SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Quarter Ended 1-8668
March 29, 1996 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)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
As of May 9, 1996, 46,469,733 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
FINGERHUT COMPANIES, INC.
FORM 10-Q
March 29, 1996
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited) -
thirteen weeks ended March 29, 1996
and March 31, 1995.................................... 3
Consolidated Statements of Financial Position
(Unaudited) - March 29, 1996, March 31, 1995 and
December 29, 1995 .................................... 4
Consolidated Statements of Cash Flows (Unaudited) -
thirteen weeks ended March 29, 1996 and
March 31, 1995.........................................5
Condensed Notes to Consolidated Financial
Statements (Unaudited)................................ 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K ..................... 19
Signatures..................................................... 20
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except share and per share data)
(Unaudited)
Thirteen Weeks Ended
March 29, March 31,
1996 1995
Revenues:
Net sales $ 334,845 $ 365,155
Finance income and other revenues 73,387 43,844
408,232 408,959
Costs and expenses:
Product cost 169,362 178,330
Administrative and selling expenses 163,595 150,905
Provision for uncollectible accounts 56,346 46,866
Discount on sale of accounts receivable 14,808 17,521
Interest expense, net 7,337 5,763
411,448 399,385
(Loss) earnings before income taxes (3,216) 9,574
Provision for income taxes (1,165) 3,390
Net (loss) earnings $ (2,051) $ 6,184
(Loss) earnings per share $ (.04) $ .13
Dividends per share $ .04 $ .04
Weighted average shares 46,159,097 48,456,450
See accompanying Condensed Notes to Consolidated Financial
Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
(Unaudited)
March 29, March 31, December 29,
1996 1995 1995
ASSETS
Current assets:
Cash and cash equivalents $ 38,035 $ 19,697 $ 66,109
Customer accounts receivable, net 491,897 331,637 464,176
Inventories, net 153,401 175,342 156,352
Promotional material 80,162 86,064 80,357
Deferred income taxes 123,452 108,272 131,035
Other 19,183 21,009 23,542
Total current assets 906,130 742,021 921,571
Property and equipment, net 291,647 240,586 279,455
Excess of cost over fair value of
net assets acquired, net 44,143 44,283 44,047
Customer lists, net 11,201 12,569 11,201
Other assets 22,140 20,795 24,803
$1,275,261 $1,060,254 $1,281,077
LIABILITIES
Current liabilities:
Accounts payable $ 144,267 $ 161,802 $ 185,475
Accrued payroll and employee benefits 30,651 23,968 39,872
Other accrued liabilities 64,142 58,007 70,879
Accrued unusual charges 2,156 12,406 2,458
Revolving credit facility 209,000 23,000 115,000
Current portion of long-term debt 100,099 269 100,099
Current income taxes payable - - 42,380
Total current liabilities 550,315 279,452 556,163
Long-term debt, less current portion 146,556 246,509 146,564
Deferred income taxes 22,861 21,616 23,096
Other non-current liabilities 9,519 6,539 7,764
729,251 554,116 733,587
STOCKHOLDERS' EQUITY
Preferred stock - - -
Common stock 464 458 459
Additional paid-in capital 265,017 256,734 258,917
Unearned compensation (3,693) - -
Earnings reinvested 284,222 248,946 288,114
Total stockholders' equity 546,010 506,138 547,490
$1,275,261 $1,060,254 $1,281,077
See accompanying Condensed Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Thirteen Weeks Ended
March 29, March 31,
1996 1995
Cash flows from operating activities:
Net (loss) earnings $ (2,051) $ 6,184
Adjustments to reconcile net (loss) earnings to
net cash used by operating activities:
Depreciation and amortization 12,076 9,908
Amortization of unearned compensation 1,285 -
Change in operating assets and liabilities:
Customer accounts receivable, net (27,721) 19,968
Inventories, net 2,951 (16,294)
Promotional material and other current assets 4,554 (24,885)
Accounts payable (41,208) 5,681
Accrued payroll and employee benefits (9,221) (15,923)
Accrued liabilities (7,039) (9,845)
Current income taxes payable (44,691) (41,205)
Deferred and other income taxes 9,916 8,337
Other 3,603 (349)
Net cash used by operating activities (97,546) (58,423)
Cash flows from investing activities:
Additions to property and equipment (23,549) (23,375)
Net cash used by investing activities (23,549) (23,375)
Cash flows from financing activities:
Repayments of long-term debt (8) (74)
Revolving credit facility 94,000 23,000
Issuance of common stock 870 2,877
Repurchase of common stock - (7,862)
Cash dividends paid (1,841) (1,828)
Net cash provided by financing activities 93,021 16,113
Net decrease in cash and cash equivalents (28,074) (65,685)
Cash and cash equivalents at beginning of period 66,109 85,382
Cash and cash equivalents at end of period $ 38,035 $ 19,697
Supplemental noncash investing and financing activities:
Tax benefit from exercise of non-qualified
stock options $ 257 $ 1,122
Issuance of restricted stock $ 4,978 $ -
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 10,505 $ 3,770
Cash paid during the period for income taxes $ 33,688 $ 36,238
Included in cash and cash equivalents were liquid investments with
original
maturities of fifteen days or less.
