, the
Class B Invested Amount and the Class C Invested Amount
plus the Pre-Funded Amount for such Monthly Period.
"Aggregate ABC Principal Amount" shall mean with
respect to any date of determination an amount equal to
the sum of the Class A Outstanding Principal Amount, the
Class B Invested Amount and the Class C Invested Amount,
each as of such date of determination.
"Aggregate Interest Rate Caps Notional Amount"
shall mean with respect to any date of determination an
amount equal to the sum of the notional amounts or
equivalent amounts of all outstanding Cap Agreements,
Replacement Interest Rate Caps and Qualified Substitute
Arrangements, each as of such date of determination.
"Amortization Period" shall mean the period
beginning on the day following the last day of the
Revolving Period and ending on the Series 1994-2
Termination Date.
"Amortization Period Commencement Date" shall
mean (i) the earlier of October 27, 1997 and the Pay Out
Commencement Date or (ii) if there is any Extension, the
earlier of the date specified as such in the most recent
Extension Notice and the Pay Out Commencement Date.
"Available Series 1994-2 Imputed Yield
Collections" shall have the meaning specified in
subsection 4.9(a) of the Agreement.
"Bank" shall mean any liquidity bank providing
liquidity for the CP Issuer's Commercial Paper from time
to time pursuant to the Liquidity Agreement, as evidenced
by its execution thereof, and any successor or assignee
liquidity banks under the Liquidity Agreement.
"Base Rate" shall mean, as of any Business Day,
the sum of (i) the average of (A) the Class A Certificate
Rate, (B) the Class B Certificate Rate and (C) the Class C
Certificate Rate, each of (A), (B) and (C) weighted by the
unpaid principal amount of each respective Class of
Certificates as of such Business Day, plus (ii) the
product of 2% per annum and the percentage equivalent of a
fraction the numerator of which is the sum of the Class A
Adjusted Invested Amount, the Class B Invested Amount, the
Class C Invested Amount and the Class D Invested Amount
and the denominator of which is the Invested Amount.
"Cap Agreements" shall mean the interest rate
cap agreements, between the Transferor, the Trustee and a
Cap Provider, as amended from time to time, with respect
to the Class A Certificate Rate, Class B Certificate Rate
and Class C Certificate Rate, respectively, and any
additional interest rate protection agreement or
agreements, entered into between the Transferor, the
Trustee and a Cap Provider, as the same may from time to
time be amended, restated, modified and in effect.
"Cap Proceeds Account" shall have the meaning
specified in subsection 3A(b) of this Series Supplement.
"Cap Provider" shall mean a third party cap
provider having a senior unsecured debt rating of at least
"AA" by Standard & Poor's and "Aa2" by Moody's.
"Cap Receipt Amount" shall mean, with respect to
any Business Day the amount on deposit in the Cap Proceeds
Account.
"Cap Settlement Date" shall have the meaning
specified in subsection 3A(b) of this Series Supplement.
"Carryover Class B Interest" shall mean (a) any
Class B Interest due but not paid on any previous
Distribution Date plus (b) any Class B Additional
Interest.
"Carryover Class C Interest" shall mean (a) any
Class C Interest due but not paid on any previous
Distribution Date plus (b) any Class C Additional
Interest.
"Class A Adjusted Invested Amount" shall mean,
with respect to any date of determination, an amount equal
to the Class A Invested Amount minus the Defeasance
Account Balance on such date of determination.
"Class A Certificateholder" shall mean the
Person in whose name a Class A Certificate is registered
in the Certificate Register.
"Class A Certificateholders' Interest" shall
mean the portion of the Series 1994-2 Certificateholders'
Interest evidenced by the Class A Certificate.
"Class A Certificate" shall mean the variable
funding certificate executed by the Transferor and
authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-1 hereto.
"Class A Certificate Rate" shall mean with
respect to any Business Day, a per annum interest rate
equal to the rate which if multiplied by the Class A
Outstanding Principal Amount as of the close of business
on the preceding Business Day would produce, on the basis
of a 365- or 366-day year, as the case may be, an amount
equal to the Cost of Funds for the period from and
including the next preceding Business Day to but excluding
such Business Day.
"Class A Costs" shall mean with respect to any
Business Day, the Liquidity Bank Increased Costs (as
defined in the Collateral Trust Agreement), OTC Article VI
Costs (as defined in the Collateral Trust Agreement) and
any amounts described in subsection 5.3(a)(ii)(I)(a) of
the Collateral Trust Agreement, in each case to the extent
such amount is due and payable and has not previously been
paid, and any Commitment Fees (as defined in the Liquidity
Agreement) accrued from and including the preceding
Business Day to but excluding such Business Day pursuant
to Section 2.9 of the Liquidity Agreement with respect to
Unutilized Available Commitments (as defined in the
Liquidity Agreement) and any such Commitment Fees which
accrued with respect to prior Business Days but have not
been paid pursuant to Section 2.9 of the Liquidity
Agreement.
"Class A Event of Default" shall have the
meaning specified for the term "Event of Default" in the
Liquidity Agreement.
"Class A Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class A Adjusted Invested Amount as of the end of the
preceding Business Day and the denominator of which is the
greater of (a) the total amount of Principal Receivables
in the Trust and the amounts on deposit in the Excess
Funding Account as of the end of the preceding Business
Day and (b) when used with respect to Principal
Collections only, the sum of the numerators with respect
to all Classes of all Series then outstanding used to
calculate the applicable allocation percentage.
"Class A Funding Purchase" shall have the
meaning specified in Section 4.14A of the Agreement.
"Class A Interest" shall mean the interest
distributable in respect of the Class A Certificate as
calculated in accordance with subsection 4.6(a) of the
Agreement.
"Class A Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class A Interest Shortfall" shall have the
meaning specified in subsection 4.6(a) of the Agreement.
"Class A Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class A Certificates purchased
pursuant to any Class A Funding Purchase pursuant to
Section 4.14A(b) of the Agreement, plus (b) the aggregate
amount of all Class A Pre-Funding Withdrawals pursuant to
Section 4.15 of the Agreement, minus (c) the aggregate
amount of principal payments (except principal payments,
if any, made from the Pre-Funding Account) made to Class A
Certificateholders prior to such Business Day, minus (d)
the aggregate amount of Class A Investor Charge-Offs for
all prior Distribution Dates, plus (e) the sum of the
aggregate amount allocated with respect to Class A
Investor Charge-Offs and available on all prior
Distribution Dates pursuant to subsection 4.9(a)(viii) of
the Agreement and, with respect to such subsection and
pursuant to subsections 4.10(a) and (b) and Section 4.16
of the Agreement, for the purpose of reinstating amounts
reduced pursuant to the foregoing clause (d) plus (f) the
aggregate principal amount of any Additional Class A
Invested Amounts purchased pursuant to Section 6.15 of the
Agreement.
"Class A Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(d) of the Agreement.
"Class A Investor Percentage" shall mean, for
any Business Day, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period (except
for any portion of the Revolving Period that occurs during
the Class A Pay Down Period), the Class A Floating
Allocation Percentage and (b) with respect to Principal
Receivables during the Amortization Period and the Class A
Pay Down Period, the ABC Fixed/Floating Allocation
Percentage.
"Class A Maximum Invested Amount" shall mean
$412,400,000.
"Class A Outstanding Principal Amount" shall
mean with respect to the Class A Certificate, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class A Certificates purchased
pursuant to any Class A Funding Purchase pursuant to
Section 4.14A(b) of the Agreement, or (b) the aggregate
amount of the Class A Pre-Funding Deposit pursuant to
Section 4.14 of the Agreement, plus (c) the aggregate
principal amount of any Additional Class A Invested
Amounts purchased by the Class A Certificateholder on or
prior to such Business Day pursuant to Section 6.15 of the
Agreement minus (d) the aggregate amount of principal
payments made to the Class A Certificateholder on or prior
to such Business Day.
"Class A Pay Down Period" shall have the meaning
specified in Section 8A of this Series Supplement.
"Class A Percentage" shall mean a fraction the
numerator of which is the Class A Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class A Pre-Funded Amount" shall mean on any
date of determination in the Pre-Funding Period an amount
equal to the Class A Pre-Funding Deposit minus the
aggregate amount of all Class A Pre-Funding Withdrawals
and at all other times an amount equal to zero.
"Class A Pre-Funding Deposit" shall have the
meaning specified in Section 4.14 of the Agreement.
"Class A Pre-Funding Withdrawal" shall have the
meaning specified in Section 4.15 of the Agreement.
"Class A Principal" shall mean the principal
distributable in respect of the Class A Certificate as
calculated in accordance with subsection 4.7(a) of the
Agreement.
"Class A Purchase Agreement" shall mean the
Class A Purchase Agreement, dated as of November 15, 1994,
between Fingerhut Owner Trust and the Transferor, as the
same may from time to time be amended, restated, modified
and in effect.
"Class A Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) the amount
described in subsection 4.9(a)(i)(y) for such Business
Day, (ii) if Fingerhut or an Affiliate of Fingerhut is no
longer the Servicer, the Class A Floating Allocation
Percentage of the Daily Portion of the Servicing Fee for
the then current Monthly Period, (iii) the Class A
Floating Allocation Percentage of the Default Amount, if
any, for such Business Day and, to the extent not
previously paid, for any previous Business Day in such
Monthly Period and (iv) on each Transfer Date the Class A
Percentage of the Series Allocation Percentage of the
Adjustment Payment required to be made by the Transferor
but not made on such Transfer Date over (y) the Available
Series 1994-2 Imputed Yield Collections plus any Excess
Imputed Yield Collections from other Series and any
Transferor Imputed Yield Collections allocated with
respect to the amounts described in clauses (x)(i) through
(iv).
"Class B Additional Interest" shall have the
meaning specified in subsection 4.6(b) of the Agreement.
"Class B Certificateholder" shall mean the
Person in whose name a Class B Certificate is registered
in the Certificate Register.
"Class B Certificateholders' Interest" shall
mean the portion of the Series 1994-2 Certificateholders'
Interest evidenced by the Class B Certificates.
"Class B Certificate Rate" shall mean with
respect to each Interest Accrual Period, a per annum rate
.625% in excess of LIBOR, as determined on the related
LIBOR Determination Date.
"Class B Certificates" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-2 hereto.
"Class B Daily Principal Amount" shall have the
meaning specified in subsection 4.9(c)(ii) of the
Agreement.
"Class B Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class B
Invested Amount at the end of the last day of the
Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account at the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Collections for all Series.
"Class B Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class B Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater
of (a) the total amount of Principal Receivables in the
Trust and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) when used with respect to Principal Collections only,
the sum of the numerators with respect to all Classes of
all Series then outstanding used to calculate the
applicable allocation percentage.
"Class B Full Invested Amount" shall mean
$27,865,000.
"Class B Funding Purchase" shall have the
meaning specified in Section 4.14A of the Agreement.
"Class B Interest" shall mean the interest
distributable in respect of the Class B Certificates as
calculated in accordance with subsection 4.6(b) of the
Agreement.
"Class B Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class B Interest Shortfall" shall have the
meaning specified in subsection 4.6(b) of the Agreement.
"Class B Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class B Certificates purchased
pursuant to any Class B Funding Purchase pursuant to
Section 4.14A(b) of the Agreement plus (b) the aggregate
amount of all Class B Pre-Funding Withdrawals pursuant to
Section 4.15 of the Agreement, minus (c) the aggregate
amount of principal payments (except principal payments,
if any, made from the Pre-Funding Account) made to Class B
Certificateholders prior to such Business Day, minus (d)
the aggregate amount of Class B Investor Charge-Offs for
all prior Distribution Dates, minus (e) the aggregate
amount of Reallocated Class B Principal Collections for
which neither the Class D Invested Amount nor the Class C
Invested Amount has been reduced for all prior Business
Days, and plus (f) the sum of the aggregate amount
allocated and available on all prior Business Days
pursuant to subsection 4.9(a)(xi) of the Agreement and,
with respect to such subsection and pursuant to
subsections 4.10(a) and (b) and Section 4.16 of the
Agreement, for the purpose of reinstating amounts reduced
pursuant to the foregoing clauses (d) and (e).
"Class B Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(c) of the Agreement.
"Class B Investor Percentage" shall mean, for
any Distribution Date, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period, the
Class B Floating Allocation Percentage and (b) with
respect to Principal Receivables during the Amortization
Period, the ABC Fixed/Floating Allocation Percentage.
"Class B Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the principal amount of Class B
Certificates purchased pursuant to any Class B Funding
Purchase pursuant to Section 4.14A(b) of the Agreement or
(b) the aggregate amount of all Class B Pre-Funding
Deposits pursuant to Section 4.14 of the Agreement, minus
(c) the aggregate amount of principal payments made to
Class B Certificateholders prior to such Business Day.
"Class B Percentage" shall mean a fraction the
numerator of which is the Class B Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class B Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the Class B Invested
Amount as of the last day of the related Monthly Period
(determined after taking into account any increases or
decreases in the Class B Invested Amount which will occur
on the following Distribution Date) to the highest Class B
Invested Amount on or prior to the last day of such
Monthly Period during the Revolving Period.
"Class B Pre-Funded Amount" shall mean on any
date of determination in the Pre-Funding Period an amount
equal to the Class B Pre-Funding Deposit minus the
aggregate amount of all Class B Pre-Funding Withdrawals
and at all other times an amount equal to zero.
"Class B Pre-Funding Deposit" shall have the
meaning specified in Section 4.14 of the Agreement.
"Class B Pre-Funding Withdrawal" shall have the
meaning specified in Section 4.15 of the Agreement.
"Class B Principal" shall mean the principal
distributable in respect of the Class B Certificates as
calculated in accordance with subsection 4.7(b) of the
Agreement.
"Class B Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
in an Amortization Period on which the Class A Invested
Amount equals or is reduced to zero or, if there are no
Principal Collections allocable to the Series 1994-2
Certificates remaining after payments have been made to
the Class A Certificate on such Distribution Date, the
Distribution Date following the Distribution Date on which
the Class A Invested Amount is paid in full and (b) the
Distribution Date following a sale or repurchase of the
Receivables as set forth in Section 2.4(e), 9.2, 10.2,
12.1 or 12.2 of the Agreement or Section 3 of this Series
Supplement.
"Class B Purchase Agreement" shall mean the
Class B Purchase Agreement, dated as of November 15, 1994,
between the Transferor and the purchasers of the Class B
Certificates specified therein, as the same may from time
to time be amended, restated, modified and in effect.
"Class B Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) the Daily
Portion of the Class B Interest for the then current
Monthly Period, (ii) any Carryover Class B Interest
previously due but not paid to the Class B
Certificateholders on a prior Business Day, (iii) if
Fingerhut or an Affiliate of Fingerhut is no longer the
Servicer, the Class B Floating Allocation Percentage of
the Servicing Fee for the then current Monthly Period,
(iv) the Class B Floating Allocation Percentage of the
Default Amount, if any, for such Business Day and, to the
extent not previously paid, for any previous Business Day
in such Monthly Period and (v) the Class B Percentage of
the Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the
related Transfer Date over (y) the Available Series 1994-2
Imputed Yield Collections plus any Excess Imputed Yield
Collections from other Series and any Transferor Imputed
Yield Collections allocated with respect to the amounts
described in clauses (x)(i) through (v).
"Class C Additional Interest" shall have the
meaning specified in subsection 4.6(c) of the Agreement.
"Class C Certificateholder" shall mean the
Person in whose name a Class C Certificate is registered
in the Certificate Register.
"Class C Certificateholders' Interest" shall
mean the portion of the Series 1994-2 Certificateholders'
Interest evidenced by the Class C Certificates.
"Class C Certificate Rate" shall mean with
respect to each Interest Accrual Period, a per annum rate
.75% in excess of LIBOR as determined on the related LIBOR
Determination Date.
"Class C Certificates" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-3 hereto.
"Class C Daily Principal Amount" shall have the
meaning specified in subsection 4.9(c)(iii) of the
Agreement.
"Class C Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class C
Invested Amount at the end of the last day of the
Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account at the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Collections for all Series.
"Class C Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class C Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater
of (a) the total amount of Principal Receivables in the
Trust and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) when used with respect to Principal Collections only,
the sum of the numerators with respect to all Classes of
all Series then outstanding used to calculate the
applicable allocation percentage.
"Class C Full Invested Amount" shall mean
$50,157,000.
"Class C Funding Purchase" shall have the
meaning specified in Section 4.14A of the Agreement.
"Class C Interest" shall mean the interest
distributable in respect of the Class C Certificates as
calculated in accordance with subsection 4.6(c) of the
Agreement.
"Class C Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class C Interest Shortfall" shall have the
meaning specified in subsection 4.6(c) of the Agreement.
"Class C Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class C Certificates purchased
pursuant to any Class C Funding Purchase pursuant to
Section 4.14A(b) of the Agreement or (b) the aggregate
amount of all Class C Pre-Funding Withdrawals pursuant to
Section 4.15 of the Agreement, minus (c) the aggregate
amount of principal payments (except principal payments,
if any, made from the Pre-Funding Account) made to Class C
Certificateholders prior to such Business Day, minus (d)
the aggregate amount of Class C Investor Charge-Offs for
all prior Distribution Dates, minus (e) the aggregate
amount of Reallocated Class C Principal Collections for
which the Class D Invested Amount has not been reduced for
all prior Business Days and plus (f) the sum of the
aggregate amount allocated and available on all prior
Business Days pursuant to subsection 4.9(a)(xii) of the
Agreement (including amounts applied with respect thereto
pursuant to subsection 4.19(b)) and, with respect to such
subsection, pursuant to subsections 4.10(a) and (b) and
4.19(b) and Section 4.16 of the Agreement, for the purpose
of reinstating amounts reduced pursuant to the foregoing
clauses (d) and (e).
"Class C Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(b) of the Agreement.
"Class C Investor Percentage" shall mean, for
any Distribution Date, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period, the
Class C Floating Allocation Percentage and (b) with
respect to Principal Receivables during the Amortization
Period, the ABC Fixed/Floating Allocation Percentage.
"Class C Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the principal amount of Class C
Certificates purchased pursuant to any Class C Funding
Purchase pursuant to Section 4.14A(b) of the Agreement
plus (b) the aggregate amount of all Class C Pre-Funding
Deposits pursuant to Section 4.14 of the Agreement, minus
(c) the aggregate amount of principal payments made to
Class C Certificateholders prior to such Business Day.
"Class C Percentage" shall mean a fraction the
numerator of which is the Class C Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class C Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the Class C Invested
Amount as of the last day of the related Monthly Period
(determined after taking into account any increases or
decreases in the Class C Invested Amount which will occur
on the following Distribution Date) to the highest Class C
Invested Amount on or prior to the last day of such
Monthly Period during the Revolving Period.
"Class C Pre-Funded Amount" shall mean on any
date of determination in the Pre-Funding Period an amount
equal to the Class C Pre-Funding Deposit minus the
aggregate amount of all Class C Pre-Funding Withdrawals
and at all other times an amount equal to zero.
"Class C Pre-Funding Deposit" shall have the
meaning specified in Section 4.14 of the Agreement.
"Class C Pre-Funding Withdrawal" shall have the
meaning specified in Section 4.15 of the Agreement.
"Class C Principal" shall mean the principal
distributable in respect of the Class C Certificates as
calculated in accordance with subsection 4.7(c) of the
Agreement.
"Class C Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
in an Amortization Period on which the Class B Invested
Amount is paid in full or, if there are no Principal
Collections allocable to the Series 1994-2 Certificates
remaining after payments have been made to the Class B
Certificates on such Distribution Date, the Distribution
Date following the Distribution Date on which the Class B
Invested Amount is paid in full and (b) the Distribution
Date following a sale or repurchase of the Receivables as
set forth in Sections 2.4(e), 9.2, 10.2, 12.1 or 12.2 of
the Agreement and Section 3 of this Series Supplement.
"Class C Purchase Agreement" shall mean the
Class C Purchase Agreement, dated as of November 15, 1994,
between the Transferor and the Class C Certificate
purchasers specified therein, as the same may from time to
time be amended, restated, modified and in effect.
"Class C Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) Class C Interest
for the then current Monthly Period, (ii) any Carryover
Class C Interest previously due but not paid to the Class
C Certificateholders on a prior Distribution Date, (iii)
if Fingerhut or an Affiliate of Fingerhut is no longer the
Servicer, the Class C Floating Allocation Percentage of
the Servicing Fee for the then current Monthly Period,
(iv) the Class C Floating Allocation Percentage of the
Default Amount, if any, for such Business Day and, to the
extent not previously paid, for any previous Business Day
in such Monthly Period and (v) the Class C Percentage of
the Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the
related Transfer Date over (y) the Available Series 1994-2
Imputed Yield Collections plus any Excess Imputed Yield
Collections from other Series and any Transferor Imputed
Yield Collections allocated with respect to the amounts
described in clauses (x)(i) through (v).
"Class C Reserve Account" shall have the meaning
specified in subsection 4.19(a) of the Agreement.
"Class C Trigger Event" shall have the meaning
specified in Section 4.18 of the Agreement.
"Class D Certificateholder" shall mean the
Person in whose name a Class D Certificate is registered
in the Certificate Register.
"Class D Certificateholders' Interest" shall
mean the portion of the Series 1994-2 Certificateholders'
Interest evidenced by the Class D Certificates.
"Class D Certificates" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-4 hereto.
"Class D Daily Principal" shall have the meaning
specified in Section 4.7(d) of the Agreement.
"Class D Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class D
Invested Amount at the end of the last day of the
Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account as of the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Collections for all Series.
"Class D Floating Allocation Percentage" shall
mean with respect to any Business Day the percentage
equivalent of a fraction, the numerator of which is the
Class D Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater
of (a) the total amount of Principal Receivables and the
amount on deposit in the Excess Funding Account at the end
of the preceding Business Day and (b) when used with
respect to Principal Collections only, the sum of the
numerators with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation
percentage.
"Class D Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
upon the initial issuance of the Class D Certificates the
initial amount designated by the Transferor (which shall
not be less than the Stated Class D Amount), plus (b) the
aggregate principal amount of any Additional Class D
Invested Amounts pursuant to Section 6.16 of the
Agreement, minus (c) the aggregate amount of principal
payments made to Class D Certificateholders prior to such
Business Day, minus (d) the aggregate amount of Class D
Investor Charge-Offs for all prior Distribution Dates,
minus (e) the aggregate amount of Reallocated Principal
Collections for all prior Business Days, plus (f) the sum
of the aggregate amount allocated and available on all
prior Business Days pursuant to subsection 4.9(a)(xiii) of
the Agreement and, with respect to such subsection,
pursuant to subsections 4.10(a) and (b) of the Agreement,
for the purpose of reinstating amounts reduced pursuant to
the foregoing clauses (d) and (e).
"Class D Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(a) of the Agreement.
"Class D Investor Default Amount" shall mean for
any Business Day an amount equal to the product of (a) the
Class D Floating Allocation Percentage applicable on such
Business Day and (b) the aggregate Default Amount
identified since the prior reporting date.
"Class D Investor Percentage" shall mean, for
any Business Day, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period, the
Class D Floating Allocation Percentage and (b) with
respect to Principal Receivables during the Amortization
Period, the Class D Fixed/Floating Allocation Percentage.
"Class D Maximum Required Amount" shall mean
$66,876,000.
"Class D Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) upon the initial issuance of the Class
D Certificates, the initial amount designated by the
Transferor (which shall not be less than the Stated Class
D Amount), plus (b) the aggregate principal amount of any
Additional Class D Invested Amounts pursuant to Section
6.16 of the Agreement, minus (c) the aggregate amount of
principal payments made to Class D Certificateholders
prior to such Business Day.
"Class D Principal" shall mean the principal
distributable in respect of the Class D Certificates as
specified in subsection 4.7(d) of the Agreement.
"Class D Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
on which the Class C Invested Amount is paid in full or,
if there are no Principal Collections allocable to the
Series 1994-2 Certificates remaining after payments have
been made to the Class C Certificates on such Distribution
Date, the Distribution Date following the Distribution
Date on which the Class C Invested Amount is paid in full
and (b) the Distribution Date following a sale or
repurchase of the Receivables as set forth in Sections
2.4(e), 9.2, 10.2, 12.1 and 12.2 of the Agreement and
Section 3 of this Series Supplement.
"Closing Date" shall mean the date of initial
issuance of Certificates of Series 1994-2.
"Collateral Trust Agreement" shall mean the
Collateral Trust Agreement dated as of November 15, 1994,
between Fingerhut Owner Trust and State Street Bank and
Trust Company, as Collateral Trustee, as the same may from
time to time be amended, restated, modified and in effect.
"Commercial Paper" shall mean the promissory
notes issued by the CP Issuer in the commercial paper
market pursuant to the Liquidity Agreement and the
Depositary Agreement.
"Cost of Funds" shall mean with respect to any
day the sum of (a) the greater of (i) interest on Loans
outstanding and the Interest Component of outstanding
Commercial Paper accrued with respect to such day and ii)
(ii) the Servicer's written estimate delivered to the
Trustee on the first Business Day preceding the first day
of the then current Monthly Period, as may be modified
from time to time during such Monthly Period, of the
average daily amount of interest that will accrue on the
Loans and the Commercial Paper during such Monthly Period;
provided, however, that the amount determined pursuant to
this clause (a) (ii) shall not exceed on any day (I) the
product of (x) the sum of the aggregate outstanding
principal amount of the Loans and the aggregate Principal
Component of the Commercial Paper outstanding on the
preceding Business Day, (y) the greater of (A) LIBOR
prevailing on such preceding Business Day plus .75% and
(B) 12% and (z) a fraction the numerator of which is one
and the denominator of which is the actual number of days
in the then current calendar year minus (II) the sum of
the amount determined pursuant to clause (b) below and the
Total Program Fees for such day, (b) the amount of any
Commitment Fees (as defined in the Liquidity Agreement)
accrued with respect to such day pursuant to Section 2.9
of the Liquidity Agreement with respect to Utilized
Available Commitments (as defined in the Liquidity
Agreement), and (c) the Daily Portion of the Interest
Amount (as defined in the Owner Trust Agreement) accrued
with respect to such day.
"CP Issuer" shall mean Fingerhut Owner Trust, a
Delaware business trust.
"Daily Portion" shall mean, with respect to any
amount determined pursuant hereto, the product of such
amount and a fraction the numerator of which shall be the
number of days from and including the preceding Business
Day to but excluding such Business Day and the denominator
of which shall be the number of days in the then current
Monthly Period.
"Defeasance Account" shall have the meaning
specified in Section 9A of this Series Supplement.
"Defeasance Account Balance" shall mean, with
respect to any date of determination, the principal
amount, if any, on deposit in the Defeasance Account on
such date of determination.
"Depositary" shall mean BankAmerica National
Trust Company, any successor to the Depositary or such
other banking institution as the CP Issuer shall appoint,
with the prior written consent of the Majority Lenders (as
defined in the Liquidity Agreement).
"Depositary Agreement" shall mean the Depositary
Agreement, dated as of November 15, 1994, between the CP
Issuer and the Depositary, as the same may from time to
time be amended, restated, modified and in effect.
"Distribution Date" shall mean December 20,
1994, and the twentieth day of each month thereafter, or
if such day is not a Business Day, the next succeeding
Business Day; provided, however, that solely with respect
to the payment of principal with respect to the Class B
Certificates, Class C Certificates and Class D
Certificates during the Amortization Period, Distribution
Date shall mean the first Business Day of each Monthly
Period beginning with the Monthly Period next succeeding
the Monthly Period in which the Amortization Period
Commencement Date occurs; provided further, that the final
Distribution Date with respect to the payment of principal
and interest shall be the Scheduled Series 1994-2
Termination Date.
"Early Amortization Period" shall mean the
period beginning on the day on which a Pay Out Event
occurs or is deemed to have occurred and ending on the
earlier of (i) the date on which the Class A Invested
Amount, the Class B Invested Amount, the Class C Invested
Amount and the Class D Invested Amount have been paid in
full and (ii) the Series 1994-2 Termination Date.
"Election Date" shall have the meaning specified
in subsection 6.17(a) of the Agreement.
"Election Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Enhancement" shall mean, with respect to the
Class A Certificate, the subordination of the Class B
Invested Amount, the Class C Invested Amount, and the
Class D Invested Amount, with respect to the Class B
Certificates, the subordination of the Class C Invested
Amount and the Class D Invested Amount, and with respect
to the Class C Certificates, the subordination of the
Class D Invested Amount.
"Excess Imputed Yield Collections" shall mean,
with respect to any Business Day, as the context requires,
either (x) the amount described in subsection 4.9(a)(xxii)
of the Agreement allocated to the Series 1994-2
Certificates but available to cover shortfalls in amounts
paid from Imputed Yield Collections for other Series, if
any, or (y) the aggregate amount of Imputed Yield
Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect
to such Series, if any, and available to cover shortfalls
with respect to the Series 1994-2 Certificates.
"Expense Reserve Account" shall have the meaning
specified in subsection 4.21(a) of the Agreement.
"Expense Reserve Trigger" shall have the meaning
specified in Section 4.20 of the Agreement.
"Extension" shall mean the procedure by which
the Investor Certificateholders consent to the extension
of the Revolving Period to the new Amortization Period
Commencement Date set forth in the Extension Notice,
pursuant to Section 6.17 of the Agreement.
"Extension Date" shall mean October 24, 1997 or
if an Extension has already occurred, the date of the next
Extension Date set forth in the Extension Notice relating
to the Extension then in effect (or, if any such date is
not a Business Day, the next preceding Business Day).
"Extension Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Tax Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Face Amount" shall mean (i) with respect to
Commercial Paper issued on a discount basis, the face
amount stated therein, and (ii) with respect to Commercial
Paper which is interest-bearing, the principal amount of
and interest accrued and to accrue on such Commercial
Paper to its stated maturity.
"FCI Note" shall have the meaning specified in
Section 18 of this Series Supplement.
"FCI Note Required Amount" shall have the
meaning specified in Section 18 of this Series Supplement.
"Fingerhut Owner Trust" shall mean the owner
trust created pursuant to the Owner Trust Agreement.
"Fixed/Floating Allocation Percentage" shall
mean for any Business Day the percentage equivalent of a
fraction, the numerator of which is the Invested Amount at
the end of the last day of the Revolving Period and the
denominator of which is the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount
on deposit in the Excess Funding Account as of the end of
the preceding Business Day and (b) the sum of the
numerators used to calculate allocation percentages with
respect to Principal Receivables for all Series; provided,
however, that during any Class A Pay Down Period, the
numerator used in the above calculation shall be the sum
of the Class A Invested Amount, the Class B Invested
Amount and the Class C Invested Amount as of the day
immediately preceding the commencement of the Class A Pay
Down Period.
"Floating Allocation Percentage" shall mean for
any Business Day the sum of the applicable Class A
Floating Allocation Percentage, Class B Floating
Allocation Percentage, Class C Floating Allocation
Percentage, and Class D Floating Allocation Percentage for
such Business Day.
"Interest Accrual Period" shall mean a Monthly
Period and, with respect to a Distribution Date, the
preceding Monthly Period; provided, however, that the
initial Interest Accrual Period shall be the period from
the Closing Date to and including the last day of the
Monthly Period preceding the initial Distribution Date.
"Interest Component" shall mean, with respect to
any Commercial Paper (i) issued on a discount basis, the
portion of the Face Amount of such Commercial Paper
representing the discount incurred in respect thereof and
(ii) issued on an interest-bearing basis, the interest
payable on such Commercial Paper (in each case including
the related Commercial Paper dealer fees payable in
connection with the issuance of such Commercial Paper).
"Interest Rate Caps" shall mean the interest
rate caps provided pursuant to Cap Agreements by one or
more Cap Providers to the Trustee on behalf of any of the
Certificateholders which shall entitle the Trust to
receive monthly payments equal to the product of (i) the
positive difference, if any, between LIBOR in effect for
each applicable Interest Period and 11.20%, (ii) the
notional amount of such interest rate cap and (iii) the
actual number of days in the Interest Period divided by
360.
"Invested Amount" shall mean, when used with
respect to any Business Day, an amount equal to the sum of
(a) the Class A Invested Amount as of such Business Day,
(b) the Class B Invested Amount as of such Business Day,
(c) the Class C Invested Amount as of such Business Day
and (d) the Class D Invested Amount as of such Business
Day; provided, however, that for purposes of determining
the Servicing Fee and the Aggregate Invested Amount, the
Invested Amount shall mean an amount equal to the sum of
(a) the Class A Adjusted Invested Amount as of such
Business Day, (b) the Class B Invested Amount as of such
Business Day, (c) the Class C Invested Amount as of such
Business Day and (d) the Class D Invested Amount as of
such Business Day.
"Investment Earnings" shall mean, with respect
to any Business Day, the investment earnings on amounts on
deposit in (i) the Pre-Funding Account, deposited in the
Collection Account pursuant to subsection 4.14(d), (ii)
the Class C Reserve Account, deposited in the Collection
Account pursuant to subsection 4.19(c), (iii) the Expense
Reserve, deposited in the Collection Account pursuant to
subsection 4.21(c), (iv) the Payment Reserve Account,
deposited in the Collection Account pursuant to subsection
4.22(d) and (v) the Defeasance Account, deposited in the
Collection Account pursuant to subsection 9A(a).
"Investment Period" shall have the meaning
specified in Section 4.14A of this Series Supplement.
"Investor Certificateholder" shall mean the
Holder of record of an Investor Certificate of Series 1994-
2.
"Investor Certificates" shall mean the Class A
Certificate, the Class B Certificates, the Class C
Certificates and the Class D Certificates.
"Investor Charge-Offs" shall mean the sum of
Class A Investor Charge-Offs, Class B Investor Charge-
Offs, Class C Investor Charge-Offs and Class D Investor
Charge-Offs.
"Investor Default Amount" shall mean, with
respect to each Business Day, an amount equal to the
product of the Default Amount identified since the prior
reporting date and the Floating Allocation Percentage
applicable for such Business Day.
"Investor Percentage" shall mean for any
Business Day, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period (except,
with respect to the Class A Certificates, for any portion
of the Revolving Period that occurs during the Class A Pay
Down Period), the Floating Allocation Percentage and (b)
with respect to Principal Receivables during the
Amortization Period and the Class A Pay Down Period, the
Fixed/Floating Allocation Percentage.
"LIBOR" shall mean, for any Interest Accrual
Period, the London interbank offered quotations for one-
month Dollar deposits determined by the Trustee for each
Interest Accrual Period in accordance with the provisions
of Section 4.17 of the Agreement.
"LIBOR Determination Date" shall mean the second
Business Day prior to the commencement of each Interest
Accrual Period; provided, however, that with respect to
the initial Interest Accrual Period for the Class C
Certificates, LIBOR Determination Date shall mean a date
selected by the Transferor which shall not be in excess of
two Business Days prior to the date of initial issuance of
Certificates of the applicable Class. For purposes of
this definition, a Business Day is any day on which banks
in London and New York are open for the transaction of
international business.
"Liquidity Agreement" shall mean the Liquidity
Agreement, dated as of November 15, 1994, by and among the
CP Issuer, the several banks signatory thereto, and
Chemical Bank, as Administrative Agent, as the same may
from time to time be amended, restated, modified and in
effect.
"Loans" shall mean any loans made pursuant to
the Liquidity Agreement.
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Percentage" shall mean 0%;
provided, however, that in certain circumstances such
percentage may be increased.
"Monthly Period" shall have the meaning
specified in the Agreement, except that the first Monthly
Period with respect to the Series 1994-2 Certificates
shall begin on and include the Closing Date and shall end
on and include the last day of the then current fiscal
month of the Transferor.
"Negative Carry Amount" shall have the meaning
specified in subsection 4.10(a) of the Agreement.
"Net ABC Revolving Principal Collections" shall
have the meaning specified in Section 4.9(b) of the
Agreement.
"Owner Trust Agreement" shall mean the Owner
Trust Agreement, dated as of November 15, 1994, between
Fingerhut Receivables, Inc., as Depositor, and Wilmington
Trust Company as Owner Trustee, as the same may from time
to time be amended, restated, modified and in effect.
"Paying Agent" shall mean, for the Series 1994-2
Certificates, The Bank of New York.
"Payment Reserve Account" shall have the meaning
specified in subsection 4.22 of the Agreement.
"Pay Out Commencement Date" shall mean the date
on which a Trust Pay Out Event is deemed to occur pursuant
to Section 9.1 of the Agreement or a Series 1994-2 Pay Out
Event is deemed to occur pursuant to Section 8 of this
Series Supplement.
"Percentage" for each Bank shall mean its
"Commitment Percentage" as defined in Section 1.1 of the
Liquidity Agreement.
"Portfolio Yield" shall mean for the Series 1994-
2 Certificates, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the
numerator of which is an amount equal to the sum of the
aggregate amount of Available Series 1994-2 Imputed Yield
Collections for such Monthly Period (minus the Floating
Allocation Percentage of the portion of Imputed Yield
Collections for such period described in clause (D) of the
definition thereof and minus the amounts on deposit in the
Payment Reserve Account, if any), calculated on a cash
basis, minus the aggregate Investor Default Amount for
such Monthly Period and the Series Allocation Percentage
of any Adjustment Payments which the Transferor is
required but fails to make pursuant to the Pooling and
Servicing Agreement for such Monthly Period, and the
denominator of which is the average daily Invested Amount
plus the Pre-Funded Amount for such Monthly Period.
"Pre-Funded Amount" shall mean at any time the
sum of the Class A Pre-Funded Amount, the Class B Pre-
Funded Amount and the Class C Pre-Funded Amount.
"Pre-Funding Account" shall mean the Pre-Funding
Account established and maintained pursuant to Section
4.14 of the Agreement.
"Pre-Funding Period" shall mean the period, if
any, specified in subsection 4.14(a) of the Agreement.
"Principal Shortfalls" shall mean on any
Business Day (i) after the Amortization Period
Commencement Date, the Invested Amount of the class then
receiving principal payments after the application of
Principal Collections on such Business Day and (ii) during
the Class A Pay Down Period, the Class A Invested Amount
after the application of Principal Collections on such
Business Day.
"Qualified Substitute Arrangement" shall have
the meaning specified in Section 3A(d) of this Series
Supplement.
"Rating Agency" shall mean Standard & Poor's
Ratings Group, a division of McGraw-Hill, and Moody's
Investors Service, Inc.
"Reallocated Class B Principal Collections"
shall have the meaning specified in subsection 4.16(c) of
the Agreement.
"Reallocated Class C Principal Collections"
shall have the meaning specified in subsection 4.16(b) of
the Agreement.
"Reallocated Class D Principal Collections"
shall have the meaning specified in subsection 4.16(a) of
the Agreement.
"Reallocated Principal Collections" shall mean
the sum of Reallocated Class B Principal Collections,
Reallocated Class C Principal Collections and Reallocated
Class D Principal Collections.
"Reference Banks" shall mean four major banks in
the London interbank market selected by the Trustee.
"Replacement Interest Rate Cap" shall mean one
or more Interest Rate Caps, which in combination with all
other Interest Rate Caps then in effect, after giving
effect to any planned cancellations of any presently
outstanding Interest Rate Caps satisfies the Transferor's
covenant contained in Section 3A of this Series Supplement
to maintain Interest Rate Caps.
"Required Amount" shall have the meaning
specified in Section 4.10 of the Agreement.
"Revolving Period" shall mean the period from
and including the Closing Date to, but not including, the
Amortization Period Commencement Date.
"Scheduled Series 1994-2 Termination Date" shall
mean October 29, 2001, unless a different date shall be
set forth in any Extension Notice.
"Series 1994-1 Supplement" shall mean the Series
1994-1 Supplement, dated as of June 29, 1994 by and among
Fingerhut Receivables, Inc., as Transferor, Fingerhut
Corporation, as Servicer, and The Bank of New York
(Delaware), as Trustee under the Agreement.
"Series 1994-2" shall mean the Series of the
Fingerhut Master Trust represented by the Series 1994-2
Certificates.
"Series 1994-2 Certificates" shall mean the
Class A Certificate, the Class B Certificates, the Class C
Certificates and the Class D Certificate.
"Series 1994-2 Certificateholder" shall mean the
holder of record of any Series 1994-2 Certificate.
"Series 1994-2 Certificateholders' Interest"
shall have the meaning specified in Section 4.4 of the
Agreement.
"Series 1994-2 Pay Out Event" shall have the
meaning specified in Section 8 of this Series Supplement.
"Series 1994-2 Termination Date" shall mean the
earlier to occur of (i) the day after the Distribution
Date on which the Series 1994-2 Certificates are paid in
full, or (ii) the Scheduled Series 1994-2 Termination
Date.
"Series Servicing Fee Percentage" shall mean
2.00% per annum.
"Servicing Fee" shall mean for any Monthly
Period, an amount equal to the product of (i) one-twelfth,
(ii) the applicable Series Servicing Fee Percentage and
(iii) the Invested Amount as of the last day of the
preceding Monthly Period, or, in the case of the first
Distribution Date, the Invested Amount on the Closing
Date.
"Shared Principal Collections" shall mean, as
the context requires, either (a) the amount allocated to
the Series 1994-2 Certificates which, in accordance with
subsections 4.9(b), 4.9(c)(v), and 4.9(e)(ii) of the
Agreement, may be applied in accordance with Section
4.3(e) of the Agreement or (b) the amounts allocated to
the investor certificates (other than Transferor Retained
Certificates) of other Series which the applicable Series
Supplements for such Series specify are to be treated as
"Shared Principal Collections" and which may be applied to
cover Principal Shortfalls with respect to the Series 1994-
2 Certificates.
"Specified Class C Reserve Amount" shall mean
the amount, if any, which if added to the numerator of the
Target Percentage would cause such percentage to be equal
to 5%.
"Stated Class D Amount" shall mean on any date
of determination the greater of (i) zero and (ii) a number
rounded to the nearest dollar obtained by multiplying the
sum of the Class A Invested Amount, the Class B Invested
Amount and the Class C Invested Amount by a fraction the
numerator of which is 12 and the denominator of which is
88; provided, however, that in no event shall the Stated
Class D Amount exceed the Class D Maximum Required Amount;
and provided further that during any Early Amortization
Period or Class A Pay Down Period the Stated Class D
Amount shall be equal to the Stated Class D Amount
immediately preceding the commencement of the Early
Amortization Period or Class A Pay Down Period.
"Target Percentage" shall have the meaning
specified in Section 4.18 of the Agreement.
"Termination Payment Date" shall mean the
earlier of the first Distribution Date following the
liquidation or sale of the Receivables as a result of an
Insolvency Event and the occurrence of the Scheduled
Series 1994-2 Termination Date.
"Total Program Fees" shall mean with respect to
any day, recurring fees payable to the Collateral Trustee
(as defined in the Liquidity Agreement), the Owner Trustee
(as defined in the Liquidity Agreement), the
Administrative Agent (as defined in the Liquidity
Agreement) and the Depositary and Basic Administration
Fees (as defined in the Collateral Trust Agreement) that
arise or accrue on such day.
"Transferor Imputed Yield Collections" shall
mean on any Business Day the product of (a) the Imputed
Yield Collections for such Business Day, (b) the
Transferor Percentage and (c) the Series Allocation
Percentage.
"Transferor Retained Certificates" shall mean
investor certificates of any Series, including the Class D
Certificates, which the Transferor retains, but only to
the extent that and for so long as the Transferor is the
Holder of such Certificates.
3. Reassignment Terms. The Series 1994-2
Certificates shall be subject to termination by the
Transferor at its option, in accordance with the terms
specified in subsection 12.2(a) of the Agreement, on any
Distribution Date on or after the Distribution Date on
which the sum of the Class A Invested Amount, the Class B
Invested Amount and the Class C Invested Amount is reduced
to an amount less than or equal to 10% of the sum of the
highest Class A Invested Amount, the highest Class B
Invested Amount and the highest Class C Invested Amount
during the Revolving Period. The deposit required in
connection with any such termination and final
distribution shall be equal to the sum of the Class A
Invested Amount, the Class B Invested Amount and the Class
C Invested Amount plus accrued and unpaid interest on the
Series 1994-2 Certificates through the day prior to the
Distribution Date on which the final distribution occurs.
SECTION 3A. Conveyance of Interest in Interest
Rate Cap; Cap Proceeds Account. (a) The Transferor
hereby covenants and agrees that, on or prior to the
issuance of any of the Class C Certificates, it shall
obtain and at all times prior to the close of business on
the Series 1994-2 Termination Date maintain one or more
Interest Rate Caps whose notional amounts singly or taken
as a group equal or exceed the Aggregate ABC Principal
Amount. The Transferor hereby assigns, sets-over,
conveys, pledges and grants a security interest and lien
(free and clear of all other Liens) to the Trustee for the
benefit of the Series 1994-2 Certificateholders, in all of
the Transferor's right, title and interest now existing or
hereafter arising in and to the Cap Agreements and the
Interest Rate Caps arising thereunder, together with the
Cap Proceeds Account and all other proceeds thereof, as
collateral security for the benefit of the Series 1994-2
Certificateholders. The Transferor hereby further agrees
to execute all such instruments, documents and financing
statements and take all such further action requested by
the Trustee to evidence and perfect the assignment of the
Cap Agreements and the Interest Rate Caps pursuant to this
Section 3A. The Transferor agrees that each Interest Rate
Cap shall provide for payments to the Trustee and that the
Trust's interest in respect of such payments shall be
deposited into the Cap Proceeds Account.
(b) The Trustee, for the benefit of the Series
1994-2 Certificateholders, shall establish and maintain
with a Qualified Institution, which may be the Trustee, in
the name of the Trustee, on behalf of the
Certificateholders, a certain segregated trust account
(the "Cap Proceeds Account"). All amounts paid pursuant
to the Interest Rate Caps or any Qualified Substitute
Arrangement on any Business Day (a "Cap Settlement Date")
shall be deposited in the Cap Proceeds Account. Funds in
the Cap Proceeds Account shall be invested at the
direction of the Servicer, in Cash Equivalents with
maturities not later than the next succeeding Business
Day. Any earnings on such invested funds shall be
deposited and held in the Cap Proceeds Account and applied
in the same manner and priority as payments pursuant to
the Interest Rate Caps.
(c) In the event that the Cap Provider defaults
in its obligation to make a payment to the Trustee under
one or more Cap Agreements on any Cap Settlement Date, the
Trustee shall make a demand on such Cap Provider, or any
guarantor, if applicable, demanding payment by 12:30 p.m.,
New York time, on such date. The Trustee shall give
notice to the Certificateholders upon the continuing
failure by any Cap Provider to perform its obligation
during the two Business Days following a demand made by
the Trustee on such Cap Provider, and shall take such
action with respect to such continuing failure directed to
be taken by the Certificateholders.
(d) In the event that the senior unsecured debt
rating of a Cap Provider is withdrawn or reduced below AA
by Standard & Poor's or is withdrawn or reduced below Aa2
by Moody's, then within 30 days after receiving notice of
such decline in the creditworthiness of the Cap Provider
as determined by the Rating Agency, either (x) the Cap
Provider, with the prior written confirmation of the
Rating Agency that such arrangement will not result in the
reduction or withdrawal of the rating of the Class A
Certificates, the Class B Certificates or the Class C
Certificates, will enter into an arrangement the purpose
of which shall be to assure performance by the Cap
Provider of its obligations under the Interest Rate Cap;
or (y) the Servicer shall at its option either (i) with
the prior written confirmation of the Rating Agency that
such action will not result in a reduction or withdrawal
of the rating of the Class A Certificates, the Class B
Certificates or the Class C Certificates, (A) cause the
Cap Provider to pledge securities in the manner provided
by applicable law or (B) if permitted to do so, itself
pledge or cause to be pledged securities, which shall be
held by the Trustee or its agent free and clear of the
Lien of any third party, in a manner conferring on the
Trustee a perfected first Lien in such securities securing
the Cap Provider's performance of its obligations under
the applicable Interest Rate Cap, or (ii) provided that a
Replacement Interest Rate Cap or Qualified Substitute
Arrangement meeting the requirements of Section 3A(e) has
been obtained, direct the Trustee (A) to provide written
notice to the Cap Provider of its intention to terminate
the applicable Interest Rate Cap within such 30-day period
and (B) to terminate the applicable Interest Rate Cap
within such 30-day period, to request the payment to it of
all amounts due to the Trust under the applicable Interest
Rate Cap through the termination date and to deposit any
such amounts so received, on the day of receipt, to the
Cap Proceeds Account for the benefit of the
Certificateholders, or (iii) establish any other
arrangement (including an arrangement or arrangements in
addition to or in substitution for any prior arrangement
made in accordance with the provisions of this Section
3A(d)) satisfactory to the Rating Agency such that the
Rating Agency will not reduce or withdraw the rating of
the Class A Certificates, the Class B Certificates or the
Class C Certificates (a "Qualified Substitute
Arrangement"); provided, however, that in the event at any
time any alternative arrangement established pursuant to
clause (x) or (y)(i) or (y)(iii) above shall cease to be
satisfactory to the Rating Agency then the provisions of
this Section 3A(d) shall again be applied and in
connection therewith the 30-day period referred to above
shall commence on the date the Servicer receives notice of
such cessation or termination, as the case may be.
(e) Unless an alternative arrangement pursuant
to clause (x) or (y)(i) of Section 3A(d) is being
established, the Servicer shall use its best efforts to
obtain a Replacement Interest Rate Cap or Qualified
Substitute Arrangement meeting the requirements of this
Section 3A(e) during the 30-day period referred to in
Section 3A(d). The Trustee shall not terminate the
Interest Rate Cap unless, prior to the expiration of the
30-day period referred to in said Section 3A(d), the
Servicer delivers to the Trustee (i) a Replacement
Interest Rate Cap or Qualified Substitute Arrangement,
(ii) to the extent applicable, an Opinion of Counsel as to
the due authorization, execution and delivery and validity
and enforceability of such Replacement Interest Rate Cap
or Qualified Substitute Arrangement, as the case may be,
and (iii) a letter from the Rating Agency confirming that
the termination of the Interest Rate Cap and its
replacement with such Replacement Interest Rate Cap or
Qualified Substitute Arrangement will not adversely affect
its rating of the Class A Certificates, the Class B
Certificates or the Class C Certificates.
(f) The Servicer shall notify the Trustee and
the Rating Agency within five Business Days after
obtaining knowledge that the senior unsecured debt rating
of the Cap Provider has been withdrawn or reduced by
Standard & Poor's or Moody's.
(g) Notwithstanding the foregoing, the Servicer
may at any time obtain a Replacement Interest Rate Cap,
provided that the Servicer delivers to the Trustee (i) an
Opinion of Counsel as to the due authorization, execution
and delivery and validity and enforceability of such
Replacement Interest Rate Cap and (ii) a letter from the
Rating Agency confirming that the termination of the then
current Interest Rate Cap and its replacement with such
Replacement Interest Rate Cap will not adversely affect
its rating of the Class A Certificates, the Class B
Certificates or the Class C Certificates.
(h) The Trustee hereby appoints the Servicer to
perform the duties of the calculation agent under the
Interest Rate Cap and the Servicer accepts such
appointment.
(i) The Trustee, on behalf of the
Certificateholders, upon notification from the Servicer
shall, sell all or a portion of the Interest Rate Caps
subject to the following conditions having been met:
(x) the Aggregate Interest Rate Caps
Notional Amount after giving effect to such sale shall
equal or exceed the Aggregate ABC Principal Amount as of
the date of such sale after giving effect to all payments
and allocations made pursuant to this Agreement;
(y) such sale will not result in a
downgrading or withdrawal of the then current rating on
any class of the Certificates by the Rating Agencies; and
(z) the minimum notional amount
denomination of any Interest Rate Cap to be sold is
$500,000.
The Servicer shall have the duty of obtaining a
fair market value price for the sale of the Trust's rights
under any Interest Rate Cap, notifying the Trustee of
prospective purchasers and bids, and selecting the
purchaser of such Interest Rate Cap. The Trustee upon
receipt of the purchase price in the Collection Account
shall execute all documentation necessary to effect the
transfer of the Trust's rights under the Interest Rate Cap
and to release the Lien of the Trustee on the Interest
Rate Cap and proceeds thereof.
Funds deposited in the Collection Account in
respect of the sale of all or a portion of an Interest
Rate Cap shall be applied as Principal Collections
allocable to Series 1994-2 and shall be applied on the
next Distribution Date in accordance with subsections
4.7(a), (b) and (c) and 4.9(b), (c) and (e).
4. Delivery and Payment for the Series 1994-
2 Certificates. The Transferor shall execute and deliver
the Series 1994-2 Certificates to the Trustee for
authentication in accordance with Section 6.1 of the
Agreement. The Trustee shall deliver the Series 1994-2
Certificates to or upon the order of the Transferor when
authenticated in accordance with Section 6.2 of the
Agreement.
5. Form of Delivery of Series 1994-2
Certificates. The Class A Certificate, the Class B
Certificates, the Class C Certificates and the Class D
Certificates shall be delivered as Registered Certificates
as provided in Section 6.1 of the Agreement.
6. Article IV of Agreement. Sections 4.1,
4.2 and 4.3 of the Agreement shall read in their entirety
as provided in the Agreement. Article IV of the Agreement
(except for Sections 4.1, 4.2 and 4.3 thereof) shall read
in its entirety as follows and shall be applicable only to
the Series 1994-2 Certificates:
II. RIGHTS OF CERTIFICATEHOLDERS
AND ALLOCATION AND APPLICATION OF COLLECTIONS
A. Rights of Certificateholders. The Series
1994-2 Certificates shall represent undivided interests in
the Trust, including the right to receive, to the extent
necessary to make the required payments with respect to
such Series 1994-2 Certificates at the times and in the
amounts specified in this Agreement, (a) the Floating
Allocation Percentage and the Fixed/Floating Allocation
Percentage (as applicable from time to time) of
Collections (including Imputed Yield Collections)
available in the Collection Account, (b) funds allocable
to the Series 1994-2 Certificates on deposit in the Excess
Funding Account and (c) funds on deposit in the Interest
Funding Account, the Principal Account, the Distribution
Account, the Cap Proceeds Account, the Payment Reserve
Account, the Class C Reserve Account, the Pre-Funding
Account, the Defeasance Account and the Expense Reserve
Account (for such Series, the "Series 1994-2
Certificateholders' Interest"). The Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount shall be subordinated to the Class A
Certificate; the Class C Invested Amount and the Class D
Invested Amount shall be subordinated to the Class B
Certificates; and the Class D Invested Amount shall be
subordinated to the Class C Certificates, in each case to
the extent provided in this Article IV. The Class B
Certificates will not have the right to receive payments
of principal until the Class A Invested Amount has been
paid in full. The Class C Certificates will not have the
right to receive payments of principal until the Class A
Invested Amount and the Class B Invested Amount have been
paid in full. Except in connection with a payment of
Class D Daily Principal pursuant to subsection 4.9(g) of
this Agreement, the Class D Certificates will not have the
right to receive payments of principal until the Class A
Invested Amount, the Class B Invested Amount and the Class
C Invested Amount have been paid in full.
B. Collections and Allocation; Payments on
Exchangeable Transferor Certificate.
a. Collections. The Servicer will apply or will
instruct the Trustee to apply all funds on deposit in the
Collection Account and the Excess Funding Account
allocable to the Series 1994-2 Certificates, and all funds
on deposit in the Interest Funding Account, the Principal
Account, the Pre-Funding Account, the Cap Proceeds
Account, the Distribution Account, the Payment Reserve
Account, the Defeasance Account, the Class C Reserve
Account and the Expense Reserve Account maintained for
this Series, as described in this Article IV.
b. Payments to the Holder of the Exchangeable
Transferor Certificate. On each Business Day, the
Servicer shall determine whether a Pay Out Event is deemed
to have occurred with respect to the Series 1994-2
Certificates, and the Servicer shall allocate and pay
Collections in accordance with the Daily Report with
respect to such Business Day to the Holder of the
Exchangeable Transferor Certificate as follows:
(1) For each Business Day with respect to the Revolving
Period, in addition to amounts allocated and paid to the
Holder of the Exchangeable Transferor Certificate pursuant
to subsection 4.3(b) of the Agreement, an amount equal to
(x) the product of the Class D Floating Allocation
Percentage and the amount of Principal Collections on such
Business Day, minus (y) the Reallocated Class D Principal
Collections for such Business Day minus (z) the amount of
any Class D Daily Principal for such Business Day;
(2) For each Business Day with respect to the
Amortization Period prior to the Business Day on which an
amount equal to the Class C Invested Amount has been
deposited in the Principal Account to be applied to the
payment of Class C Principal, in addition to amounts
allocated and paid to the Holder of the Exchangeable
Transferor Certificate pursuant to subsection 4.3(b) of
the Agreement, an amount equal to (x) the product of the
Class D Fixed/Floating Allocation Percentage and the
amount of Principal Collections on such Business Day minus
(y) the Reallocated Class D Principal Collections for such
Business Day minus (z) the amount of any Class D Daily
Principal for such Business Day; and
(3) For each Business Day on and after the day on which
Principal Collections are being deposited in the Principal
Account pursuant to Section 4.9(c)(iv), the amount of
payments of Principal Collections made to the Holder of
the Exchangeable Transferor Certificate shall be
determined only as provided in subsection 4.3(b) of the
Agreement.
Notwithstanding the foregoing, amounts payable
to the Transferor pursuant to subsection 4.5(b)(i) or (ii)
shall instead be deposited in the Excess Funding Account
to the extent necessary to prevent the Transferor Interest
from being less than the Minimum Transferor Interest.
The allocations to be made pursuant to this
subsection 4.5(b) also apply to deposits into the
Collection Account that are treated as Collections,
including Adjustment Payments, payment of the reassignment
price pursuant to Section 2.4(e) of the Agreement and
proceeds from the sale, disposition or liquidation of the
Receivables pursuant to Section 9.2, 10.2, 12.1 or 12.2 of
the Agreement and Section 3 of this Series Supplement.
Such deposits to be treated as Collections will be
allocated as Imputed Yield Receivables or Principal
Receivables as provided in the Agreement.
C. Determination of Interest for the Series
1994-2 Certificates. (a) The amount of interest (the
"Class A Interest") allocable to the Class A Certificate
with respect to any Business Day shall be an amount equal
to the sum of (x) the Total Program Fees accrued from and
including the preceding Business Day to but excluding such
Business Day and (y) the product of (i) the Class A
Certificate Rate and (ii) a fraction the numerator of
which is the actual number of days from and including the
next preceding Business Day to but excluding such Business
Day and the denominator of which is 365 or 366, as the
case may be, and (iii) the Class A Outstanding Principal
Amount as of the close of business on the preceding
Business Day.
On each Business Day, the Servicer shall
determine an amount (the "Class A Interest Shortfall")
equal to the excess, if any, of (x) the Class A Interest
for such Business Day plus the Class A Interest Shortfall
for the preceding Business Day over (y) the amount
available to be paid to the Class A Certificateholder in
respect of Class A Interest on such Business Day. The
Class A Interest Shortfall shall initially be zero.
b. The amount of monthly interest (the
"Class B Interest") allocable to the Class B Certificates
with respect to any Interest Accrual Period shall be an
amount equal to the product of (i) the Class B Certificate
Rate and (ii) a fraction the numerator of which is the
actual number of days in such Interest Accrual Period and
the denominator of which is 360 and (iii) the Class B
Invested Amount as of the close of business on the first
day of such Interest Accrual Period; provided, however,
that with respect to any Distribution Date related to the
Pre-Funding Period the amount described in clause (iii)
shall be the Class B Outstanding Principal Amount on the
first day of the Pre-Funding Period.
On the Determination Date preceding each
Distribution Date, the Servicer shall determine an amount
(the "Class B Interest Shortfall") equal to the excess, if
any, of (x) the aggregate Class B Interest for the
Interest Accrual Period applicable to the Distribution
Date over (y) the amount available to be paid to the Class
B Certificateholders in respect of interest on such
Distribution Date. If there is a Class B Interest
Shortfall with respect to any Distribution Date, an
additional amount ("Class B Additional Interest") shall be
payable as provided herein with respect to the Class B
Certificates on each Distribution Date following such
Distribution Date, to and including the Distribution Date
on which such Class B Interest Shortfall is paid to Class
B Certificateholders, equal to the product of (i) the
Class B Certificate Rate plus 2% per annum and (ii) such
Class B Interest Shortfall remaining unpaid calculated on
the basis of a fraction the numerator of which is the
actual number of days in the related Interest Accrual
Period and the denominator of which is 360.
Notwithstanding anything to the contrary herein, Class B
Additional Interest shall be payable or distributed to
Class B Certificateholders only to the extent permitted by
applicable law.
c. The amount of monthly interest (the
"Class C Interest") allocable to the Class C Certificates
with respect to any Interest Accrual Period shall be an
amount equal to the product of (i) the Class C Certificate
Rate and (ii) a fraction the numerator of which is the
actual number of days in such Interest Accrual Period and
the denominator of which is 360 and (iii) the Class C
Invested Amount as of the close of business on the first
day of such Interest Accrual Period; provided, however,
that with respect to any Distribution Date related to the
Pre-Funding Period the amount described in clause (iii)
shall be the Class C Outstanding Principal Amount on the
first day of the Pre-Funding Period.
On the Determination Date preceding each
Distribution Date, the Servicer shall determine an amount
(the "Class C Interest Shortfall") equal to the excess, if
any, of (x) the aggregate Class C Interest for the
Interest Accrual Period applicable to the Distribution
Date over (y) the amount available to be paid to the Class
C Certificateholders in respect of interest on such
Distribution Date. If there is a Class C Interest
Shortfall with respect to any Distribution Date, an
additional amount ("Class C Additional Interest") shall be
payable as provided herein with respect to the Class C
Certificates on each Distribution Date following such
Distribution Date, to and including the Distribution Date
on which such Class C Interest Shortfall is paid to Class
C Certificateholders, equal to the product of (i) the
Class C Certificate Rate plus 2% per annum and (ii) such
Class C Interest Shortfall remaining unpaid calculated on
the basis of a fraction the numerator of which is the
actual number of days in the related Interest Accrual
Period and the denominator of which is 360.
Notwithstanding anything to the contrary herein, Class C
Additional Interest shall be payable or distributed to
Class C Certificateholders only to the extent permitted by
applicable law.
Section 4.6A Determination of the Class A
Interest Adjustment. On each Business Day on which any
obligations of the Trust to the Class A Certificateholders
remain outstanding, the Servicer shall compute the excess,
if any, of (i) the amount payable pursuant to subsection
4.9(a)(i) over (ii) the aggregate amounts actually paid to
the Class A Certificateholders pursuant to subsection
4.9(a)(i) on such Business Day. The greater of zero and
the amount of the excess, if any, computed in the
immediately preceding sentence shall be the "Class A
Interest Adjustment" for such Business Day and the
Servicer shall provide the Trustee with written notice by
facsimile or otherwise of the Class A Interest Adjustment.
If the Class A Interest Adjustment is greater than zero,
the Trustee shall withdraw from the Interest Funding
Account and deposit in the Distribution Account an amount
equal to the lesser of the aggregate amounts deposited in
the Interest Funding Account pursuant to subsections
4.9(a)(iii) and 4.9(a)(x) of the Agreement during the then
current Monthly Period on and prior to such Business Day
(less the amount of any prior withdrawals therefrom
pursuant to this third sentence of Section 4.6A on each
prior Business Day in the then current Monthly Period) and
the Class A Interest Adjustment (the greater of any such
amount withdrawn and zero, the "Class C Interest
Adjustment" for such Business Day). If the Class A
Interest Adjustment for such Business Day exceeds the
Class C Interest Adjustment for such Business Day, the
Trustee shall withdraw from the Interest Funding Account
and deposit in the Distribution Account an amount equal to
the lesser of (i) the aggregate amounts deposited in the
Interest Funding Account pursuant to subsection 4.9(a)(ii)
and 4.9(a)(ix) of the Agreement during the then current
Monthly Period on and prior to such Business Day (less the
amount of any prior withdrawals therefrom pursuant to this
fourth sentence of Section 4.6A on each prior Business Day
in the then current Monthly Period and (ii) the difference
between the Class A Interest Adjustment and the Class C
Interest Adjustment (the greater of any such amount
withdrawn and zero, the "Class B Interest Adjustment" for
such Business Day).
D. Determination of Principal Amounts. (a)
The amount of principal (the "Class A Principal")
distributable from the Distribution Account with respect
to the Class A Certificate on each Business Day with
respect to (A) the Revolving Period (except for any
portion of the Revolving Period during a Class A Pay Down
Period) shall be an amount equal to the sum of (x) amounts
deposited into the Principal Account from the Defeasance
Account pursuant to Section 9A of this Series Supplement
and (y) the amount, if any, specified in the last sentence
of Section 3A(i) of this Series Supplement and (B) the
Amortization Period or the Class A Pay Down Period shall
be equal to an amount calculated as follows: the sum of
(i) an amount equal to the product of the ABC
Fixed/Floating Allocation Percentage and the aggregate
amount of Principal Collections (less the amount of
Reallocated Class B Principal Collections and Reallocated
Class C Principal Collections) with respect to such
Business Day, (ii) any amount on deposit in the Excess
Funding Account allocated to the Class A Certificate
pursuant to subsection 4.9(d) with respect to such
Business Day, and any remaining Class A Pre-Funded Amount,
(iii) the amount, if any, allocated to the Class A
Certificate pursuant to subsections 4.9(a)(v), (vii),
(viii), (xi), and (xii) of the Agreement and, with respect
to such subsections, pursuant to subsections 4.10(a) and
(b) and 4.16(a), (b) and (c) on such Business Day, (iv)
the amount of Shared Principal Collections allocated to
the Class A Certificate with respect to such Business Day
pursuant to Section 4.3(e) and (v) the amount, if any,
specified in the last sentence of Section 3A(i) of this
Series Supplement; provided, however, that with respect to
any Business Day, Class A Principal may not exceed the
Class A Invested Amount; provided, further, that with
respect to the Scheduled Series 1994-2 Termination Date,
the Class A Principal shall be an amount equal to the
Class A Invested Amount.
a. The amount of principal (the "Class B
Principal") distributable from the Distribution Account
with respect to the Class B Certificates on each
Distribution Date, beginning with the Class B Principal
Payment Commencement Date, shall equal an amount
calculated as follows: the sum of (i) an amount equal to
the product of the ABC Fixed/Floating Allocation
Percentage and the aggregate amount of Principal
Collections (less the amount of Reallocated Class B
Principal Collections and Reallocated Class C Principal
Collections) with respect to the preceding Monthly Period
(or, in the case of the first Distribution Date in the
Amortization Period following the date on which an amount
equal to the Class A Invested Amount is paid to the Class
A Certificateholder in respect of Class A Principal, the
ABC Fixed/Floating Allocation Percentage of Principal
Collections from the date on which such deposit is made),
(ii) any amount on deposit in the Excess Funding Account
allocated to the Class B Certificates pursuant to
subsection 4.9(d) with respect to the preceding Monthly
Period, or any remaining Class B Pre-Funded Amount, (iii)
the amount, if any, allocated to the Class B Certificates
pursuant to subsections 4.9(a)(v), (vii), (xi) and (xii)
of the Agreement and, with respect to such subsections,
pursuant to subsections 4.10(a) and (b) and 4.16(a) and
(b) of the Agreement with respect to such Distribution
Date, (iv) the amount of Shared Principal Collections
allocated to the Class B Certificates with respect to the
preceding Monthly Period pursuant to Section 4.3(e) of the
Agreement on and after the Class B Principal Payment
Commencement Date and (v) the amount, if any, specified in
the last sentence of Section 3A(i) of this Series
Supplement; provided, further, that with respect to any
Distribution Date, Class B Principal may not exceed the
Class B Invested Amount; provided, further, that with
respect to the Scheduled Series 1994-2 Termination Date,
the Class B Principal shall be an amount equal to the
Class B Invested Amount.
b. The amount of principal (the "Class C Principal")
distributable from the Distribution Account with respect
to the Class C Certificates on each Distribution Date,
beginning with the Class C Principal Payment Commencement
Date, shall be an amount equal to and calculated as
follows: the sum of (i) an amount equal to the product of
the ABC Fixed/Floating Allocation Percentage and the
aggregate amount of Principal Collections (less the amount
of Reallocated Class C Principal Collections) with respect
to the preceding Monthly Period (or, in the case of the
first Distribution Date following the date on which an
amount equal to the Class B Invested Amount is deposited
in the Principal Account to be applied to the payment of
Class B Principal, the ABC Fixed/Floating Allocation
Percentage of Principal Collections from the date on which
such deposit is made), (ii) any amounts on deposit in the
Excess Funding Account allocated to the Class C
Certificates pursuant to subsection 4.9(d) with respect to
the preceding Monthly Period, or any remaining Class C Pre-
Funded Amount, (iii) the amount, if any, allocated to the
Class C Certificates pursuant to subsections 4.9(a)(v),
(vii) and (xii) of the Agreement and, with respect to such
subsections, pursuant to subsections 4.10(a) and (b) and
4.16(a) on such Business Day, (iv) the amount of Shared
Principal Collections allocated to the Class C
Certificates with respect to the preceding Monthly Period
pursuant to Section 4.3(e) of the Agreement on and after
the Class C Principal Payment Commencement Date and (v)
the amount, if any, specified in the last sentence of
Section 3A(i) of this Series Supplement; provided that
with respect to any Distribution Date, Class C Principal
may not exceed the Class C Invested Amount; provided,
further, that with respect to the Scheduled Series 1994-2
Termination Date, the Class C Principal shall be an amount
equal to the Class C Invested Amount.
c. The amount of principal (the "Class D Principal")
distributable from the Distribution Account with respect
to the Class D Certificates on each Distribution Date
beginning with the Class D Principal Payment Commencement
Date, or in the case of distributions of Class D Daily
Principal pursuant to the last proviso of this subsection
4.7(d), on each Business Day, shall be an amount equal to
and calculated as follows: the sum of (i) an amount equal
to the product of the Class D Fixed/Floating Allocation
Percentage of Principal Collections (less the amount of
Reallocated Class D Principal Collections) with respect to
the preceding Monthly Period (or, in the case of the first
Distribution Date following the date on which an amount
equal to the Class C Invested Amount is deposited in the
Principal Account to be applied to the payment of Class C
Principal, the Class D Fixed/Floating Allocation
Percentage of Principal Collections from the date on which
such deposit is made), (ii) any amount on deposit in the
Excess Funding Account allocated to the Class D
Certificates pursuant to subsection 4.9(d) with respect to
the preceding Monthly Period, and (iii) the amount, if
any, allocated to the Class D Certificates pursuant to
subsections 4.9(a)(vi), (vii) and (xiii) of the Agreement
and, with respect to such subsections, pursuant to
subsection 4.10(a) and (b) of the Agreement with respect
to such Distribution Date; provided, however, that with
respect to the Scheduled Series 1994-2 Termination Date,
the Class D Principal shall be an amount equal to the
Class D Invested Amount; provided further, that on any
Business Day during any period other than an Early
Amortization Period or Class A Pay Down Period, the
Transferor may designate that an amount up to the lesser
of (i) the excess of the Class D Invested Amount over the
Stated Class D Amount as of the close of business on the
immediately preceding Business Day and (ii) (I) during the
Revolving Period an amount equal to (x) the product of the
Class D Floating Allocation Percentage and the amount of
Principal Collections on such Business Day minus (y)
Reallocated Class D Principal Collections on such Business
Day or (II) after the Amortization Period Commencement
Date an amount equal to (x) the product of the Class D
Fixed/Floating Allocation Percentage and the amount of
Principal Collections on such Business Day minus (y)
Reallocated Class D Principal Collections on such Business
Day (such designated amount, the "Class D Daily
Principal") shall be distributed in accordance with
subsection 4.9(g).
E. Shared Principal Collections. Shared
Principal Collections allocated to the Series 1994-2
Certificates and to be applied pursuant to subsections
4.9(c)(i)(z), 4.9(c)(ii)(z), 4.9(c)(iii)(z), 4.9(c)(iv)(z)
and 4.9(e)(i)(z) for any Business Day with respect to the
Amortization Period or the Class A Pay Down Period shall
mean an amount equal to the product of (x) Shared
Principal Collections for all Series for such Business Day
and (y) a fraction, the numerator of which is the
Principal Shortfall for the Series 1994-2 Certificates for
such Business Day and the denominator of which is the
aggregate amount of Principal Shortfalls for all Series
for such Business Day. For any Business Day with respect
to the Revolving Period (except for any portion of the
Revolving Period during a Class A Pay Down Period), Shared
Principal Collections allocated to the Series 1994-2
Certificates shall be zero.
G. Application of Funds on Deposit in
the Collection Account for the Certificates. (a) On each
Business Day, the Servicer shall deliver to the Trustee a
Daily Report in which it shall instruct the Trustee to
withdraw, and the Trustee, acting in accordance with such
instructions, shall withdraw from the Collection Account
and the Cap Proceeds Account, to the extent of the sum of
(w) the Floating Allocation Percentage of Imputed Yield
Collections available in the Collection Account, (x)
Investment Earnings on deposit in the Collection Account,
(y) amounts on deposit in the Payment Reserve Account, if
any, and (z) the Cap Receipt Amount, if any, for such
Business Day (the "Available Series 1994-2 Imputed Yield
Collections") the amounts set forth in subsections
4.9(a)(i) through 4.9(a)(xxii).
(1) Class A Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the Cap Receipt
Amount and then from the Collection Account and pay to the
Class A Certificateholders on such Business Day, to the
extent of the Available Series 1994-2 Imputed Yield
Collections, an amount equal to the lesser of (x) the
Available Series 1994-2 Imputed Yield Collections and (y)
the sum of (A) the lesser of (I) the Class A Interest for
such Business Day and (II) the product of (i) the greater
of LIBOR then in effect plus 0.75% per annum and 12% per
annum and (ii) a fraction the numerator of which is the
number of days from and including the preceding Business
Day to but excluding such Business Day and the denominator
of which is the actual number of days in the then current
calendar year and (iii) the Class A Outstanding Principal
Balance as of the close of business on the preceding
Business Day plus (B) the excess, if any, of the amount
payable to the Class A Certificateholders pursuant to
clause (A) on each prior Business Day over the amount
which has been paid to the Class A Certificateholders with
respect thereto on each prior Business Day.
(2) Class B Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with
instructions from the Servicer, shall allocate to the
Class B Certificates and withdraw first from the Cap
Proceeds Account to the extent of the remaining Cap
Receipt Amount for such Business Day, and then from the
Collection Account and deposit into the Interest Funding
Account, to the extent of the Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawal pursuant to subsection 4.9(a)(i), an amount
equal to the lesser of (x) any such remaining Available
Series 1994-2 Imputed Yield Collections and (y) the sum of
(A) the Daily Portion of Class B Interest to be
distributed on the Distribution Date following such
Monthly Period plus (B) the excess, if any, of the amount
required to be deposited pursuant to clause (A) above on
each prior Business Day over the amount on deposit in the
Interest Funding Account with respect thereto on such
Business Day plus (C) an amount equal to the portion of
Carryover Class B Interest attributable to amounts
required to be deposited pursuant to clause (A) above that
were not so deposited prior to such Business Day minus the
amounts required to be deposited pursuant to clause (B)
above.
(3) Class C Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with
instructions from the Servicer, shall allocate to the
Class C Certificates and withdraw first from the Cap
Proceeds Account, to the extent of the remaining Cap
Receipt Amount for such Business Day and then from the
Collection Account and deposit into the Interest Funding
Account, to the extent of the Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawal pursuant to subsections 4.9(a)(i) and (ii),
an amount equal to the lesser of (x) any such remaining
Available Series 1994-2 Imputed Yield Collections and (y)
the sum of (A) the Daily Portion of Class C Interest to be
distributed on the Distribution Date following such
Monthly Period plus (B) the excess, if any, of the amount
required to be deposited pursuant to clause (A) above on
each prior Business Day over the amount on deposit in the
Interest Funding Account with respect thereto on such
Business Day plus (C) an amount equal to the portion of
Carryover Class C Interest attributable to amounts
required to be deposited pursuant to clause (A) above that
were not so deposited prior to such Business Day minus the
amounts required to be deposited pursuant to clause (B)
above.
(4) Investor Servicing Fee. On each Business Day on
which Fingerhut or an Affiliate of Fingerhut is not the
Servicer, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the remaining
Cap Receipt Amount and then from the Collection Account
and distribute to the Servicer, to the extent of any
Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (iii), an amount equal to
the lesser of (x) any such remaining Available Series 1994-
2 Imputed Yield Collections and (y) the excess of (i) the
Daily Portion of the Servicing Fee for such Monthly Period
plus any unpaid Daily Portion of the Servicing Fees over
(ii) any amounts with respect thereto previously
distributed to the Servicer during such Monthly Period.
(5) ABC Investor Default Amount. On each Business Day,
the Trustee, acting in accordance with instructions from
the Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
and then from the Collection Account, to the extent of any
Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (iv), an amount equal to
the lesser of (x) any such remaining Available Series 1994-
2 Imputed Yield Collections and (y) the sum of (1) the
aggregate ABC Investor Default Amount for such Business
Day plus (2) the unpaid ABC Investor Default Amount for
each previous Business Day during such Monthly Period,
such amount to be (A) during the Revolving Period (except
for any portion of the Revolving Period during a Class A
Paydown Period) treated as Shared Principal Collections,
(B) during the Amortization Period or the Class A Pay Down
Period on and prior to the day on which an amount equal to
the Class A Invested Amount is deposited in the Principal
Account, to be deposited in the Principal Account for
distribution to the Class A Certificateholder on the next
Distribution Date, (C) during the Amortization Period, on
and after the day on which such deposit to the Principal
Account with respect to the Class A Invested Amount has
been made and on and prior to the day on which an amount
equal to the Class B Invested Amount is deposited in the
Principal Account, to be deposited in the Principal
Account for payment to the Class B Certificateholders on
the next Distribution Date, (D) during the Amortization
Period on and after the day on which such deposit to the
Principal Account with respect to the Class B Invested
Amount has been made on and prior to the day on which an
amount equal to the Class C Invested Amount is deposited
in the Principal Account, to be deposited in the Principal
Account for payment to the Class C Certificateholders on
the next Distribution Date and (E) on and after the day
such deposit to the Principal Account with respect to
Class C Invested Amount has been made, to be paid to the
Class D Certificateholders.
(6) Class D Investor Default Amount. On each Business
Day, the Trustee, acting in accordance with instructions
from the Servicer, shall withdraw first from the Cap
Proceeds Account to the extent of the remaining Cap
Receipt Amount and then from the Collection Account, to
the extent of any Available Series 1994-2 Imputed Yield
Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) through (v),
an amount equal to the lesser of (x) any such remaining
Available Series 1994-2 Imputed Yield Collections and (y)
the sum of (1) the aggregate Class D Investor Default
Amount for such Business Day plus (2) the unpaid Class D
Investor Default Amount for each previous Business Day
during such Monthly Period, such amount to be (A) paid to
the Transferor during the Revolving Period and the
Amortization Period prior to the payment in full of the
Class C Invested Amount, and (B) to the extent allocated
to Class D Principal pursuant to Section 4.7 during the
Amortization Period following the payment in full of the
Class C Invested Amount, deposited in the Principal
Account for distribution to the Class D Certificateholders
on the next Distribution Date.
(7) Adjustment Payment Shortfalls. On each Business
Day, the Trustee, acting in accordance with instructions
from the Servicer, shall withdraw first from the Cap
Proceeds Account to the extent of the remaining Cap
Receipt Amount and then from the Collection Account, to
the extent of any Available Series 1994-2 Imputed Yield
Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) through
(vi), an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) an amount equal to the Series
Allocation Percentage of any Adjustment Payment which the
Transferor is required but fails to make pursuant to
subsection 3.8(a) of the Agreement, such amount, (i)
during the Revolving Period (except for any portion of the
Revolving Period during a Class A Paydown Period), to be
treated as Shared Principal Collections, (ii) during the
Amortization Period or the Class A Pay Down Period on and
prior to the day on which an amount equal to the Class A
Invested Amount is deposited in the Principal Account, to
be deposited in the Principal Account for distribution to
the Class A Certificateholder on the next Distribution
Date, (iii) during the Amortization Period, on and after
the day on which such deposit to the Principal Account
with respect to the Class A Invested Amount has been made
and on and prior to the day on which an amount equal to
the Class B Invested Amount is deposited in the Principal
Account for payment to the Class B Certificateholders on
the next Distribution Date, (iv) during the Amortization
Period on and after the day on which such deposit to the
Principal Account with respect to the Class B Invested
Amount has been made on and prior to the day on which an
amount equal to the Class C Invested Amount is deposited
in the Principal Account, to be deposited in the Principal
Account for payment to the Class C Certificateholders on
the next Distribution Date and (v) on and after the day
such deposit to the Principal Account with respect to
Class C Invested Amount has been made, to be paid to the
Class D Certificateholders.
(8) Reimbursement of Class A Investor Charge-Offs. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the remaining
Cap Receipt Amount and then from the Collection Account,
to the extent of any Available Series 1994-2 Imputed Yield
Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) through
(vii), an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) the unreimbursed Class A Investor
Charge-Offs, if any; such amount will be applied to
reimburse Class A Investor Charge-Offs, and, during the
Revolving Period (except for any portion of the Revolving
Period during a Class A Paydown Period), will be treated
as Shared Principal Collections, and during the
Amortization Period or the Class A Pay Down Period on and
prior to the day on which an amount equal to the Class A
Invested Amount is deposited in the Principal Account will
be deposited in the Principal Account for distribution to
the Class A Certificateholders on the next Distribution
Date.
(9) Unpaid Class B Interest. On each Business Day, the
Trustee, acting in accordance with the instructions from
the Servicer, shall allocate to the Class B Certificates
and withdraw first from the Cap Proceeds Account, to the
extent of the remaining Cap Receipt Amount for such
Business Day and then from the Collection Account and
deposit in the Interest Funding Account, to the extent of
the Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (viii), an amount equal
to the lesser of (x) any such remaining Available Series
1994-2 Imputed Yield Collections and (y) the sum of (1)
the excess of the Daily Portion of the product of (i) the
Class B Certificate Rate and (ii) a fraction the numerator
of which is the actual number of days in the then current
Interest Accrual Period and the denominator of which is
360 and (iii) the Class B Outstanding Principal Amount as
of the close of business on the first day of such Interest
Accrual Period, over the amount which has previously been
deposited into the Interest Funding Account or paid to the
Class B Certificateholders and (2) any additional interest
(to the extent permitted by applicable law) at the Class B
Certificate Rate plus 2% for interest that has accrued on
interest that was due during a prior Monthly Period
pursuant to this subsection but was not deposited in the
Interest Funding Account or paid to the Class B
Certificateholders.
(10) Unpaid Class C Interest. On each Business Day, the
Trustee, acting in accordance with the instructions from
the Servicer, shall allocate to the Class C Certificates
and withdraw first from the Cap Proceeds Account, to the
extent of the remaining Cap Receipt Amount for such
Business Day and then from the Collection Account and
deposit in the Interest Funding Account, to the extent of
any Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (ix), an amount equal to
the lesser of (x) any such remaining Available Series 1994-
2 Imputed Yield Collections and (y) the sum of (1) the
excess of the Daily Portion of the product of (i) the
Class C Certificate Rate and (ii) a fraction the numerator
of which is the actual number of days in the then current
Interest Accrual Period and the denominator of which is
360 and (iii) the Class C Outstanding Principal Amount as
of the close of business on the first day of such Interest
Accrual Period over the amount which has previously been
deposited into the Interest Funding Account or paid to the
Class C Certificateholders and (2) any additional interest
(to the extent permitted by applicable law) at the Class C
Certificate Rate plus 2% for interest that has accrued on
interest that was due during a prior Monthly Period
pursuant to this subsection but was not deposited in the
Interest Funding Account or paid to the Class C
Certificateholders.