See accompanying Condensed Notes to Consolidated Financial
Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. Consolidated financial statements
The consolidated financial statements of Fingerhut Companies, Inc.
(the "Company") reflect the financial position and results of
operations of the Company and its wholly owned subsidiaries.
The consolidated financial statements as of March 29, 1996 and March
31, 1995, and for the thirteen weeks ended March 29, 1996 and March
31, 1995, included herein are unaudited and have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. The interim financial statements reflect
all adjustments (consisting of normal recurring accruals) that are,
in the opinion of management, necessary for a fair statement of the
results for the interim periods. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
1995 Annual Report to Shareholders and incorporated by reference in
the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the interim
period should not be considered indicative of the results to be
expected for the entire year.
Reclassifications have been made to prior periods' consolidated
financial statements whenever necessary to conform to the current
period's presentation.
2. (Loss) earnings per share
Loss per share, for the current thirteen week period, was determined
by dividing net loss by the weighted average shares outstanding.
Common stock equivalents were not included in the determination of
the loss per share in the current period as their effect was anti-
dilutive.
Earnings per share, for the prior-year period, was computed by
dividing net earnings by the weighted average shares of common stock
and common stock equivalents outstanding during the periods. The
dilutive effect of the potential exercise of outstanding options to
purchase shares of common stock was calculated using the treasury
stock method.
3. Customer accounts receivable, net
Customer accounts receivable, net of amounts sold, consisted of the
following:
(In thousands of dollars) March 29, March 31, December 29,
1996 1995 1995
Customer installment
receivables $ 468,419 $ 457,855 $ 511,174
Reserve for uncollectible
accounts, net of anticipated
recoveries (102,267) (80,760) (105,048)
Reserve for returns
and exchanges (12,014) (11,790) (13,442)
Other reserves (17,064) (15,670) (20,192)
Net collectible amount 337,074 349,635 372,492
Unearned finance income (22,548) (17,998) (24,885)
Customer installment
receivables, net $ 314,526 $ 331,637 $ 347,607
Credit card receivables 186,854 - 122,567
Reserve for uncollectible
accounts (8,369) - (5,300)
Other reserves (1,114) - (698)
Credit card receivables,
net 177,371 - 116,569
Total Customer accounts
receivable, net $ 491,897 $ 331,637 $ 464,176
4. Stockholders' equity
During the thirteen-week period ended March 29, 1996, 88,600 shares
of common stock were issued related to the exercise of employee stock
options and 28,726 shares of common stock were issued under the
Fingerhut Companies, Inc. Employee Stock Purchase Plan. The total
shares of common stock outstanding as of March 29, 1996 was
46,435,794.