(11) Reimbursement of Class B Investor Charge-Offs. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the remaining
Cap Receipt Amount for such Business Day and then from the
Collection Account, to the extent of any Available Series
1994-2 Imputed Yield Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (x), an amount equal to the lesser of
(x) any such remaining Available Series 1994-2 Imputed
Yield Collections and (y) the unreimbursed amount by which
the Class B Invested Amount has been reduced on prior
Business Days pursuant to clauses (d) and (e) of the
definition of Class B Invested Amount, if any, such
amount, (i) during the Revolving Period (except for any
portion of the Revolving Period during a Class A Paydown
Period), to be treated as Shared Principal Collections,
(ii) during the Amortization Period or the Class A Pay
Down Period, on and prior to the day on which an amount
equal to the Class A Invested Amount is deposited in the
Principal Account, to be deposited in the Principal
Account for distribution to the Class A Certificateholders
on the next Distribution Date, and (iii) during the
Amortization Period, on and after the day on which such
deposit has been made and on and prior to the day on which
the Class B Invested Amount has been deposited in the
Principal Account, to be deposited in the Principal
Account for payment to the Class B Certificateholders on
the next Distribution Date.
(12) Reimbursement of Class C Investor Charge-Offs. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the remaining
Cap Receipt Amount for such Business Day and then from the
Class C Reserve Account, to the extent of the amount on
deposit in the Class C Reserve Account, if any, and then
from the Collection Account, to the extent of any
Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (xi), an amount equal to
the lesser of (x) any such amounts on deposit in the Class
C Reserve Account and remaining Available Series 1994-2
Imputed Yield Collections and (y) the unreimbursed amount
by which the Class C Invested Amount has been reduced on
prior Business Days pursuant to clauses (d) and (e) of the
definition of Class C Invested Amount, if any, such
amount, (i) during the Revolving Period (except for any
portion of the Revolving Period during a Class A Paydown
Period), to be treated as Shared Principal Collections,
(ii) during the Amortization Period or the Class A Pay
Down Period, on and prior to the day on which an amount
equal to the Class A Invested Amount is deposited in the
Principal Account, to be deposited in the Principal
Account for distribution to the Class A Certificateholders
on the next Distribution Date, (iii) during the
Amortization Period, on and prior to the day on which an
amount equal to the Class B Invested Amount is deposited
in the Principal Account, to be deposited in the Principal
Account for distribution to the Class B Certificateholders
on the next Distribution Date and (iv) during the
Amortization Period, on and after the day on which such
deposit has been made and on and prior to the day on which
an amount equal to the Class C Invested Amount is
deposited in the Principal Account, to be deposited in the
Principal Account for payment to the Class C
Certificateholders on the next Distribution Date.
(13) Reimbursement of Class D Investor Charge-Offs. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the remaining
Cap Receipt Amount for such Business Day and then from the
Collection Account, to the extent of any Available Series
1994-2 Imputed Yield Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (xii), an amount equal to the lesser of
(x) any such remaining Available Series 1994-2 Imputed
Yield Collections and (y) the unreimbursed amount by which
the Class D Invested Amount has been reduced on prior
Business Days pursuant to clauses (d) and (e) of the
definition of Class D Invested Amount, if any, such
amount, (i) during the Revolving Period to be paid to the
Transferor and (ii) during the Amortization Period, to be
deposited in the Principal Account for payment pursuant to
Section 4.9(c) of the Agreement.
(14) Class C Reserve Account. On each Business Day
following the occurrence of a Class C Trigger Event, the
Trustee acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection
Account, to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i) through
(xiii), an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) the amount by which the Specified
Class C Reserve Amount exceeds the amount on deposit in
the Class C Reserve Account and deposit such amount, if
any, into the Class C Reserve Account.
(15) Additional Class A Interest. On each Business Day
during a Monthly Period, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount for such Business Day and
then from the Collection Account and pay to the Class A
Certificateholder on such Business Day, to the extent of
the Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawal pursuant
to subsections 4.9(a)(i) through (xiv), an amount equal to
the lesser of (x) any such remaining Available Series 1994-
2 Imputed Yield Collections and (y) the excess, if any, of
(1) the sum of Class A Interest for such Business Day and
the Class A Interest Shortfall for the preceding Business
Day over (2) the amounts previously deposited into the
Interest Funding Account on such Business Day pursuant to
subsection 4.9(a)(i).
(16) Class A Costs. On each Business Day, the Trustee
acting in accordance with instructions from the Servicer,
shall withdraw first from the Cap Proceeds Account to the
extent of the remaining Cap Receipt Amount for such
Business Day and then from the Collection Account and pay
to the Class A Certificateholder, to the extent of any
Available Series 1994-2 Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (xv), an amount equal to
the lesser of (x) any such remaining Available Series 1994-
2 Imputed Yield Collections and (y) the Class A Costs for
such Business Day and any such amounts that remain unpaid
from previous days to the extent not included in Class A
Costs for such Business Day.
(17) Class B Increased Costs. On each Business Day, the
Trustee acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection
Account, to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i) through
(xvi), an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) amounts payable to Class B
Certificateholders pursuant to Section 16 of this Series
Supplement for payment to such Class B Certificateholders.
(18) Class C Increased Costs. On each Business Day, the
Trustee acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection
Account, to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i) through
(xvii), an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) amounts payable to Class C
Certificateholders pursuant to Section 16 of this Series
Supplement for payment to such Class C Certificateholders.
(19) Investor Servicing Fee. On each Business Day, if
Fingerhut or an Affiliate of Fingerhut is the Servicer,
the Trustee, acting in accordance with instructions from
the Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection Account
and distribute to the Servicer, to the extent of Available
Series 1994-2 Imputed Yield Collections for such Business
Day (after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (xviii) of the Agreement),
the Servicing Fee accrued since the preceding Business Day
plus any Servicing Fee due with respect to any prior
Business Day but not distributed to the Servicer.
(20) Expense Reserve Account. On each Business Day
following the occurrence of an Expense Reserve Trigger,
the Trustee acting in accordance with instructions from
the Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection
Account, to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i) through
(xix) an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) the amount specified in subsection
4.21(b) of the Agreement and deposit such amount, if any,
into the Expense Reserve Account.
(21) Payment Reserve Account. On each Business Day, the
Trustee acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt Amount
for such Business Day and then from the Collection
Account, to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i) through
(xx) an amount equal to the lesser of (x) any such
remaining Available Series 1994-2 Imputed Yield
Collections and (y) the amount designated by the
Transferor in writing (which include facsimile
transmission) in its instructions to the Trustee on such
Business Day and deposit such amount, if any, into the
Payment Reserve Account.
(22) Excess Imputed Yield Collections. Any amounts
remaining in the Cap Proceeds Account or the Collection
Account to the extent of any Available Series 1994-2
Imputed Yield Collections remaining after giving effect to
the withdrawals pursuant to subsection 4.9(a)(i) through
(xxi), shall be treated as Excess Imputed Yield
Collections, and the Servicer shall direct the Trustee in
writing on each Business Day to withdraw such amounts from
the Cap Proceeds Account, if applicable, and the
Collection Account and to first make such amounts
available to pay to Certificateholders of other Series to
the extent of shortfalls, if any, in amounts payable to
such certificateholders from Imputed Yield Collections
allocated to such other Series, then to pay any unpaid
commercially reasonable costs and expenses of a Successor
Servicer, if any, and then pay any remaining Excess
Imputed Yield Collections to the Transferor.
b. For each Business Day with respect to the Revolving
Period (except for any portion of the Revolving Period
during a Class A Paydown Period), the funds on deposit in
the Collection Account to the extent of the lesser of (A)
the Class A Invested Amount and (B) the sum of (x) product
of (i) the sum of the Class A Floating Allocation
Percentage, the Class B Floating Allocation Percentage and
the Class C Floating Allocation Percentage and (ii) the
amount of Principal Collections on such Business Day (such
product the "ABC Revolving Principal Collections") less
the amount of Reallocated Class C Principal Collections
and Reallocated Class B Principal Collections on such
Business Day (the ABC Revolving Principal Collections less
the Class C Reallocated Principal Collections and the
Class B Reallocated Principal Collections on the related
Business Day, the "Net ABC Revolving Principal
Collections") and (y) the amount then on deposit in the
Collection Account pursuant to subsection 3A(i) of this
Series Supplement may, at the option of the Transferor or
shall, if the Aggregate ABC Principal Amount exceeds the
Aggregate Interest Rate Caps Notional Amount on such
Business Day, pursuant to instructions delivered to the
Servicer and the Trustee by facsimile or other similar
means of documented communication, be deposited into the
Defeasance Account and applied as provided in Section
9A(b) of this Series Supplement. During the Revolving
Period (except for any portion of the Revolving Period
during a Class A Pay Down Period), an amount equal to the
Net ABC Revolving Principal Collections less any amount
deposited to the Defeasance Account pursuant to the
immediately preceding sentence shall be treated as Shared
Principal Collections and applied pursuant to the written
direction of the Servicer in the Daily Report for such
Business Day, as provided in Section 4.3(e) of the
Agreement.
c. For each Business Day on and after the Amortization
Period Commencement Date, the amount of funds on deposit
in the Collection Account and the other amounts described
below will be distributed, pursuant to the written
direction of the Servicer in the Daily Report for such
Business Day in the following priority:
(1) on and prior to the day on which an amount equal to
the Class A Invested Amount has been deposited in the
Principal Account to be applied to the payment of Class A
Principal, an amount (not in excess of the Class A
Invested Amount) equal to the sum of (v) the product of
the ABC Fixed/Floating Allocation Percentage and Principal
Collections in the Collection Account at the end of the
preceding Business Day (less the amount thereof to be
applied as Reallocated Class B Principal Collections or
Reallocated Class C Principal Collections on such Business
Day), (w) any amount on deposit in the Excess Funding
Account allocated to the Class A Certificate on such
Business Day pursuant to subsection 4.9(d), (x) amounts to
be paid pursuant to subsections 4.9(a)(v), (vii), (viii),
(xi), (xii) and (xiii) of the Agreement from Available
Series 1994-2 Imputed Yield Collections and from amounts
available pursuant to subsections 4.10(a) and (b) and
4.16(a), (b) and (c) of the Agreement on such Business
Day, (y) any remaining Class A Pre-Funded Amount on such
Business Day and amounts specified in the last sentence of
Section 3A(i) of this Series Supplement and (z) the amount
of Shared Principal Collections allocated to the Series
1994-2 Certificates in accordance with Section 4.8 on such
Business Day, will be paid to the Class A
Certificateholder;
(2) on and after the day on which an amount equal to
the Class A Invested Amount has been paid to the Class A
Certificateholder, an amount (not in excess of the Class B
Invested Amount) equal to the sum of (v) an amount equal
to the product of the ABC Fixed/Floating Allocation
Percentage and Principal Collections in the Collection
Account at the end of the preceding Business Day (less the
amount thereof to be applied as Reallocated Class B
Principal Collections or Reallocated Class C Principal
Collections on such Business Day), (w) any amount on
deposit in the Excess Funding Account allocated to the
Class B Certificates on such Business Day pursuant to
subsection 4.9(d), (x) the amount, if any, allocated to be
paid to the Class B Certificates pursuant to subsections
4.9(a)(v), (vii), (xi), (xii) and (xiii) of the Agreement
from Available Series Imputed Yield Collections and from
amounts available pursuant to subsections 4.10(a) and (b)
and 4.16(a) and (b) of the Agreement with respect to such
Business Day, (y) any remaining Class B Pre-Funded Amount
in the Pre-Funding Account on such Business Day and
amounts specified in the last sentence of Section 3A(i) of
this Series Supplement and (z) the amount of Shared
Principal Collections allocated to the Series 1994-2
Certificates in accordance with Section 4.8 on such
Business Day (such sum, the "Class B Daily Principal
Amount") will be deposited into the Principal Account;
(3) on and after the day on which an amount equal to
the Class B Invested Amount has been deposited in the
Principal Account to be applied to the payment of Class B
Principal, an amount (not in excess of the Class C
Invested Amount) equal to the sum of (v) an amount equal
to the product of the ABC Fixed/Floating Allocation
Percentage and Principal Collections in the Collection
Account at the end of the preceding Business Day (less the
amount thereof to be applied as Reallocated Class C
Principal Collections on such Business Day), (w) any
amount on deposit in the Excess Funding Account allocated
to the Class C Certificates on such Business Day pursuant
to subsection 4.9(d), (x) the amount, if any, allocated to
be paid to the Class C Certificates pursuant to
subsections 4.9(a)(v), (vii), (xii) and (xiii) of the
Agreement from Available Series Imputed Yield Collections
and from amounts available pursuant to subsections 4.10(a)
and (b) and 4.16(a) of the Agreement with respect to such
Business Day, (y) any remaining Class C Pre-Funded Amount
in the Pre-Funding Account on such Business Day and
amounts specified in the last sentence of Section 3A(i) of
this Series Supplement and (z) the amount of Shared
Principal Collections allocated to the Series 1994-2
Certificates in accordance with Section 4.8 on such
Business Day (such sum, the "Class C Daily Principal
Amount") will be deposited into the Principal Account;
(4) on and after the day on which an amount equal to
the Class C Invested Amount has been deposited in the
Principal Account to be applied to the payment of Class C
Principal, an amount equal to the sum of (w) an amount
equal to the product of the Class D Fixed/Floating
Allocation Percentage and Principal Collections in the
Collection Account at the end of the preceding Business
Day (less the amount thereof to be applied as Reallocated
Class D Principal Collections on such Business Day), (x)
any amount on deposit in the Excess Funding Account
allocated to the Class D Certificates on such Business Day
pursuant to subsection 4.9(d), (y) the amount, if any,
allocated to be paid to the Class D Certificates pursuant
to subsections 4.9(a)(vi), (vii) and (xiii) of the
Agreement from Available Series Imputed Yield Collections
and from amounts available pursuant to subsections 4.10(a)
and (b) of the Agreement with respect to such Business Day
and (z) the amount of Shared Principal Collections
allocated to the Series 1994-2 Certificates in accordance
with Section 4.8 on such Business Day (such sum, the
"Class D Daily Principal Amount") will be distributed to
the Class D Certificateholders; and
(5) an amount equal to the excess, if any, of (A) the
sum of the amounts described in clauses (i)(v) and (x),
(ii)(v) and (x) and (iii)(v) and (x) above over (B) the
sum of Class A Principal, Class B Principal and Class C
Principal will be treated as Shared Principal Collections
and applied as provided in subsection 4.3(e) of the
Agreement.
d. On the first Business Day of the Amortization
Period, funds on deposit in the Excess Funding Account
will be deposited in the Principal Account, provided that
if any other Series enters its Amortization Period, as
defined in its related Series Supplement, the amount of
the foregoing deposit shall be equal to the product of an
amount equal to the amount of funds on deposit in the
Excess Funding Account and a fraction the numerator of
which is the Invested Amount and the denominator of which
is equal to the sum of the invested amounts of each Series
then entering its related Amortization Period as defined
in its related Series Supplement. Amounts deposited in
the Principal Account pursuant to the foregoing sentence
will be allocated in the following order of priority: (i)
to the Class A Certificate in an amount not to exceed the
Class A Principal after subtracting therefrom any amounts
to be paid to the Class A Certificateholders with respect
thereto pursuant to subsections 4.9(c)(i)(v), (y), and
(z), (ii) to the Class B Certificates in an amount not to
exceed the Class B Principal after subtracting therefrom
any amounts to be deposited in the Principal Account with
respect thereto pursuant to subsections 4.9(c)(ii)(v), (y)
and (z), and (iii) to the Class C Certificates in an
amount not to exceed the Class C Principal after
subtracting therefrom any amounts to be deposited in the
Principal Account with respect thereto pursuant to
subsections 4.9(c)(iii)(v), (y) and (z). On and after the
Class D Principal Payment Commencement Date any amounts
remaining on deposit in the Excess Funding Account and
allocated to the Series 1994-2 Certificates will be
deposited in the Principal Account in an amount not to
exceed the Class D Invested Amount after subtracting
therefrom any amounts to be deposited in the Principal
Account with respect thereto pursuant to subsections
4.9(c)(iv)(w), (y) and (z).
e. For each Business Day during the Class A Pay Down
Period:
(1) funds on deposit in the Collection Account will
be, pursuant to the written direction of the Servicer in
the Daily Report for such Business Day, paid to the Class
A Certificateholder in respect of the Class A Principal in
an amount (not in excess of the Class A Invested Amount)
equal to the sum of (w) the product of the ABC
Fixed/Floating Allocation Percentage and Principal
Collections in the Collection Account at the end of the
preceding Business Day (less the amount thereof to be
applied as Reallocated Class B Principal Collections or
Reallocated Class C Principal Collections on such Business
Day), (x) amounts to be paid pursuant to subsections
4.9(a)(v), (vii), (viii), (xi), (xii) and (xiii) of the
Agreement from Available Series 1994-2 Imputed Yield
Collections and from amounts available pursuant to
subsections 4.10(a) and (b) and 4.16(a), (b) and (c) of
the Agreement on such Business Day, (y) any remaining
Class A Pre-Funded Amount on such Business Day and amounts
specified in the last sentence of Section 3A(i) of this
Series Supplement and (z) the amount of Shared Principal
Collections allocated to the Series 1994-2 Certificates in
accordance with Section 4.8 of the Agreement on such
Business Day;
(2) an amount equal to the excess, if any, of (A)
the sum of the amounts described in clauses (i)(w) and (x)
above over (B) the Class A Principal will be treated as
Shared Principal Collections and applied as provided in
subsection 4.3(e) of the Agreement.
f. [Reserved]
(g) On each Business Day on which Class D Daily
Principal has been allocated pursuant to subsection 4.7(d)
of the Agreement, funds on deposit in the Collection
Account in an amount equal to the Class D Daily Principal
Amount designated by the Transferor with respect to such
Business Day will be distributed to the Class D
Certificateholders.
H. Coverage of Required Amount for the
Series 1994-2 Certificates. (a) To the extent that any
amounts are on deposit in the Pre-Funding Account or the
Excess Funding Account on any Business Day, the Servicer
shall apply, in the manner specified for application of
Available Series 1994-2 Imputed Yield Collections in
subsections 4.9(a)(i) through (xix), Transferor Imputed
Yield Collections in an amount equal to the excess of (x)
the product of (a) the Base Rate, (b) the amounts on
deposit in the Pre-Funding Account and the Excess Funding
Account and (c) the number of days elapsed since the
previous Business Day divided by the actual number of days
in such year over (y) the aggregate amount of all earnings
since the previous Business Day available from the Cash
Equivalents in which funds on deposit in the Pre-Funding
Account and the Excess Funding Account are invested (the
"Negative Carry Amount").
a. To the extent that on any Business Day payments are
being made pursuant to any of subsections 4.9(a)(i)
through (xix), respectively, and the full amount to be
paid pursuant to any such subsection receiving payments on
such Business Day is not paid in full on such Business
Day, the Servicer shall apply, in the manner specified for
application of Available Series 1994-2 Imputed Yield
Collections in subsections 4.9(a)(i) through (xix), all or
a portion of the Excess Imputed Yield Collections from
other Series with respect to such Business Day allocable
to the Series 1994-2 Certificates in an amount equal to
the excess of the full amount to be allocated or paid
pursuant to the applicable subsection over the amount
applied with respect thereto from Available Series 1994-2
Imputed Yield Collections and Transferor Imputed Yield
Collections on such Business Day (the "Required Amount").
Excess Imputed Yield Collections allocated to the Series
1994-2 Certificates for any Business Day shall mean an
amount equal to the product of (x) Excess Imputed Yield
Collections available from all other Series for such
Business Day and (y) a fraction, the numerator of which is
the Required Amount for such Business Day and the
denominator of which is the aggregate amount of shortfalls
in required amounts or other amounts to be paid from
Imputed Yield Collections for all Series for such Business
Day.
I. Payment of Certificate Interest. On each
Transfer Date, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw the amount on deposit
in the Interest Funding Account with respect to the
preceding Monthly Period allocable to the Series 1994-2
Certificates and deposit such amount in the Distribution
Account. On each Business Day, the Paying Agent shall pay
in accordance with Section 5.1 of the Agreement to Class A
Certificateholders from the Distribution Account an amount
equal to the sum of the Class C Interest Adjustment, if
any, and the Class B Interest Adjustment, if any,
deposited into the Distribution Account pursuant to
Section 4.6A. On each Distribution Date, the Paying Agent
shall pay in accordance with Section 5.1 of the Agreement
(x) to the Class B Certificateholders from the
Distribution Account the amount deposited into the
Interest Funding Account during the preceding Monthly
Period pursuant to subsections 4.9(a)(ii) and (ix) and
Sections 4.10 and 4.16 less the aggregate Class B Interest
Adjustment made with respect to the related Interest
Accrual Period and (y) the Class C Certificateholders from
the Distribution Account the amount deposited into the
Interest Funding Account pursuant to subsections
4.9(a)(iii) and (x) and Sections 4.10 and 4.16 during the
preceding Monthly Period less the aggregate Class C
Interest Adjustment made in the related Interest Accrual
Period.
J. Payment of Certificate Principal.
a. [Reserved]
b. On the Transfer Date preceding the Class B
Principal Payment Commencement Date and each Distribution
Date thereafter, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw from the Principal
Account and deposit in the Distribution Account, to the
extent of funds available, an amount equal to the Class B
Principal for such Distribution Date. On the Class B
Principal Payment Commencement Date, after the payment of
any principal amounts to the Class A Certificate on such
day, and on each Distribution Date thereafter until the
Class B Invested Amount is paid in full, the Paying Agent
shall pay in accordance with Section 5.1 to the Class B
Certificateholders from the Distribution Account such
amount deposited into the Distribution Account on the
related Transfer Date.
c. On the Transfer Date preceding the Class C
Principal Payment Commencement Date and each Distribution
Date thereafter, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw from the Principal
Account and deposit in the Distribution Account an amount
equal to the lesser of the Class C Invested Amount and the
amount on deposit in the Principal Account allocable to
the Series 1994-2 Certificates (after giving effect to
transfers pursuant to subsection 4.12(b)). On the Class C
Principal Payment Commencement Date, after the payment of
any principal amounts to the Class B Certificates on such
day, and on each Distribution Date thereafter until the
Class C Invested Amount is paid in full, the Paying Agent
shall pay in accordance with Section 5.1 to the Class C
Certificateholders from the Distribution Account such
amount deposited into the Distribution Account on the
related Transfer Date.
d. On the Transfer Date preceding the Class D
Principal Payment Commencement Date and each Business Day
thereafter, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall make payments of principal to
the Class D Certificateholders in accordance with
subsection 4.9(c)(iv) of the Agreement.
e. On each Business Day the Trustee acting in
accordance with instructions from the Servicer set forth
in the Daily Report for such Business Day shall make
payments of principal to the Class D Certificateholders of
Class D Daily Principal, if any, designated by the
Transferor pursuant to Section 4.7(d) of the Agreement.
Any amounts remaining in the Principal Account
and allocable to the Series 1994-2 Certificates, after the
Class D Invested Amount has been paid in full, will be
treated as Shared Principal Collections and applied in
accordance with Section 4.3(e) of the Agreement.
K. Investor Charge-Offs. (a) If, on any
Determination Date, the aggregate Investor Default Amount
and the Series Allocation Percentage of unpaid Adjustment
Payments, if any, for each Business Day in the preceding
Monthly Period exceeded the Available Series 1994-2
Imputed Yield Collections applied to the payment thereof
pursuant to subsections 4.9(a)(v), (vi) and (vii) of the
Agreement and the amount of Transferor Imputed Yield
Collections and Excess Imputed Yield Collections allocated
thereto pursuant to Section 4.10 of the Agreement, and the
amount of Reallocated Principal Collections applied with
respect thereto pursuant to Section 4.16 of the Agreement,
the Class D Invested Amount will be reduced by the amount
by which the remaining aggregate Investor Default Amount
and Series Allocation Percentage of unpaid Adjustment
Payments exceed the amount applied with respect thereto
during such preceding Monthly Period (a "Class D Investor
Charge-Off").
a. In the event that any such reduction of the Class D
Invested Amount would cause the Class D Invested Amount to
be a negative number, the Class D Invested Amount will be
reduced to zero, and, the Class C Invested Amount will be
reduced by the amount by which the Class D Invested Amount
would have been reduced below zero, but not more than the
aggregate Investor Default Amount and Series Allocation
Percentage of unpaid Adjustment Payments for such Monthly
Period (a "Class C Investor Charge-Off").
b. In the event that any such reduction of the Class C
Invested Amount would cause the Class C Invested Amount to
be a negative number, the Class C Invested Amount will be
reduced to zero, and, the Class B Invested Amount will be
reduced by the amount by which the Class C Invested Amount
would have been reduced below zero, but not more than the
remaining aggregate Investor Default Amount and Series
Allocation Percentage of unpaid Adjustment Payments for
such Monthly Period (a "Class B Investor Charge-Off").
c. In the event that any such reduction of the Class B
Invested Amount would cause the Class B Invested Amount to
be a negative number, the Class B Invested Amount will be
reduced to zero, and the Class A Invested Amount will be
reduced by the amount by which the Class B Invested Amount
would have been reduced below zero, but not more than the
remaining aggregate Investor Default Amount and Series
Allocation Percentage of unpaid Adjustment Payments for
such Monthly Period (a "Class A Investor Charge-Off").
L. Pre-Funding Period and Establishment of
the Pre-Funding Account. (a) If, as of the close of
business on January 2, 1995 (i) there has not been a Class
C Funding Purchase and a Class B Funding Purchase and (ii)
during the period between the Closing Date and the close
of business on January 2, 1995 the Class A Invested Amount
during such time has not at any time equalled or exceeded
$12,400,000, then unless a Series 1994-2 Pay Out Event
shall have occurred prior to January 3, 1995 the period
between January 3, 1995 and the earliest to occur of (i)
the close of business on June 30, 1995, (ii) the
occurrence of a Pay Out Event and (iii) the first date on
which the Class C Pre-Funded Amount, the Class B Pre-
Funded Amount and the Class A Pre-Funded Amount are all
equal to zero shall be the "Pre-Funding Period".
(b) Prior to the commencement of the Pre-Funding
Period, if any, the Servicer shall for the benefit of the
Series 1994-2 Certificateholders establish and maintain or
cause to be established and maintained in the name of the
Trustee, on behalf of the Series 1994-2
Certificateholders, with a Qualified Institution a
segregated trust account (the "Pre-Funding Account"),
bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Series
1994-2 Certificateholders. The Transferor does hereby
transfer, assign, set over and otherwise convey to the
Trust for the benefit of the Series 1994-2
Certificateholders, without recourse, all of its right,
title and interest in, to and under the Pre-Funding
Account, any Cash Equivalent on deposit therein and any
proceeds of the foregoing, including the investment
earnings thereon. The Pre-Funding Account shall be under
the sole dominion and control of the Trustee for the
benefit of the Series 1994-2 Certificateholders. If, at
any time, the institution holding the Pre-Funding Account
ceases to be a Qualified Institution, the Transferor shall
direct the Servicer to establish within 10 Business Days a
new Pre-Funding Account meeting the conditions specified
above with a Qualified Institution, transfer any cash
and/or any investments to such new Pre-Funding Account and
from the date such new Pre-Funding Account is established,
it shall be the "Pre-Funding Account." In addition, upon
at least five days' notice to the Trustee, the Transferor
may direct the Servicer to establish a new Pre-Funding
Account meeting the conditions specified above with a
different Qualified Institution, transfer all cash and
investments held in the existing Pre-Funding Account to
such new Pre-Funding Account and from the date such new
Pre-Funding Account is established, it shall be, for the
Series 1994-2 Certificates, the "Pre-Funding Account."
Pursuant to the authority granted to the Servicer in
subsection 3.1(b) of the Agreement, the Servicer shall
have the power, revocable by the Trustee, to make
withdrawals and payments or to instruct the Trustee to
make withdrawals and payments from the Pre-Funding Account
for the purposes of carrying out the Servicer's or
Trustee's duties hereunder.
(c) On the first day of the Pre-Funding Period,
(i) if there has been no Class C Funding Purchase, then
the purchasers of the Class C Certificates under the Class
C Purchase Agreement shall deposit or cause to be
deposited into the Pre-Funding Account an amount equal to
the Class C Full Invested Amount (such deposit the "Class
C Pre-Funding Deposit") and the Trustee at the direction
of the Transferor shall issue the Class C Certificate to
the aforementioned purchaser of the Class C Certificates;
(ii) if there has been no Class B Funding Purchase, then
the purchasers of the Class B Certificates under the Class
B Purchase Agreement shall deposit or cause to be
deposited into the Pre-Funding Account an amount equal to
the Class B Full Invested Amount (such deposit, the "Class
B Pre-Funding Deposit") and the Trustee at the direction
of the Transferor shall issue the Class B Certificate to
the aforementioned purchasers of the Class B Certificates;
(iii) if during the Investment Period the maximum Class A
Invested Amount never equalled or exceeded $12,400,000
then the purchaser of the Class A Certificate under the
Class A Purchase Agreement shall deposit into the Pre-
Funding Account, $12,400,000 (such deposit, the "Class A
Pre-Funding Deposit") and the Trustee at the direction of
the Transferor shall issue the Class A Certificate, if the
Class A Certificate has not been issued, to the
aforementioned purchaser of the Class A Certificate;
provided, however, that no issuance of Class C
Certificates, Class B Certificates or the Class A
Certificate and no Class C Pre-Funding Deposit, Class B
Pre-Funding Deposit or Class A Pre-Funding Deposit shall
be made pursuant to this Section 4.14(b) unless (i)
immediately following any issuance of the Class C
Certificates, the Class B Certificates or the Class A
Certificate pursuant to this Section 4.14(c), the Class D
Invested Amount would equal or exceed the Stated Class D
Amount; (ii) each of the conditions to the issuance of a
Series pursuant to Section 6.9(b) of the Agreement are
satisfied on or prior to the date of issuance with respect
to the applicable Class or Classes of Certificates as if
such Class or Classes of Certificates were a Series,
except for the requirement to deliver a Series Supplement
(as defined in the Agreement); and (iii) that the
Transferor has given the purchasers of the Class C
Certificates, the Class B Certificates or the Class A
Certificate, as applicable, at least five Business Days'
notice of the commencement of the Pre-Funding Period.
Upon satisfaction of the above conditions, and
in accordance with Section 6.9 of the Agreement to the
extent applicable, the Trustee shall issue any Class C
Certificates, Class B Certificates or Class A Certificates
required to be issued pursuant to this Section 4.14. On
the Business Day preceding each Transfer Date, the
Servicer shall withdraw from the Pre-Funding Account and
deposit in the Collection Account all interest and other
investment income on the Pre-Funded Amount. Interest
(including reinvested interest) and other investment
income on funds on deposit in the Pre-Funded Account shall
not be considered part of the Pre-Funded Amount for
purposes of this Agreement but shall be applied as
Available Series 1994-2 Imputed Yield Collections pursuant
to subsection 4.9(a). Funds on deposit in the Pre-Funding
Account other than investment income shall be withdrawn by
the Servicer and paid to the Transferor to the extent of
any increases in the Invested Amount pursuant to Section
4.15. The Trustee shall withdraw the remaining Pre-Funded
Amount, if any, on deposit in the Pre-Funding Account on
the last Business Day of the Pre-Funding Period and pay:
(i) to the Class C Certificateholders an amount equal to
the Class C Pre-Funded Amount, (ii) to the Class B
Certificateholders an amount equal to the Class B Pre-
Funded Amount and (iii) to the Class A Certificateholder
an amount equal to the Class A Pre-Funded Amount;
provided, however, that the above referenced payments need
not be made to the Class C Certificateholders, the Class B
Certificateholders or the Class A Certificateholders if
the Class C Pre-Funded Amount, the Class B Pre-Funded
Amount or the Class A Pre-Funded Amount, respectively,
equals zero.
(d) Funds on deposit in the Pre-Funding Account
shall be invested in Cash Equivalents by the Trustee (or,
at the direction of the Trustee, by the Servicer on behalf
of the Trustee) at the direction of the Servicer. Funds
on deposit in the Pre-Funding Account on any Distribution
Date, after giving effect to any withdrawals from the Pre-
Funding Account, shall be invested in Cash Equivalents
that will mature so that such funds will be available for
withdrawal on or prior to the following Transfer Date.
The proceeds of any such investments shall be invested in
Cash Equivalents that will mature so that such funds will
be available for withdrawal on or prior to the following
Transfer Date. On each Transfer Date the aggregate
proceeds of any such investment shall be deposited in the
Collection Account for application as Available Series
1994-2 Imputed Yield Collections.
b. The "Investment Period" shall be the
period, if any, beginning on the Closing Date and ending
at the close of business on the first day of the January
1995 Monthly Period.
c. On any Business Day during the Investment
Period, the Transferor may require that: the Persons
obligated to purchase the Class C Certificates pursuant to
the Class C Purchase Agreement purchase a principal amount
of Class C Certificates equal to the Class C Full Invested
Amount (a "Class C Funding Purchase"); the Persons
obligated to purchase the Class B Certificates pursuant to
the Class B Purchase Agreement purchase a principal amount
of Class B Certificates equal to the Class B Full Invested
Amount (a "Class B Funding Purchase"); and that the Person
obligated to purchase the Class A Certificate purchase a
principal amount of the Class A Certificate according to
the terms of the Class A Certificate Purchase Agreement
less than or equal to the Class A Maximum Invested Amount,
but in no event less than $12,400,000 (a "Class A Funding
Purchase"); provided, however, that any Class A Funding
Purchase, Class B Funding Purchase or Class C Funding
Purchase may be required only upon satisfaction of the
following conditions: (i) that the purchase of the Class C
Funding Purchase be made in a single purchase on a single
Business Day and prior to or contemporaneously with the
issuance of the Class B Certificates; (ii) that the Class
B Funding Purchase be made in a single purchase on a
single Business Day and prior to or contemporaneously with
the issuance of the Class A Certificate; (iii) that the
Class A Funding Purchase be made only after or
contemporaneously with the Class B Funding Purchase or
Class C Funding Purchase; (iv) that immediately following
the issuance of each of the Class C Certificates, the
Class B Certificates and the Class A Certificate, the
Class D Invested Amount be equal to or greater than the
Stated Class D Amount; (v) that all of the conditions
placed upon the issuance of a Series pursuant to Section
6.9(b) of the Agreement be satisfied with respect to the
applicable Class or Classes of Certificates as if such
Class or Classes of Certificates were a Series, except for
the requirement to deliver a Series Supplement (as defined
in the Agreement); and (vi) that the Transferor have given
the purchasers of the Class C Certificates, the Class B
Certificates or the Class A Certificates, as applicable at
least five Business Days' notice of the date on which the
purchase is to be made in accordance with this Section
4.14A.
Upon satisfaction of the above conditions, and
in accordance with Section 6.9 of the Agreement to the
extent applicable, the Trustee shall issue the Class C
Certificates in the case of a Class C Funding Purchase,
the Class B Certificates in the case of a Class B Funding
Purchase, and the Class A Certificates in the case of a
Class A Funding Purchase, as applicable, upon receipt of
payment therefor.
M. Increases in Invested Amount during the
Pre-Funding Period. The Transferor may at any time during
the Pre-Funding Period determine to increase the Class C
Invested Amount up to the Class C Full Invested Amount, to
increase the Class B Invested Amount up to the Class B
Full Invested Amount and the Class A Invested Amount by up
to the amount, at any time, of the Class A Pre-Funded
Amount; provided, however, that the Servicer may not,
pursuant to this Section 4.15, increase the Class B
Invested Amount until the Class C Invested Amount has been
increased to the Class C Full Invested Amount nor increase
the Class A Invested Amount until the Class B Invested
Amount has been increased to the Class B Full Invested
Amount; provided further, however, that no increase in the
Class C Invested Amount, the Class B Invested Amount or
the Class A Invested Amount pursuant to this Section 4.15
shall be made unless immediately after giving effect to
any increase in the Class C Invested Amount, Class B
Invested Amount or the Class A Invested Amount hereunder,
the Class D Invested Amount would equal or exceed the
Stated Class D Amount then applicable. Upon determining
to increase the Class C Invested Amount, the Class B
Invested Amount or the Class A Invested Amount in
accordance with the terms of this Section 4.15, the
Transferor shall deliver to the Servicer and the Trustee
and each Rating Agency an Officer's Certificate specifying
the amount of the increase in the Class C Invested Amount,
the Class B Invested Amount or the Class A Invested
Amount, as applicable, that the Transferor has determined
to make and certifying that no Pay Out Event with respect
to any outstanding Series will occur as a result of or in
connection with such increase in the Class C Invested
Amount, Class B Invested Amount or Class A Invested Amount
as applicable. Upon receipt of such Officer's Certificate
by the Trustee, the Class C Invested Amount the Class B
Invested Amount or the Class A Invested Amount shall be
increased as indicated on such Officer's Certificate,
whereupon the Trustee shall instruct the Servicer to
withdraw from the Pre-Funding Account and pay to the
Transferor an amount equal to the amount of such increase
in the Class C Invested Amount, the Class B Invested
Amount or the Class A Invested Amount as applicable. Any
withdrawal from the Pre-Funding Account which is used to
increase the Class C Invested Amount pursuant to this
Section 4.15 shall be a "Class C Pre-Funding Withdrawal";
any withdrawal from the Pre-Funding Account which is used
to increase the Class B Invested Amount shall be pursuant
to this Section 4.15 shall be a "Class B Pre-Funding
Withdrawal"; and any withdrawal from the Pre-Funding
Account which is used to increase the Class A Invested
Amount pursuant to this Section 4.15 shall be a "Class A
Pre-Funding Withdrawal." The Class C Pre-Funded Amount
shall be immediately reduced by the amount of any Class C
Pre-Funding Withdrawal; the Class B Pre-Funded Amount
shall be immediately reduced by the amount of any Class B
Pre-Funding Withdrawal and the Class A Pre-Funded Amount
shall be immediately reduced by any Class A Pre-Funding
Withdrawal.
N. Reallocated Principal Collections for the
Series 1994-2 Certificates. (a) On each Business Day,
the Servicer will determine an amount equal to the least
of (i) the Class D Invested Amount, (ii) the product of
(x)(I) during the Revolving Period, the Class D Floating
Allocation Percentage or (II) during an Amortization
Period, the Class D Fixed/Floating Allocation Percentage
and (y) the amount of Principal Collections with respect
to such Business Day and (iii) an amount equal to the sum
of (a) the Class A Required Amount for such Business Day,
(b) the Class B Required Amount for such Business Day and
(c) the Class C Required Amount for such Business Day
(such amount called "Reallocated Class D Principal
Collections") and shall apply Principal Collections in an
amount equal to such amount first to the components of the
Class A Required Amount, then to the components of the
Class B Required Amount and then to the components of the
Class C Required Amount in the same priority as amounts
are applied to such components from Available Series 1994-
2 Imputed Yield Collections pursuant to subsection 4.9(a).
a. On each Business Day, the Servicer will determine
an amount equal to the least of (i) the Class C Invested
Amount, (ii) the product of (x)(I) during the Revolving
Period, the Class C Floating Allocation Percentage or (II)
during an Amortization Period, the Class C Fixed/Floating
Allocation Percentage and (y) the amount of Principal
Collections for such Business Day and (iii) an amount
equal to the sum of (a) the Class A Required Amount for
such Business Day over the amount of Reallocated Class D
Principal Collections applied with respect thereto for
such Business Day and (b) the Class B Required Amount for
such Business Day over the amount of Reallocated Class D
Principal Collections applied with respect thereto for
such Business Day (such amount called "Reallocated Class C
Principal Collections") and shall apply Principal
Collections in an amount equal to such amount first to the
remaining components of the Class A Required Amount and
then to the remaining components of the Class B Required
Amount in the same priority as amounts are applied to such
components from Available Series 1994-2 Imputed Yield
Collections pursuant to subsection 4.9(a).
b. On each Business Day, the Servicer will determine
an amount equal to the least of (i) the Class B Invested
Amount, (ii) the product of (x)(I) during the Revolving
Period, the Class B Floating Allocation Percentage or (II)
during an Amortization Period, the Class B Fixed/Floating
Allocation Percentage and (y) the amount of Principal
Collections for such Business Day and (iii) an amount
equal to the excess, if any, of the Class A Required
Amount for such Business Day over the sum of the amount of
Reallocated Class D Principal Collections and Reallocated
Class C Principal Collections applied with respect thereto
for such Business Day (such amount called "Reallocated
Class B Principal Collections") and shall apply Principal
Collections equal to such amount to the remaining
components of the Class A Required Amount in the same
priority as amounts are applied to such components from
Available Series 1994-2 Imputed Yield Collections pursuant
to subsection 4.9(a).
O. Determination of LIBOR. (a) "LIBOR" shall
mean, for a specific Interest Accrual Period, the rate for
deposits in United States dollars for one month
(commencing on the first day of the relevant Interest
Accrual Period) which appears on Telerate Page 3750 as of
11:00 A.M., London time, on the LIBOR Determination Date
for such Interest Accrual Period. If such rate does not
appear on Telerate Page 3750, the rate for such Interest
Accrual Period will be determined on the basis of the
rates at which deposits in the United States dollars are
offered by the Reference Banks at approximately 11:00
a.m., London time, on such LIBOR Determination Date to
prime banks in the London interbank market for a period
equal to one month (commencing on the first day of
Interest Accrual Period). The Trustee will request the
principal London office of each such bank to provide a
quotation of its rate. If at least two such quotations
are provided, the rate for such Interest Accrual Period
will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate
for such Interest Accrual Period will be the arithmetic
mean of the rates quoted by four major banks in New York
City, selected by the Trustee, at approximately 11:00
a.m., New York City time, on the first day of such
Interest Accrual Period for loans in United States dollars
to leading European banks for a period equal to one month
(commencing on the first day of such Interest Accrual
Period).
a. The Class B Certificate Rate and the Class C
Certificate Rate applicable to the then current and the
immediately preceding Interest Accrual Periods may be
obtained by any Series 1994-2 Certificateholder by
telephoning the Trustee at its Corporate Trust Office at
(302) 451-2500.
b. On each LIBOR Determination Date, the Trustee shall
send to the Servicer by facsimile notification of LIBOR
for the following Interest Accrual Period.
P. Class C Trigger. If (i) the private
letter rating from Standard & Poor's of Fingerhut
Companies, Inc.'s senior secured notes is reduced below
BBB (a "Class C Trigger Event"), and (ii) the percentage
equivalent of a fraction the numerator of which is the
Series Allocation Percentage of the Transferor Interest
and the denominator of which is the sum of the Invested
Amount and the Series Allocation Percentage of the
Transferor Interest (the "Target Percentage") is less than
5%, the Transferor shall, in connection with increases in
the aggregate amount of Principal Receivables in the
Trust, the scheduled paydown of other Series or, with
respect to any Series of Variable Funding Certificates, an
optional payment of principal, allow the Transferor
Interest to increase such that the Target Percentage shall
be equal to or in excess of 5%. The Servicer shall
provide to Standard & Poor's and the Trustee prompt
written notice of any downgrading of the private letter
rating of Fingerhut Companies, Inc.'s senior secured
notes.
Q. Establishment of Class C Reserve Account.
(a) The Servicer, for the benefit of the
Class C Certificateholders, shall, upon the occurrence of
a Class C Trigger Event, establish and maintain or cause
to be established and maintained with a Qualified
Institution, which may be the Trustee, in the name of the
Trustee, on behalf of the Class C Certificateholders, the
"Class C Reserve Account," which shall be a segregated
trust account with the corporate trust department of such
Qualified Institution, bearing a designation clearly
indicating that the funds deposited therein are held for
the benefit of the Class C Certificateholders. The
Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Class C Reserve
Account and in all proceeds thereof. The Class C Reserve
Account shall be under the sole dominion and control of
the Trustee for the benefit of the Class C
Certificateholders. If, at any time, the institution
holding the Class C Reserve Account ceases to be a
Qualified Institution, the Trustee shall within 10
Business Days establish a new Class C Reserve Account
meeting the conditions specified above with a Qualified
Institution, and shall transfer any cash or any
investments to such new Class C Reserve Account. From the
date such new Class C Reserve Account is established, it
shall be the "Class C Reserve Account."
(b) The Servicer shall on each Business Day
following the occurrence of a Class C Trigger Event,
deposit in the Class C Reserve Account an amount equal to
the excess of the Specified Class C Reserve Amount over
the amount on deposit in the Class C Reserve Account to
the extent of funds available therefor pursuant to
subsection 4.9(a)(xiv). Funds on deposit in the Class C
Reserve Account shall be withdrawn by the Servicer and
applied in accordance with subsection 4.9(a)(xii) to the
extent of the aggregate amount of Class C Investor Charge-
Offs resulting from unpaid Adjustment Payments, if any.
Amounts on deposit in the Class C Reserve Account may be
subsequently released therefrom to the extent that the
amount on deposit in the Class C Reserve Account exceeds
the Specified Class C Reserve Amount and shall be applied
in accordance with and in the priority of payments set
forth in subsections 4.9(a)(xv) through (xxii). The
amount on deposit in the Class C Reserve Account may also
be released therefrom and shall be applied in accordance
with and in the priority of payments set forth in
subsections 4.9(a)(xv) through (xxii), and the Series
Allocation Percentage of the Transferor Interest may equal
zero, if the rating of Fingerhut Companies, Inc.'s senior
secured notes is subsequently increased to BBB or higher
or the Class C Invested Amount has been paid in full.
(c) Funds on deposit in the Class C Reserve
Account shall be invested in Cash Equivalents by the
Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of the
Servicer. Funds on deposit in the Class C Reserve Account
on any Distribution Date, after giving effect to any
withdrawals from the Class C Reserve Account, shall be
invested in Cash Equivalents that will mature so that such
funds will be available for withdrawal on or prior to the
following Business Day. The proceeds of any such
investments shall be invested in Cash Equivalents that
will mature so that such funds will be available for
withdrawal on or prior to the following Business Day. On
each Business Day following a deposit of funds to the
Class C Reserve Account, to the extent that the amount on
deposit in the Class C Reserve Account exceeds the
specified Class C Reserve Amount, the aggregate proceeds
of any such investment shall be deposited in the
Collection Account and treated as Investment Proceeds for
application as Available Series 1994-2 Imputed Yield
Collections.
R. Expense Reserve.
If with respect to any Monthly Period the
Portfolio Yield exceeds the Base Rate by less than 2% (the
"Expense Reserve Trigger") the Trustee shall deposit on
each Business Day and after the Determination Date related
to such Monthly Period in the Expense Reserve Account from
amounts available therefor pursuant to subsection
4.9(a)(xx) of the Agreement, an aggregate amount equal to
the difference, if any, between $50,000 and amounts
already on deposit in the Expense Reserve Account.
S. Expense Reserve Account.
(a) The Servicer shall, upon the occurrence of
an Expense Reserve Trigger, establish and maintain or
cause to be established and maintained with a Qualified
Institution, which may be the Trustee, in the name of the
Trustee, on behalf of the Certificateholders, the "Expense
Reserve Account," which shall be a segregated trust
account with the corporate trust department of such
Qualified Institution, bearing a designation clearly
indicating that the funds deposited therein are held for
the benefit of the Certificateholders. The Trustee shall
possess all right, title and interest in all funds on
deposit from time to time in the Expense Reserve Account
and in all proceeds thereof. The Expense Reserve Account
shall be under the sole dominion and control of the
Trustee for the benefit of the Certificateholders. If, at
any time, the institution holding the Expense Reserve
Account ceases to be a Qualified Institution, the Trustee
shall within 20 Business Days establish a new Expense
Reserve Account meeting the conditions specified above
with a Qualified Institution, and shall transfer any cash
or any investments to such new Expense Reserve Account.
From the date such new Expense Reserve Account is
established, it shall be the "Expense Reserve Account."
(b) The Servicer shall on each Business Day
following the occurrence of an Expense Reserve Trigger,
deposit in the Expense Reserve Account an amount equal to
the excess of $50,000 over the amount on deposit in the
Expense Reserve Account to the extent of funds available
therefor pursuant to subsection 4.9(a)(xx). Funds on
deposit in the Expense Reserve Account shall be withdrawn
by the Servicer or the Trustee and applied solely to the
payment of expenses incurred by the Transferor. Amounts
on deposit in the Expense Reserve Account may be
subsequently released therefrom and paid to the Transferor
to the extent that such amounts exceed $50,000. The
amount on deposit in the Reserve Account may also be
released therefrom and paid to the Transferor on the
Series 1994-2 Termination Date.
(c) Funds on deposit in the Expense Reserve
Account shall be invested in Cash Equivalents by the
Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of the
Servicer. Funds on deposit in the Expense Reserve Account
on any Distribution Date, after giving effect to any
withdrawals from the Expense Reserve Account, shall be
invested in Cash Equivalents that will mature so that such
funds will be available for withdrawal on or prior to the
following Transfer Date. The proceeds of any such
investments shall be invested in Cash Equivalents that
will mature so that such funds will be available for
withdrawal on or prior to the following Transfer Date. On
each Transfer Date the aggregate proceeds of any such
investment shall be deposited in the Collection Account
and treated as Investment Proceeds for application as
Available Series 1994-2 Imputed Yield Collections.
T. Payment Reserve Account
a. The Servicer shall establish and maintain or
cause to be established and maintained with a Qualified
Institution, which may be the Trustee, in the name of the
Trustee, on behalf of the Certificateholders, the "Payment
Reserve Account," which shall be a segregated trust
account with the corporate trust department of such
Qualified Institution, bearing a designation clearly
indicating that the funds deposited therein are held for
the benefit of the Certificateholders. The Trustee shall
possess all right, title and interest in all funds on
deposit from time to time in the Payment Reserve Account
and in all proceeds thereof. The Payment Reserve Account
shall be under the sole dominion and control of the
Trustee for the benefit of the Certificateholders. If, at
any time, the institution holding the Payment Reserve
Account ceases to be a Qualified Institution, the Trustee
shall within 20 Business Days establish a new Payment
Reserve Account meeting the conditions specified above
with a Qualified Institution, and shall transfer any cash
or any investments to such new Payment Reserve Account.
From the date such new Payment Reserve Account is
established, it shall be the "Payment Reserve Account."
(b) [Reserved]
(c) The Transferor, at its discretion, may
withdraw on any Determination Date a part or all of any
amounts remaining in the Payment Reserve Account after
giving effect to any withdrawals required to be made under
Section 4.9(a) above.
(d) Funds on deposit in the Payment Reserve
Account shall be invested in Cash Equivalents by the
Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of the
Servicer. Funds on deposit in the Payment Reserve Account
on any Business Day, after giving effect to any
withdrawals from the Payment Reserve Account, shall be
invested in Cash Equivalents that will mature so that such
funds will be available for withdrawal on or prior to the
following Business Day. The proceeds of any such
investments shall be invested in Cash Equivalents that
will mature so that such funds will be available for
withdrawal on or prior to the following Business Day. On
each Business Day following a deposit of funds to the
Payment Reserve Account, the aggregate proceeds of any
such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for application
as Available Series 1994-2 Imputed Yield Collections.
SECTION 7. Article V of the Agreement. Article
V of the Agreement shall read in its entirety as follows
and shall be applicable only to the Series 1994-2
Certificates:
III. DISTRIBUTIONS AND REPORTS TO
INVESTOR CERTIFICATEHOLDERS
A. Distributions. (a) On each Business
Day, the Paying Agent shall distribute (in accordance with
the Settlement Statement delivered by the Servicer to the
Trustee and the Paying Agent pursuant to subsection
3.4(c)) to the Class A Certificateholder of record on the
preceding Record Date (other than as provided in
subsection 2.4(e) or in Section 12.3 respecting a final
distribution) such Certificateholder's pro rata share
(based on the aggregate Undivided Interests represented by
Class A Certificate held by such Certificateholder) of
amounts on deposit in the Distribution Account as are
payable to the Class A Certificateholder pursuant to
Section 4.11 of the Agreement by wire transfer to an
account or accounts designated by such Class A
Certificateholder by written notice given to the Paying
Agent not less than five days prior to such Business Day;
provided, however, that the final payment in retirement of
the Class A Certificate will be made only upon
presentation and surrender of the Class A Certificate at
the office or offices specified in the notice of such
final distribution delivered by the Trustee pursuant to
Section 12.3.
a. On each Distribution Date, the Paying Agent shall
distribute (in accordance with the Settlement Statement
delivered by the Servicer to the Trustee and the Paying
Agent pursuant to subsection 3.4(c)) to each Class B
Certificateholder of record on the preceding Record Date
(other than as provided in subsection 2.4(e) or in Section
12.3 respecting a final distribution) such
Certificateholder's pro rata share (based on the aggregate
Undivided Interests represented by Class B Certificates
held by such Certificateholder) of amounts on deposit in
the Distribution Account as are payable to the Class B
Certificateholders pursuant to Section 4.11 and 4.12 of
the Agreement by wire transfer to an account or accounts
designated by such Class B Certificateholder by written
notice given to the Paying Agent not less than five days
prior to the related Distributed Date; provided, however,
that the final payment in retirement of the Class B
Certificates will be made only upon presentation and
surrender of the Class B Certificates at the office or
offices specified in the notice of such final distribution
delivered by the Trustee pursuant to Section 12.3.
b. On each Distribution Date, the Paying Agent shall
distribute (in accordance with the Settlement Statement
delivered by the Servicer to the Trustee and the Paying
Agent pursuant to subsection 3.4(c)) to each Class C
Certificateholder of record on the preceding Record Date
(other than as provided in subsection 2.4(e) or in Section
12.3 respecting a final distribution) such
Certificateholder's pro rata share (based on the aggregate
Undivided Interests represented by Class C Certificates
held by such Certificateholder) of amounts on deposit in
the Distribution Account as are payable to the Class C
Certificateholders pursuant to Section 4.11 and 4.12 of
the Agreement by wire transfer to each Class C
Certificateholder to an account or accounts designated by
such Class C Certificateholder by written notice given to
the Paying Agent not less than five days prior to the
related Distribution Date; provided, however, that the
final payment in retirement of the Class C Certificates
will be made only upon presentation and surrender of the
Class C Certificates at the office or offices specified in
the notice of such final distribution delivered by the
Trustee pursuant to Section 12.3.
B. Certificateholders' Statement. (a) On
the 20th day of each calendar month (or if such day is not
a Business Day the next succeeding Business Day), the
Paying Agent shall forward to each Certificateholder and
the Rating Agencies a statement substantially in the form
of Exhibit C prepared by the Servicer and delivered to the
Trustee and the Paying Agent on the preceding
Determination Date setting forth the following information
(which, in the case of (i), (ii) and (iii) below, shall be
stated on the basis of an original principal amount of
$1,000 per Certificate and, in the case of (ix) and (x),
shall be stated on an aggregate basis and on the basis of
an original principal amount of $1,000 per Certificate):
(1) the total amount distributed;
(2) the amount of such distribution allocable to
Certificate Principal;
(3) the amount of such distribution allocable to
Certificate Interest;
(4) the amount of Principal Collections received in the
Collection Account during the preceding Monthly Period and
allocated in respect of the Class A Certificate, the Class
B Certificates, the Class C Certificates and the Class D
Certificates, respectively;
(5) the amount of Imputed Yield Collections processed
during the preceding Monthly Period and allocated in
respect of the Class A Certificate, the Class B
Certificates, the Class C Certificates and the Class D
Certificates, respectively;
(6) the aggregate amount of Principal Receivables, the
Invested Amount, the Class A Invested Amount, the Class B
Invested Amount, the Class C Invested Amount, the Class D
Invested Amount, the Floating Allocation Percentage and,
during the Amortization Period, the ABC Fixed/Floating
Allocation Percentage, Class B Fixed/Floating Allocation
Percentage, or Class C Fixed/Floating Allocation
Percentage as applicable, with respect to the Principal
Receivables in the Trust as of the end of the day on the
last day of the related Monthly Period;
(7) the aggregate outstanding balance of Receivables
which are current, 30-59, 60-89, and 90 days and over
delinquent as of the end of the day on the last day of the
related Monthly Period;
(8) the aggregate Investor Default Amount for the
preceding Monthly Period;
(9) the aggregate amount of Class A Investor Charge-
Offs, Class B Investor Charge-Offs, Class C Investor
Charge-Offs and Class D Investor Charge-Offs for the
preceding Monthly Period;
(10) the amount of the Servicing Fee for the preceding
Monthly Period;
(11) the Class A Pool Factor, the Class B Pool Factor
and the Class C Pool Factor as of the end of the last day
of the Monthly Period immediately preceding the
Determination Date;
(12) the amount of Reallocated Class B Principal
Collections, Reallocated Class C Principal Collections and
Reallocated Class D Principal Collections for the related
Monthly Period;
(13) the aggregate amount of funds in the Excess Funding
Account as of the last day of the Monthly Period
immediately preceding the Distribution Date;
(14) whether a Class C Trigger Event has occurred and if
so the Specified Class C Reserve Amount; and
(15) the Aggregate Interest Rate Caps Notional Amount
and the amount deposited in the Cap Proceeds Account
during the related Monthly Period.
b. Annual Certificateholders' Tax Statement. On or
before January 15 of each calendar year, beginning with
calendar year 1995, the Paying Agent shall distribute to
each Person who at any time during the preceding calendar
year was a Series 1994-2 Certificateholder, a statement
prepared by the Servicer containing the information
required to be contained in the regular report to Series
1994-2 Certificateholders, as set forth in subclauses (i),
(ii) and (iii) above, aggregated for such calendar year or
the applicable portion thereof during which such Person
was a Series 1994-2 Certificateholder, together with, on
or before January 31 of each year, beginning in 1995, such
other customary information (consistent with the treatment
of the Certificates as debt) as the Trustee or the
Servicer deems necessary or desirable to enable the Series
1994-2 Certificateholders to prepare their tax returns.
Such obligations of the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to
any requirements of the Internal Revenue Code as from time
to time in effect.
SECTION 7A. Article VI of the Agreement.
Article VI (except for Sections 6.01 through 6.14 thereof)
shall read in its entirety as follows and shall be
applicable only to the Series 1994-2:
IV. THE CERTIFICATES
A. Additional Class A Invested Amounts.
The Class A Certificateholder agrees, by acceptance of the
Class A Certificate, that the Transferor may from time to
time, other than after a Pay Out Commencement Date or
during either the Pre-Funding Period or the Class A Pay
Down Period, request that such Class A Certificateholder
acquire on any Business Day additional undivided interests
in the Trust in specified amounts (such amounts, the
"Additional Class A Invested Amounts"); provided, however,
that if such an increase in the Class A Invested Amount
would cause a Trust Pay Out Event or a Series 1994-2 Pay
Out Event to occur, then the amount of the increase in the
Class A Invested Amount shall be limited on such Business
Day to the maximum increase in the Class A Invested Amount
that may be obtained without causing either a Trust Pay
Out Event or a Series 1994-2 Pay Out Event to occur; and
provided further, that in no case shall the Class A
Invested Amount be increased above the Class A Maximum
Invested Amount. The Additional Class A Invested Amounts
on any Business Day shall not exceed an amount equal to
the excess of the aggregate amount of Principal
Receivables over the greater of (a) the sum of (i) the
aggregate invested amount of each Series then outstanding
as of such day including the Class A Certificate (prior to
the addition of such Additional Class A Invested Amount)
minus amounts on deposit in the Principal Account for any
Series, if any, and (ii) the Minimum Transferor Interest
as of such day or (b) the Minimum Aggregate Principal
Receivables. The Class A Certificateholder shall acquire
such Additional Class A Invested Amount, only if (a) the
Class D Invested Amount following the acquisition of such
Additional Class A Invested Amount shall be at least equal
to the Stated Class D Amount (including increases to the
Class D Invested Amount pursuant to Section 6.16 of the
Agreement), (b) the notional amount of the Interest Rate
Caps shall be at least equal to the Aggregate ABC
Principal Amount after giving effect to the proposed
increase in the Class A Invested Amount, (c) after giving
effect to the proposed increase in the Class A Invested
Amount no Series 1994-2 Pay Out Event shall occur as a
result of such increase and (d) the conditions precedent
to issuance of Commercial Paper or making a Revolving Loan
(as defined in the Liquidity Agreement) pursuant to the
Liquidity Agreement have been met. If the Class A
Certificateholder acquires such Additional Class A
Invested Amount, such Class A Certificateholder shall pay
an amount equal to the Additional Class A Invested Amount
to the Trustee and, in consideration of such
Certificateholder's payment of the Additional Class A
Invested Amount, the Servicer shall appropriately note
such Additional Class A Invested Amount (and the increased
Class A Invested Amount) on the next succeeding Servicer's
report and direct the Trustee in writing to pay to the
Transferor such Additional Class A Invested Amount, and
the Invested Amount of the Class A Certificate will be
equal to the Invested Amount of the Class A Certificate
stated in such Servicer's report.
The purchase of any Additional Class A Invested
Amount shall be in an aggregate principal amount that is
not less than $1,000,000 or integral multiples of
$1,000,000 in excess thereof.
The outstanding amounts of any Additional Class
A Invested Amount purchased by the Class A
Certificateholder shall be evidenced by a Class A
Certificate to be issued on the Closing Date substantially
in the form of Exhibit A-1 hereto. The Class A
Certificateholder shall be and is hereby authorized to
record on the grid attached to its Class A Certificate (or
at such Class A Certificateholder's option, in its
internal books and records) the date and amount of any
Additional Class A Invested Amount purchased by it, and
each repayment thereof; provided that failure to make any
such recordation on such grid or any error in such grid
shall not adversely affect the Class A Certificateholder's
rights with respect to its Class A Invested Amount and its
right to receive interest payments in respect of the Class
A Invested Amount held by the Class A Certificateholder.
B. Additional Class D Invested Amounts.
a. On any Business Day while any Series 1994-2
Certificates are outstanding, the Transferor may elect to
increase the Class D Invested Amount (such additional
amounts, "Additional Class D Invested Amounts") by written
notice to the Trustee at least three and not more than
thirty Business Days in advance of such date which notice
shall specify the effective date and the amount of such
increase in the Class D Invested Amount; provided,
however, that if such an increase in the Class D Invested
Amount would cause a Trust Pay Out Event or a Series 1994-
2 Pay Out Event to occur, then the amount of the increase
in the Class D Invested Amount shall be limited on such
Business Day to the maximum increase in the Class D
Invested Amount that may be obtained without causing
either a Trust Pay Out Event or a Series 1994-2 Pay Out
Event to occur; and provided further, that in no case
shall the Class D Invested Amount be increased above the
Class D Maximum Required Amount; provided further that no
such increase in the Class D Invested Amount shall be
permitted under this Section 6.16 unless: (i) after
giving effect to the proposed increase in Class D Invested
Amount the Transferor Interest shall equal or exceed the
Minimum Transferor Interest, (ii) no Series 1994-2 Pay
Out Event will occur as a result of such increase in the
Class D Invested Amount and (iii) such increase in the
Class D Invested Amount shall be made concurrently with a
Class A Funding Purchase, Class B Funding Purchase or
Class C Funding Purchase pursuant to Section 4.14A(b) of
the Agreement or an increase in the Class A Invested
Amount pursuant to Section 6.15 of the Agreement.
C. Extension. (a) If a Pay Out Event has
not occurred or has occurred but has been remedied on or
before the 30th Business Day preceding the Extension Date,
the Transferor, in its sole discretion, may deliver to the
Trustee on or before such date a notice substantially in
the form of Exhibit E (the "Extension Notice") to this
Series Supplement. The Trustee shall deliver a copy of
the Extension Notice and all documents annexed thereto to
the Investor Certificateholders of record on the date of
receipt thereof. The Transferor shall state in the
Extension Notice that it intends to extend the Revolving
Period until the later Amortization Period Commencement
Date set forth in the Extension Notice. The Extension
Notice shall also set forth the next Extension Date. The
following documents shall be annexed to the Extension
Notice: (i) a form of the Opinion of Counsel addressed to
the Transferor and the Trustee to the effect that despite
the extension the Trust will not be treated as an
association taxable as a corporation (the "Extension Tax
Opinion"); (ii) a form of the Opinion of Counsel addressed
to the Transferor and the Trustee (the "Extension
Opinion") to the effect that (A) the Transferor has the
corporate power and authority to effect the Extension, (B)
the extension has been duly authorized by the Transferor,
and (C) all conditions precedent to the Extension required
by this Section 6.17 have been fulfilled; (iii) a form of
Investor Certificateholder Election Notice substantially
in the form of Exhibit F (the "Election Notice") to this
Series Supplement; and (iv) a schedule setting forth the
Aggregate Interest Rate Caps Notional Amount for the
period or periods as indicated from the Extension Date
through the new Scheduled Series 1994-2 Termination Date,
each as specified in the related Extension Notice. In
addition, the Extension Notice shall state that any
Investor Certificateholder electing to approve the
Extension must do so on or before the Election Date (as
defined below) by returning the annexed Election Notice
properly executed to the Trustee in the manner described
below. The Extension Notice shall also state that an
Investor Certificateholder may withdraw any such election
in whole or in part on or before the Election Date, and
the Transferor, in its sole discretion, may, prior to the
Election Date, withdraw its election to extend the
Revolving Period. Any Holder that elects to approve an
Extension hereunder shall deliver a duly executed Election
Notice to the Trustee at the address designated in the
Extension Notice on or before 3:00 p.m., New York City
time, on or before the fifth Business Day preceding the
Extension Date (such Business Day constituting the
"Election Date").
a. No extension shall occur unless each of the
following conditions have been satisfied prior to the
close of business on the Election Date: (i) no Pay Out
Event shall have occurred and be continuing, (ii) there
shall have been delivered to the Trustee (A) the Extension
Tax Opinion and the Extension Opinion, each addressed to
the Trustee and (B)(1) written confirmation from each
Rating Agency rating the Class A Certificates that the
Extension will not cause such Rating Agency to lower or
withdraw its then current rating of such Investor
Certificates, (2) written confirmation from each Rating
Agency rating the Class B Certificates that the Extension
will not cause such Rating Agency to lower or withdraw its
then current rating of such Investor Certificates, and (3)
written confirmation from each Rating Agency rating its
Class C Certificates that the extension will not cause
such Rating Agency to lower or withdraw its then current
rating of such Investor Certificates, (iii) each of the
holders of the Class A Certificates, the Class B
Certificates, and the Class C Certificates shall have
elected to approve the Extension by returning to the
Trustee on or before the Election Date the executed
Election Notice annexed to the Extension Notice delivered
to the Certificateholders pursuant to subsection 6.17(a)
of the Agreement. If, by the close of business on the
Election Date, all of the conditions stated in this
subsection 6.17(b) of the Agreement have not been
satisfied and all such documents delivered to the Trustee
pursuant to this subsection 6.17(b) of the Agreement are
not in form satisfactory to it, or if the Transferor has
notified the Trustee, prior to the Election Date, that the
Transferor has exercised its right to withdraw its
election of an Extension, no Extension shall occur.
b. The execution by the required number of Investor
Certificateholders of the applicable Election Notice and
return thereof to the Trustee by the required Date and
time, the continued election by the Transferor to extend
the Revolving Period at the Election Date, and the
compliance with all of the provisions of this Section
6.17, shall evidence an extension or renewal of the
obligations represented by the Investor Certificates, and
not a novation or extinguishment of such obligations or a
substitution with respect thereto.
c. To the extent required by applicable laws and
regulations, as evidenced by an Opinion of Counsel
delivered by the Transferor to the Trustee, the provisions
of this Section 6.17 shall or may be modified to comply
with all applicable laws and regulations in effect at the
time of the Extension.
SECTION 8. Series 1994-2 Pay Out Events. If
any one of the following events shall occur with respect
to the Series 1994-2 Certificates:
d. failure on the part of the Transferor (i) to
make any payment or deposit required to be made by the
Transferor by the terms of (A) the Agreement or (B) this
Series Supplement, on or before the date occurring five
Business Days after the date such payment or deposit is
required to be made herein, (ii) to perform in all
material respects the Transferor's covenant not to sell,
pledge, assign, or transfer to any person, or grant any
unpermitted lien on, any Receivable; or (iii) duly to
observe or perform in any material respect any covenants
or agreements of the Transferor set forth in the Agreement
or this Series Supplement, which failure has a material
adverse effect on the Series 1994-2 Certificateholders and
which continues unremedied for a period of 60 days (or, in
the case of a covenant pursuant to Section 3A of this
Series Supplement, 30 days) after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the
Trustee, or to the Transferor and the Trustee by the
Holders of Series 1994-2 Certificates evidencing Undivided
Interests aggregating not less than 50% of any of the
Class A Invested Amount, the Class B Invested Amount or
the Class C Invested Amount, and continues to affect
materially and adversely the interests of the Series 1994-
2 Certificateholders for such period;
e. any representation or warranty made by the
Transferor in the Agreement or this Series Supplement, (i)
shall prove to have been incorrect in any material respect
when made, which continues to be incorrect in any material
respect for a period of 60 days after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the
Trustee, or to the Transferor and the Trustee by the
Holders of the Series 1994-2 Certificates evidencing
Undivided Interests aggregating more than 50% of any of
the Class A Invested Amount, the Class B Invested Amount
or the Class C Invested Amount, and (ii) as a result of
which the interests of the Series 1994-2
Certificateholders are materially and adversely affected
and continue to be materially and adversely affected for
such period; provided, however, that a Series 1994-2 Pay
Out Event pursuant to this subsection 8(b) shall not be
deemed to have occurred hereunder if the Transferor has
accepted reassignment of the related Receivable, or all of
such Receivables, if applicable, during such period in
accordance with the provisions of the Agreement;
f. the average of the Portfolio Yields for any
three consecutive Monthly Periods is reduced to a rate
which is less than the weighted average of the weighted
average Base Rates for such three consecutive Monthly
Periods;
g. (i) the Transferor Interest shall be less than
the Minimum Transferor Interest, (ii)(A) the sum of (x)
the amount on deposit in the Pre-Funding Account plus (y)
the Series Allocation Percentage of the sum of the total
amount of Principal Receivables plus amounts on deposit in
the Excess Funding Account shall be less than (B) the sum
of the Class A Outstanding Principal Amount, the Class B
Outstanding Principal Amount, the Class C Outstanding
Principal Amount and the Class D Outstanding Principal
Amount or (iii) the total amount of Principal Receivables
and the amount on deposit in the Excess Funding Account
and the Pre-Funding Account shall be less than the Minimum
Aggregate Principal Receivables, in each case as of any
Determination Date;
h. (i) any Servicer Default shall occur which would
have a material adverse effect on the Series 1994-2
Certificateholders or (ii) for the purpose of determining
Defaulted Receivables, the Servicer shall cease to charge
off all Receivables as to which no payment has been made
for at least 260 days, which default continues for a
period of 10 Business Days after the Servicer shall have
obtained knowledge thereof; or
i. the amount on deposit in the Excess Funding
Account as a percentage of the sum of the aggregate amount
of Principal Receivables plus the amount on deposit in the
Excess Funding Account shall equal or exceed 30% on the
last day of three consecutive Monthly Periods;
then, in the case of any event described in subparagraph
(a), (b) or (e), after the applicable grace period, if
any, set forth in such subparagraphs, the Holders of
Series 1994-2 Certificates evidencing Undivided Interests
aggregating more than 50% of any of the Class A Invested
Amount, the Class B Invested Amount or the Class C
Invested Amount by notice then given in writing to the
Trustee, the Transferor, the Cap Provider and the Servicer
may declare that a pay out event (a "Series 1994-2 Pay Out
Event") has occurred as of the date of such notice, and in
the case of any event described in subparagraphs (c), (d)
or (f), a Series 1994-2 Pay Out Event shall occur without
any notice or other action on the part of the Trustee or
the Series 1994-2 Certificateholders immediately upon the
occurrence of such event.
SECTION 8A. Class A Pay Down Period. If (i)
an OTC Termination Event (as defined in the Owner Trust
Agreement) or a Class A Event of Default shall have
occurred and the Trustee shall have received written
notice from Owner Trust Certificateholders (as defined in
the Owner Trust Agreement) and Lenders (as defined in the
Liquidity Agreement) whose aggregate Voting Interests (as
defined in the Collateral Trust Agreement) exceed 50
percent of the total Voting Interests or (ii) the
principal amount of the FCI Note shall be less than the
FCI Note Required Amount or (iii) the Transferor shall
sell, transfer, assign, pledge, hypothecate, participate
or otherwise convey or encumber the FCI Note and such
action shall not be completely revoked or otherwise
remedied within five days, or (iv) the Transferor shall
permit to exist any Lien (other than a Permitted Lien) on
the FCI Note not created with the Transferor's consent and
such Lien shall not be completely removed, revoked or
otherwise remedied within 30 days, then the "Class A Pay
Down Period" shall commence without notice or any action
on the part of the Trustee or the Class A
Certificateholder immediately upon the occurrence of such
event and continue until the earlier of (i) the payment in
full of the Class A Certificates and (ii) the Amortization
Period Commencement Date.
SECTION 9. Series 1994-2 Termination. The
right of the Series 1994-2 Certificateholders to receive
payments from the Trust will terminate on the first
Business Day following the Series 1994-2 Termination Date
unless such Series is an Affected Series as specified in
Section 12.1(c) of the Agreement and the sale contemplated
therein has not occurred by such date, in which event the
Series 1994-2 Certificateholders shall remain entitled to
receive proceeds of such sale when such sale occurs.
j. During the Revolving Period (except for
any portion of the Revolving Period during a Class A Pay
Down Period), the Holder of the Exchangeable Transferor
Certificate may specify upon an Exchange, pursuant to
Section 6.9 of the Agreement, that the purchaser of a
newly issued Series deposit payment therefor, in full or
in part, in the Defeasance Account in an amount not to
exceed the Class A Invested Amount on such date. On the
Closing Date the Trustee shall, for the benefit of the
Class A Certificateholder, establish and maintain with a
Qualified Institution in the name of the Trust, a certain
segregated trust account (the "Defeasance Account"). Any
amounts on deposit in the Defeasance Account on any
Business Day shall be invested at the direction of the
Servicer in Cash Equivalents which mature on the next
succeeding Business Day. On each Business Day following a
deposit of funds to the Defeasance Account, the aggregate
proceeds of any such investment shall be deposited in the
Collection Account and treated as Investment Proceeds for
application as Available Series 1994-2 Imputed Yield
Collections.
k. Upon the direction of the Servicer any
amounts, up to the Class A Invested Amount, on deposit in
the Defeasance Account may, or upon the occurrence of a
Pay Out Event the amount on deposit in the Defeasance
Account shall, be deposited in the Principal Account for
distribution on the next Business Day to be applied to the
payment of Class A Principal. Such amounts shall be
applied and paid in accordance with Sections 4.7, 4.12 and
5.1 of the Agreement. Subsequent to any reduction of the
Class A Invested Amount as a result of payments pursuant
to this Section 9A, the Class A Invested Amount may be
increased pursuant to the terms and conditions set forth
in Section 6.15 of the Agreement.
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1994-2 Certificates;
Tax Treatment.
(a) Each Class A Certificate will bear a legend
substantially in the following form:
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
(b) Each Class A Certificate, Class B Certificate,
Class C Certificate and Class D Certificate will bear a
legend substantially in the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS
SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE
TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT
THE PURCHASE OR HOLDING OF A CLASS A CERTIFICATE,
CLASS B CERTIFICATE, CLASS C CERTIFICATE OR CLASS D
CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT IN THE
ASSETS OF THE TRUST BEING DEEMED TO BE "ASSETS OF THE
BENEFIT PLAN" AND SUBJECT TO THE PROHIBITED
TRANSACTION PROVISIONS OF ERISA AND THE CODE AND WILL
NOT SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE
SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE
UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT,
SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN
(AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE
I OF ERISA, (II) A PLAN DESCRIBED IN SECTION
4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS
INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT
IN THE ENTITY.
(c) Each Class B and Class C Certificate will bear a
legend substantially in the following form:
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING
THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS AND ONLY PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT TO AN INSTITUTIONAL INVESTOR THAT
THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
("QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER
HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, OR TO THE TRANSFEROR. EACH CERTIFICATE
OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS
CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING
FOR THE ACCOUNT OF ANOTHER QIB.
(d) Each Class D Certificate will bear a legend
substantially in the following form:
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. FINGERHUT
RECEIVABLES, INC. SHALL BE PROHIBITED FROM
TRANSFERRING ANY INTEREST IN OR PORTION OF THIS
CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL
HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT
ADVERSELY AFFECT THE FEDERAL, MINNESOTA OR DELAWARE
INCOME TAX CHARACTERIZATION OF ANY OUTSTANDING SERIES
OF INVESTOR CERTIFICATES OR THE TAXABILITY (OR TAX
CHARACTERIZATION) OF THE TRUST UNDER FEDERAL,
MINNESOTA OR DELAWARE INCOME TAX LAWS. THE TRANSFER
OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS
SET FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
(e) Upon surrender for registration of transfer of a
Class B Certificate or Class C Certificate at the office
of the Transfer Agent and Registrar, accompanied by a
certification by the Class B Certificateholder or Class C
Certificateholder, as applicable, substantially in the
form attached as Exhibit D if the new purchaser is a
"qualified institutional buyer" as defined in Rule 144A
under the Securities Act of 1933 and by a written
instrument of transfer in the form approved by the
Transferor and the Trustee (it being understood that,
until notice to the contrary is given to Class B
Certificateholders or Class C Certificateholders, the
Transferor and the Trustee shall each be deemed to have
approved the form of instrument of transfer, if any
printed on any definitive Class B Certificate or Class C
Certificate), executed by the registered owner, in person
or by such Class B Certificateholder's or Class C
Certificateholder's attorney thereunto duly authorized in
writing, such Class B Certificate or Class C Certificate
shall be transferred upon the register, and the Transferor
shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferees one or
more new registered Class C Certificates of any authorized
denominations and of a like aggregate principal amount and
tenor. Transfers and exchanges of Class B Certificates or
Class C Certificates shall be subject to such restrictions
as shall be set forth in the text of the Class B
Certificates or Class C Certificates and such reasonable
regulations as may be prescribed by the Transferor.
Successive registrations and registrations of transfers as
aforesaid may be made from time to time as desired, and
each such registration shall be noted on the register.
(f) Fingerhut Receivables, Inc. shall be prohibited
from transferring any interest in or portion of the Class
D Certificates unless, prior to such Transfer, it shall
have delivered to the Trustee an Opinion of Counsel to the
effect that such proposed Transfer will not adversely
affect the Federal, Minnesota or Delaware income tax
characterization of any outstanding Series of Investor
Certificates or the taxability (or tax characterization)
of the Trust under Federal, Minnesota or Delaware income
tax laws. In no event shall any interest in or portion of
the Class D Certificates be transferred to Fingerhut. As
a condition to transfer of an interest in or portion of
the Class D Certificates the transferee shall be required
to agree not to institute against, or join any other
Person in instituting against, the Trust any bankruptcy,
reorganization, arrangement, insolvency or liquidation
proceeding, or other proceeding under any federal or state
bankruptcy or similar law, for one year and one day after
all Investor Certificates are paid in full. The
Transferor shall provide prompt written notice to the
Rating Agencies of any such transfer.
(g) No transfer of a Class B Certificate, Class C
Certificate or Class D Certificate will be permitted to be
made to a Benefit Plan unless such Benefit Plan, at its
expense, delivers to the Trustee, the Servicer and the
Transferor an opinion of counsel satisfactory to them to
the effect that the purchase or holding of a Class B
Certificate, Class C Certificate or Class D Certificate by
such Benefit Plan will not result in the assets of the
Trust being deemed to be "assets of the Benefit Plan" and
subject to the prohibited transaction provisions of ERISA
and the Code and will not subject the Trustee, the
Transferor or the Servicer to any obligation in addition
to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Class B Certificate,
Class C Certificate or Class D Certificate or the
beneficial ownership of a Class B Certificate, Class C
Certificate or Class D Certificate will be deemed to
represent to the Trustee, the Transferor and the Servicer
that it is not (i) an employee benefit plan (as defined in
Section 3(3) of ERISA) that is subject to the provisions
of Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Code, or (iii) any entity whose
underlying assets include plan assets by reason of a
plan's investment in the entity.
(h) The Class B Certificateholders or Class C
Certificateholders shall comply with their obligations
under Section 3.7 of the Agreement with respect to the tax
treatment of the Class B Certificates or Class C
Certificates, except to the extent that a relevant taxing
authority has disallowed such treatment.
l. As supplemented by this Series
Supplement, the Agreement is in all respects ratified and
confirmed and the Agreement as so supplemented by this
Series Supplement shall be read, taken, and construed as
one and the same instrument.
m. For so long as any of the Class B
Certificates or the Class C Certificates are outstanding,
each of the Transferor, the Servicer and the Trustee agree
to cooperate with each other to provide to any Class B
Certificateholders or Class C Certificateholders, as
applicable, and to any prospective purchaser of Class B
Certificates or Class C Certificates designated by such a
Class B Certificateholder or Class C Certificateholder
upon the request of such Class B Certificateholder or
Class C Certificateholder or prospective purchaser, any
information required to be provided to such holder or
prospective purchaser to satisfy the condition set forth
in Rule 144A(d)(4) under the Securities Act.
n. For so long as any of the Certificates are
outstanding, the Transferor shall not reduce the Discount
Factor if, after giving effect to such reduction, the
average Adjusted Portfolio Yield for the twelve Monthly
Periods preceding the effective date of such reduction
(giving effect to such reduction on a pro forma basis)
minus the sum of:
(1) the average of the maximum per annum rates
payable in respect of the Class A Certificates, Class B
Certificates and Class C Certificates as of such effective
date (in each case determined by adding .80%, .625% and
.75%, respectively, to the strike rates on LIBOR set forth
in the Cap Agreements with respect to the Class A
Certificate Rate, Class B Certificate Rate and Class C
Certificate Rate, respectively), in each case weighted by
the daily average Class A Invested Amount, Class B
Invested Amount and Class C Invested Amount, respectively,
during such twelve Monthly Periods; and
(2) the Servicing Fee Rate;
shall be less than 0%. If, and to the extent, the
Receivables bear a monthly finance charge component, the
Imputed Yield Collections attributable to such component
may be taken into account on a pro forma basis in making
the foregoing calculation.
SECTION 12. Counterparts. This Series
Supplement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an
original, but all of such counterparts shall together
constitute but one and the same instrument.
SECTION 13. GOVERNING LAW. THIS SERIES
SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT
OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 14. Instructions in Writing. All
instructions or other communications given by the Servicer
or any other person to the Trustee pursuant to this Series
Supplement shall be in writing, and, with respect to the
Servicer, may be included in a Daily Report or Settlement
Statement.