In February 1996, 368,746 shares of restricted stock were issued
under the Fingerhut Companies, Inc. 1995 Long-Term Incentive and
Stock Option Plan to certain key members of management. Twenty-five
percent of the shares vested on March 31, 1996 and, subject to
continued employment, 25% vests on March 31, 1997 with the remaining
50% vesting on August 31, 1998. The unearned portion of the awards
is being amortized as compensation expense on a straight-line basis
over the related vesting period. Compensation expense totaled
$2,012,442, including tax assistance payments made by the Company
with respect to the vested portion of the awards, for the current
thirteen-week period.
5. Executive retirement plan
On February 14, 1996, the Company adopted a Supplemental Executive
Retirement Plan (the "SERP") that covers officers or other senior
management employees of the Company selected for participation by the
Compensation Committee. Under the SERP, the Company will pay a
benefit to a participant whose employment relationship with the
Company is completely severed either (a) at or after age 65 with five
years of service or (b) at or after age 55, if the participant has
five years of service and the sum of the participant's age and years
of service equals at least 70.
6. Subsequent events
On April 18, 1996 the Company declared a cash dividend in the amount
of $.04 per share, aggregating approximately $1.8 million, payable on
May 20, 1996, to the shareholders of record as of the close of
business on May 6, 1996.
In April 1996, the Company issued 24,916 shares of common stock under
the Fingerhut Companies, Inc. Employee Stock Purchase Plan and 4,800
shares related to the exercise of employee stock options.
In April 1996, the Fingerhut Financial Services Master Trust issued
Series 1996-1 certificates to third parties with a principal amount
of $655.5 million, generating proceeds of $653.9 million of which
$400.0 million was used to paydown asset-backed commercial paper
issued under Series 1995-1. Remaining proceeds were utilized to pay
down the outstanding revolving credit balance. The Series 1996-1
certificates enter into amortization periods beginning in August
1998.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRTEEN WEEKS ENDED
MARCH 29, 1996 AND MARCH 31, 1995
Results of Operations
Direct-to-the Consumer Marketing Segment
Net sales for the current 13-week period were $330.1 million compared to
net sales of $361.6 million for the related period in 1995, a decrease of
9%. Fingerhut Corporation ("Fingerhut"), the Company's core business, had
first quarter net sales of $315.6 million compared to $322.5 million in
the same period in 1995, a decrease of 2%. Net sales from Fingerhut's new
customer acquisition programs increased 13% to $71.8 million due to a
higher average order size and higher response rates, despite lower
mailings as compared to the same period in 1995. Net sales from
Fingerhut's existing customer list decreased 6% to $243.8 million
primarily due to a reduction in mailings, partially offset by a higher
average order size and higher sales per mailing. In addition, net sales
from the Company's infomercial business, Infochoice USA, Inc.
("Infochoice"), decreased $26.4 million. In March 1995, the Company
entered into a strategic alliance with Guthy-Renker Corporation, a
producer of infomercials, whereby Infochoice became a 50% owner of USA
Direct/Guthy-Renker, Inc. ("USAD/GR"). The Company accounts for USAD/GR's
infomercials using the equity method of accounting. Thus, sales related
to these infomercials do not appear as consolidated net sales of the
Company.
Finance income and other revenues for the current 13-week period increased
13% to $49.0 million from $43.5 million in the comparable 1995 period.
The increase was primarily due to an increase in the amount of accounts
receivable sold and the effect of lengthened payment plans.
Product cost for the current 13-week period was 50.8% of net sales, or
$167.7 million, compared to 49.0% of net sales, or $177.0 million, during
the comparable prior-year period. The increase as a percent of net sales
was primarily due to margin reductions in the core catalog business, which
began during the second half of fiscal year 1995, as a result of offering
lower retail prices to improve the customer value package. In addition,
margins were negatively affected by the reduction of net sales from
Infochoice, which had higher product margins as compared to the core
catalog business. Lastly, the increase as a percent of net sales was
further impacted by the recovery of $1.9 million in reserves during the
first quarter of 1995, relating to a change in estimate for provisions
established for unusual charges in the fourth quarter of 1994.