SECTION 15. Amendments. Solely with respect to
any amendment pursuant to Section 13.1(b) of the Agreement
and any consent required pursuant thereto from the Holders
of Investor Certificates of Series 1994-2, this Series
Supplement and the Agreement may be amended from time to
time by the Servicer, the Transferor and the Trustee with
the consent of the Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than
66 2/3% of the Invested Amount of the Series 1994-2
Certificates and (y) not less than 51% of each of the
Class A Invested Amount, the Class B Invested Amount and
the Class C Invested Amount to the extent that such
classes would be adversely affected, for the purpose of
adding any provisions to or changing in any manner or
eliminating any of the provisions of this Series
Supplement or the Agreement or of modifying in any manner
the rights of the Certificateholders of any Class of the
Series 1994-2 Certificates then issued and outstanding;
provided, however, that no such amendment under this
Section 15 shall (i) reduce in any manner the amount of,
or delay the timing of, distributions which are required
to be made on any Investor Certificate of such Class
without the consent of all of the related Investor
Certificateholders; (ii) change the definition of or the
manner of calculating the interest of any Investor
Certificate of such Class without the consent of the
related Investor Certificateholders or (iii) reduce the
aforesaid percentage required to consent to any such
amendment, in each case without the consent of all such
Investor Certificateholders.
o. Notwithstanding any other provision
herein, if after the Effective Date (as defined in the
Liquidity Agreement), any change in applicable law or
regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not
having the force of law) shall change the basis of
taxation of payments to any Class B or Class C
Certificateholder that is a commercial bank or controlled
by a commercial bank of the principal of or interest on
any Class B or Class C Certificate (other than changes in
respect of taxes imposed on the overall net income of such
Certificateholder by the jurisdiction in which such
Certificateholder has its principal office or by any
political subdivision or taxing authority therein), or
shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of,
deposits with or for the account of or credit extended by
such Certificateholder, or shall impose on such
Certificateholder or the London interbank market any other
condition affecting this Series Supplement or any Class B
or Class C Certificate owned by such Certificateholder,
and the result of any of the foregoing shall be to
increase the cost to such Certificateholder of holding any
Class B or Class C Certificate or to reduce the amount of
any sum received or receivable by such Certificateholder
hereunder (whether of principal or interest) in respect
thereof by an amount deemed by such Certificateholder to
be material, then the Trustee will pay to such
Certificateholder upon demand such additional amount or
amounts as will compensate such Certificateholder for such
additional costs incurred or reduction suffered. Any
Class B or Class C Certificateholder claiming any
additional amounts payable pursuant to this Section 16
shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or
document requested by the Transferor or the Trustee or to
change the jurisdiction of its applicable lending office
if the making of such a filing or change would avoid the
need for or reduce the amount of any additional amount
which may thereafter accrue and would not, in the sole
determination of such Certificateholder, be otherwise
disadvantageous to such Certificateholder.
p. If any Class B or Class C Certificateholder
that is a commercial Bank or controlled by a commercial
bank shall have determined that the adoption after the
Effective Date (as defined in the Liquidity Agreement) of
any other law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the
foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by any such
Certificateholder (or any lending office of such
Certificateholder) or any such Certificateholder's holding
company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on
such Certificateholder's capital or on the capital of such
Certificateholder's holding company, if any, as a
consequence of this Series Supplement or the Class B or
Class C Certificates owned by such Certificateholder to a
level below that which such Certificateholder or such
Certificateholder's holding company could have achieved
but for such adoption, change or compliance (taking into
consideration such Certificateholder's policies and the
policies of such Certificate-holder's holding company with
respect to such capital adequacy) by an amount deemed by
such Certificateholder to be material, then from time to
time the Trustee shall pay to such Certificateholder such
additional amount or amounts as will compensate such
Certificateholder or such Trustee's holding company for
any such reduction suffered after the date hereof.
q. A certificate of a Class B or Class C
Certificateholder setting forth such amount or amounts,
along with such Certificateholder's method of computation
of such amounts, as shall be necessary to compensate such
Certificateholder as specified in paragraph (a) or (b)
above, as the case may be, shall be delivered to the
Trustee and shall be conclusive absent manifest error.
The Trustee shall pay each Certificateholder the amount
shown as due on any such certificate delivered by it no
later than the Distribution Date immediately succeeding
the date of delivery of such certificate.
r. Failure on the part of any eligible Class B or
Class C Certificateholder to demand compensation for any
increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect
to any period shall not constitute a waiver of such
Certificateholder's right to demand compensation with
respect to such period or any other period; provided,
however, that no Certificateholder shall be entitled to
compensation for any such increased costs or reductions
unless it shall have submitted a certificate under
paragraph (c) above with respect thereto not more than 90
days after the date that such Certificateholder knows that
such increased costs have been incurred or such reduction
suffered. Notwithstanding any other provision of this
Section 16, no Certificateholder shall demand compensation
for any increased cost or reduction referred to above if
it shall not at the time be the general policy of such
Certificateholder to demand such compensation in similar
circumstances under comparable provisions of other credit
agreements, and each Certificateholder shall in good faith
endeavor to allocate increased costs or reductions fairly
among all of its affected commitments and credit
extensions (whether or not it seeks compensation from all
affected borrowers). The protection of this Section 16
shall be available to each Class B or Class C
Certificateholder that is a commercial bank or controlled
by a commercial bank regardless of any possible contention
of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which
shall have occurred or been imposed.
s. The amounts owing by the Trustee pursuant to
this Section 16 shall be payable solely from amounts
available therefor pursuant to subsections 4.9(a)(xvii)
and (xviii) of the Agreement.
SECTION 17. Replacement of Certain Investor
Certificateholders. In the event that (i) a Class B or
Class C Certificateholder requests compensation pursuant
to Section 16, (ii) a Holder of Investor Certificates (a
"Non-Consenting Holder") does not consent to an amendment,
supplement, waiver or other modification with respect to
this Series Supplement or to the Agreement, as provided in
Section 15 within the time period specified for delivery
of such consent pursuant to the documentation associated
therewith and the amendment, supplement, waiver or other
modification is not approved in accordance with said
Section 15, or (iii) an Investor Certificateholder fails
to approve any Extension requested by the Transferor
pursuant to Section 6.17 of the Agreement, the Transferor
shall have the right to replace such Holder with a Person
or Persons meeting the requirements of Section 10, by
giving three Business Days prior written notice to the
Trustee and such Holder, specifying the date on which such
Holder's Certificates shall be transferred; provided,
however that, (a) such transfer shall not conflict with
any law, rule or regulation or order of any court or other
Governmental Authority, and (b) in the case of clause (ii)
above, all Non-Consenting Holders with respect to any one
proposed amendment, supplement, waiver or other
modification or Extension must be concurrently replaced in
accordance with this Section 17. In the event of the
replacement of an Investor Certificateholder, such
Investor Certificateholder agrees to assign, without
recourse, its rights and obligations hereunder to a
replacement Holder selected by the Transferor upon payment
by the replacement Holder to such Investor
Certificateholder in immediately available funds of the
principal amount of such Investor Certificateholder's
outstanding Certificates and any interest accrued and
unpaid thereon and all other amounts owing to such
Investor Certificateholder hereunder and to execute and/or
deliver any certification or other document required to be
delivered pursuant to Section 10.
SECTION 18. FCI Note. The Transferor has
received a note from Fingerhut Companies, Inc. in the
amount of $18,000,000 (such note, together with any
additional notes of Fingerhut Companies, Inc. held by the
Transferor at any time, the "FCI Note"). The Transferor
hereby agrees that at no time shall the principal amount
of the FCI Note be less than $15,500,000 (the "FCI Note
Required Amount"). The FCI Note may not be sold,
transferred, assigned, pledged, hypothecated, participated
or otherwise conveyed or encumbered, nor may the
Transferor grant any security interest in the FCI Note.
IN WITNESS WHEREOF, the Transferor, the Servicer
and the Trustee have caused this Series 1994-2 Supplement
to be duly executed by their respective officers as of the
day and year first above written.
FINGERHUT RECEIVABLES, INC.
Transferor
By:_______________________
Name:
Title:
FINGERHUT CORPORATION
Servicer
By:_________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:_________________________
Name:
Title:
EXHIBIT A-1
[FORM OF VARIABLE FUNDING CERTIFICATE]
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THIS
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OF ANY STATE AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. THE TRANSFER
OF THIS CERTIFICATE IS SUBJECT TO CERTAIN
CONDITIONS SET FROTH IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT,
UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS
TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR
AN OPINION OF COUNSEL SATISFACTORY TO THEM TO
THE EFFECT THAT THE PURCHASE OR HOLDING OF A
CLASS A CERTIFICATE BY SUCH PURCHASER WILL NOT
RESULT IN THE ASSETS OF THE TRUST BEING DEEMED
TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT
TO THE PROHIBITED TRANSACTION PROVISIONS OF
ERISA AND THE CODE AND WILL NOT SUBJECT THE
TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY
OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN
THE POOLING AND SERVICING AGREEMENT, SUCH
PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN
(AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
No. Percentage Interest: ___%
FINGERHUT MASTER TRUST
VARIABLE FUNDING TRUST
CERTIFICATE, SERIES 1994-2, CLASS A
Evidencing an undivided interest in a trust, the
corpus of which consists of receivables generated from
time to time in the ordinary course of business from a
portfolio of installment sale contracts generated or to be
generated by Fingerhut Corporation ("Fingerhut" or the
"Servicer") and other assets and interests constituting
the Trust under the Agreement described below.
(Not an interest in or a recourse obligation
of Fingerhut Receivables, Inc., Fingerhut or any affiliate
of either of them.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Pooling and
Servicing Agreement, dated as of June 29, 1994 (the
"Pooling and Servicing Agreement"; such term to include
any amendment thereto) by and between Fingerhut
Receivables, Inc., as Transferor (the "Transferor"),
Fingerhut, as the Servicer, and The Bank of New York
(Delaware), as Trustee (the "Trustee"), and the Series
1994-2 Supplement, dated as of November 15, 1994 (the
"Series 1994-2 Supplement"), among the Transferor,
Fingerhut as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1994-2
Supplement, is herein referred to as the "Agreement").
The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under
(i) the Trust Property (as defined in the Agreement) and
(ii) the property described in Section 3A of the Series
1994-2 Supplement and Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is entitled
the "Fingerhut Master Trust Variable Funding Trust
Certificate, Series 1994-2, Class A" (the "Class A
Certificate"), and represents a fractional undivided
interest in the Trust, and is issued under and is subject
to the terms, provisions and conditions of the Agreement,
to which Agreement, as amended from time to time, the
Certificateholder by virtue of the acceptance hereof
assents and by which the Certificateholder is bound. In
the case of any conflict between terms specified in this
Certificate and terms specified in the Agreement, the
terms of the Agreement shall govern.
The Transferor has structured the Agreement, the
Class A Certificate, the Fingerhut Master Trust Floating
Rate Accounts Receivable Trust Certificates, Series 1994-
2, Class B (the "Class B Certificates") and the Fingerhut
Master Trust Accounts Receivable Trust Certificates,
Series 1994-2, Class C (the "Class C Certificates") with
the intention that the Class A Certificate, the Class B
Certificates and the Class C Certificates will qualify
under applicable tax law as indebtedness, and both the
Transferor and each holder of a Class A Certificate (a
"Class A Certificateholder") or any interest therein by
acceptance of its Certificate or any interest therein,
agrees to treat the Class A Certificate for purposes of
federal, state and local income or franchise taxes and any
other tax imposed on or measured by income, as
indebtedness.
Except in limited circumstance described in the
third succeeding paragraph no principal will be payable to
the Class A Certificateholder before the first Business
Day in the Amortization Period. No principal will be
payable to the Class B Certificateholders, or Class C
Certificateholders until all principal payments have been
made to the Class A Certificateholders. Except in
connection with a payment of Class D Daily Principal, the
Class D Certificates will not have the right to receive
payments of principal until the Class A Invested Amount,
the Class B Invested Amount and the Class C Invested
Amount have been paid in full.
Upon issuance, the Class A Certificate
represents the right to receive, on each Business Day, an
amount equal to the lesser of (x) the Available Series
1994-2 Imputed Yield Collections for such Business Day and
(y) the sum of (A) the lesser of (I) the sum of (a) the
Total Program Fees, and (b) the product of (i) the Class A
Certificate Rate, (ii) a fraction the numerator of which
is the actual number of days from and including the next
preceding Business Day to but excluding such Business Day
and the denominator of which is 365 or 366, as the case
may be, and (iii) the Class A Outstanding Principal Amount
as of the closed of business on the preceding Business Day
and (II) the product of (X) the greater of LIBOR as then
in effect plus 0.75% per annum and 12% per annum and (Y) a
fraction the numerator of which is the number of days from
and including the preceding Business Day to but excluding
such Business Day and the denominator of which is the
actual number of days in the then current calendar year
and (iii) the Class A Outstanding Principal Balance as of
the close of business on the preceding Business Day plus
(B) the excess, if any, of the amount payable to the Class
A Certificateholders pursuant to clause (A) on each prior
Business Day over the amount which has been paid to the
Class A Certificateholders with respect thereto on each
prior Business Day.
Unless there is any Extension, on the earlier of
October 27, 1997 and the Pay Out Commencement Date,
interest and principal will be distributed to the Class A
Certificateholders on each Business Day prior to the
Series Termination Date. If in accordance with Section
6.17 of the Agreement, the Transferor elects to issue an
Extension Notice and the conditions precedent for
Extension specified therein have been satisfied, no
principal will be payable with respect to the Class A
Certificate until the date specified in such Extension
Notice or in the last of any subsequent Extension Notices.
Interest for any Business Day due but not paid on any
Business Day will be due on the next succeeding Business
Day.
On any Business Day during the Revolving Period,
except during a Class A Pay Down Period, the Transferor
may specify an amount, not to exceed the Net ABC Revolving
Principal Collections, to be deposited into the Defeasance
Account. Any amounts so deposited, shall be paid to the
Class A Certificateholder in accordance with Section 9A of
the Agreement and upon payment shall reduce the Class A
Invested Amount by an amount equal to any such payment.
In addition the Transferor may specify, upon the issuance
of a new Series pursuant to an Exchange made at any time
during the Revolving Period, except during a Class A Pay
Down Period, that the proceeds of such issuance be
deposited into the Defeasance Account for payment to the
Class A Certificateholder pursuant to Section 9A of the
Agreement. The Class A Invested Amount will be reduced
by an amount equal to the amount of any such payments
made.
In addition, pursuant to Section 6.15 of the
Agreement, the holders of this Certificate may from time
to time be required, prior to the commencement of the
Amortization Period for the Certificates or the Class A
Paydown Period, to purchase Additional Class A Invested
Amounts on the terms and conditions specified therein.
The holder of this Certificate is authorized to record on
the grid attached to its Class A Certificate (or at such
Certificateholder's option, in its internal books and
records) the date and amount of any Additional Invested
Amount purchased by it, and each repayment thereof;
provided that failure to make any such recordation on such
grid or any error in such grid shall not adversely affect
such Certificateholder's rights with respect to its Class
A Invested Amount and its right to receive interest
payments in respect of the Class A Invested Amount held by
such Certificateholder.
"Class A Invested Amount" means, when used with
respect to any Business Day, an amount equal to (a) the
initial principal amount of Class A Certificates purchased
pursuant to any Class A Funding Purchase pursuant to
Section 4.14A(b) of the Agreement, or (b) the aggregate
amount of all Class A Pre-Funding Withdrawals pursuant to
Section 4.15 of the Agreement minus (c) the aggregate
amount of principal payments (except principal payments,
if any, made from the Pre-Funding Account) made to Class A
Certificateholders prior to such date, and minus (d) the
aggregate amount of Class A Investor Charge-Offs for all
prior Distribution Dates, and plus (e) the aggregate
amount of Available Series Imputed Yield Collections,
Transferor Imputed Yield Collections, Excess Imputed Yield
Collections and Reallocated Principal Collections applied
on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing
clause (d) plus (f) the aggregate principal amount of any
Additional Class A Invested Amounts purchased pursuant to
Section 6.15 of the Agreement.
[Upon the occurrence of certain conditions
relating to the issuance of the Class C Certificates, the
Class B Certificates and the Class A Certificate as
described in Section 4.14 of the Agreement, during the
period from and including January 3, 1995 to but excluding
the earliest of (x) the first day for which the Class A
Pre-Funded Amount, the Class B Pre-Funded Amount and the
Class C Pre-Funded Amount equals zero; (y) the first day
on which a Pay Out Event is deemed to occur; and (z) the
close of business on June 30, 1995 (the "Pre-Funding
Period"), the Pre-Funded Amount will be maintained in a
trust account to be established with The Bank of New York
(the "Pre-Funding Account"). The "Pre-Funded Amount" will
equal the amount of the initial deposit to the Pre-Funding
Account, less the amounts of any increases in the Invested
Amount pursuant to the Series 1994-2 Supplement in
connection with the increase in the amount of Receivables
in the Trust. Upon the occurrence of the conditions
referred to in the preceding sentence, on January 3,
1995, a cash deposit will be made to the Pre-Funding
Account in an amount equal to the sum of (i) if there has
been no Class C Funding Purchase, an amount equal to the
Class C Full Invested Amount or zero if there has been a
Class C Funding Purchase, (ii) if there has been no Class
B Funding Purchase, an amount equal to the Class B Full
Invested Amount, or zero if there has been a Class B
Funding Purchase and (iii) if there has been no Class A
Funding Purchase, an amount equal to $12,400,000. Funds
on deposit in the Pre-Funding Account will be invested by
the Trustee at the direction of the Servicer in Cash
Equivalents.]
[During the Pre-Funding Period, upon
satisfaction of the conditions contained in Section 4.15
of the Agreement, the Transferor may elect to withdraw
funds on deposit in the Pre-Funding Account equal to the
Class C Full Invested Amount and concurrently increase the
Class C Invested Amount to the Class C Full Invested
Amount, and concurrently or subsequently withdraw funds on
deposit in the Pre-Funding Account equal to the Class B
Full Invested Amount and increase the Class B Invested
Amount to the Class B Full Invested Amount, and
concurrently or subsequently withdraw any funds remaining
in the Pre-Funding Account and increase the Class A
Invested Amount by an amount equal to such withdrawal.
Should the Pre-Funded Amount be greater than zero on the
last Business Day of the Pre-Funding Period, such amount
will be withdrawn from the Pre-Funding Account and
distributed to the Class A Certificateholder in an amount
equal to the Class A Pre-Funded Amount, to the Class B
Certificateholders in an amount equal to the Class B Pre-
Funded Amount and the Class C Certificateholders in an
amount equal to the Class C Pre-Funded Amount.]
Subject to the Agreement, payments of principal
are limited to the unpaid Class A Invested Amount of the
Class A Certificate, which may be less than the unpaid
balance of the Class A Certificate pursuant to the terms
of the Agreement. All principal of and interest on the
Class A Certificate is due and payable no later than
October 29,2001 (the "Series 1994-2 Termination Date").
After the Series 1994-2 Termination Date neither the Trust
nor the Transferor will have any further obligation to
distribute principal or interest on the Class A
Certificate. In the event that the Class A Invested
Amount is greater than zero on the Series Termination
Date, the Trustee will sell or cause to be sold, to the
extent necessary, an amount of interests in the
Receivables or certain of the Receivables up to 110% of
the Class A Invested Amount, the Class B Invested Amount,
the Class C Invested Amount and the Class D Invested
Amount at the close of business on such date (but not more
than the total amount of Receivables allocable to the
Investor Certificates), and shall pay the proceeds to the
Class A Certificateholders pro rata in final payment of
the Class A Certificate, then to the Class B
Certificateholders pro rata in final payment of the Class
B Certificates, then to the Class C Certificateholders pro
rata in final payment of the Class C Certificates and
finally to the Class D Certificateholders pro rata in
final payment of the Class D Certificates.
Unless the certificate of authentication hereon
has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
FINGERHUT RECEIVABLES, INC.
By:________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is the Class A Certificate referred to in
the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK
By:________________________
Name:
Title:
Date Beginning Additions Payments Ending
Principal Principal
Balance Balance
Exhibit A-2
[FORM OF CLASS B INVESTOR CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY
PURCHASING THIS CERTIFICATE, AGREES THAT THIS
CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH
THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND
ONLY PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A ("QIB")
PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE
HOLDER HAS INFORMED, IN EACH CASE, THAT THE
REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, OR TO THE
TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING
A BENEFICIAL INTEREST IN THIS CERTIFICATE IS
DEEMED TO REPRESENT THAT IT IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE
ACCOUNT OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT,
UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS
TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR
AN OPINION OF COUNSEL SATISFACTORY TO THEM TO
THE EFFECT THAT THE PURCHASE OR HOLDING OF A
CLASS B CERTIFICATE BY SUCH PURCHASER WILL NOT
RESULT IN THE ASSETS OF THE TRUST BEING DEEMED
TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT
TO THE PROHIBITED TRANSACTION PROVISIONS OF
ERISA AND THE CODE AND WILL NOT SUBJECT THE
TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY
OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN
THE POOLING AND SERVICING AGREEMENT, SUCH
PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN
(AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
No. Percentage Interest: ___%
FINGERHUT MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1994-2, CLASS B
Evidencing an undivided interest in a trust, the
corpus of which consists of receivables generated from
time to time in the ordinary course of business from a
portfolio of installment sale contracts generated or to be
generated by Fingerhut Corporation ("Fingerhut" or the
"Servicer") and other assets and interests constituting
the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut or any affiliate of
either of them.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Pooling and
Servicing Agreement, dated as of June 29, 1994 (the
"Pooling and Servicing Agreement"; such term to include
any amendment thereto) by and between Fingerhut
Receivables, Inc., as Transferor (the "Transferor"),
Fingerhut, as the Servicer, and The Bank of New York
(Delaware), as Trustee (the "Trustee"), and the Series
1994-2 Supplement, dated as of November 15, 1994 (the
"Series 1994-2 Supplement"), among the Transferor,
Fingerhut as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1994-2
Supplement, is herein referred to as the "Agreement").
The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under
(i) the Trust Property (as defined in the Agreement) and
(ii) the property described in Section 3A of the Series
1994-2 Supplement and Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is one of a
series of Certificates entitled "Fingerhut Master Trust
Floating Rate Accounts Receivable Trust Certificates,
Series 1994-2, Class B" (the "Class B Certificates"), each
of which represents a fractional undivided interest in the
Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the
Certificateholder by virtue of the acceptance hereof
assents and by which the Certificateholder is bound. In
the case of any conflict between terms specified in this
Certificate and terms specified in the Agreement, the
terms of the Agreement shall govern.
The Transferor has structured the Agreement, the
Class B Certificates, the Fingerhut Master Trust Variable
Funding Trust Certificate, Series 1994-2, Class A (the
"Class A Certificate") and the Fingerhut Master Trust
Accounts Receivable Trust Certificates, Series 1994-2,
Class C (the "Class C Certificates") with the intention
that the Class A Certificate, the Class B Certificates and
the Class C Certificates will qualify under applicable tax
law as indebtedness, and both the Transferor and each
holder of a Class B Certificate (a "Class B
Certificateholder") or any interest therein by acceptance
of its Certificate or any interest therein, agrees to
treat the Class B Certificate for purposes of federal,
state and local income or franchise taxes and any other
tax imposed on or measured by income, as indebtedness.
No principal will be payable to the Class B
Certificateholders until the Class B Principal Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date, on which the Class
A Invested Amount had been paid in full. No principal
will be payable to the Class B Certificateholders until
all principal payments have been made to the Class A
Certificateholders. No principal payments will be made to
the Class C Certificateholder until the Distribution Date
either on or following the Distribution Date on which the
Class B Invested Amount has been paid in full. Except in
connection with a payment of Class D Daily Principal, the
Class D Certificates will not have the right to receive
payments of principal until the Class A Invested Amount,
the Class B Invested Amount and the Class C Invested
Amount have been paid in full. The Class B Pre-Funded
Amount, if any, will be paid to the Class C
Certificateholders on the last day of the Pre-Funding
Period in accordance with Section 4.14 of the Series 1994-
2 Supplement.
Each Class B Certificate represents the right to
receive interest at the rate of .__% per annum above LIBOR
(as determined on the related LIBOR Determination Date,
and such rate, as in effect from time to time, the "Class
B Certificate Rate" ) on the 20th day of each month after
the issuance of the Class B Certificates, or if such day
is not a business day, on the next succeeding business day
(each, a "Distribution Date"), in an amount equal to the
product of (a) the actual number of days in the related
Interest Accrual Period divided by 360, (b) the Class B
Certificate Rate and (c) the Class B Invested Amount as of
the close of business on the first day of the related
Interest Accrual Period; provided, however, that with
respect to any Distribution Date occurring in the Pre-
Funding Period, the amount described in clause (c) above
shall be the Class B Outstanding Principal Amount on the
first day of the Pre-Funding Period.
Interest for any Distribution Date will include
accrued interest at the Class B Certificate Rate from and
including the preceding Distribution Date or, in the case
of the first Distribution Date from and including the
Closing Date, to but excluding such Distribution Date.
Interest for any Distribution Date due but not paid on any
Distribution Date will be due on the next succeeding
Distribution Date together with, to the extent permitted
by applicable law, additional interest on such amount at
the Class B Certificate Rate plus 2%.
"Class B Invested Amount" means an amount equal
to (a) the principal amount of Class B Certificates
purchased pursuant to any Class B Funding Purchase
pursuant to Section 4.14A(b) of the Agreement, plus (b)
the aggregate amount of all Class B Pre-Funding
Withdrawals made pursuant to Section 4.15 of the Agreement
minus (c) the aggregate amount of principal payments
(except principal payments, if any, made from the Pre-
Funding Account) made to Class B Certificateholders prior
to such date minus (d) the aggregate amount of Class B
Investor Charge-Offs for all prior Distribution Dates,
minus (e) the aggregate amount of Reallocated Class B
Principal collections for which neither the Class D
Invested Amount nor the Class C Invested Amount has been
reduced for all prior Business Days and plus (f) the
aggregate amount of Available Series Imputed Yield
Collections, Transferor Imputed Yield Collections, Excess
Imputed Yield Collections and Reallocated Principal
Collections applied on all prior Distribution Dates for
the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (d) and (e).
Upon the occurrence of certain conditions
relating to the issuance of the Class C Certificates, the
Class B Certificates and the Class A Certificate as
described in Section 4.14 of the Agreement, during the
period from and including January 3, 1995 to but excluding
the earlier of (x) the first day for which the Class A Pre-
Funded Amount, the Class B Pre-Funded Amount and the Class
C Pre-Funded Amount equals zero; (y) the first day on
which a Pay Out Event is deemed to occur; and (z) the
close of business on June 30, 1995 (the "Pre-Funding
Period"), the Pre-Funded Amount will be maintained in a
trust account to be established with The Bank of New York
(the "Pre-Funding Account"). The "Pre-Funded Amount" will
equal the amount of the initial deposit to the Pre-Funding
Account, less the amounts of any increases in the Invested
Amount pursuant to the Series 1994-2 Supplement in
connection with the increase in the amount of Receivables
in the Trust. If, as of the close of business of January
2, 1995 (i) there has not been a Class C Funding Purchase
and a Class B Funding Purchase and (ii) during the period
between the Closing Date and the close of business on
January 2, 1995 the Class A Invested Amount during such
time has not at any time equalled or exceeded $12,400,000,
unless a Series 1994-2 Pay Out Event shall have occurred,
a cash deposit will be made to the Pre-Funding Account in
an amount equal to the sum of (i) if there has been no
Class C Funding Purchase, an amount equal to the Class C
Full Invested Amount or zero if there has been a Class C
Funding Purchase, (ii) if there has been no Class B
Funding Purchase, an amount equal to the Class B Full
Invested Amount, or zero if there has been a Class B
Funding Purchase and (iii) if there has been no Class A
Funding Purchase, an amount equal to $12,400,000. Funds
on deposit in the Pre-Funding Account will be invested by
the Trustee at the direction of the Servicer in Cash
Equivalents.
During the Pre-Funding Period, upon satisfaction
of the conditions contained in section 4.15 of the
Agreement, the Transferor may elect to withdraw funds on
deposit in the Pre-Funding Account equal to the Class C
Full Invested Amount and concurrently increase the Class C
Invested Amount to the Class C Full Invested Amount, and
concurrently or subsequently withdraw funds on deposit in
the Pre-Funding Account equal to the Class B Full Invested
Amount and concurrently increase the Class B Invested
Amount to the Class B Full Invested Amount, and
concurrently or subsequently withdraw any funds remaining
in the Pre-Funding Account and increase the Class A
Invested Amount by an amount equal to such withdrawal.
Should the Pre-Funded Amount be greater than zero on the
last Business Day of the Pre-Funding Period, such amount
will be withdrawn from the Pre-Funding Account and
distributed to the Class A Certificateholder in an amount
equal to the Class A Pre-Funded Amount, to the Class B
Certificateholders in an amount equal to the Class B Pre-
Funded Amount and the Class C Certificateholders in an
amount equal to the Class C Pre-Funded Amount.
Subject to the Agreement, payments of principal
are limited to the unpaid Class B Invested Amount of the
Class B Certificate, which may be less than the unpaid
balance of the Class B Certificate pursuant to the terms
of the Agreement. All principal of and interest on the
Class B Certificate is due and payable no later than
October 29, 2001, unless a different date is set forth in
the Extension Notice (the "Series 1994-2 Termination
Date"). After the Series 1994-2 Termination Date neither
the Trust nor the Transferor will have any further
obligation to distribute principal or interest on the
Class B Certificate. In the event that the Class B
Invested Amount is greater than zero on the Series 1994-2
Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date (but
not more than the total amount of Receivables allocable to
the Investor Certificates), and shall pay the proceeds to
the Class A Certificateholders pro rata in final payment
of the Class A Certificate, then to the Class B
Certificateholders pro rata in final payment of the Class
B Certificates, then to the Class C Certificateholders pro
rata in final payment of the Class C Certificates and
finally to the Class D Certificateholders pro rata in
final payment of the Class D Certificates.
Unless the certificate of authentication hereon
has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
FINGERHUT RECEIVABLES, INC.
By:_______________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred
to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK
By: _______________________
Name:
Title:
Exhibit A-3
[FORM OF CLASS C INVESTOR CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY
PURCHASING THIS CERTIFICATE, AGREES THAT THIS
CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH
THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND
ONLY PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A ("QIB")
PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE
HOLDER HAS INFORMED, IN EACH CASE, THAT THE
REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, OR TO THE
TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING
A BENEFICIAL INTEREST IN THIS CERTIFICATE IS
DEEMED TO REPRESENT THAT IT IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE
ACCOUNT OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT,
UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS
TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR
AN OPINION OF COUNSEL SATISFACTORY TO THEM TO
THE EFFECT THAT THE PURCHASE OR HOLDING OF A
CLASS C CERTIFICATE BY SUCH PURCHASER WILL NOT
RESULT IN THE ASSETS OF THE TRUST BEING DEEMED
TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT
TO THE PROHIBITED TRANSACTION PROVISIONS OF
ERISA AND THE CODE AND WILL NOT SUBJECT THE
TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY
OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN
THE POOLING AND SERVICING AGREEMENT, SUCH
PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN
(AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
No. Percentage Interest: ___%
FINGERHUT MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1994-2, CLASS C
Evidencing an undivided interest in a trust, the
corpus of which consists of receivables generated from
time to time in the ordinary course of business from a
portfolio of installment sale contracts generated or to be
generated by Fingerhut Corporation ("Fingerhut" or the
"Servicer") and other assets and interests constituting
the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut or any affiliate of
either of them.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Pooling and
Servicing Agreement, dated as of June 29, 1994 (the
"Pooling and Servicing Agreement"; such term to include
any amendment thereto) by and between Fingerhut
Receivables, Inc., as Transferor (the "Transferor"),
Fingerhut, as the Servicer, and The Bank of New York
(Delaware), as Trustee (the "Trustee"), and the Series
1994-2 Supplement, dated as of November 15, 1994 (the
"Series 1994-2 Supplement"), among the Transferor,
Fingerhut as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1994-2
Supplement, is herein referred to as the "Agreement").
The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under
(i) the Trust Property (as defined in the Agreement) and
(ii) the property described in Section 3A of the Series
1994-2 Supplement and Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is one of a
series of Certificates entitled "Fingerhut Master Trust
Floating Rate Accounts Receivable Trust Certificates,
Series 1994-2, Class C" (the "Class C Certificates"), each
of which represents a fractional undivided interest in the
Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the
Certificateholder by virtue of the acceptance hereof
assents and by which the Certificateholder is bound. In
the case of any conflict between terms specified in this
Certificate and terms specified in the Agreement, the
terms of the Agreement shall govern.
The Transferor has structured the Agreement, the
Class C Certificates, the Fingerhut Master Trust Variable
Funding Trust Certificate, Series 1994-2, Class A (the
"Class A Certificate") and the Fingerhut Master Trust
Accounts Receivable Trust Certificates, Series 1994-2,
Class B (the "Class B Certificates") with the intention
that the Class A Certificate, the Class B Certificates and
the Class C Certificates will qualify under applicable tax
law as indebtedness, and both the Transferor and each
holder of a Class C Certificate (a "Class C
Certificateholder") or any interest therein by acceptance
of its Certificate or any interest therein, agrees to
treat the Class C Certificate for purposes of federal,
state and local income or franchise taxes and any other
tax imposed on or measured by income, as indebtedness.
No principal will be payable to the Class C
Certificateholders until the Class C Principal Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date, on which the Class
B Invested Amount had been paid in full. No principal
will be payable to the Class C Certificateholders until
all principal payments have been made to the Class B
Certificateholders. Except in connection with a payment
of Class D Daily Principal, the Class D Certificates will
not have the right to receive payments of principal until
the Class A Invested Amount, the Class B Invested Amount
and the Class C Invested Amount have been paid in full.
The Class C Pre-Funded Amount, if any, will be paid to the
Class C Certificateholders on the last day of the Pre-
Funding Period in accordance with Section 4.14 of the
Series 1994-2 Supplement.
Each Class C Certificate represents the right to
receive interest at the rate of .__% per annum above LIBOR
(as determined on the related LIBOR Determination Date,
and such rate, as in effect from time to time, the "Class
C Certificate Rate" ) on the 20th day of each month after
the issuance of the Class C Certificates, or if such day
is not a business day, on the next succeeding business day
(each, a "Distribution Date"), in an amount equal to the
product of (a) the actual number of days in the related
Interest Accrual Period divided by 360, (b) the Class C
Certificate Rate and (c) the Class C Invested Amount as of
the close of business on the first day of the related
Interest Accrual Period; provided, however, that with
respect to any Distribution Date occurring in the Pre-
Funding Period, the amount described in clause (c) above
shall be the Class C Outstanding Principal Amount on the
first day of the Pre-Funding Period.
Interest for any Distribution Date will include
accrued interest at the Class C Certificate Rate from and
including the preceding Distribution Date or, in the case
of the first Distribution Date from and including the
Closing Date, to but excluding such Distribution Date.
Interest for any Distribution Date due but not paid on any
Distribution Date will be due on the next succeeding
Distribution Date together with, to the extent permitted
by applicable law, additional interest on such amount at
the Class C Certificate Rate plus 2%.
"Class C Invested Amount" means an amount equal
to (a) the principal amount of Class C Certificates
purchased pursuant to any Class C Funding Purchase
pursuant to Section 4.14A(b) of the Agreement, plus (b)
the aggregate amount of all Class C Pre-Funding
Withdrawals made pursuant to Section 4.15 of the Agreement
minus (c) the aggregate amount of principal payments
(except principal payments, if any, made from the Pre-
Funding Account) made to Class C Certificateholders prior
to such date minus (d) the aggregate amount of Class C
Investor Charge-Offs for all prior Distribution Dates
minus (e) the aggregate amount of Reallocated Class C
Principal collections for which the Class D Invested
Amount has not been reduced for all prior Business Days
and plus (f) the aggregate amount of Available Series
Imputed Yield Collections, Transferor Imputed Yield
Collections, Excess Imputed Yield Collections and
Reallocated Principal Collections applied on all prior
Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (d) and (e).
Upon the occurrence of certain conditions
relating to the issuance of the Class C Certificates, the
Class B Certificates and the Class A Certificate as
described in Section 4.14 of the Agreement, during the
period from and including January 3, 1995 to but excluding
the earlier of (x) the first day for which the Class A Pre-
Funded Amount, the Class B Pre-Funded Amount and the Class
C Pre-Funded Amount equals zero; (y) the first day on
which a Pay Out Event is deemed to occur; and (z) the
close of business on June 30, 1995 (the "Pre-Funding
Period"), the Pre-Funded Amount will be maintained in a
trust account to be established with The Bank of New York
(the "Pre-Funding Account"). The "Pre-Funded Amount" will
equal the amount of the initial deposit to the Pre-Funding
Account, less the amounts of any increases in the Invested
Amount pursuant to the Series 1994-2 Supplement in
connection with the increase in the amount of Receivables
in the Trust. If, as of the close of business on January
2, 1995 (i) there has not been a Class C Funding Purchase
and a Class B Funding Purchase and (ii) during the period
between the Closing Date and the close of business on
January 2, 1995 the Class A Invested Amount during such
time has not at any time equalled or exceeded $12,400,000,
a cash deposit will be made to the Pre-Funding Account in
an amount equal to the sum of (i) if there has been no
Class C Funding Purchase, an amount equal to the Class C
Full Invested Amount or zero if there has been a Class C
Funding Purchase, (ii) if there has been no Class B
Funding Purchase, an amount equal to the Class B Full
Invested Amount, or zero if there has been a Class B
Funding Purchase and (iii) if there has been no Class A
Funding Purchase, an amount equal to $12,400,000. Funds
on deposit in the Pre-Funding Account will be invested by
the Trustee at the direction of the Servicer in Cash
Equivalents.
During the Pre-Funding Period, upon satisfaction
of the conditions contained in Section 4.15 of the
Agreement, the Transferor may elect to withdraw funds on
deposit in the Pre-Funding Account equal to the Class C
Full Invested Amount and concurrently increase the Class C
Invested Amount to the Class C Full Invested Amount, and
concurrently or subsequently withdraw funds on deposit in
the Pre-Funding Account equal to the Class B Full Invested
Amount and concurrently increase the Class B Invested
Amount to the Class B Full Invested Amount, and
concurrently or subsequently withdraw any funds remaining
in the Pre-Funding Account and increase the Class A
Invested Amount by an amount equal to such withdrawal.
Should the Pre-Funded Amount be greater than zero on the
last Business Day of the Pre-Funding Period, such amount
will be withdrawn from the Pre-Funding Account and
distributed to the Class A Certificateholder in an amount
equal to the Class A Pre-Funded Amount, to the Class B
Certificateholders in an amount equal to the Class B Pre-
Funded Amount and the Class C Certificateholders in an
amount equal to the Class C Pre-Funded Amount.
Subject to the Agreement, payments of principal
are limited to the unpaid Class C Invested Amount of the
Class C Certificate, which may be less than the unpaid
balance of the Class C Certificate pursuant to the terms
of the Agreement. All principal of and interest on the
Class C Certificate is due and payable no later than
October 29, 2001 unless a different date is set forth in
the Extension Notice (the "Series 1994-2 Termination
Date"). After the Series 1994-2 Termination Date neither
the Trust nor the Transferor will have any further
obligation to distribute principal or interest on the
Class C Certificate. In the event that the Class C
Invested Amount is greater than zero on the Series 1994-2
Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date (but
not more than the total amount of Receivables allocable to
the Investor Certificates), and shall pay the proceeds to
the Class A Certificateholders pro rata in final payment
of the Class A Certificate, then to the Class B
Certificateholders pro rata in final payment of the Class
B Certificates, then to the Class C Certificateholders pro
rata in final payment of the Class C Certificates and
finally to the Class D Certificateholders pro rata in
final payment of the Class D Certificates.
Unless the certificate of authentication hereon
has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
FINGERHUT RECEIVABLES, INC.
By:________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class C Certificates referred
to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK
By: _______________________
Name:
Title:
Exhibit A-4
[FORM OF CLASS D INVESTOR CERTIFICATE]
THIS CERTIFICATE WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT AND ANY OTHER APPLICABLE SECURITIES LAW.
FINGERHUT RECEIVABLES, INC. SHALL BE PROHIBITED
FROM TRANSFERRING ANY INTEREST IN OR PORTION OF
THIS CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER,
IT SHALL HAVE DELIVERED TO THE TRUSTEE AN
OPINION OF COUNSEL TO THE EFFECT THAT SUCH
PROPOSED TRANSFER WILL NOT ADVERSELY AFFECT THE
FEDERAL, MINNESOTA OR DELAWARE INCOME TAX
CHARACTERIZATION OF ANY OUTSTANDING SERIES OF
INVESTOR CERTIFICATES OR THE TAXABILITY (OR TAX
CHARACTERIZATION) OF THE TRUST UNDER FEDERAL,
MINNESOTA OR DELAWARE INCOME TAX LAWS. THE
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO
CERTAIN CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT
SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT
PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
No. ___ $_________
FINGERHUT MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1994-2, CLASS D
Evidencing an undivided interest in a trust, the
corpus of which consists of receivables generated from
time to time in the ordinary course of business from a
portfolio of installment sale contracts generated or to be
generated by Fingerhut Corporation ("Fingerhut" or the
"Servicer") and other assets and interests constituting
the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut or any affiliate of
either of them.)
This certifies that FINGERHUT RECEIVABLES, INC.
(the "Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Pooling and
Servicing Agreement, dated as of June 29, 1994 (the
"Pooling and Servicing Agreement"; such term to include
any amendment or Series Supplement thereto) by and between
Fingerhut Receivables, Inc., as Transferor (the
"Transferor"), Fingerhut as the Servicer, and The Bank of
New York (Delaware), as Trustee (the "Trustee"), and the
Series 1994-2 Supplement, dated as of November 15, 1994
(the "Series 1994-2 Supplement"), among the Transferor,
Fingerhut as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1994-2
Supplement, is herein referred to as the "Agreement").
The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under
(i) the Trust Property (as defined in the Agreement) and
(ii) the property described in Section 3A of the Series
1994-2 Supplement and Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is one of a
series of Certificates entitled "Fingerhut Master Trust
Floating Rate Accounts Receivable Trust Certificates,
Series 1994-2, Class D" (the "Class D Certificates"), each
of which represents a fractional undivided interest in the
Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the
Certificateholder by virtue of the acceptance hereof
assents and by which the Certificateholder is bound.
Fingerhut Receivables, Inc. shall be prohibited
from Transferring any interest in or portion of the
Class D Certificate unless, prior to such Transfer, it
shall have delivered to the Trustee an Opinion of Counsel
to the effect that such proposed Transfer will not
adversely affect the Federal, Minnesota or Delaware income
tax characterization of any outstanding Series of Investor
Certificate or the taxability (or tax characterization) of
the Trust under Federal, Minnesota or Delaware income tax
laws.
Except in connection with a payment of Class D
Daily Principal, no principal will be payable to the Class
D Certificateholders until the Class D Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date on which the Class C
Invested Amount had been paid in full. No principal will
be payable to the Class D Certificateholders until all
principal payments have first been made to the Class A
Certificateholders and then on and after the Class B
Principal Payment Commencement Date, after all principal
payments have been made to the Class B Certificateholders
and then on and after the Class C Principal Payment
Commencement Date, after all payments have been made to
the Class C Certificateholders.
Interest will not accrue on the unpaid principal
amount of the Class D Certificates.
"Class D Invested Amount" means an amount equal
to (a) the initial principal balance of the Class D
Certificates, plus (b) the aggregate principal amount of
any Additional Class D Invested Amounts pursuant to
Section 6.16 of the Agreement minus (c) the aggregate
amount of principal payments made to Class D
Certificateholders prior to such date, minus (d) the
aggregate amount of Class D Investor Charge-Offs for all
prior Distribution Dates, equal to the amount by which the
Class D Invested Amount has been reduced to fund the
Investor Default Amount on all prior Distribution Dates,
minus (e) the aggregate amount of Reallocated Principal
Collections for all prior Distribution Dates, and plus (f)
the aggregate amount of Imputed Yield Collections,
Transferor Imputed Yield Collections, and Excess imputed
Yield Collections applied on all prior Distribution Dates
for the purpose of reimbursing amounts deducted pursuant
to the foregoing clauses (d) and (e).
Subject to the Agreement, payments of principal
are limited to the unpaid Class D Invested Amount of the
Class D Certificates, which may be less than the unpaid
balance of the Class D Certificates pursuant to the terms
of the Agreement. All principal of and interest on the
Class D Certificates is due and payable no later than
October 29, 2001 (the "Series 1994-2 Termination Date").
After the Series 1994-2 Termination Date neither the Trust
nor the Transferor will have any further obligation to
distribute principal or interest on the Class C
Certificates. In the event that the Class D Invested
Amount is greater than zero on the Series 1994-2
Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date (but
not more than the total amount of Receivables allocable to
the Investor Certificates), and shall pay the proceeds to
the Class A Certificateholders pro rata in final payment
of the Class A Certificate, then to the Class B
Certificateholders pro rata in final payment of the Class
B Certificates, then to the Class C Certificateholders pro
rata in final payment of the Class C Certificates and
finally to the Class D Certificateholders pro rata in
final payment of the Class D Certificates.
Unless the certificate of authentication hereon
has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
FINGERHUT RECEIVABLES, INC.
By:________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class D Certificates referred
to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK
By:________________________
Name:
Title:
EXHIBIT B
[RESERVED]
EXHIBIT C
[Form of Monthly Certificateholders' Statement]
EXHIBIT D
Form of 144A Exchange Notice and Certification
, 199
Fingerhut Receivables, Inc.
4400 Baker Road
Suite F480
Minnetonka, MN 55343
Attention:
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
Ladies and Gentlemen:
This is to notify you as to the transfer of $
of Floating Rate Accounts Receivable Trust Certificates,
Series 1994-2, Class C (the "Class C Certificates") of
Fingerhut Master Trust (the "Company").
The undersigned is the holder of the
Certificates and with this notice hereby deposits with the
Trustee $ principal amount of Class C
Certificates and requests that Class C Certificates in the
same principal amount be issued and executed by the
Company and authenticated by the Trustee and registered to
the purchaser on , 19 , as specified in
the Pooling and Servicing Agreement, as supplemented by
the Series 1994-2 Supplement thereto, as follows:
Name:
Denominations:
Address:
Taxpayer I.D. No.:
The undersigned represents and warrants that the
undersigned (i) reasonably believes the purchaser is a
"qualified institutional buyer," as defined in Rule 144A
under the Securities Act of 1933 (the "Act"), (ii) such
purchaser has acquired the Certificates in a transaction
effected in accordance with the exemption from the
registration requirements of the Act provided by Rule 144A
and, (iii) if the purchaser has purchased the Certificates
for one or more accounts for which it is acting as
fiduciary or agent, (A) each such account is a qualified
institutional buyer and (B) each such account is acquiring
Notes for its own account or for one or more institutional
accounts for which it is acting as fiduciary or agent in a
minimum amount equivalent to not less than U.S. $250,000
for each such account.
Very truly yours,
[NAME OF HOLDER OF CERTIFICATE]
By:
[Name], [Chief Financial
or other Executive Officer]
Exhibit E
FORM OF EXTENSION NOTICE
FINGERHUT CARD MASTER TRUST, SERIES 1994-2
The undersigned, a duly authorized
representative of Fingerhut Receivables, Inc., a Delaware
corporation (the "Transferor"), as Transferor pursuant to
the Pooling and Servicing Agreement dated as of June 29,
1994 (the "Pooling and Servicing Agreement"), by and
between the Transferor, as transferor, Fingerhut
Corporation, as servicer (the "Servicer"), and The Bank of
New York (Delaware), as trustee (the "Trustee"), as
supplemented by the Series 1994-2 Supplement, dated
November 15, 1994 (the "Series 1994-2 Supplement"), by and
between the Transferor, the Servicer and the Trustee (the
Pooling and Servicing Agreement, as supplemented by the
Series 1994-2 Supplement, or as the Pooling and Servicing
Agreement may from time to time be amended, supplemented,
or modified, the "Agreement"), does hereby notify the
Trustee (or any successor Trustee) and the Investor
Certificateholders:
D. Capitalized terms used but not defined in this
Certificate shall have the respective meanings set forth
in the Agreement. References herein to certain sections
and subsections are references to the respective sections
and subsections of the Agreement.
E. The undersigned is a [Vice President] or more
senior officer of the Transferor who is duly authorized to
execute and deliver this Certificate on behalf of the
Transferor.
F. This Certificate is being delivered pursuant to
Section 6.17(a) of the Agreement.
G. The Transferor is the Transferor under the
Agreement.
H. No Pay Out Event has occurred that has not been
remedied pursuant to the provisions of the Agreement.
I. The Certificate is being delivered to the Trustee
on or before the date specified in subsection 6.17(a) for
delivery.
J. NOTIFICATION OF EXTENSION
Pursuant to subsection 6.17(a) and in respect of
[ , ] (the "Current Extension Date"), the
Transferor hereby notifies the Trustee and the Investor
Certificateholders of the Transferor's intention to extend
the Revolving Period in respect of Series 1994-2 on the
Current Extension Date pursuant to the provisions of
Section 6.17, until the date set forth below (such
extension, the "Extension").
K. REQUIREMENTS TO COMPLETE EXTENSION
(1) Annexed hereto is an election notice (an "Election
Notice") to be returned by any Investor Certificateholder
electing to approve the Extension. No Extension shall
occur unless Investor Certificateholders holding at least
more than fifty percent of each of the aggregate principal
amount of Class A Certificates, Class B Certificates,
Class C Certificates and Class D Certificates,
respectively, shall return properly executed Election
Notices approving the Extension by the Election Date (as
defined below). Any Investor Certificateholder electing
to approve the Extension must deliver a properly executed
Election Notice at the office of the Trustee, [
] on or before 3:00 p.m., [ ] time, on [ ,
] (the "Election Date"). Any Investor Certificateholder
may withdraw any Election Notice delivered by it to the
Trustee by notifying the Trustee in writing at the address
set forth in the previous sentence on or prior to the
Election Date.
(2) THE EXTENSION SHALL NOT OCCUR UNTIL PRIOR
SATISFACTION OF CERTAIN CONDITIONS PRECEDENT BY THE CLOSE
OF BUSINESS ON THE ELECTION DATE, INCLUDING THE APPROVAL
OF SUCH EXTENSION BY THE INVESTOR CERTIFICATEHOLDERS
HOLDING THE REQUIRED AGGREGATE PRINCIPAL AMOUNT OF CLASS A
CERTIFICATES, CLASS B CERTIFICATES, CLASS C CERTIFICATES
AND CLASS D CERTIFICATES, THAT NO PAY OUT EVENT SHALL HAVE
OCCURRED AND BE CONTINUING, AND THAT CERTAIN LEGAL
OPINIONS AND RATING AGENCY CONFIRMATIONS SHALL HAVE BEEN
DELIVERED TO THE TRANSFEROR AND THE TRUSTEE PURSUANT TO
SECTION 6.17(b). THE TRANSFEROR MAY IN ITS SOLE
DISCRETION WITHDRAW THIS EXTENSION NOTICE AT ANY TIME ON
OR PRIOR TO THE ELECTION DATE BY DELIVERING NOTICE OF SUCH
WITHDRAWAL IN WRITING TO THE TRUSTEE. IF ANY SUCH NOTICE
OF WITHDRAWAL SHALL BE SO DELIVERED, NO EXTENSION SHALL
OCCUR.
L. NEW PROVISIONS TO BECOME EFFECTIVE ON THE EXTENSION
DATE
(1) The new Amortization Period Commencement Date shall
be the earlier of (a) [ , ] or (b) the Pay Out
Commencement Date.
(2) The new Extension Date shall be [ , ].
(4) The new Scheduled Series 1994-2
Termination Date shall be [ , ].]
(5) The new Class A Expected Payment Date is
______.
(6) The new Class B Expected Payment Date is ______.
(7) The new Class C Expected Payment Date is ______.
(9) The following are additional
provisions that will apply to the Investor Certificates on
and after the Extension Date:
INSERT PROVISIONS]
M. Annexed hereto are the following:
(1) the form of Extension Tax Opinion.
(2) the form of Extension Opinion.
(3) the Election Notice.
IN WITNESS WHEREOF, the undersigned has duly
executed this certificate this [ ] day of [ , ].
FINGERHUT RECEIVABLES, INC.
By:________________________
Name:
Title:
EXHIBIT F
FORM OF INVESTOR CERTIFICATEHOLDER
ELECTION NOTICE
[INSERT NAME
AND ADDRESS OF TRUSTEE]
Re: Fingerhut Master Trust:
Election Notice to Extend Series 1994-2
Ladies and Gentlemen:
The undersigned hereby elects to approve the
extension of the Revolving Period for Series 1994-2 until
the Amortization Period Commencement Date set forth in the
Extension Notice dated [ , ] (the "Extension Notice")
and delivered to the undersigned pursuant Section 6.17(a)
of the Pooling and Servicing Agreement, dated as of June
29, 1994, including the Series 1994-2 Supplement thereto,
dated as of November 15, 1994, each by and among Fingerhut
Receivables, Inc., as transferor, Fingerhut Corporation,
as servicer, and The Bank of New York (Delaware), as
trustee (the "Pooling and Servicing Agreement"). The
undersigned hereby acknowledges that, commencing on the
Current Extension Date (as defined in the Extension
Notice), the terms and provisions of the Pooling and
Servicing Agreement shall be modified as set forth in the
Extension Notice.
IN WITNESS WHEREOF, the undersigned registered
owner(s) has [have] executed this Election Notice as of
the date set forth below.
Dated:
Name(s):___________________
Address:___________________
(Please Print)
Signature(s):______________
TABLE OF CONTENTS
PAGE
SECTION 1. Designation 1
SECTION 2. Definitions 2
SECTION 3. Reassignment Terms 37
SECTION 3A Conveyance of Interest in Interest Rate
Cap; Cap Proceeds Account 37
SECTION 4. Delivery and Payment for the Series
1994-2 Certificates 42
SECTION 5. Form of Delivery of Series 1994-2
Certificates 43
SECTION 6. Article IV of Agreement 43
ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF
COLLECTIONS 43
Section 4.4 Rights of Certificateholders 43
Section 4.5 Collections and Allocation; Payments on
Exchangeable Transferor Certificate 44
Section 4.6 Determination of Interest for the
Series 1994-2 Certificates 46
Section 4.6A Determination of the Class A Interest
Adjustment 49
Section 4.7 Determination of Principal Amounts 50
Section 4.8 Shared Principal Collections 54
Section 4.9 Application of Funds on Deposit in the
Collection Account for the Certificates 55
Section 4.10 Coverage of Required Amount for the
Series 1994-2 Certificates 76
Section 4.11 Payment of Certificate Interest 77
Section 4.12 Payment of Certificate Principal 78
Section 4.13 Investor Charge-Offs 80
Section 4.14 Pre-Funding Period and Establishment of the
Pre-Funding Account 81
Section 4.14A Increases in the Invested Amount During
the Investment Period 85
Section 4.15 Increases in Invested Amount during the
Pre-Funding Period 87
Section 4.16 Reallocated Principal Collections for
the Series 1994-2 Certificates 88
Section 4.17 Determination of LIBOR 90
Section 4.18 Class C Trigger 91
Section 4.19 Establishment of Class C Reserve
Account 92
Section 4.20 Expense Reserve 94
Section 4.21 Expense Reserve Account 94
Section 4.22 Payment Reserve Account 96
ARTICLE V DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS 97
Section 5.1 Distributions 97
Section 5.2 Certificateholders' Statement 99
SECTION 7A. Article VI of the Agreement 102
ARTICLE VI THE CERTIFICATES 102
Section 6.15 Additional Class A Invested Amounts 102
Section 6.16 Additional Class D Invested Amounts. 104
Section 6.17 Extension 105
SECTION 8. Series 1994-2 Pay Out Events 108
SECTION 8A. Class A Pay Down Period 111
SECTION 9. Series 1994-2 Termination 111
SECTION 9A. Class A Pre-Payment 112
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1994-
2 Certificates; Tax Treatment 113
SECTION 11. Ratification of Agreement 118
SECTION 12. Counterparts 119
SECTION 13. GOVERNING LAW 119
SECTION 14. Instructions in Writing 119
SECTION 15. Amendments 119
SECTION 16. Increased Costs 120
SECTION 17. Replacement of Certain Investor
Certificateholders 124
SECTION 18. FCI Note 125
EXHIBITS
EXHIBIT A-1 Form of Class A Investor Certificate
EXHIBIT A-2 Form of Class B Investor Certificate
EXHIBIT A-3 Form of Class C Investor Certificate
EXHIBIT A-4 Form of Class D Investor Certificate
EXHIBIT B [RESERVED]
EXHIBIT C [Form of Monthly Certificateholders'
Statement]
EXHIBIT D Form of 144A Exchange Notice and
Certification
EXHIBIT E Form of Extension Notice
EXHIBIT F Form of Investor Certificateholder Election
Notice
_________________________________________
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT CORPORATION
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1994-2
Certificateholders
SERIES 1994-2 SUPPLEMENT
Dated as of November 15, 1994
to
POOLING AND SERVICING AGREEMENT
Dated as of June 29, 1994
____________________________________
FINGERHUT MASTER TRUST
Variable Funding Trust
Certificate, Series 1994-2, Class A
$27,865,000 Floating Rate Accounts Receivable
Trust Certificates, Series 1994-2, Class B
$50,157,000 Floating Rate Accounts Receivable
Trust Certificates, Series 1994-2, Class C
0% Variable Funding Trust
Certificates, Series 1994-2, Class D
_______________________________
EXECUTIVE TAX PLANNING/PREPARATION
AND FINANCIAL PLANNING POLICY
Effective for fiscal years commencing January 1, 1993 and
later, Fingerhut will provide a tax planning/preparation and
financial planning benefit to designated Vice President
level and above executives. This benefit will apply to
incurred covered expenses, including expenses related to
prior year tax returns. The Company may change, modify or
terminate this policy at any time.
Eligibility
This benefit is provided to the Chairman & CEO, Executive
Vice Presidents, Senior Vice Presidents, and Vice Presidents
who are members of the Executive Management Committee.
Benefit
This benefit covers annual income tax planning/preparation
assistance, financial planning, estate planning and
investment, legal, and financial advice up to the following
maximum amounts for each calendar year. Only actual
incurred charges for tax planning/preparation and financial
planning up to the appropriate maximum are eligible for
reimbursement. Excluded expenses include, but are not
limited to, brokerage fees or charges, sales commissions,
and administrative or account management fees. The Company
reserves the right to specifically exclude other expenses on
a case by case basis.
Maximum
Title Annual Benefit
Chairman & CEO $20,000
Executive Vice President $10,000
Senior Vice President $6,500
Vice President (if member $5,000
of
Executive Management
Committee)
In addition, a corresponding tax "gross-up" calculation and
adjustment will be made on all amounts paid at year-end for
each participating Executive. A tax "gross-up" will occur
since amounts reimbursed will be taxable earnings to the
participating Executive.
Service Provider
Executives may select any firm or individual normally
engaged to provide these services.
Administration
Under the Company's annual corporate compliance and business
conduct process, each participating Executive must submit
copies of their annual income tax returns to the Company's
independent auditing firm, Price Waterhouse, for its
confidential review within 10 days of April 15 or the date
the tax returns(s) is filed. No information other than that
determined to be potentially in conflict with the Company's
code of business conduct will be reported to the Company.
The administration of the Executive Planning/Preparation and
Financial Planning Policy is the responsibility of the
Senior Vice President, Human Resources, Senior Vice
President, Chief Financial Officer, and the Executive
Compensation Committee.
Reimbursement
Expense reimbursement for services rendered should be
submitted to Human Resources and will be processed through
the normal travel and expense process. To substantiate
actual incurred expenses, original and itemized invoices for
each service utilized and all payments made must be
submitted as support in the same manner as for a properly
completed and approved travel and expense voucher.
EXECUTION COPY
FINGERHUT COMPANIES, INC.
__________________
$65,000,000
9.81% Senior Notes, Series A, Due June 30, 1996
$25,000,000
10.12% Senior Notes, Series B, due December 30, 1997
________________
SECOND AMENDMENT AGREEMENT
_________________
Dated as of June 17, 1994
to
PURCHASE AGREEMENT
dated as of January 14, 1991
as amended by
FIRST AMENDMENT AGREEMENT
Dated as of March 1, 1992
SECOND AMENDMENT, dated as of June 17, 1994, ("this
Amendment"), between Fingerhut Companies, Inc., a Minnesota
corporation (the "Company"), and the Noteholders (as defined
below).
Preliminary Statement
Reference is made to the separate Purchase Agreements
dated as of January 14, 1991 between the Company and the
Purchasers listed in Schedule 1 thereto and their assigns
(the "Noteholders"), pursuant to which the Company issued
and sold its 9.81% Senior Notes, Series A, due June 30,
1996, in the aggregate principal amount of $65,000,000 (the
"Series A Notes"), and its 10.12% Senior Notes, Series B,
due December 30, 1997, in the aggregate principal amount of
$25,000,000 (the "Series B Notes"), each as amended by the
amendment dated as of March 1, 1992 (collectively, as
amended, the "Purchase Agreements"). The Series A Notes and
the Series B Notes are hereinafter collectively referred to
herein as the "Notes". Unless otherwise defined in this
Amendment, capitalized terms used herein without definition
shall have the meanings set forth in the Purchase
Agreements.
The Company and Principal Mutual Life Insurance Company
("Principal Mutual") have entered into a Purchase Agreement,
dated as of February 15, 1991, pursuant to which the Company
issued and sold its 9.74% Senior Notes, Series C, due August
15, 1996, in the aggregate principal amount of $20,000,000
(the "Series C Notes"), as amended by the amendment dated as
of March 1, 1992 (as amended, the "Series C Purchase
Agreement"), and a Purchase Agreement, dated as of January
15, 1992, pursuant to which the Company issued and sold its
6.96% Senior Notes, Series D, due August 15, 1996, in the
aggregate principal amount of $15,000,000 (the "Series D
Notes"), as amended by the amendment dated as of March 1,
1992 (as amended, the Series D Purchase Agreement"). The
Series C Notes and the Series D Notes are collectively
referred to herein as the "Other Notes," the Series C
Purchase Agreement and the Series D Purchase Agreement are
collectively referred to herein as the "Other Purchase
Agreements."
The Company has amended and restated the Bank Credit
Agreement, a copy of which the Company has given to Fried,
Frank, Harris, Shriver & Jacobson, special counsel for the
Noteholders. The Collateral Documents provide that the
Notes and the Other Notes and the Bank Credit Agreement are
secured equally and ratably by the Collateral. Section 8.02
of the Bank Credit Agreement provides that (i) if at any
time the Noteholders and the holders of Other Notes
authorize the Collateral Agent to release any of the
collateral securing the Company's obligations under the
Purchase Agreement and the Other Purchase Agreements, the
Collateral Agent will automatically release such Collateral
from the Liens created under the Collateral Documents and
(ii) if at any time the Noteholders and the holders of the
Other Notes authorize the Collateral Agent to instruct the
Custodial Agent to deliver Collateral Documents to the
Company on their behalf, the Collateral Agent is authorized
to instruct the Custodial Agent to deliver such Collateral
Documents to the Company on the Banks' behalf. The
penultimate paragraph of Article X of the Bank Credit
Agreement provides that if at any time the Noteholders
release any Guarantor under any Guaranty, such Guarantor
shall automatically be released from the guarantee under
such Article X (or any other document, in the case of a
Subsidiary that has become a Guarantor). The Company and
the Banks propose to enter into Amendment No. 1, dated as of
June 16, 1994 ("Amendment No. 1 to the Bank Credit
Agreement") to the Bank Credit Agreement, a copy of which
the Company has given to Fried, Frank, Harris, Shriver &
Jacobson. Amendment No. 1 to the Bank Credit Agreement
provides, among other things, for amendments to the Bank
Credit Agreement that will facilitate the transactions of
the Company and the Subsidiaries that are described below.
The Company has amended and restated the Receivables
Transfer Agreement, a copy of which the Company has given to
Fried, Frank, Harris, Shriver & Jacobson. In addition, the
Company is entering into a new receivables transfer facility
involving the public offering of certificates of beneficial
interest. The Company has given a copy of a registration
statement describing the new facility to Fried, Frank,
Harris, Shriver & Jacobson. The existing receivables
transfer agreements and the new receivables facility
together constitute the Receivables Transfer Agreement, and
the Company may use both programs hereafter, subject to the
terms and conditions of the Purchase Agreements with respect
to the Receivables Transfer Agreement.
The Company is contemplating plans to finance expansion
into the television home shopping business through the sale
of equity interests in S The Shopping Network, Inc., a newly
formed Delaware corporation, and the contribution to S The
Shopping Network, Inc. of the capital stock and/or assets of
USA Direct Incorporated. The Company anticipates that it
will sell minority interests, and may sell majority
interests in the TV Shopping Companies (as defined in
Section 7.2 hereof). The Company also anticipates that it
or one or more of the TV Shopping Companies may enter into
joint ventures with third parties for home shopping
television shows.
In connection with the foregoing, the Company has
requested the release of certain Subsidiaries from the
Guaranty, the release of certain Pledged Stock from the
security interest under the Pledge Agreement and the
amendment of certain provisions of the Purchase Agreements
and the Other Purchase Agreements to release the potential
security interests of the Notes and the Other Notes in the
Collateral under the Security Agreement, to exempt certain
proposed Subsidiaries from the Pledge Agreement and the
Guaranty and to revise certain definitions and covenants in
the Purchase Agreements and the Other Purchase Agreements to
reflect the structure of the new receivables transfer
facility and the Company's plans for the TV Shopping
Companies and the Credit Card Bank.
Accordingly, the Company and the Noteholders hereby
agree as follows:
ARTICLE 1
CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT
This Amendment is expressly subject to and shall become
effective only upon satisfaction of each of the following
conditions (such date upon which all of such conditions are
satisfied being herein called the "Effective Date"):
Section 1.1. There shall exist on the Effective Date
(i) no Default or Event of Default under the Loan Documents
or any of the Other Purchase Agreements and the documents
related thereto, both before and after giving effect to this
Amendment and the Other Amendments (as defined in Section
1.2 hereof) and (ii) no Default or Event of Default under
and as defined in the Bank Credit Agreement.
Section 1.2. Amendments, similar in substance to this
Amendment, to the Other Purchase Agreements (collectively,
the "Other Amendments") shall have been entered into by the
requisite percentage of noteholders under the Other Purchase
Agreements and become effective, and the Noteholders shall
have received satisfactory evidence to such effect.
Section 1.3. Amendment No. 1 to the Bank Credit
Agreement shall have been entered into by the requisite
percentage of the Banks and shall have become effective, and
the Noteholders shall have received satisfactory evidence to
such effect.
Section 1.4. The Noteholders shall have received an
opinion from the General Counsel of the Company, dated the
Effective Date, with respect to such matters relating to the
transactions contemplated hereby as the Noteholders may
reasonably request.
Section 1.5. The Noteholders shall have received a
certificate, dated as of the Effective Date and signed by a
Responsible Officer of the Company, stating that, as of the
Effective Date, (i) all of the obligations of the Company to
be performed prior to or as of the Effective Date under this
Amendment have been performed; (ii) the representations and
warranties contained in Article 10 of this Amendment are
accurate and complete, and (iii) all of the conditions to
the effectiveness of this Amendment have been satisfied in
full.
Section 1.6. The Noteholders shall have received a
certificate, dated as of the Effective Date and signed by
the Chief Financial Officer of the Company, stating that the
proposed replacement receivables transfer facility described
in clause (ii) of the definition of Receivables Transfer
Agreement (as amended hereby) is not materially less
advantageous to the financial condition of the Company and
its consolidated Subsidiaries than are the agreements
described in clause (i) of such definition (as amended).
Section 1.7. All corporate and other proceedings and
all documents incident to the transactions contemplated by
this Amendment shall be satisfactory in form and substance
to the Noteholders, and the Noteholders shall have received
copies of all documents and records relating thereto which
they may reasonably request.
Section 1.8. In consideration for entering into this
Amendment, the Noteholders shall have received in
immediately available funds the one-time payment by the
Company of additional interest in an amount equal to 0.375%
of the outstanding principal balance of the Notes calculated
as of the Effective Date.
ARTICLE 2
AMENDMENTS TO ARTICLE I OF THE PURCHASE AGREEMENTS
Section 2.1. 1.5 of the Purchase Agreements is
hereby amended by adding the following sentence at the end
thereof:
The obligations of each Guarantor under this
Agreement and the Guaranty shall automatically
terminate upon (a) the sale, contribution or other
disposition, in compliance with 8.4, of all of
the Company's direct and indirect ownership of the
capital stock and Indebtedness of such Guarantor
or (b) any sale, contribution or other
disposition, in compliance with the terms of 8.5,
of all or substantially all of the assets of such
Guarantor that results in such Guarantor owning
less than 1% of the consolidated assets of the
Company and not generating revenues.
Section 2.2. 1.6 of the Purchase Agreements is
hereby amended by restating such section in its entirety as
follows:
1.6 SECURITY FOR NOTES. (a) The Senior
Obligations (as defined in the Pledge Agreement)
owing to the Secured Parties shall be equally and
ratably secured on a pari passu basis by a pledge
of all the outstanding capital stock of the
Subsidiaries pursuant to the Pledge Agreement.
The Purchasers, the other Secured Parties under
the Pledge Agreement and Chemical Bank, as
collateral agent for the Secured Parties, shall
enter into the Amended and Restated Intercreditor
Collateral Agency Agreement, dated as of December
31, 1990, as amended and restated through January
14, 1991, attached as Exhibit D-3 hereto (herein,
as amended and modified from time to time as
permitted thereby, called the "Collateral Agency
Agreement"), pursuant to which the Secured Parties
shall appoint Chemical Bank (herein, together with
its successors in its capacity as collateral agent
under the Collateral Agency Agreement and the
Pledge Agreement, called the "Collateral Agent"),
and Chemical Bank shall agree to act, as
Collateral Agent for the Purchasers and the other
Secured Parties under the Pledge Agreement and to
hold the collateral under such agreement as
security for the Senior Obligations secured
thereby.
(b) Notwithstanding the foregoing or any
other provision hereof to the contrary, (i)
neither the Company nor any Subsidiary shall be
obligated to pledge under the Pledge Agreement any
capital stock of FRI, any of the TV Shopping
Companies, either of the MWD Subsidiaries, any
Subsidiary that is also a subsidiary of FRI, any
of the TV Shopping Companies or either of the MWD
Subsidiaries and that, in each case, is at all
times engaged only in the business in which such
parent corporation is expressly permitted to be
engaged hereunder and owns only such assets as are
incidental to such business, or any Subsidiary
owning less than 1% of the Company's consolidated
assets and not generating revenues; and no capital
stock of FRI, any of the TV Shopping Companies,
either of the MWD Subsidiaries, any Subsidiary
that is also a subsidiary of FRI, any of the TV
Shopping Companies or either of the MWD
Subsidiaries and that, in each case, is at all
times engaged only in the business in which such
parent corporation is expressly permitted to be
engaged hereunder and owns only such assets as are
incidental to such business, or any Subsidiary
owning less than 1% of the Company's consolidated
assets and not generating revenues, shall be
subject to the security interest created under the
Pledge Agreement, and (ii) the obligations of each
Subsidiary under the Pledge Agreement and the
security interest in the stock of such Subsidiary
under the Pledge Agreement shall automatically
terminate upon (x) the sale, contribution or other
disposition, in compliance with 8.4, of all of
the Company's direct and indirect ownership of the
capital stock and Indebtedness of such Subsidiary
or (y) any sale, contribution or other
disposition, in compliance with the terms of 8.5,
of all or substantially all of the assets of such
Subsidiary that results in such Subsidiary owning
less than 1% of the Company's consolidated assets
and not generating revenues.
ARTICLE 3
AMENDMENTS TO ARTICLE II OF THE PURCHASE AGREEMENTS
Section 3.1. 2.15 of the Purchase Agreements is
hereby amended by (i) deleting clauses (b) and (c) of such
section in their entirety and designating such clauses with
the phrase "Intentionally left blank" and (ii) by restating
clause (a) of such section in its entirety to read as
follows:
(a) Upon the execution and delivery to the
Collateral Agent of the Pledge Agreement and the
Pledged Stock (as defined therein), the Collateral
Agent will have, for the benefit of the Purchasers
and the other Secured Parties, a valid, first
priority, perfected security interest in the
Pledged Stock, subject to no other Liens.
ARTICLE 4
AMENDMENTS TO ARTICLE VII OF THE PURCHASE AGREEMENTS
Section 4.1. 7.5 of the Purchase Agreements is
hereby amended (i) by deleting clause (d) thereof in its
entirety and designating such clause "Intentionally left
blank" and (ii) by restating clauses (c) and (e) thereof in
their entirety to read as follows:
(c) Compliance Certificates. Concurrently
with any delivery of financial statements under
clause (a) or (b) above, (x) a certificate of the
accounting firm, in the case of clause (a), or a
Financial Officer, in the case of clause (b),
referred to in the applicable paragraph, (i)
certifying that no Event of Default or Default has
occurred or, if an Event of Default or Default has
occurred, specifying the nature and extent thereof
and corrective action taken or proposed to be
taken with respect thereto and (ii) setting forth
computations, in reasonable detail satisfactory to
the Noteholders, demonstrating compliance with the
covenants contained in 8.1(d), 8.2, 8.3(f),
8.3(g), 8.4(c), 8.5(d), 8.6, 8.8, 8.9(j), 8.9(m),
8.9(n), 8.9(o), 8.9(p), 8.12, 8.14(e), 8.14(f),
8.14(g), 8.17 and 8.19, and (y) a certificate of a
Financial Officer stating that a review has been
made of the activities during such quarter of the
Company and the Subsidiaries, on the one hand, and
(i) Montgomery Ward Direct, on the other hand, and
that the Company and the Subsidiaries are in
compliance with the covenants contained in 7.16
and 8.13(iv), (ii) FRI, the Fingerhut Master Trust
or any transferee thereunder pursuant to the
Receivables Transfer Agreement, on the other hand,
and that the Company and the Subsidiaries are in
compliance with the covenants contained in
8.13(v), and (iii) if during such quarter the
Company's direct or indirect ownership of the
capital stock of any of the TV Shopping Companies
was greater than 10% but such TV Shopping Company
was not a Subsidiary, such TV Shopping Company, on
the other hand, and that the Company and the
Subsidiaries are in compliance with the covenants
contained in 7.17 and 8.13(vi);
(e) Commission and Stock Exchange Filings.
Promptly after the same become publicly available,
copies of all periodic and other reports, proxy
statements and other materials filed by the
Company, any Subsidiary or the Fingerhut Master
Trust with the Commission, any Governmental
Authority succeeding to any or all of the
functions of the Commission or any national
securities exchange or distributed to shareholders
of the Company or any Subsidiary; and
Section 4.2. 7.10 of the Purchase Agreements is
hereby amended by deleting any reference therein to the
Security Agreement.
Section 4.3. 7.11 of the Purchase Agreements is
hereby amended by deleting any reference therein to the
Security Agreement.
Section 4.4. 7.13 of the Purchase Agreements is
hereby amended (i) by amending the first sentence of clause
(a) thereof to read as set forth below, (ii) by deleting
clause (b) of such section in its entirety and designating
such clause with the phrase "Intentionally left blank" and
(iii) by restating clause (c) thereof in its entirety to
read as set forth below:
On or prior to (i) the direct or indirect
acquisition by the Company of any Subsidiary which
at the time of such acquisition shall be a
Significant Subsidiary or (ii) the fifth Business
Day after the availability of financial statements
revealing that any Subsidiary (other than (A) a
Guarantor, (B) either of the MWD Subsidiaries, (C)
FRI, (D) any of the TV Shopping Companies or (E)
the Credit Card Bank) shall have become a
Significant Subsidiary, the Company agrees that
the Company will cause such Subsidiary to (x)
unconditionally guarantee the payment and
performance of all obligations and liabilities of
the Company under this Agreement and the Notes,
all upon the terms set forth in the Guaranty, and
(y) execute and deliver or cause to be delivered
to the Noteholders one or more such instruments as
the Noteholders may request in form and substance
undertaking the obligation of a Guarantor.
(c) As promptly as practicable, and in any
event within five Business Days, after any person
shall become a Subsidiary, the Company will
execute and deliver, or cause to be executed and
delivered, to the Collateral Agent such agreements
and instruments as the Collateral Agent shall
request to subject the issued and outstanding
shares of capital stock of such Subsidiary to the
Pledge Agreement, together with the certificates
representing such shares and stock powers,
executed in blank, with respect thereto.
Notwithstanding the foregoing or any other
provision hereof to the contrary, neither the
Company nor any Subsidiary shall be obligated to
pledge under the Pledge Agreement any capital
stock of FRI, any of the TV Shopping Companies,
either of the MWD Subsidiaries, any Subsidiary
that is also a subsidiary of FRI, any of the TV
Shopping Companies or either of the MWD
Subsidiaries and that, in each case, is at all
times engaged only in the business in which such
parent corporation is expressly permitted to be
engaged hereunder and owns only such assets as are
incidental to such business, or any Subsidiary
owning less than 1% of the Company's consolidated
assets and not generating revenues; and no capital
stock of FRI, any of the TV Shopping Companies,
either of the MWD Subsidiaries, any Subsidiary
that is also a subsidiary of FRI, any of the TV
Shopping Companies or either of the MWD
Subsidiaries and that, in each case, is at all
times engaged only in the business in which such
parent corporation is expressly permitted to be
engaged hereunder and owns only such assets as are
incidental to such business, or any Subsidiary
owning less than 1% of the Company's consolidated
assets and not generating revenues shall be
subject to the security interest created under the
Pledge Agreement.
Section 4.5. 7.15 of the Purchase Agreements is
hereby amended by restating 7.15 in its entirety to read as
follows:
7.15 BANK CREDIT AGREEMENT AND NOTE
PURCHASE AGREEMENT. The Company will, and, as
applicable, will cause each Subsidiary to, at the
request of a Majority-in-Interest of the
Noteholders, amend or modify the terms or
conditions of this Agreement and the Other
Agreements to the same extent that the Bank Credit
Agreement in effect as of June 16, 1994, or the
Note Purchase Agreement is at any time or from
time to time amended or modified or the Bank
Credit Agreement is replaced by one or more
similar credit facilities, if such amendment or
modification or replacement facility makes the
terms or conditions of the Bank Credit Agreement
in effect as of June 16, 1994, or Note Purchase
Agreement, as the case may be, more restrictive to
the Company than the terms and conditions under
this Agreement and the Other Agreements, which
determination shall be made in the sole judgment
of the Noteholders reasonably exercised. Upon
entering into any such amendment, modification or
replacement facility, the Company shall promptly
notify the Noteholders of any such more
restrictive terms or conditions.
Section 4.6. Article VII of the Purchase Agreements
is hereby amended by adding the following 7.17 at the end
thereof:
7.17 RELATIONSHIP WITH THE TV SHOPPING
COMPANIES. At any time the Company owns, directly
or indirectly, at least 10% of the capital stock
of any of the TV Shopping Companies that is not a
Subsidiary, the Company will, and will cause each
Subsidiary to, conduct the relationship taken as a
whole between the Company and the Subsidiaries, on
the one hand, and such TV Shopping Company, on the
other hand, upon fair and reasonable terms no less
favorable to the Company and the Subsidiaries than
the terms the Company and the Subsidiaries could
obtain or become entitled to in an arm's-length
transaction with a person that is not an
Affiliate; provided, however, that any
determination with respect to whether any
transaction between the Company or any Subsidiary
and such TV Shopping Company satisfies the
foregoing requirements shall be made by
considering the relationship taken as a whole
between the Company and the Subsidiaries, on the
one hand, and such TV Shopping Company, on the
other.
ARTICLE 5
AMENDMENTS TO ARTICLE VIII OF THE PURCHASE AGREEMENTS
Section 5.1. 8.3 of the Purchase Agreements is
hereby amended by (i) deleting any reference therein to the
Security Agreement and (ii) restating the preamble thereof
in its entirety to read as follows:
The Company will not, and will not permit any
Subsidiary to, create, incur, assume or permit to
exist any Lien upon any of the property or assets,
including capital stock (other than assets sold on
a nonrecourse basis pursuant to the Receivables
Transfer Agreement, but notwithstanding the
exceptions set forth below, no Lien shall at any
time be permitted with respect to (i) any of the
capital stock of FRI or any Subsidiary that is
also a subsidiary of FRI or (ii) any of the
capital stock of the TV Shopping Companies or any
Subsidiary that is also a subsidiary of the TV
Shopping Companies except for only such capital
stock that is pledged to secure Indebtedness of
only the TV Shopping Companies or any such
subsidiary, which Indebtedness (x) is then
permitted under the other provisions of this 8.3
and the other provisions of this Agreement to be
incurred and (y) is at all times nonrecourse to
the Company and the Subsidiaries other than the TV
Shopping Companies or any subsidiary of the TV
Shopping Companies), now owned or hereafter
acquired by it or on any income or rights in
respect of any thereof, except:
Section 5.2. 8.4 of the Purchase Agreements is
amended by (i) relettering clause (b) thereof, and all
references thereto contained in such clause, as clause (c)
and (ii) adding a new clause (b) to read as follows:
(b)(i) sales, contributions or other
dispositions of all or a portion of the capital
stock or Indebtedness of any of the TV Shopping
Companies or their joint ventures or (ii) a
dividend of all or a portion of the capital stock
of any of the TV Shopping Companies to the
shareholders of the Company; excluding, however,
any such sale, contribution or other disposition
that would result in such TV Shopping Company no
longer being a Subsidiary, unless (x) immediately
prior thereto and after giving effect thereto, no
Default or Event of Default shall have occurred
and be continuing and (y) if substantially all of
the capital stock of any of the TV Shopping
Companies held by the Company or any Subsidiary
shall have been sold, contributed or otherwise
disposed of to a person other than the Company or
a Subsidiary, all of the Indebtedness of such TV
Shopping Company held by the Company or any
Subsidiary shall at such time have been sold,
contributed or otherwise disposed of to a person
other than the Company or a Subsidiary.
Section 5.3. 8.9 of the Purchase Agreements is
hereby amended by (i) relettering clauses (k) and (l)
thereof as clauses (o) and (p), respectively; (ii) by adding
new clauses (k), (l), (m) and (n) to read in their entirety
as set forth below; and (iii) by changing the reference to
clause (j) in clause (o) thereof to a reference to clause
(n):
(k) make and permit to remain outstanding
investments, including ownership of certificates
of beneficial ownership in accounts receivable, in
the Fingerhut Master Trust and any other trust
formed for purposes of the transactions
contemplated by the Receivables Transfer
Agreement;
(l) make and permit to remain outstanding
investments in the TV Shopping Companies;
(m) make and permit to remain outstanding
investments (excluding Guarantees except as
otherwise permitted under this Agreement) in
entities formed in connection with the Company's
joint ventures with MTVN Shopping, Capital
Cities/ABC Video Enterprises, Inc. and The
Lifetime Network, which investments shall be
limited to funding activities related to televised
direct marketing, including development and
production of programming, purchase of broadcast
or cable television time for programming or
advertising, purchasing and warehousing inventory,
order processing and fulfillment, preparation and
mailing of catalogs and other print promotions,
promotional and advertising activities and other
activities that are related to televised direct
marketing;
(n) make and permit to remain outstanding
investments in the Credit Card Bank; provided that
the aggregate principal amount of the Company's
and the Subsidiaries' capital contributions,
loans, advances and Guarantees to or for the
benefit of the Credit Card Bank at any time
outstanding permitted under this clause (n) shall
not exceed 5% of Consolidated Net Worth.
Section 5.4. 8.11 of the Purchase Agreements is
hereby amended in its entirety to read as follows:
The Company will not permit any Subsidiary to
create, incur, assume or permit to exist any
agreement or instrument which has the effect of
restricting or prohibiting the power, authority or
legal right of such Subsidiary to declare or pay
any dividend or other distribution to the Company,
except as may be required under the Receivables
Transfer Agreement with respect to limitations on
the frequency of dividends from FRI.
Section 5.5. 8.13 of the Purchase Agreements is
hereby amended to add new clauses (v) and (vi) to read as
set forth below:
(v) any transactions between the Company or
any Subsidiary and FRI, the Fingerhut Master Trust
or any transferee thereunder pursuant to the
Receivables Transfer Agreement; and
(vi) at any time the Company owns, directly
or indirectly, at least 10% of the capital stock
of any of the TV Shopping Companies that is not a
Subsidiary, any transactions between the Company
or any Subsidiary and such TV Shopping Company
entered into in the ordinary course of business
and upon fair and reasonable terms no less
favorable than the Company or such Subsidiary, as
applicable, could obtain or become entitled to in
an arm's-length transaction with a person that is
not an Affiliate; provided, however, that any
determination with respect to whether any
transaction between the Company or any Subsidiary
and such TV Shopping Company satisfies the
foregoing requirements shall be made by
considering the relationship taken as a whole
between the Company and the Subsidiaries, on the
one hand, and such TV Shopping Company, on the
other.