Administrative and selling expenses for the current 13-week period were
$148.4 million, or 45.0% of net sales, compared to $148.5 million, or
41.1% of net sales, in the comparable prior-year period. The increase was
due primarily to higher paper prices (annualized impact of 1995
increases), an increase in compensation expense primarily due to the
issuance of restricted stock (see Note 4), and planned increases in
depreciation costs. These increases were partially offset by a decrease
in advertising expenses associated with Infochoice.
The provision for uncollectible accounts for the first quarter of 1996 was
$51.5 million, or 15.6% of net sales, compared to $46.9 million, or 13.0%
of net sales, for the same prior-year period. Provision rates for the
current 13-week period were comparable to those applied in the fourth
quarter of 1995, when the Company recorded additional provisions to
recognize the potential risk of delinquency levels being experienced at
that time. Management believes that the reserves continue to be adequate
to cover future anticipated losses. In addition, the provision as a
percentage of net sales was negatively affected by the reduction of net
sales from Infochoice, which had lower charge-offs as compared to the core
business, as well as the recovery of $1.9 million in reserves during
the first quarter of 1995, relating to a change in estimate for provisions
established for unusual charges in the fourth quarter of 1994.
Discount on sale of accounts receivable for the 13-week period ended March
29, 1996 was $14.8 million compared to $17.5 million for the comparable
period in 1995. The decrease resulted primarily from the benefit of
interest rate swap agreements entered into during June and July of 1995
and, to a lesser extent, decreases in short-term interest rates as
compared to the first quarter of 1995. These decreases were partially
offset by an increase in the amount of accounts receivable sold.
Net interest expense for the current 13-week period was $7.0 million
compared to $5.9 million in the first quarter of 1995. The increase was
primarily due to the higher utilization of the revolving credit agreement
used to fund normal business needs.
The effective consolidated tax rate, which includes both the Direct-to-the
Consumer Marketing and Financial Services Segments, for the first quarter
of 1996 was 36.2% compared with 35.2% in the comparable prior-year period.
As a result of the items discussed above, the Direct-to-the-Consumer
Marketing Segment incurred a net loss for the 13-week period ended March
29, 1996 of $6.2 million, or $(.13) per share, compared to first quarter
1995 net earnings of $5.9 million, or $.12 per share.
Financial Services Segment
General
The Company's Financial Services Segment markets a broad array of
financial services and information-driven products through direct
marketing and other methods. Currently, the segment's two primary
products consist of credit card lending through various MasterCardr credit
card products issued by Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank") and sales of extended service plans
to the Company's customers.
The segment generates interest and other income through finance charges
assessed on outstanding consumer loan receivables, credit card fees,
interchange income, and other ancillary revenues from sales of financial
services products to its customer base in addition to revenues from the
sales of extended services plans to the retail customers of the Direct-to-
the-Consumer Marketing Segment. The segment's profitability is affected
by credit card account and loan growth, interest spreads on loans, credit
card activity, product sales penetration for extended service plans to the
Company's customers, credit quality, marketing expenses, and servicing and
other administrative costs.
The following segment information was based on management's best estimate
of the revenues and expenses, and assets and liabilities which will
comprise the Financial Services Segment at the initiation of the
anticipated public transaction. This information will be subject to
change based on any changes in the Financial Services Segment's capital,
asset and income structure in connection with the public transaction.
Results of Operations
Net income for the 13-week period ended March 29, 1996 was $4.1 million,
or $.09 per share, compared to $.2 million, or $0.01 per share, for the
comparable prior-year period. The increase in operating results is
largely attributable to the lack of any material credit card operations in
the first quarter of 1995 and a 35.5% increase in extended service plan
and other information based product revenues, offset by a 6.3% increase in
extended service plan and other information based product operating
expenses as a percentage of such revenues over the comparable period in
1995.
Managed Receivables Portfolio Data and Analysis and Securitization
Securitizations affect the classification of revenues and expenses in the
income statement, therefore, it is management's practice to review and
analyze its financial performance on a "managed receivables" portfolio
basis as if the receivables sold and securitized are still held in the
portfolio, in addition to analyzing and reviewing its results of
operations as reported under generally accepted accounting principles.
Specifically, the effect of securitization is to remove credit card
receivables sold with limited recourse from the balance sheet and to
record a gain on sale for the difference between the carrying value of the
receivables and the adjusted sales proceeds. The adjusted sales proceeds
are based on a present value estimate of future cash flows to be received
over the life of the receivables, net of certain funding and servicing
costs. The resulting gain is further reduced by establishing a reserve
for estimated probable loan losses over the life of the receivables
securitized under the limited recourse provision. This gain, in addition
to current period net interest income and certain credit card fees, less
net credit losses and servicing expenses on the securitized receivables,
are further recorded as securitization income. Securitization income is
currently included in the consolidated statements of operations as
"Finance income and other revenues."
The following table provides selected balance sheet and other information
as of March 29, 1996 and December 29, 1995, on a managed basis, as well as
a summary of the effects of credit card securitizations on selected line
items of the Company's consolidated statements of operations for the
thirteen weeks ended March 29, 1996. Note that the Financial Services
Segment did not have any credit card receivables outstanding as of March
31, 1995, therefore, comparisons to the first quarter of 1995 are
generally not deemed relevant.
Balance Sheet and Other Statistics
(In thousands of dollars, except percentages)
Thirteen Weeks Thirteen Weeks
Ended % Ended
March 29, 1996 Change December 29, 1995
Managed credit card loans $673,400 24.5% $540,760
Managed net interest margin $ 25,226 51.2% $ 16,682
Managed net interest
margin % 15.63% 15.54%
As a percentage of gross
managed receivables:
Total loans 30 days or
more delinquent 3.80% 3.97%
Managed loan loss
reserves 4.30% 4.22%
Annualized net loan charge-
offs 5.77% 3.20%
Thirteen Weeks Thirteen Weeks
Ended Ended
March 29, 1996 March 31, 1995
Effects of credit card
securitizations on:
Finance income and other -
revenues ($ 19,402)
Administrative and -
selling expenses ($ 2,287)
Provision for -
uncollectible accounts ($10,163)
Interest expense, net ($ 6,952) -
With respect to the above information on the effects of credit card
securitizations, the above amounts represent the amounts on each
respective line item of the Company's consolidated statements of
operations that would have been higher had the securitized receivables
remained on the balance sheet.
Managed Net Interest Margin and Interest Rate Sensitivity
Net interest margin on a managed basis was 15.63% and 15.54% for the
thirteen weeks ended March 29, 1996, and December 29, 1995, respectively.
The Financial Services Segment has primarily utilized variable rate
funding in pricing its credit card securitization transactions and in its
short-term borrowings in an attempt to match the variable rate pricing
structure of the credit card receivables. Consequently, net interest
margin did not vary materially between the first quarter of 1996 and the
fourth quarter of 1995 even though overall interest rates declined during
the first quarter of 1996.
Managed Non-Interest Income and Non-Interest Expenses
Total non-interest income for the Financial Services Segment for the first
quarter of 1996 was $16.9 million compared to $4.5 million for the
comparable period in the prior year. The primary reason for the large
increase over the prior year was due to the segment's significant
marketing efforts for ancillary fee products to the segment's credit
cardholder customer base in the first quarter of 1996, in addition to the
lack of any material credit card related income in the first quarter of
1995. Non-interest income also increased due to a 37.1% increase over the
first quarter of 1995 in retail revenues from the sales of extended
service plans to the Direct-to-the-Consumer Marketing Segment's customer
base.
Total non-interest expenses for the first quarter of 1996 were $19.9
million compared to $4.1 million for the comparable period in the prior
year. The growth in non-interest expenses primarily reflects the
Company's expansion of its business development activities including
substantial marketing costs incurred associated with credit card
solicitations and ongoing credit card portfolio management projects such
as account activation, customer retention, and overall customer service.