Section 5.6. 8.14 of the Purchase Agreements is
hereby amended by adding a new clause (h) at the end thereof
to read as follows:
(h) Notwithstanding anything in the
foregoing, no Guarantee of Indebtedness shall at
any time be permitted to be made by FRI, any of
the TV Shopping Companies, either of the MWD
Subsidiaries, the Credit Card Bank or any
Subsidiary that is a subsidiary of FRI, any of the
TV Shopping Companies, either of the MWD
Subsidiaries or the Credit Card Bank, other than
(i) as permitted under clause (e) with respect to
the MWD Subsidiaries and (ii) Guarantees of
Indebtedness of one or more of the TV Shopping
Companies by one of such TV Shopping Companies.
Section 5.7. Article VIII of the Purchase Agreements
is hereby amended by adding the following 8.18 and 8.19 at
the end thereof.
8.18 LIMITATIONS ON FINGERHUT RECEIVABLES,
INC. The Company will not permit FRI or any
subsidiary of FRI to engage at any time in any
business or business activity other than the
purchasing, holding, owning and selling of the
Accounts of the Company and the Subsidiaries
pursuant to the Receivables Transfer Agreement and
any activities incidental to and necessary or
appropriate for the accomplishment of such
purpose.
8.19 MINIMUM CONSOLIDATED NET WORTH. The
Company will not permit Consolidated Net Worth at
any time to be less than $325,000,000.
ARTICLE 6
AMENDMENTS TO ARTICLE IX OF THE PURCHASE AGREEMENTS
Section 6.1. 9.1 of the Purchase Agreements is
hereby amended by restating clauses (n) and (q) thereof to
read in their entirety as set forth below:
(n) Pledge Agreement. If at any time the
Pledge Agreement shall not be in full force and
effect, enforceable in accordance with its terms,
or the security interest purported to be created
by the Pledge Agreement shall not be a valid and
enforceable perfected first priority security
interest in any collateral subject thereto (except
as otherwise expressly permitted by this
Agreement); or
(q) Bank Credit Agreement. If an Event of
Default shall occur and be continuing under the
Bank Credit Agreement, provided that the existence
of such Event of Default shall be determined
without giving effect to any waiver in respect of
any provision of the Bank Credit Agreement or
consent to any departure by the Company or any
Subsidiary therefrom or to any amendment or
modification of the terms thereof or to any
agreement entered into following the occurrence,
and during the continuance, of a Default or an
Event of Default as defined under the Bank Credit
Agreement, if any such waiver, consent, amendment,
modification or agreement is given or entered into
in exchange for monetary or other consideration,
provided that the reimbursement by the Company or
any Subsidiary of the out-of-pocket costs and
reasonable out-of-pocket administrative or
overhead expenses of any party to the Bank Credit
Agreement shall not constitute monetary or other
consideration for purposes of this paragraph (q).
ARTICLE 7
AMENDMENTS TO ARTICLE X OF THE PURCHASE AGREEMENTS
Section 7.1. 10.2 of the Purchase Agreements is
hereby amended by (i) deleting each of the following
definitions in its entirety: "Additional Note Purchase
Agreement," "Additional Private Placement Date," "Custodial
Agency Agreement," "Custodial Agent," "Custodianship,"
"Grantor," "Perfection Certificate," "Post Box," "Post
Office Location," "Post Office Notice," "Primerica,"
"Receivables Agreement," and "Security Agreement" and (ii)
restating the definitions of the terms "Bank Credit
Agreement," "Collateral", "Collateral Documents," "Loan
Document," "Montgomery Ward Direct," "Receivables Transfer
Agreement," "Secured Parties," "Senior Obligations" and
"Subsidiary" to read in their entirety as follows:
"Bank Credit Agreement" shall mean the
Revolving Credit, Term Loan, Competitive Advance
and Letter of Credit Facility Agreement, dated as
of October 29, 1990, as amended and restated as of
October 20, 1993, among the Company, the
guarantors named therein, the Banks, Chemical
Bank, as agent for the Banks (in such capacity,
the "Agent"), NationsBank of North Carolina, N.A.,
as co-agent, and the issuing banks named therein,
together with any exhibits, attachments,
certificates, documents or other agreements
attached thereto, and as the same may be amended
or modified from time to time as permitted thereby
or replaced by one or more bank or similar credit
facilities.
"Collateral" shall have the meaning provided
in the Pledge Agreement.
"Collateral Documents" shall mean the Pledge
Agreement and other instruments and documents
delivered pursuant to 3.6, 7.11 and 7.13(c).
"Loan Documents" shall mean this Agreement,
the Other Agreements, the Notes, the Guaranty and
the Collateral Documents.
"Montgomery Ward Direct" shall mean
Montgomery Ward Direct L.P., a Delaware limited
partnership, of which Fingerhut MWD General
Corporation (a Minnesota corporation and a Wholly-
Owned Subsidiary) and MW Direct General, Inc. (a
Delaware corporation and a subsidiary of
Montgomery Ward & Co., Incorporated ("Montgomery
Ward")) each own 50% of the general partnership
interests and Fingerhut MWD Limited Corporation (a
Minnesota corporation and a Wholly-Owned
Subsidiary) and MW Direct Limited, Inc. (a
Delaware corporation and a subsidiary of
Montgomery Ward) each own 50% of the limited
partnership interests.
"Receivables Transfer Agreement" shall mean
(i) collectively, the Second Amended and Restated
Receivables Transfer Agreement dated as of July 9,
1993, among Fingerhut Corporation, Matterhorn
Capital Corporation, Enterprise Funding
Corporation, Citibank, N.A., Citicorp North
America, Inc., and Ciesco, L.P., as amended by
Amendment No. 1 dated as of March 31, 1994, and
the Second Amended and Restated Receivables
Transfer Agreement dated as of July 9, 1993, among
Fingerhut Corporation, Citibank, N.A., and
Citicorp North America, Inc., as amended by
Amendment No. 1 dated as of March 31, 1994, (ii)
the receivables program conducted pursuant to a
purchase agreement and a pooling and servicing
agreement among Fingerhut Corporation and/or one
or more other Subsidiaries, FRI and the Fingerhut
Master Trust, including the series supplement to
the pooling and servicing agreement relating to
the certificates being registered under
Registration Statement No. 33-77780 (each in the
form of the draft dated June 16, 1994) and (iii)
any amendment to the receivables transfer
facilities identified in clause (i) or (ii) above
and any receivables transfer agreement or
agreements replacing all or any portion of such
facilities; provided that each such amendment and
agreement, taken together with all such other
amendments and agreements, provide for the sale of
accounts receivable and related property on a
nonrecourse basis (within the meaning of generally
accepted accounting principles in effect on the
date of this Agreement) and that the Chief
Financial Officer of the Company has certified
that any such amended or replacement agreement is
not materially less advantageous to the financial
condition of the Company and its consolidated
subsidiaries than are the receivables transfer
agreements described in clause (i) or (ii) above.
Interests in Accounts sold by the Company and/or
any of its Subsidiaries under clause (ii) above
will for all purposes be deemed sold pursuant to
the Receivables Transfer Agreement as of the date
the Accounts are initially transferred to FRI.
"Secured Parties" shall have the meaning
provided in the Pledge Agreement.
"Senior Obligations" shall have the meaning
provided in the Pledge Agreement.
"subsidiary" shall mean, with respect to any
person (herein referred to as the "parent"), any
corporation, partnership, association or other
business entity of which securities or other
ownership interests representing more than 50% of
the ordinary voting power or more than 50% of the
general partnership interests are, at the time any
determination is being made, owned, controlled or
held, directly or indirectly, by the parent and
"Subsidiary" shall mean any subsidiary of the
Company including any subsidiary of the Company
created or acquired by the Company after the date
hereof but shall not include the Fingerhut Master
Trust.
Section 7.2. 10.2 of the Purchase Agreements is
hereby amended by adding the following definitions in
appropriate alphabetical order:
"Consolidated Net Worth" shall mean, as at any date of
determination, the consolidated stockholders' equity of the
Company and its consolidated Subsidiaries, as determined on
a consolidated basis in conformity with generally accepted
accounting principles consistently applied; provided,
however, that Consolidated Net Worth shall not be deemed to
include any of the stockholders' equity of any TV Shopping
Company or any Subsidiary that is also a subsidiary of any
TV Shopping Company (as the case may be) at any time that
any Lien exists with respect to any portion of the capital
stock of such TV Shopping Company or such subsidiary (as the
case may be) held directly or indirectly by the Company.
"Credit Card Bank" shall mean a limited
purpose credit card national bank to be formed or
acquired by the Company or one of the
Subsidiaries, which shall engage only in the
business activities specified in Section
2(c)(2)(F) of the Bank Holding Company Act of
1956, as amended by the Competitive Equality
Banking Act of 1987, as amended.
"Fingerhut Master Trust" shall mean one or
more independent trusts formed for the purpose of
acquiring interests in the Company's customer
accounts receivable and issuing certificates of
beneficial interest in such receivables or
commercial paper, pursuant to the Receivables
Transfer Agreement.
"FRI" shall mean (i) Fingerhut Receivables,
Inc., a Delaware special purpose corporation
formed to become a Subsidiary for the purpose of
purchasing customer accounts receivable from
Fingerhut Corporation or other Subsidiaries and
transferring such receivables to an independent
trust pursuant to the Receivables Transfer
Agreement and (ii) any other special purpose
Subsidiary formed pursuant to the Receivables
Transfer Agreement.
"TV Shopping Companies" shall mean S The
Shopping Network, Inc. and USA Direct
Incorporated, both of which shall engage only in
the businesses of television and/or electronic
home shopping and direct marketing and related
activities, and their respective subsidiaries that
are engaged only in the businesses in which such
parent corporations are expressly permitted to be
engaged hereunder and own only such assets as are
incidental to such businesses.
ARTICLE 8
AMENDMENT TO ARTICLE XII OF THE PURCHASE AGREEMENTS
Section 8.1. Article XII of the Purchase Agreements
is hereby amended by deleting such article in its entirety.
ARTICLE 9
AMENDMENTS TO THE PLEDGE AGREEMENT
Section 9.1 Upon the satisfaction of the conditions
for the valid and binding effect of this Amendment set forth
in Section 12.1 hereof and the effectiveness of the Other
Amendments, which, together, shall have been executed by the
Noteholders and all of the noteholders under the Other
Purchase Agreements, (i) the security interest in the stock
of USA Direct Incorporated, Figi's Inc. (and Family Farm
Gifts, Inc. and Figi's Gifts, Inc., subsidiaries of Figi's
Inc.), Minnesota Telemarketing, Inc. (formerly COMB
Corporation) and FDC, Inc. under the Pledge Agreement is
hereby released and the Collateral Agent is hereby directed
to return any stock certificates therefor to the Company and
(ii) the security interest in the stock of any Subsidiary
under the Pledge Agreement, which stock is as of the
Effective Date pledged under the Pledge Agreement, is hereby
automatically released (without the need for any further
action whatsoever by any Noteholder), effective as of the
date such security interest shall terminate pursuant to
1.6(b)(ii) of the Purchase Agreement, and the Collateral
Agent is hereby directed to thereupon return any stock
certificates therefor to the Company. Upon the
effectiveness of the release of such stock, the Company
shall promptly notify the Noteholders thereof.
Section 9.2 The definition of "Credit Agreement" in
the opening paragraph of the Pledge Agreement is hereby
restated in its entirety to read as follows:
the Revolving Credit, Term Loan, Competitive
Advance and Letter of Credit Facility Agreement,
dated as of October 29, 1990, as amended and
restated as of October 20, 1993, among the
Company, the guarantors named therein, the Banks,
Chemical Bank, as agent for the Banks, NationsBank
of North Carolina, N.A., as co-agent, and the
issuing banks named therein with any exhibits,
attachments, certificates, documents or other
agreements attached thereto, and as the same may
be amended or modified from time to time as
permitted thereby or replaced by one or more bank
or similar credit facilities (the "Credit
Agreement").
Section 9.3 Section 2 of the Pledge Agreement is
hereby amended by restating clause (a) thereof in its
entirety to read as follows:
(a) the shares of capital stock listed in
Schedule I hereto as being owned by it and any
shares of capital stock of any Subsidiary obtained
by it in the future (except for FRI, the MWD
Subsidiaries, the TV Shopping Companies or any
Subsidiary owning less than 1% of the consolidated
assets of the Company and not generating any
revenues), and the certificates representing or
evidencing such shares (the "Pledged Stock").
Section 9.4 Section 3 of the Pledge Agreement is
hereby amended by restating clause (a) in its entirety to
read as follows:
(a) the Pledged Stock set forth in Schedule
I attached hereto represents all the outstanding
capital stock of each Subsidiary (except FRI, the
MWD Subsidiaries, the TV Shopping Subsidiaries and
any Subsidiary owning less than 1% of the
consolidated assets of the Company and not
generating any revenues).
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
Section 10.1. The Company hereby represents and
warrants to the Noteholders as of the Effective Date:
(a) Each of the Company, the Guarantors, the
Significant Subsidiaries and the Pledgors is duly organized,
validly existing and in good standing in its jurisdiction of
incorporation.
(b) The Company has the power to enter into this
Amendment and to perform its obligations hereunder.
(c) The execution and delivery by the Company of this
Amendment and the performance of its obligations hereunder
have been duly authorized, and this Amendment will, upon
execution and delivery thereof, be duly executed and
delivered thereby and will constitute the legal, valid and
binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable
laws affecting the enforcement of creditors' rights
generally and principles of equity.
(d) Neither the execution nor delivery by the Company
of this Amendment nor the performance by it of its
obligations hereunder or under the Purchase Agreements (as
amended as contemplated hereby), the Notes, the Pledge
Agreement (as amended as contemplated hereby) or the
Guaranty of each Guarantor:
(1) will adversely affect the enforceability against
the Company of the Purchase Agreement or the Notes, against
the Guarantors of the Guaranty or against any Pledgor of the
security interest in the Pledged Stock under the Pledge
Agreement (as amended as contemplated hereby);
(2) will require the taking of any action or the
giving of any consent or approval by, or the making or any
registration or filing with, any Governmental Authority or
other person other than such actions, consents, approvals,
registrations and filings as have heretofore been taken,
given or made (as the case may be);
(3) will violate any provision of the articles of
incorporation or bylaws of any of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor or any
provision of any law, rule, regulation, order or decree of
any Governmental Authority applicable thereto;
(4) will violate or constitute a default under any
material agreement to which any of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor is a
party or by which any of its properties or assets is or may
be bound; or
(5) will result in the creation or imposition of any
Lien on the properties or assets of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor other
than (i) Liens in favor of the Collateral Agent for the
benefit of the Secured Parties under the Pledge Agreement
and (ii) as contemplated by the Receivables Transfer
Agreement.
(e) The representations and warranties of the Company
set forth in 2.15 of the Purchase Agreements (as amended
hereby) are accurate and complete as if made as of the
Effective Date, and by this reference such representations
and warranties are incorporated and made herein as if fully
set forth herein.
(f) Neither this Amendment nor any certificate
furnished in connection herewith nor any other document or
statement furnished to the Noteholders or to their special
counsel, Fried, Frank, Harris, Shriver & Jacobson, in
connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the
statements contained herein and therein not misleading.
Except as expressly disclosed in documents filed by the
Company or any Subsidiary with the Commission and delivered
by the Company to the Noteholders prior to the Effective
Date, there is no fact known to the Company (except for
general economic or political conditions) which materially
adversely affects, or, so far as the Company can now
reasonably foresee, would be likely to materially and
adversely affect, the business, properties, prospects,
operations or condition, financial or otherwise, of the
Company and the Subsidiaries taken as a whole or the ability
of the Company or any Significant Subsidiary to perform any
material obligation under any Loan Document, which has not
been disclosed in writing to the Noteholders.
(g) There exists (i) no Default or Event of Default
under the Loan Documents either before or after giving
effect to this Amendment and (ii) no Event of Default or
event that with the lapse of time or giving of notice would
constitute an Event of Default under the Bank Credit
Agreement or the Other Purchase Agreements, either before or
after giving effect to the Other Amendments.
ARTICLE 11
RELEASE OF GUARANTY AND COLLATERAL DOCUMENTS
Section 11.1 The Noteholders hereby authorize and
instruct the Collateral Agent, upon the satisfaction of the
conditions for the valid and binding effect of this
Amendment set forth in Section 12.1 hereof (and without the
need for any further action whatsoever by the Noteholders)
to instruct the Custodial Agent to release and deliver to
the Company all of the Collateral and Collateral Documents
held by the Custodial Agent pursuant to Article XII of the
Purchase Agreements, and upon such release and delivery the
Custodial Agent's duties under the Loan Documents will
terminate. The Noteholders hereby instruct the Collateral
Agent that notwithstanding such release and delivery, the
Collateral Agent shall continue to maintain under the Pledge
Agreement a perfected first priority security interest in
the Pledged Stock for the benefit of the Secured Parties.
Section 11.2 Upon the satisfaction of the conditions
for the valid and binding effect of this Amendment set forth
in Section 12.1 hereof and the effectiveness of the Other
Amendments, which, together, shall have been executed by the
Noteholders and all of the noteholders under the Other
Purchase Agreements, the Guaranty of each of Minnesota
Telemarketing, Inc. (formerly COMB Corporation) and Figi's
Inc. is hereby released. Upon the effectiveness of the
release of each such Guaranty, the Company shall promptly
notify the Noteholders thereof.
ARTICLE 12
MISCELLANEOUS
Section 12.1 This Amendment shall not be valid and
binding upon the Company or any Noteholder under the
Purchase Agreements until the execution hereof by a Majority-
in-Interest of Noteholders and complete satisfaction by the
Company of the conditions precedent set forth in Article 1,
and upon the execution hereof by such Noteholders, and
compliance by the Company with said conditions precedent,
this Amendment shall be valid and binding upon the Company
and each Noteholder under the Purchase Agreements with
respect to each provision of this Amendment except that the
release of any existing Pledged Stock shall be so valid and
binding only pursuant to Section 9.1 hereof and the release
of any existing Guaranty shall be so valid only pursuant to
Section 11.2 hereof.
Section 12.2 This Amendment embodies the entire
agreement and understanding of the parties hereto and
supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any one or more of
the provisions contained in this Amendment, or in the
Purchase Agreements as amended hereby, or in any Note, or
any application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
and therein, and any other applications thereof, shall not
in any way be affected or impaired thereby.
Section 12.3 This Amendment is intended to be
governed by the laws of the State of New York and shall be
construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of such State.
Section 12.4 This Amendment shall bind and inure to
the benefit of the respective successors and assigns of the
Company and the Noteholders.
Section 12.5 Except as otherwise expressly provided
herein, nothing contained in this Amendment shall, or shall
be construed to, modify, invalidate or otherwise affect any
provision of the Purchase Agreements or any right of the
Noteholders arising thereunder.
Section 12.6 The execution of this Amendment by the
Noteholders shall not in any way constitute, or be construed
as, a waiver of any provision of, or of any Default or Event
of Default otherwise existing under, the Purchase
Agreements, nor shall it constitute an agreement or
obligation of the Noteholders to give their consent to any
future amendment of the Purchase Agreements or to any future
transaction which would, absent consent of the Noteholders,
constitute a Default or Event of Default under the Purchase
Agreements.
Section 12.7 Except as specifically provided herein,
the Purchase Agreements are in all respects ratified and
confirmed, and all the terms, conditions and provisions
thereof shall be and remain in full force and effect. For
any and all purposes, from and after the Effective Date, any
and all references hereafter to any Purchase Agreement, and
all references to "this Agreement" in any Purchase
Agreement, shall refer to such Purchase Agreement as hereby
amended.
Section 12.8 This Amendment may be executed in as
many counterparts as may be deemed necessary or convenient
and by the different parties hereto on separate counterparts
(provided that the Company will execute each counterpart),
and each of which, when so executed, shall be deemed to be
an original, but all such counterparts shall constitute but
one and the same agreement.
Section 12.9 The Company will pay, or cause to be
paid, the reasonable out-of-pocket costs and expenses of
each Noteholder in connection with entering into this
Amendment and the consummation of all transactions
contemplated hereby, including, without limitation, the
reasonable fees, expenses and disbursements of Fried, Frank,
Harris, Shriver & Jacobson, and the Company will also
indemnify and hold each Noteholder harmless from and against
all liability and loss with respect to or resulting from all
claims on account of brokers' or finders' fees or
commissions in connection with this Amendment or any of the
transactions contemplated hereby. The obligations of the
Company under this Section 12.9 shall survive payment of any
Note issued under any Purchase Agreement.
IN WITNESS WHEREOF, the Company and the undersigned
Noteholders have caused this Amendment to be executed by
their respective officer or officers thereto duly
authorized.
FINGERHUT COMPANIES, INC.
By: /s/ Daniel J. McAthie
Name: Daniel J. McAthie
Title: Senior Vice
President,
Chief Financial Officer
and
Treasurer
By: /s/ Robert W.
Oberrender
Name: Robert W. Oberrender
Title: Assistant Treasurer
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
By: /s/ Raymond J. Albright, Jr.
Name: Raymond J. Albright, Jr.
Title: Associate Director,
Private Placements
MERRILL LYNCH LIFE INSURANCE
COMPANY
By: /s/ David M. Dunford
Name: David M. Dunford
Title: Senior Vice President
FARMLAND LIFE INSURANCE COMPANY**
FINANCIAL HORIZONS LIFE
INSURANCE COMPANY*
NATIONWIDE LIFE INSURANCE COMPANY*
WEST COAST LIFE INSURANCE COMPANY**
WISCONSIN HEALTH CARE LIABILITY INSURANCE PLAN**
By: /s/ Jeffrey G. Milburn
Name: Jeffrey G. Milburn
Title: Vice President, Corporate
Fixed-Income Securities
**By: /s/ Jeffrey G. Milburn
Name: Jeffrey G. Milburn
Title: Attorney-in-Fact
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By: /s/ Lydia S. Sangren
Name: Lydia S. Sangren
Title:
GREAT NORTHERN INSURED ANNUITY CORPORATION
By: /s/ Charles Kaminski
Name: Charles Kaminski
Title: Senior Vice President,
Investments
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/ M. G. Echtenkamp
Name: M. G. Echtenkamp
Title: Second Vice President
MUTUAL OF OMAHA INSURANCE COMPANY
By: /s/ M. G. Echtenkamp
Name: M. G. Echtenkamp
Title: Second Vice President
COMPANION LIFE INSURANCE COMPANY
By: /s/ David Lee
Name: David Lee
Title: Vice President and
Actuary
By: /s/ Richard A. Witt
Name: Richard A. Witt
Title: Second Vice President &
Assistant Treasurer
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ Sheryl Rothman
Name: Sheryl Rothman
Title: Investment Officer
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By: /s/ Sheryl Rothman
Name: Sheryl Rothman
Title: Investment Officer
THE EQUITABLE OF COLORADO, INC.
By: /s/ Sheryl Rothman
Name: Sheryl Rothman
Title: Investment Officer
Accepted and Agreed to but
only with respect to the provisions
of Article 9 hereof:
FINGERHUT COMPANIES, INC.,
as Pledgor
By: /s/ Robert W. Oberrender
Name: Robert W. Oberrender
Title: Assistant Treasurer
FINGERHUT CORPORATION,
as Pledgor
By: /s/ Robert W. Oberrender
Name: Robert W. Oberrender
Title: Assistant Treasurer
FIGI'S INC., as Pledgor
By: /s/ Robert W. Oberrender
Name: Robert W. Oberrender
Title: Assistant Treasurer
CHEMICAL BANK,
as Collateral Agent
By: /s/ Edward W. Devine
Name: Edward W. Devine
Title: Managing Director
Exhibit 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE PERIODS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993
AND DECEMBER 25, 1992
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Primary
Net earnings (a) $ 45,925 $ 75,328 $ 61,806
=========== =========== ===========
Weighted average shares of common stock outstanding 46,237,706 46,019,158 47,717,432
Common stock equivalents 4,032,713 4,082,581 4,220,504
----------- ----------- -----------
Weighted average shares of common stock and common
stock equivalents (b) 50,270,419 50,101,739 51,937,936
=========== =========== ===========
Primary earnings per share of common stock and
common stock equivalents (a / b) $.91 $1.50 $1.19
=========== =========== ===========
Fully Diluted
Net earnings (c) $ 45,925 $ 75,328 $ 61,806
=========== =========== ===========
Weighted average shares of common stock outstanding 4,054,602 46,019,158 47,717,432
Common stock equivalents 46,237,706 4,611,732 4,239,634
----------- ----------- -----------
Weighted average shares of common stock and common
stock equivalents (d) 50,292,308 50,630,890 51,957,066
=========== =========== ===========
Fully diluted earnings per share of common stock
and common stock equivalents (c / d) $.91 $1.49 $1.19
=========== =========== ===========
</TABLE>
Common stock equivalents for primary earnings per share are computed by the
treasury stock method using the average market price.
Common stock equivalents for fully diluted earnings per share are computed by
the treasury stock method using the ending market price or the average of the
fully diluted monthly amounts, whichever is higher.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
For the fiscal year ended
December 30, December 31, December 25, December 27, December 28,
1994 1993(c) 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Earnings data:
Revenues $ 1,934,385 $ 1,807,908 $ 1,606,114 $ 1,428,428 $ 1,247,997
Earnings before taxes (b) $ 70,926 $ 111,879 $ 93,930 $ 81,398 $ 74,139
Net earnings (b) $ 45,925 $ 75,328 $ 61,806 $ 53,558 $ 47,715
Net earnings as a percent of revenues (b) 2.4% 4.2% 3.8% 3.7% 3.8%
Per share:
Earnings (a) (b) $ .91 $ 1.50 $ 1.19 $ 1.07 $ .98
Dividends declared $ .16 $ .16 $ .16 $ .16 $ .08
At fiscal year-end
Financial position data:
Total assets $ 1,097,933 $ 988,302 $ 925,649 $ 801,999 $ 651,162
Total current debt $ 336 $ 313 $ 333 $ 62,853 $ 87,284
Long-term debt and capitalized lease,
less current portion $ 246,516 $ 246,852 $ 247,190 $ 119,164 $ 15,015
Total stockholders' equity $ 500,950 $ 472,389 $ 399,591 $ 384,149 $ 318,600
<FN>
(a) Based on a weighted average of 50,270,419; 50,101,739; 51,937,936;
49,960,546 and 48,565,694 shares of common stock and
common stock equivalents for the fiscal years ended December 30, 1994;
December 31, 1993; December 25, 1992; December
27, 1991 and December 28, 1990, respectively.
(b) 1994 results included a $29.9 million charge ($19.4 million after tax)
relating to unusual items. See Note 3 to the Consolidated Financial
Statements.
(c) In 1993, the Company sold certain assets of COMB Corporation and FDC,
Inc., a subsidiary of Figi's Inc.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company experiences variances in quarterly results from year
to year that result from changes in the timing of its promotions
and the types of customers and products promoted and, to some
extent, from variations in dates of holidays and the timing of
the quarter ends resulting from a 52/53 week fiscal year. Fiscal
years 1994 and 1992 included 52 weeks compared to 53 weeks in
1993. In addition, the individual cost components (product cost,
administrative and selling expenses, and provision for
uncollectible accounts) and gross margin as a percent of net
sales may vary from period to period due to the different types
of products, mail programs, and customers promoted.
Highlights of operations: For the fiscal year ended
Percent of net sales 1994 1993 1992
Finance income, net 12.6% 10.6% 9.2%
Product cost 49.7 50.3 48.4
Administrative and selling
expenses 40.8 37.9 38.0
Provision for uncollectible
accounts 13.3 11.9 12.7
Percent of revenues
Discount on sale of accounts
receivable 2.8% 1.5% 1.4%
Interest expense, net 1.3 1.9 2.1
Earnings before taxes 3.7 6.2 5.8
Provision for income taxes 1.3 2.0 2.0
Net earnings 2.4 4.2 3.8
Bar Graph depicting Earnings Per Share for the last five years:
1994 $ .91/$1.30*
1993 $1.50
1992 $1.19
1991 $1.07
1990 $ .98
* Excluding one-time charge
1994 COMPARED WITH 1993
The Company reported record revenues of $1.934 billion in 1994.
Net earnings of $45.9 million, or $.91 per share, were negatively
impacted by the fourth quarter after-tax charge of $19.4 million,
or $.39 per share, relating to the cancelation of its proposed 24-
hour cable television shopping channel, substantial reduction of
its USA Direct infomercial subsidiary and provisions for
corporate streamlining. Also during the fourth quarter, the
intended purchaser of Figi's Inc. ("Figi's"), a catalog marketer
of specialty foods and other gifts, was unable to complete its
financing. As a result, the Company reversed the effects of the
sale, which were recorded in the fourth quarter of 1993. This
did not have a material impact on earnings.
Net sales for the year were $1.719 billion compared to $1.634
billion in 1993. Excluding COMB Corporation ("COMB") and FDC,
Inc. ("FDC"), which the Company sold in 1993, net sales for the
current 52-week period increased 11% from $1.554 billion in 1993,
a 53-week period. Fingerhut Corporation ("Fingerhut"), the
Company's core business, had net sales of $1.577 billion in 1994
compared to $1.414 billion in 1993, an increase of 12%. Net
sales from Fingerhut's existing customer list increased 13% to
$1.321 billion primarily as a result of a higher average order
size and additional mailings, partially offset by lower response
per mailing. Net sales from Fingerhut's new customer acquisition
programs increased 5% in 1994 to $256 million primarily due to a
higher average order size and increased mailings. Net sales from
Figi's increased 6% in 1994 to $70 million compared to $66
million in 1993 as a result of increased customer acquisitions.
Net sales from USA Direct Incorporated ("USA Direct") decreased
16% in 1994 to $59 million compared to $70 million for 1993
resulting from less successful product promotions. Montgomery
Ward Direct L.P., a 50% owned affiliate, had net sales of $188
million compared to $116 million for 1993. Montgomery Ward
Direct's sales are not included as revenues in the Company's
consolidated financial statements.
Net finance income for the year was $215.7 million compared to
$173.9 million in 1993. The increase was due to increased sales
from Fingerhut's existing customers, longer payment plans and a
higher percent of accounts receivable sold under the Fingerhut
Master Trust.
Product cost for the year was $854.5 million, or 49.7% of net
sales, compared to $821.4 million, or 50.3% of net sales, during
the prior year. The decrease as a percent of net sales was due
to improved margins in the core business as the result of
improved buying, and the sale of COMB, which had a higher product
cost as a percent of net sales, partially offset by provisions
for the cancelation of S The Shopping Network and scaling back
USA Direct.
Administrative and selling expenses for 1994 were $701.6 million,
or 40.8% of net sales, compared to $619.0 million, or 37.9% of
net sales, in the prior year. The increase was primarily due to
operating expenses associated with, and the cancelation of, S The
Shopping Network, scaling back USA Direct and provisions for
corporate streamlining, as well as planned depreciation costs.
The provision for uncollectible accounts was $229.4 million, or
13.3% of net sales, compared with $194.5 million, or 11.9% of net
sales, for the prior year. The increase as a percent of net
sales was due to the following three factors: the sale of COMB
and FDC, which had lower provisions for uncollectible accounts as
a percent of net sales, a higher provision for uncollectible
accounts on Fingerhut's existing customer list and increased
provisions related to scaling back USA Direct.
Discount on sale of accounts receivable for the year was $53.7
million compared to $26.7 million for the comparable period in
1993. The increase resulted from higher short-term interest
rates, as well as an increase in the amount of accounts
receivable sold and the replacement of the Receivables Transfer
Agreement with the Fingerhut Master Trust.
Net interest expense for the year was $24.3 million compared to
$34.5 million in 1993. The decrease was primarily attributable
to the expiration of the interest rate swap agreements on June
30, 1993 and June 30, 1994.
The effective tax rate for 1994 was 35.2% compared with 32.7% in
the prior year. In 1993, the Company recognized a one-time
benefit of $2.0 million on its deferred tax asset as a result of
the Omnibus Budget Reconciliation Act of 1993 ("the Act"). Other
factors contributing to the increase in the 1994 effective income
tax rate included a provision for additional state income taxes
and the disallowance of certain deductions as a result of the
Act, partially offset by an increase in merchandise donations.
The above factors resulted in net earnings for 1994 of $45.9
million, or $.91 per share, compared with $75.3 million, or $1.50
per share, for 1993.
1993 COMPARED WITH 1992
In 1993, the Company achieved record levels of net earnings and
revenues. Operating results reflected strong performance from
Fingerhut's existing customer list and new customer acquisition
programs, as well as improved earnings performance from the
Company's other subsidiaries. The results included higher
fulfillment costs and a planned increase in depreciation expense.
Certain assets of COMB were sold on September 3, 1993. In
addition, the Company sold certain assets of FDC effective as of
December 31, 1993 and signed a letter of intent to sell the
remaining assets of Figi's. The Company anticipated finalizing
this transaction in 1994. The effects of these transactions were
recorded in 1993 and did not have a material impact on earnings.
Fiscal 1993 net sales were $1.634 billion compared to $1.471
billion for 1992, an increase of 11%, or 15% excluding COMB.
Fingerhut had net sales of $1.414 billion compared to $1.216
billion in 1992, a 16% increase. Net sales from Fingerhut's
existing customer list increased 21% to $1.171 billion from $970
million for 1992 primarily as a result of increased mailings and
higher sales per mailing. Net sales from Fingerhut's new
customer acquisition programs were $243 million compared to $246
million in 1992. During 1993, Fingerhut acquired approximately
190 thousand more new customers than it did in the prior year.
Net sales from USA Direct were $70 million compared to $59
million for the prior year. Net sales from Figi's were $66
million compared to $76 million in 1992 as a result of a planned
reduction in mailings. Net sales from COMB (which was sold on
September 3, 1993) were $65 million compared to $103 million for
the full year of 1992.
Net finance income for the year was $173.9 million compared to
$135.5 million in 1992. The improvement in finance income was
primarily due to increased sales from Fingerhut's existing
customers and lengthened payment plans.
Product cost for the year was $821.4 million, or 50.3% of net
sales, compared to $711.8 million, or 48.4% of net sales, for the
prior year. The increase as a percent of net sales resulted
primarily from the price/value strategy implemented in the fall
of 1992 and, to a lesser extent, higher fulfillment costs,
partially offset by the sale of COMB (which had higher product
cost as a percent of net sales).
Administrative and selling expenses for 1993 were $619.0 million,
or 37.9% of net sales, compared to $558.4 million, or 38.0% of
net sales, in the prior year. Planned higher depreciation costs
were more than offset by improved sales per advertising dollar
from Fingerhut's existing and new customers, an increased
proportion of sales from Fingerhut's existing customers (which
have a lower advertising cost as a percent of net sales) and, to
a much lesser extent, improved performance of Montgomery Ward
Direct.
The provision for uncollectible accounts was $194.5 million, or
11.9% of net sales, compared with $186.4 million, or 12.7% of net
sales for the prior year. The decrease in the percent of net
sales was due to lower delinquency rates on sales from
Fingerhut's new customer acquisition programs and an increase in
the proportion of sales from Fingerhut's existing customers
(which have a lower provision for uncollectible accounts as a
percent of net sales), partially offset by the sale of COMB
(which had a lower provision for uncollectible accounts as a
percent of net sales).
Bar Graph depicting Total Assets for the last five years (in millions):
1994 $1097.9
1993 $ 988.3
1992 $ 925.6
1991 $ 802.0
1990 $ 651.2
Discount on sale of accounts receivable for the year was $26.7
million compared to $22.3 million for 1992, resulting from an
increase in sales from Fingerhut's existing customers and,
accordingly, in the amount of accounts receivable sold, partially
offset by lower average commercial paper rates in 1993.
Net interest expense for the year was $34.5 million compared to
$33.3 million in the prior year. The increase was primarily
attributable to interest expense on borrowings related to the
Company's repurchase of stock in December 1992 and the
replacement of current debt with higher rate long-term debt
agreements, partially offset by the expiration of $160 million of
interest rate swap agreements on June 30, 1993.
The effective tax rate for 1993 was 32.7% compared with 34.2% in
the prior year. As a result of the Omnibus Budget Reconciliation
Act of 1993, the Company recognized a one-time benefit of $2.0
million on the Company's deferred tax asset and, due to higher
rates under the Act, the Company increased its provision for
income taxes by $1.1 million. In addition, the Company
recognized a favorable cumulative effect of $0.3 million due to
the adoption of FAS 109 in the first quarter of 1993.
The above factors resulted in record net earnings for 1993 of
$75.3 million, or $1.50 per share, compared with $61.8 million,
or $1.19 per share, for 1992, an increase in earnings per share
of 26%.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through internally generated
funds, the sale of accounts receivable pursuant to the Fingerhut
Master Trust, borrowings under the Revolving Credit Facility and
issuance of long-term debt and common stock.
In June 1994, the Company formed the Fingerhut Master Trust ("the
Trust") to replace the Receivables Transfer Agreement (see Note 4
of the Consolidated Financial Statements). Under the Trust and
(prior to its replacement) the Receivables Transfer Agreement,
Fingerhut sells, on a continuous basis, an undivided interest in
a pool of customer accounts receivable subject to meeting certain
eligibility requirements. The Trust allowed Fingerhut to sell a
greater percentage of its receivables, which had the effect of
increasing the proceeds received by the Company as of December
30, 1994. Proceeds received from these sales were $1.096 billion
as of December 30, 1994 and $829.0 million as of December 31,
1993.
The Revolving Credit Facility was amended in October 1994 to
increase the aggregate commitments to $400.0 million, which
includes the issuance of up to $200.0 million in letters of
credit, and extend the expiration date to October 1999. As of
December 30, 1994 and December 31, 1993, the Company had no
borrowings under the Revolving Credit Facility but had
outstanding letters of credit of $5.8 million and $42.6 million,
respectively. Additional outstanding open letters of credit
under a separate agreement aggregated $34.9 million at December
30, 1994.
The Company had an aggregate amount of fixed rate notes
outstanding of $245.0 million as of December 30, 1994 and
December 31, 1993.
The Company generated $92.4 million in cash from operations in
1994 compared to $8.5 million in 1993. This net $83.9 million
increase in cash from operations resulted from decreased working
capital requirements partially offset by the $29.4 million
decrease in earnings. The most significant items affecting
working capital were a decrease in customer accounts receivable
and increases in inventory, accounts payable, accrued liabilities
and deferred income taxes. The change in customer accounts
receivable from a $41.6 million use of cash in 1993 to a $3.7
million source of cash in 1994 resulted from the increase in the
percent of accounts receivable sold as a result of the Trust.
Inventories increased $7.0 million in 1994 primarily due to
higher purchases reflecting planned increases in future sales.
The $32.2 million increase in accounts payable compared to the
$27.4 million decrease in 1993 was due to the additional week of
activity during 1993 and the timing of purchases and
disbursements. The increase in accrued liabilities was due to
costs associated with canceling the launch of S The Shopping
Network, scaling back USA Direct and provisions for corporate
streamlining. Deferred income taxes increased as a result of an
increase in reserve provisions relating to uncollectible accounts
and the cancelation of S The Shopping Network.
The Company's use of cash for investment activities of $57.5
million in 1994 increased $32.7 million compared to 1993 as a
result of capital expenditures related to the facility additions
discussed below, partially offset by reduced proceeds received
from businesses divested at the end of 1993.
Bar Graph depicting Working Capital for the last five years (in millions):
1994 $ 468.3
1993 $ 472.9
1992 $ 413.0
1991 $ 298.2
1990 $ 174.4
Three separate facility additions were approved by the Company's
Board of Directors in 1994. The $20.0 million 547,000 square-
foot warehouse and distribution facility expansion in St. Cloud,
Minnesota, became operational during the fourth quarter.
Spending through December 30, 1994 on the St. Cloud expansion was
$18.7 million. Construction on a western distribution center in
Spanish Fork, Utah, began in the third quarter. Spending through
December 30, 1994 was $14.7 million. The remaining construction
of this one million square-foot facility in 1995 and 1996 is
projected to cost approximately $45.0 million. The Company also
broke ground in the third quarter for a $23.0 million data and
technology center in Plymouth, Minnesota, which is anticipated to
be open in 1995. Spending through December 30, 1994 on the data
center was $4.7 million.
The owner of certain office and warehouse facilities leased to
the Company exercised its right to require the Company to
repurchase those facilities in 1995 for approximately $14.9
million. The Company anticipates completing the purchase on or
before September 29, 1995.
On January 24, 1995, the Company declared a cash dividend of $.04
per share, or an aggregate of $1.8 million, payable on February
23, 1995 to the shareholders of record as of the close of
business on February 7, 1995.
During 1994, the Company's Board of Directors authorized the
repurchase of up to 2.5 million shares of the Company's common
stock that may be made from time to time at prevailing prices in
the open market or by block purchase and may be discontinued at
any time. The purchases will be made within certain restrictions
relating to volume, price and timing in order to minimize the
impact of the purchase on the market for the Company's stock.
During 1994, the Company repurchased at prevailing market prices
807,400 shares of its common stock for an aggregate of $13.4
million.
The Company believes it will have sufficient funds available to
meet current and future commitments. For further discussion of
the above financing arrangements, see the Notes to Consolidated
Financial Statements.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Since the Company's inventory turns approximately four times a
year, the product cost reported in the financial statements, on a
first-in, first-out basis, would not have been materially
different from the product cost at current prices. Also, since
the Company does not rely on any particular product group or
brand, management believes that the Company can adjust its
product mix to reduce the effects of price changes on its overall
merchandise base.
Due to the timing of the Company's promotions, the Company is
generally able to reflect cost increases and decreases resulting
from the effects of inflation and foreign currency fluctuations
in its selling prices. In addition, most foreign purchase orders
are denominated in U.S. dollars. Accordingly, the results of
operations for the periods discussed have not been significantly
affected by these factors.