Asset Quality
The Financial Services Segment's delinquency and net loan charge-off rates
at any time reflect, among other factors, the risk of the credit card
loans, the average maturity of the segment's various credit card account
portfolios, the success of the segment's collection and recovery efforts
and general economic conditions. A credit card account is contractually
delinquent if the minimum payment is not received by the specified date on
the customer's statement. It is the segment's policy to continue to
accrue interest and fee income on all credit card accounts, except for
certain limited circumstances, until the account is charged-off. Net loan
charge-offs include the principal amount (excluding accrued finance
charges and fees) of losses from credit cardholders unwilling or unable to
pay their loan balance, as well as bankrupt and deceased accounts, less
current period recoveries. Losses from those accounts identified as
fraudulent are excluded from this loss ratio and are included in non-
interest expenses.
The managed 30 days or more past due delinquency rate was 3.80% at March
29, 1996 compared to 3.97% at December 29, 1995. The managed annualized
net loan charge-off rate was 5.77% and 3.20% for the thirteen weeks ended
March 29, 1996 and December 29, 1995, respectively. The decrease in
delinquency compared to the prior quarter reflects improvement in the
segment's collection efforts due to the successful internalization of all
collection functions during the quarter from an outside third party. The
increase in the annualized net loan charge-off rate, on the other hand,
reflects the maturation of the segment's early 1995 credit card portfolios
in addition to general increased bankruptcy rates which are currently
being experienced by the industry. Net charge-offs are a lagging
indicator of credit quality and portfolio risk and generally reflect prior
delinquency trends. As industry loss and delinquency rates continue to
experience negative trends, the segment is focusing its resources on its
collection and post charge-off recovery efforts to minimize loan losses.
In addition, the segment continues to price its products to maximize
profitability for the risks inherent in marketing credit card accounts to
the consumer segments in which it targets.
Reserve and provision for loan losses
The reserve for loan losses is maintained for on-balance sheet receivables
and retained interests in receivables sold. For securitized receivables,
anticipated losses and related recourse reserves over the life of the
securitized receivables are reflected in the calculations of net
securitization income. The credit card loan portfolio is regularly
reviewed to determine an appropriate range for the reserve for possible
loan losses from both the securitized assets in addition to the on-balance
sheet receivables and retained interests based on the impact of economic
conditions on the credit cardholders ability to repay, current and past
collection experience, the current risk characteristics of the portfolio
and other current factors or trends that may influence the loss rates on
the portfolio. A provision is then charged to operations to maintain the
reserve level within this range. Accordingly, the provision for loan
losses for receivables on a managed basis totaled $15 million for the
first quarter of 1996, down slightly from $15.2 million in the fourth
quarter of 1995, due primarily to the reduction in delinquencies noted
above, offset by the segment's desire to maintain a targeted level of
reserve coverage for delinquent credit card loans. Total managed credit
card loss reserves stood at 4.3% of total managed credit card receivables,
or $28.9 million at March 29, 1996, up 26.2% from $22.9 million, or 4.22%
of managed credit card receivables at December 29, 1995.
Liquidity and Capital Resources (Consolidated)
The Company funds its operations through internally generated funds, the
sale of accounts receivable pursuant to the Fingerhut Master Trust and the
Fingerhut Financial Services Master Trust, borrowings under the Revolving
Credit Facility and issuance of long-term debt and common stock.
The proceeds received as of March 29, 1996 and December 29, 1995 from the
sale of Fingerhut accounts receivable were $1.144 billion and $1.254
billion, respectively, compared with $1.010 billion as of March 31, 1995
and $1.096 billion as of December 30, 1994. Proceeds received from the
sale of MasterCard receivables were $511.8 million as of March 29, 1996
and $445.3 million as of December 29, 1995. In April 1996, the Fingerhut
Financial Services Master Trust issued Series 1996-1 certificates to third
parties with a principal amount of $655.5 million, generating proceeds of
$653.9 million of which $400.0 million was used to paydown asset-backed
commercial paper issued under Series 1995-1. Remaining proceeds were
utilized to pay down the outstanding revolving credit balance. The
funding of the Series 1996-1 certificates and repayment of the asset-
backed commercial paper issued under Series 1995-1 provides the Company
with additional capacity to fund additional MasterCard receivables. The
Series 1996-1 certificates enter into amortization periods beginning in
August 1998.