Bar Graph depicting Stockholders' Equity for the last five years (in millions):
1994 $ 500.9
1993 $ 472.4
1992 $ 399.6
1991 $ 384.1
1990 $ 318.6
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
For the fiscal year ended
December 30, December 31, December 25,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Net sales $ 1,718,647 $ 1,634,009 $ 1,470,628
Finance income, net 215,738 173,899 135,486
--------- --------- ---------
1,934,385 1,807,908 1,606,114
Costs and expenses:
Product cost 854,461 821,357 711,764
Administrative and selling expenses 701,582 619,009 558,416
Provision for uncollectible accounts 229,396 194,494 186,372
Discount on sale of accounts receivable 53,736 26,713 22,325
Interest expense, net 24,284 34,456 33,307
--------- --------- ---------
1,863,459 1,696,029 1,512,184
--------- --------- ---------
Earnings before taxes 70,926 111,879 93,930
Provision for income taxes 25,001 36,551 32,124
--------- --------- ---------
Net earnings $ 45,925 $ 75,328 $ 61,806
========= ========= =========
Earnings per share $ .91 $ 1.50 $ 1.19
========= ========= =========
Weighted average shares 50,270,419 50,101,739 51,937,936
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
<TABLE>
<CAPTION>
A S S E T S
December 30, December 31,
1994 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 85,382 $ 65,022
Customer accounts receivable, net 351,605 367,306
Inventories, net 159,048 152,029
Promotional material 59,477 57,507
Deferred income taxes 116,755 71,722
Other 19,645 8,605
---------- ----------
Total current assets 791,912 722,191
Property and equipment, net 226,385 190,936
Excess of cost over fair value of net assets acquired, net 44,321 45,625
Customer lists, net 12,601 14,001
Other assets 22,714 15,549
---------- ----------
$1,097,933 $ 988,302
========== ===========
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 156,121 $ 123,927
Accrued payroll and employee benefits 39,891 38,477
Other accrued liabilities 55,595 59,185
Accrued unusual charges 29,358 -
Current portion of long-term debt 336 313
Current income taxes payable 42,327 27,366
---------- ----------
Total current liabilities 323,628 249,268
Long-term debt, less current portion 246,516 246,852
Deferred income taxes 21,762 15,459
Other non-current liabilities 5,077 4,334
---------- ----------
596,983 515,913
S T O C K H O L D E R S ' E Q U I T Y
Preferred stock - -
Common stock 456 461
Additional paid-in capital 253,926 254,984
Earnings reinvested 246,568 216,944
---------- ----------
Total stockholders' equity 500,950 472,389
---------- ----------
$1,097,933 $ 988,302
========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Common stock Additional
Number of Par paid-in Earnings
shares value capital reinvested Total
<S> <C> <C> <C> <C> <C>
Balance, December 27, 1991 47,665,400 $ 477 $ 254,022 $ 129,650 $ 384,149
Stock repurchase (3,000,000) (30) (15,315) (29,655) (45,000)
Stock retirement (523,382) (5) (2,673) (5,173) (7,851)
Exercise of stock options 1,609,380 16 14,119 - 14,135
Cash dividends paid - - - (7,648) (7,648)
Net earnings - - - 61,806 61,806
---------- ------ --------- --------- ---------
Balance, December 25, 1992 45,751,398 458 250,153 148,980 399,591
Exercise of stock options 397,050 3 4,831 - 4,834
Cash dividends paid - - - (7,364) (7,364)
Net earnings - - - 75,328 75,328
---------- ------ --------- --------- ---------
Balance, December 31, 1993 46,148,448 461 254,984 216,944 472,389
Stock repurchase (807,400) (8) (4,493) (8,900) (13,401)
Exercise of stock options 211,025 2 3,033 - 3,035
Employee stock purchase plan 20,582 1 402 - 403
Cash dividends paid - - - (7,401) (7,401)
Net earnings - - - 45,925 45,925
---------- ------ --------- --------- ---------
Balance, December 30, 1994 45,572,655 $ 456 $ 253,926 $ 246,568 $ 500,950
========== ====== ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
For the fiscal year ended
December 30, December 31, December 25,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 45,925 $ 75,328 $ 61,806
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 37,693 29,708 18,019
Change in assets and liabilities,
excluding the effects of business
divestitures:
Customer accounts receivable, net 3,662 (41,621) 10,718
Inventories, net (7,019) (27,739) (26,954)
Promotional material and
other current assets (13,010) (9,872) (6,425)
Accounts payable 32,194 (27,374) 23,899
Accrued payroll and employee benefits 1,414 3,279 3,488
Accrued liabilities 26,599 (8,504) 3,247
Current income taxes payable 16,464 8,914 13,372
Deferred and other income taxes (40,664) 6,980 13,073
Other (10,869) (640) (11,995)
--------- --------- ---------
Net cash provided by operating activities 92,389 8,459 102,248
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (69,578) (51,771) (50,900)
Proceeds from business divestitures 12,039 26,889 -
--------- --------- ---------
Net cash used by investing activities (57,539) (24,882) (50,900)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt - 45,000 135,000
Repayments of long-term debt (313) (45,402) (280)
Revolving credit facility - - (57,000)
Repurchase of common stock (8,706) - (45,000)
Issuance of common stock 1,930 2,529 1,036
Cash dividends paid (7,401) (7,364) (7,648)
--------- --------- ---------
Net cash (used) provided by financing activities (14,490) (5,237) 26,108
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 20,360 (21,660) 77,456
Cash and cash equivalents at beginning
of year 65,022 86,682 9,226
--------- --------- ---------
Cash and cash equivalents at end of year $ 85,382 $ 65,022 $ 86,682
========= ========= =========
Supplemental noncash investing and financing activities:
Fixed assets retired under capital lease $ - $ - $ 11,064
Capital lease retired $ - $ - $ 12,214
Noncash retirement of common stock $ - $ - $ 7,851
Noncash exercise of stock options $ - $ - $ 7,851
Tax benefit from exercise of
non-qualified stock options $ 1,508 $ 2,305 $ 5,248
Accrued stock repurchase $ 4,695 $ - $ -
The Company included in cash and cash equivalents liquid investments with maturities of fifteen days
or less.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Fingerhut Companies, Inc. (the "Company") is a direct-to-the-consumer
marketing company selling a broad range of products and services to
consumers via catalogs, television and other media.
Prior to 1990, the Company was privately held, primarily by a wholly owned
subsidiary of The Travelers Inc. ("Travelers"), formerly Primerica
Corporation. In May 1990, the Company became a publicly held company upon
completion of a secondary public offering in which Travelers sold a portion
of its common stock. Travelers reduced its ownership to zero through
subsequent public offerings and sales in 1991, 1992 and 1993, including the
Company's December 1992 repurchase of 3,000,000 shares at an aggregate
amount of $45.0 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries and the Company's investment in and 50%
share of net earnings or losses of Montgomery Ward Direct, after
elimination of all material intercompany transactions and balances. At
December 30, 1994 and December 31, 1993, the Company's principal
subsidiaries were Fingerhut Corporation, Figi's Inc. and USA Direct
Incorporated.
Reclassifications have been made to prior years' Consolidated Financial
Statements whenever necessary to conform to the current year's
presentation.
Fiscal Year
The fiscal years ended December 30, 1994 and December 25, 1992 included 52
weeks. The fiscal year ended December 31, 1993 included 53 weeks.
Revenue Recognition
Substantially all sales are made on the installment contract basis.
Finance income on installment contracts (net of estimated returns and
exchanges, allowances, uncollectible amounts and collection costs) is
recognized using an effective interest method over the weighted average of
the contract periods (which approximates sixteen months) or when collected,
whichever is faster. When accounts receivable are sold (see Note 4),
finance income, net, is recognized.
Sales are recorded at the time of shipment and a provision for anticipated
merchandise returns, net of exchanges, is recorded based upon historical
experience. The provision charged against sales for 1994, 1993 and 1992
amounted to $275.3 million, $253.2 million and $218.5 million,
respectively.
Amounts billed to customers for shipping and handling of orders are netted
against the associated costs.
Earnings Per Share
Earnings per share is computed by dividing net earnings by the weighted
average shares of common stock and common stock equivalents outstanding
during the year. The dilutive effect of the potential exercise of
outstanding options to purchase shares of common stock is calculated using
the treasury stock method.
Inventories
Inventories, principally merchandise, are stated at the lower of cost (as
determined on a first-in, first-out basis) or market.
Promotional Material
Promotional material primarily includes free gifts and items in inventory
associated with direct response advertising (paper, printing and
postage).
Pursuant to Statement of Position 93-7, "Reporting on Advertising Costs",
the cost of mailed or aired direct response advertising is deferred and
expensed over the period during which the orders are expected, generally
one to four months. The amount of mailed or aired direct response
advertising included in the Consolidated Statement of Financial Position is
not material. The cost of non-direct response advertising is expensed as
incurred.
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over their estimated economic useful lives (30 years
for buildings; 5 years for software; 3 to 10 years for machinery and
equipment, furniture and fixtures; and over the estimated useful life of
the property or the life of the lease, whichever is shorter, for leasehold
improvements). The Company capitalizes software developed for internal use
that represents major enhancements and replacements of operating and
management information systems.
Intangible Assets
The excess of cost over fair value of net assets acquired is amortized on a
straight-line basis over 40 years.
The ongoing cost of developing and maintaining customer lists is charged to
operations as incurred. Customer lists obtained by the acquisition of a
business are capitalized at fair market value and amortized over their
estimated useful lives, approximately fifteen years.
Management periodically assesses the carrying amount and amortization
period of its intangible assets and has concluded that they are realizable.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes". Under the guidelines of FAS 109, the Company provides for deferred
taxes on the temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities that will result in
future taxable or deductible amounts. The Company provides for deferred
taxes at the enacted tax rate that is expected to apply when the temporary
differences reverse.
3. UNUSUAL ITEMS
In the fourth quarter of 1994, the Company recorded an after-tax charge of
$19.4 million, or $.39 per share, relating to the cancelation of its
proposed 24-hour cable television shopping channel. The $29.9 million
pre-tax charge covered the costs of closing down S The Shopping Network and
substantially scaling back USA Direct, as well as provisions for corporate
streamlining. The charge included $6.8 million for the cost of severance
and related employee benefits to approximately 100 employees throughout all
levels of the Company and $23.1 million for the write-off and disposition
of assets and anticipated costs of fulfilling contractual commitments. A
summary of
the change in the Company's reserve for unusual charges is as follows:
<TABLE>
<CAPTION>
Accrued unusual
Provision for Reserves charges at
(In thousands of dollars) unusual charges utilized December 30, 1994
<S> <C> <C> <C>
Product costs $ 5,253 $ - $ 5,253
Administrative and selling expenses 21,230 459 20,771
Provision for uncollectible accounts 3,434 100 3,334
-------- -------- --------
$ 29,917 $ 559 $ 29,358
======== ======== ========
</TABLE>
In December 1993, the Company signed a letter of intent to sell certain
assets of Figi's. The effects of the Figi's transaction were recorded in
the fourth quarter of 1993 with the net amounts anticipated to be received
from the sale included in other assets as of December 31, 1993. During the
fourth quarter of 1994, the intended purchaser of Figi's was unable to
complete its financing. As a result, the Company reversed the effects of
the sale. This did not have a material impact on earnings. As of December
30, 1994, the Company reclassified the assets and liabilities of Figi's to
their respective Statement of Financial Position captions.
In 1993, the Company sold certain assets of COMB and FDC. The net
financial results of these divestitures did not have a material impact on
earnings.
4. SALE OF ACCOUNTS RECEIVABLE
The Receivables Transfer Agreement was replaced with the Fingerhut Master
Trust ("the Trust") in June 1994. The Trust allows Fingerhut to sell, on a
continuous basis, an undivided interest in a pool of customer accounts
receivables, subject to meeting certain eligibility requirements. In June
1994, the Trust issued the Series 1994-1 certificates which raised $900.0
million of proceeds. In November 1994, the Trust issued the Series 1994-2
certificates with aggregate commitments totaling $490.4 million. The
Series 1994-1 certificates and the Series 1994-2 certificates enter into
amortization periods beginning December 1996 and October 1997,
respectively.
Under the Trust, Fingerhut sold a greater percentage of its receivables,
which had the effect of increasing the proceeds received by the Company as
of December 30, 1994. The proceeds from the sale of accounts receivable
were $1.096 billion and $829.0 million as of December 30, 1994 and December
31, 1993, respectively. The Company's retained interest in the Trust was
approximately $184.2 million as of December 30, 1994. The holdback under
the Receivables Transfer Agreement, which represented the Company's
interest under that agreement, was approximately $227.0 million at December
31, 1993. Both the retained interest and the holdback were included in the
Company's Statements of Financial Position under "Customer accounts
receivable, net".
A credit risk exists for losses on receivables in which the purchasers have
an undivided interest, up to the amount of Fingerhut's retained interest in
the Trust for 1994 and the holdback amount for 1993. Any losses beyond
that level are the responsibility of the purchasers.
"Discount on sale of accounts receivable" is comprised of the interest,
discount and administrative and other fees paid or due to the purchasers of
the accounts receivable sold. The discount, determined under the Trust and
the Receivables Transfer Agreement, approximates the prevailing short-term
LIBO rates and commercial paper rates for high grade unsecured notes,
respectively, plus administrative fees. The rates (including
administrative fees) applicable to receivables sold as of December 30, 1994
and December 31, 1993 were 6.3% and 4.0%, respectively.
The Company has included in "Other accrued liabilities" the estimated
expenses related to the subsequent collections of the receivables sold
($18.5 and $15.0 million for 1994 and 1993, respectively).
5. CUSTOMER ACCOUNTS RECEIVABLE
Substantially all of the Company's customer accounts receivable were
generated by Fingerhut and Figi's Inc. Fingerhut uses fixed term, fixed
payment installment plans with terms generally up to 32 months (excluding
deferred billing periods of generally four to five months) and finance
charge rates ranging from 18% to 24.9%. Figi's Inc. uses fixed term, fixed
payment plans with terms up to three months (excluding deferred billing
periods of up to approximately three months) with no finance charge.
Customer accounts receivable are classified as current assets and include
some which are due after one year, consistent with industry practice.
Customer accounts receivable, net of amounts sold, consists of the
following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993
<S> <C> <C>
Due from customers $ 484,158 $ 504,552
Reserve for uncollectible accounts, net of
anticipated recoveries (81,271) (74,410)
Reserve for returns and exchanges (14,889) (18,988)
Other reserves (17,223) (19,135)
Net collectible amount 370,775 392,019
Unearned finance income (19,170) (24,713)
---------- ----------
Customer accounts receivable, net $ 351,605 $ 367,306
========== ==========
</TABLE>
Other reserves consist primarily of allowances for anticipated adjustments
of finance charges billed to customers (due to earlier than scheduled
payment) and anticipated costs required to collect customer accounts.
The Company's customer base is dispersed throughout the United States. As
a consequence, concentrations of credit risk are limited.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993
<S> <C> <C>
Land and improvements $ 4,981 $ 4,931
Buildings and leasehold improvements 65,511 61,982
Construction in progress 39,176 11,618
Machinery and equipment 101,315 79,666
Software 90,492 76,232
Other, principally furniture and fixtures 14,922 13,582
--------- ---------
316,397 248,011
Less: Accumulated depreciation (62,353) (43,612)
Accumulated amortization of software (27,659) (13,463)
--------- ---------
$ 226,385 $ 190,936
========= =========
</TABLE>
The capitalized software amortization expense recorded in 1994, 1993 and
1992 was $14.3 million, $10.5 million and $2.9 million, respectively.
7. REVOLVING CREDIT FACILITY
The Revolving Credit Facility was amended in October 1994 to increase the
aggregate commitments to $400.0 million, which includes the issuance of up
to $200.0 million in letters of credit, and extend the expiration date to
October 1999. The proceeds from borrowings under the Revolving Credit
Facility are to be used by the Company to provide for working capital and
for other general corporate purposes. The Company's obligations under the
Revolving Credit Facility are secured by a pledge of the capital stock of
substantially all its subsidiaries. The following is a summary of the
Revolving Credit Facility:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Balance at year-end $ - $ - $ -
Interest rate at year-end 8.5% 6.0% 6.0%
Maximum month-end borrowing during the year $ 20,000 $ 8,000 $ 84,000
Average daily borrowing during the year $ 918 $ 1,364 $ 36,503
Weighted average interest rate during the year 7.4% 6.0% 6.3%
</TABLE>
The outstanding portion of open letters of credit, primarily established to
facilitate international merchandise purchases, was not reflected in the
accompanying financial statements and aggregated $40.7 million at December
30, 1994.
8. LONG-TERM DEBT
Long-term debt and related maturity dates are as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993
Private placements:
Senior Notes Maturity date Interest rate
<S> <C> <C> <C> <C>
Series A June 1996 9.81% $ 65,000 $ 65,000
Series B December 1997 10.12% 25,000 25,000
Series C August 1996 9.74% 20,000 20,000
Series D August 1996 6.96% 15,000 15,000
Series A Unsecured June 2002 8.92% 60,500 60,500
Series B Unsecured June 2004 8.92% 14,500 14,500
Series C Unsecured August 2000 6.83% 45,000 45,000
</TABLE>
<TABLE>
<S> <C> <C>
Other indebtedness (due in various installments through
November 2014; interest at varying rates ranging from
5.87% to 8.5% at December 30, 1994) 1,852 2,165
---------- ----------
246,852 247,165
Current portion of long-term debt (336) (313)
$ 246,516 $ 246,852
========== ==========
</TABLE>
The Senior Notes are secured by a pledge of the capital stock of
substantially all of the Company's subsidiaries.
Scheduled annual maturities due on long-term debt at December 30, 1994 were
as follows:
(In thousands of dollars)
1995 $ 336
1996 $100,054
1997 $ 25,054
1998 $ 54
1999 $ 46
Thereafter $121,308
The Senior Notes contain covenants restricting the payment of dividends.
The maximum amount of dividends the Company was permitted to pay at
December 30, 1994 was $79.9 million.
9. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
This discloses the fair value of all financial instruments, both assets and
liabilities, recognized and not recognized, in the Consolidated Statements
of Financial Position for which it is practicable to estimate fair value.
Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, fair values are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve
uncertainties and matters of judgement, and therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
Cash and cash equivalents, Accounts payable, Accrued payroll and employee
benefits, Other accrued liabilities and Accrued unusual charges
The carrying amounts approximate fair value due to the short maturity of
these instruments.
Customer accounts receivable, net
As the average collection period for these exceeds 90 days, the discounted
present value of expected future cash flows from the collection of the
receivables and related deferred finance income were calculated and it was
determined that the carrying amount approximates fair value.
Sale of accounts receivable
The carrying amount of the Company's retained interest in the Trust or
holdback under the Receivables Transfer Agreement approximates fair value,
as it was determined that "Customer accounts receivable, net" approximates
fair value.
Long-term debt
The fair value of the Company's long-term debt was estimated based on the
amount of future cash flows associated with each instrument discounted
using the current rates offered to the Company for similar debt instruments
of comparable maturity.
Interest rate cap and swap agreements
The fair values of interest rate cap and swap agreements were obtained from
dealer quoted prices. These values represent the estimated amount the
Company would pay to terminate the agreements, taking into consideration
current interest rates and the current creditworthiness of the
counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
Carrying Estimated Carrying Estimated
(In thousands of dollars) amount fair value amount fair value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 85,382 $ 85,382 $ 65,022 $ 65,022
Sale of accounts receivable $ 184,200 $ 184,200 $ 227,000 $ 227,000
Long-term debt $ 246,852 $ 243,335 $ 247,165 $ 268,641
Interest rate swap agreements
in a net payable position $ - $ - $ - $ 3,000
Interest rate cap agreements $ 7,887 $ 6,185 $ - $ -
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN
TRADING
In 1994, the Company entered into interest-rate cap agreements to hedge its
economic exposure to increasing interest rates on the sale of accounts
receivable under the Fingerhut Master Trust. At December 30, 1994, the
Company had two agreements in place which effectively cap short-term LIBOR
at 6.5% until interest rates exceed 11.7%, on an aggregate notional amount
of $500.0 million relating to Series 1994-1 certificates. The certificates
themselves are capped at LIBOR equal to 11.7%. The $5.1 million premium
paid for these interest-rate cap agreements is included in other current
assets and is being amortized to interest expense ratably over the
remaining term of the agreements. The Series 1994-2 certificates required
an additional agreement which effectively caps short-term LIBOR at 11.2% on
a notional amount that varies over the life of the agreement. At December
30, 1994, the effective notional amount was $300.0 million. The $2.9
million premium paid for this interest rate cap agreement is included in
other assets and is being amortized to "Discount on sale of accounts
receivable" over the remaining term of the agreement. The Company is
exposed to credit loss in the event of nonperformance by the other parties
to the interest rate cap agreements. However, the Company does not
anticipate nonperformance by the counterparties.
Fingerhut entered into interest rate swap agreements during 1990 totalling
$260.0 million. The agreements exchanged a variable rate, which
approximated the prevailing short-term commercial paper rate, for a fixed
interest rate of 9.5%. $160.0 million of the interest rate swap agreements
expired on June 30, 1993. The remaining $100.0 million expired on June 30,
1994.
10. INTEREST EXPENSE
Net interest expense was as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Interest expense $ 25,711 $ 34,852 $ 33,537
Interest income 1,427 396 230
-------- -------- --------
Net interest expense $ 24,284 $ 34,456 $ 33,307
======== ======== ========
</TABLE>
The Company paid interest of $25.1 million in 1994, $45.1 million in 1993
and $30.4 million in 1992.
11. OPERATING LEASES
Rental expense for both cancelable and noncancelable operating leases,
(principally for office and warehouse facilities and computer equipment)
for the fiscal years 1994, 1993 and 1992 was $39.8 million, $39.1 million
and $34.1 million, respectively. Future minimum annual rentals at
December 30, 1994, under noncancelable operating leases are as follows:
(In thousands of dollars)
1995 $27,108
1996 $18,400
1997 $13,345
1998 $ 5,720
1999 $ 3,193
Thereafter $ 61
The Company leases certain office and warehouse facilities (the
"properties") from an affiliated company of Travelers. The leases provide
for a term of 17 years, with rental payments subject to increases every
three years. Annual rental expense for 1994, 1993 and 1992 was $1.7
million. In December 1994, the lessor exercised its right to require the
Company to purchase the properties in 1995 for approximately $14.9
million. The Company anticipates completing the purchase on or before
September 29, 1995.
12. EMPLOYEE BENEFIT PLANS
The Company maintains two noncontributory, defined benefit pension plans
which cover substantially all full-time nonunion employees. The plans
provide monthly retirement benefits to eligible participants based upon
years of service and level of compensation. The Company's funding policy
is to make an annual contribution equal to, or exceeding, the minimum
required by the Employee Retirement Income Security Act of 1974. The
actuarial present value of the benefit obligation and the funded status of
the plans were as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $12,459 $13,520
Non-vested benefits 1,398 968
-------- --------
Accumulated benefit obligation 13,857 14,488
Effect of future compensation increases 6,285 9,887
-------- --------
Projected benefit obligation 20,142 24,375
Plan assets at fair value 14,450 13,646
-------- --------
Unfunded projected benefit obligation 5,692 10,729
Unrecognized prior service cost (71) (319)
Unrecognized net gain (loss) 2,708 (3,633)
-------- --------
Accrued pension cost $ 8,329 $ 6,777
======== ========
</TABLE>
Plan assets at December 30, 1994 and December 31, 1993 were primarily
invested in an equity fund.
The actuarial present value of the projected benefit obligations
represents the present value of benefits to be paid in the future under
current provisions of the plan based on accumulated service to date and
assuming future annual pay increases of 5.5% in 1994 and 1993. Projected
benefits have been discounted using rates of 8.50% and 7.25% for 1994 and
1993, respectively. In determining pension expense, the assumed long-term
rate of return on plan assets was 9.5% for 1994, 1993 and 1992. The
Company's nonunion pension plans have vesting periods of five years.
The components of pension expense for nonunion employees were as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Benefit earned during the period $ 2,460 $ 1,984 $ 1,655
Interest accrued on projected benefit
obligation 1,822 1,448 1,237
Actual return on assets (262) (1,577) (1,420)
Deferred (loss) gain (1,038) 472 467
Amortization of prior service cost 5 20 20
Amortization of net loss 44 - -
-------- -------- --------
Pension expense for the period $ 3,031 $ 2,347 $ 1,959
======== ======== ========
</TABLE>
Additionally, the Company participates in a multi-employer pension plan
for all union employees. The plan provides monthly retirement benefits to
eligible participants based upon years of service. The plan is funded
with contributions made in accordance with negotiated labor contracts.
The pension expense related to this plan for 1994, 1993 and 1992 was $1.6
million, $1.3 million and $0.8 million, respectively.
The Company also has several defined contribution plans (some of which
have, or are limited to, 401(k) provisions) covering substantially all
nonunion employees. Employer contributions to the plans are discretionary
and are determined by the Board of Directors for each of the individual
companies. The maximum contribution allowed is 15% of each participant's
eligible compensation. The cost to the Company of these plans was $11.2
million, $14.1 million and $12.9 million for 1994, 1993 and 1992,
respectively.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits".
The impact of FAS 112 was not significant to the Company's financial
statements.
13. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Currently payable:
Federal $ 62,645 $ 23,407 $ 32,318
State 1,139 611 1,281
Deferred (38,783) 12,533 (1,475)
--------- --------- ---------
$ 25,001 $ 36,551 $ 32,124
========= ========= =========
</TABLE>
The Company's effective income tax rate differed from the U.S. federal
statutory rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 34.0%
State income taxes, net of federal tax benefit .7 .5 .9
Merchandise donations (2.6) (.9) (1.1)
Effect of change in federal tax rate on net
deferred income tax asset - (1.7) -
Other, net 2.1 (.2) .4
------ ------ ------
Effective income tax rate 35.2% 32.7% 34.2%
====== ====== ======
</TABLE>
The "Other, net" tax rate in 1994, 1993 and 1992 was composed of
miscellaneous items, none of which were individually significant.
The current and long-term deferred income tax assets and liabilities
included in the Consolidated Statements of Financial Position as of
December 30, 1994 and December 31, 1993 were composed of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993
Current and long-term deferred income tax assets resulting
from future deductible temporary differences are:
<S> <C> <C>
Accounts receivable reserves $ 166,846 $ 133,501
Yield reserve 9,697 5,053
Inventory capitalization 3,692 4,382
Inventory obsolescence reserves 7,016 7,218
Reserve for unusual charges 8,585 -
Other 10,696 18,975
----------- -----------
$ 206,532 $ 169,129
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Current and long-term deferred income tax liabilities
resulting from future taxable temporary differences are:
<S> <C> <C>
Accelerated depreciation and amortization $ (24,658) $ (30,854)
Deferred finance income (80,930) (62,930)
Deferred advertising (4,513) (5,748)
Other (1,438) (13,334)
----------- -----------
$ (111,539) $ (112,866)
=========== ===========
</TABLE>
Management believes, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will be sufficient to fully utilize the deferred tax assets
included in its financial statements.
The Company paid income taxes (net of refunds) of $47.3 million, $21.5
million and $4.8 million during 1994, 1993 and 1992, respectively. These
payments of income taxes included a refund from Travelers during 1993 of
$0.6 million and a payment to Travelers during 1992 of $9.0 million. The
1992 payments to Travelers consisted of $2.9 million for interest and $6.1
million for income taxes related to Internal Revenue Service audits of
prior years' tax returns. These amounts resulted in the creation of a
current deferred tax asset or were accrued at December 27, 1991, in
current taxes payable. During the time that Travelers owned 80% or more
of the Company, income taxes were calculated substantially on a stand
alone basis under an income tax allocation agreement with Travelers.
14. RELATED PARTY TRANSACTIONS
In 1992, the Company paid Travelers $1.7 million which related primarily
to retrospectively rated workers compensation insurance which the Company
obtained through Travelers prior to April 1, 1989. These payments were
under an agreement with Travelers which also calls for ongoing
reimbursement for all retrospectively rated policies.
For other related party transactions, the following list details the
subject and Note reference:
Operating leases Note 11
Income taxes Note 13
Stockholders' equity - stock redemption Note 15
15. STOCKHOLDERS' EQUITY
The Company currently has 100,000,000 authorized shares of $.01 par value
common stock of which 45,572,655 and 46,148,448 were issued and
outstanding as of December 30, 1994 and December 31, 1993, respectively.
5,000,000 shares of $.01 par value preferred stock are authorized, none of
which have been issued.
On May 12, 1994 and November 21, 1994, the Company's Board of Directors
authorized the repurchase of up to 500,000 shares and 2,000,000 shares,
respectively, of the Company's common stock that may be made from time to
time at prevailing prices in the open market or by block purchase and may
be discontinued at any time. The purchases will be made within certain
restrictions relating to volume, price and timing in order to minimize the
impact of the purchase on the market for the Company's stock. During
1994, the Company repurchased at prevailing market prices 807,400 shares
of its common stock for an aggregate of $13.4 million.
Effective July 1, 1994, the Company made available to certain employees
the Fingerhut Employee Stock Purchase Plan under which eligible employees
have the opportunity to purchase Company common stock at a discounted
market value determined on the first or last business day of the calendar
quarter, whichever is lower. A maximum of 250,000 shares are authorized.
During 1994, 20,582 shares were issued at $19.55 per share.
The Fingerhut Companies, Inc. Stock Option Plan provides certain
management of the Company with options to purchase up to 7,768,000 shares
of common stock of which 177,725 were available for grant at December 30,
1994. The options are granted at the fair market value on the date of
grant. The options become exercisable in five equal annual installments
beginning on the first anniversary of the date of grant. Unexercised
options will be canceled ten years and one month after the date of grant.
The Fingerhut Companies, Inc. Performance Enhancement Investment Plan
("PEIP Plan") provides certain management of the Company with the right to
purchase options to acquire up to 3,000,000 shares of common stock, of
which 786,924 were available for grant at December 30, 1994. Under the
PEIP Plan, management will be offered the opportunity to purchase option
units, each consisting of four options to purchase common stock, with
exercise prices of 110%, 120%, 130% and 140%, respectively, of the fair
market value at the time of grant. The options are offered at prices
determined by the Company on the grant date. The options granted in 1993
become exercisable in four equal installments beginning on January 1,
1995. The options granted in 1994 become exercisable in four equal
installments beginning on the first anniversary of the grant date.
Unexercised options will be repurchased at an amount equal to or less than
the purchase price on the earlier of the optionee's termination of
employment or the seventh anniversary of the grant date. All purchase
prices are included in "Accrued payroll and employee benefits" in the
Consolidated Statement of Financial Position.
The Fingerhut Companies, Inc. 1992 Stock Option and Long-Term Incentive
Plan provides certain management of the Company with options to purchase
up to 523,382 shares of common stock. In 1992, the Company granted the
Chairman and Chief Executive Officer non-qualified options to purchase
523,382 shares of common stock with an option price of $15.00, the fair
market value at the date of grant. In November 1993, 50% of these options
became exercisable, 50% became exercisable in November 1994 and all expire
in December 1999.
In December 1992, the Chairman and Chief Executive Officer exercised
options to purchase 1,439,180 shares by tendering to the Company 523,382
shares of the Company's stock at the market value of $15.00 per share.
The following table summarizes the activity of the stock option plans:
<TABLE>
<CAPTION>
Non-qualified stock Option
option shares prices
Outstanding Exercisable (In dollars)
<S> <C> <C> <C>
Balance at December 27, 1991 7,396,650 2,624,300 $ 5.45-$15.12
Granted 826,382 - 12.37- 17.50
Canceled/forfeited (269,300) - 5.45- 15.75
Exercisable - 1,438,250 5.45- 15.12
Exercised (1,609,380) (1,609,380) 5.45- 10.50
----------- ----------- --------------
Balance at December 25, 1992 6,344,352 2,453,170 5.45- 17.50
Granted 2,652,076 - 15.12- 34.25
Canceled/forfeited (264,600) - 5.45- 28.04
Exercisable - 1,720,441 5.45- 17.50
Exercised (397,050) (397,050) 5.45- 15.56
----------- ----------- --------------
Balance at December 31, 1993 8,334,778 3,776,561 5.45- 34.25
Granted 484,500 - 17.00- 42.64
Canceled/forfeited (664,375) (4,000) 5.45- 35.69
Exercisable - 1,163,284 5.45- 42.25
Exercised (211,025) (211,025) 5.45- 17.50
----------- ----------- --------------
Balance at December 30, 1994 7,943,878 4,724,820 $ 5.45-$42.64
=========== =========== ==============
</TABLE>
In connection with the December 1992 secondary public offering, the
Company repurchased 3,000,000 shares of its common stock from a subsidiary
of Travelers at $15.00 per share, or an aggregate amount of $45.0 million.
16. OTHER DISCLOSURES
Administrative and selling expenses included promotional material and
advertising expenses of $434.2 million, $391.0 million and $371.9 million
for 1994, 1993 and 1992, respectively.
Amortization expense relating to the excess of cost over fair value of net
assets acquired was $1.3 million for 1994, 1993 and 1992. Accumulated
amortization was $7.8 million and $6.5 million at December 30, 1994 and
December 31, 1993, respectively.
Amortization expense relating to customer lists was $1.4 million for 1994
and $1.5 million for 1993 and 1992. Accumulated amortization was $8.4
million and $7.0 million at December 30, 1994 and December 31, 1993,
respectively.
17. CONTINGENCIES
The Company is a party to various claims, legal actions, sales tax
disputes and other complaints arising in the ordinary course of business.
In the opinion of management, any losses which may occur are adequately
covered by insurance, are provided for in the financial statements, or are
without merit and the ultimate outcome of these matters will not have a
material effect on the consolidated financial position or operations of
the Company.
18. SUBSEQUENT EVENT
On January 24, 1995, the Company declared a cash dividend of $.04 per
share, or an aggregate of $1.8 million, payable on February 23, 1995 to
shareholders of record as of the close of business on February 7, 1995.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
REPORT OF MANAGEMENT
To the Shareholders of Fingerhut Companies, Inc.:
The Company is responsible for the information presented in this annual
report. The consolidated financial statements contained herein were prepared
in accordance with generally accepted accounting principles and were based on
informed judgments and management's best estimates where appropriate.
Financial information elsewhere in this annual report is consistent with that
contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance, at suitable costs, that assets are safeguarded and
transactions are executed in accordance with established procedures. The
system of internal controls includes Standards of Ethical Business Conduct,
widely communicated to employees, which are designed to require them to
maintain high ethical standards in their conduct of Company affairs, written
procedures that provide for appropriate evidence of authority and a program of
internal audit with management follow-up.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose appointment was
ratified by shareholder vote at the 1994 annual shareholders' meeting. Their
audit was conducted in accordance with generally accepted auditing standards.
As part of their audit of the Company's 1994 consolidated financial statements,
our independent accountants considered the Company's system of internal
controls structure to the extent they deemed necessary to determine the nature,
timing and extent of their audit tests.
The Audit Committee of the Board of Directors is composed entirely of
independent directors. This Committee supervises and reviews the Company's
accounting practices; recommends to the Board the independent auditors; reviews
the audit plans, scope, findings, reports and recommendations; and reviews the
Company's financial controls, procedures and practices. The independent public
accountants and the internal auditors have free access to the Audit Committee
without management present.
/s/ Theodore Deikel
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and President
/s/ Daniel J. McAthie
Daniel J. McAthie
Senior Vice President and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Fingerhut Companies, Inc.:
We have audited the accompanying consolidated statements of financial position
of Fingerhut Companies, Inc. and Subsidiaries (the "Company") as of December
30, 1994 and December 31, 1993 and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of the fiscal
years in the three-year period ended December 30, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fingerhut Companies, Inc. and Subsidiaries as of December 30, 1994 and December
31, 1993, and the results of their operations and their cash flows for each of
the fiscal years in the three-year period ended December 30, 1994 in conformity
with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 23, 1995
Quarterly Financial -- Fiscal Year Summaries
<TABLE>
<CAPTION>
(In thousands of dollars, 1994
except per share data) First Second Third Fourth (b) Total
<S> <C> <C> <C> <C> <C>
Revenues $ 362,144 $ 446,031 $ 429,445 $ 696,765 $1,934,385
Gross margin (a) $ 164,292 $ 191,487 $ 193,695 $ 314,712 $ 864,186
Net earnings $ 9,973 $ 16,192 $ 7,087 $ 12,673 $ 45,925
Earnings per share $ .20 $ .32 $ .14 $ .26 $ .91
1993
First Second Third Fourth Total
Revenues $ 371,807 $ 420,835 $ 379,313 $ 635,953 $1,807,908
Gross margin (a) $ 169,371 $ 187,269 $ 162,944 $ 293,068 $ 812,652
Net earnings $ 7,764 $ 12,976 $ 13,759 $ 40,829 $ 75,328
Earnings per share $ .16 $ .26 $ .27 $ .81 $ 1.50
(a) Gross margin is equal to net sales less product cost.
(b) Fourth quarter 1994 results included an after-tax charge of $19.4 million from unusual items,
as well as the results of Figi's for the year. See Note 3 to the Consolidated Financial
Statements.
</TABLE>
Stock Data
The Company's common stock is traded under the symbol "FHT" on the New
York Stock Exchange. As of February 28, 1995, there were 696 holders of
record of the Company's common stock.
<TABLE>
<CAPTION>
1994
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Common stock price:
High $ 33-1/4 $ 32 $ 29-1/2 $ 23-7/8 $ 33-1/4
Low $ 25-1/4 $ 22-5/8 $ 21-5/8 $ 14 $ 14
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
1993
First Second Third Fourth Year
Common stock price:
High $ 20-3/8 $ 22-1/2 $ 29-1/8 $ 30-5/8 $ 30-5/8
Low $ 14-7/8 $ 19-1/8 $ 21-1/8 $ 24 $ 14-7/8
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
</TABLE>
Dividend Policy
The Company intends to pay regular quarterly cash dividends and expects to
retain a substantial portion of its net earnings to fund future growth.
The declaration and payment of dividends will be subject to the discretion
of the Board of Directors, and there can be no assurance that any
dividends will be paid in the future. In determining whether to pay
dividends (as well as the amount and timing thereof), the Board of
Directors will consider a number of factors including the Company's
results of operations, financial condition, future capital requirements
and any applicable restrictive provisions in any financing agreements.
See Note 8 for dividend restrictions.
Independent Auditors' Report
The Board of Directors and Stockholders of Fingerhut Companies, Inc.:
Under date of January 23, 1995, we reported on the consolidated statements of
financial position of Fingerhut Companies, Inc. and subsidiaries as of December
30, 1994 and December 31, 1993, and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 30, 1994, as contained in the 1993
annual report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the year 1994. In connection with our audits of the aforementioned
consolidated financial statements, we have also audited the related financial
statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 23, 1995
SCHEDULE VIII
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993 AND DECEMBER 25, 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
charged to
Balance at cost, Balance at
beginning expenses, end
Description of period revenues Deductions of period
<S> <C> <C> <C> <C> <C>
Accounts receivable reserves:
1994 $112,533 $749,900 $749,050 (a) $113,383
1993 $120,334 $646,702 $654,503 (a) $112,533
1992 $115,616 $576,234 $571,516 (a) $120,334
Inventory reserves:
1994 $ 19,328 $ 27,913 $ 29,139 (b) $ 18,102
1993 $ 15,184 $ 21,260 $ 17,116 (b) $ 19,328
1992 $ 16,775 $ 16,666 $ 18,257 (b) $ 15,184
<FN>
(a) Primarily represents reductions in the reserves for actual returns and
exchanges, allowances, uncollectible amounts (net of recoveries) and
collection costs. And also, includes the reserves related to the
accounts receivable sold under the Fingerhut Master Trust and
Receivables Transfer Agreement.
(b) Primarily represents inventory sold to liquidators and returned to vendors.
</TABLE>
Exhibit 22
SUBSIDIARIES OF FINGERHUT COMPANIES, INC.*
Names State of Incorporation
Fingerhut Corporation Minnesota
Direct Merchants Credit Card Bank, N.A. United States**
Fingerhut Financial Services Corporation Minnesota
Tennessee Distribution, Inc. Minnesota
USA Direct Incorporated Minnesota
Figi's Inc. Wisconsin
*The names of certain subsidiaries have been omitted because
considered in the aggregate as a single subsidiary, they would
not constitute a significant subsidiary.
**A national banking association.
Exhibit 23
Consent of Independent Certified Accountants
The Board of Directors
Fingerhut Companies, Inc.:
We consent to incorporation by reference in the registration
statements (No. 33-38988 and 33-55871) on Form S-8 of
Fingerhut Companies, Inc. and subsidiaries of our reports
dated January 23, 1995 relating to the consolidated
statements of financial position of Fingerhut Companies,
Inc. as of December 30, 1994 and December 31, 1993 and the
related consolidated statements of earnings, changes in
stockholders' equity and cash flows and the related
financial statements schedule for each of the years in the
three-year period ended December 30, 1994, which reports
appear in the December 30, 1994 annual report on Form 10-K
of Fingerhut Companies, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Consolidated Financial Statements for the fiscal year ended
December 30, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> DEC-30-1994
<CASH> 85,382
<SECURITIES> 0
<RECEIVABLES> 484,158
<ALLOWANCES> 132,553
<INVENTORY> 159,048
<CURRENT-ASSETS> 791,912
<PP&E> 316,397
<DEPRECIATION> 90,012
<TOTAL-ASSETS> 1,097,933
<CURRENT-LIABILITIES> 323,628
<BONDS> 246,516
<COMMON> 456
0
0
<OTHER-SE> 500,494
<TOTAL-LIABILITY-AND-EQUITY> 1,097,933
<SALES> 1,718,647
<TOTAL-REVENUES> 1,934,385
<CGS> 854,461
<TOTAL-COSTS> 1,785,439
<OTHER-EXPENSES> 53,736
<LOSS-PROVISION> 229,396
<INTEREST-EXPENSE> 24,284
<INCOME-PRETAX> 70,926
<INCOME-TAX> 25,001
<INCOME-CONTINUING> 45,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,925
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