The Revolving Credit Facility provides for aggregate commitments of $400.0
million, which includes the issuance of up to $200.0 million in letters of
credit. The commitment expires in October 1999. As of March 29, 1996,
the Company had an outstanding revolving credit balance of $209.0 million
and outstanding letters of credit of $5.8 million. As of March 31, 1995,
the Company had an outstanding revolving credit balance of $23.0 million
and outstanding letters of credit of $5.8 million. Additional outstanding
open letters of credit under a separate agreement aggregated $25.3 million
and $30.7 million at March 29, 1996 and March 31, 1995, respectively.
The Company had an aggregate amount of fixed rate notes outstanding of
$245.0 million as of March 29, 1996 and March 31, 1995. A total of $65.0
million of the notes mature in June 1996 and an additional $35.0 million
mature in August 1996. The Company believes it will be able to refinance
these notes prior to their maturity dates, or shortly thereafter, on
acceptable terms. In addition, the Fingerhut Master Trust Series 1994-1
certificates enter into amortization periods beginning in December 1996.
The Company believes the Fingerhut Master Trust will be able to issue a
new series of certificates to replace the amortizing certificates.
The Company used $97.5 million of cash for operations during the 13-week
period ended March 29, 1996, compared with $58.4 million for the related
period in 1995. This net $39.1 million increase in cash used for
operations resulted from increased working capital requirements as well as
the $8.2 million decrease in net earnings. The most significant items
affecting working capital were an increase in accounts receivable and
decreases in accounts payable, inventory, and promotional material and
other current assets. The change in customer accounts receivable from a
$20.0 million source of cash in 1995 to a $27.7 million use of cash in
1996 resulted primarily from retained receivables associated with
MasterCard accounts issued by the Company's subsidiary, Direct Merchants
Bank. The decrease in accounts payable was due to a reduction in
inventory purchases as well as lower promotional material levels. The
above factors were partially offset by decreases in inventory and
promotional material and other current assets. The change in inventory
from a $16.3 million use of cash in 1995 to a $3.0 million source of cash
in 1996 resulted primarily from a reduction in inventory purchases
reflecting planned decreases in future sales, as a result of the Company's
strategy to reduce mailings. The change in promotional material and other
current assets from a $24.9 million use of cash in 1995 to a $4.6 million
source of cash in 1996 was due to lower inventory levels as a result of
the planned reduction in mailings.
The $76.9 million increase in net cash provided by financing activities
was due primarily to a $71.0 million increase in net borrowings under the
Revolving Credit Facility, as well as a $7.9 million decrease in common
stock repurchases.
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 are 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
common stock. No purchases were made during the current 13-week period.
During the first quarter of 1995, the Company repurchased at prevailing
market prices 214,100 shares of its common stock for an aggregate of $3.2
million. As of March 29, 1996 the Company has purchased an aggregate of
1,021,500 shares under the stock repurchase plan for $16.6 million. On
April 18, 1996, the Company declared a cash dividend of $.04 per share, or
an aggregate of $1.8 million, payable on May 20, 1996, to the shareholders
of record as of the close of business on May 6, 1996.
In April 1996, the Company issued 24,916 shares of common stock under the
Fingerhut Companies, Inc. Employee Stock Purchase Plan and 4,800 shares
related to the exercise of employee stock options.
The Company believes it will have sufficient funds available to meet
current and future commitments.
Forward Looking Statements
Fingerhut Companies, Inc. (the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making
statements on behalf of the Company, or underwriters, from time to time
make, in writing or orally, "forward-looking statements" as defined under
the Private Securities Litigation Reform Act of 1995 (the "Act"). When
used in conjunction with an identified forward-looking statement, this
Cautionary Statement is for the purpose of qualifying for the "safe
harbor" provisions of the Act and is intended to be a readily available
written document that contains factors which could cause results to differ
materially from such forward-looking statements. These factors are in
addition to any other cautionary statements, written or oral, which may be
made or referred to in connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this
Cautionary Statement in the context of a forward-looking statement or
statements shall be deemed to be a statement that any or more of the
following factors may cause actual results to differ materially from those
in such forward-looking statement or statements.
These forward looking statements involve risks and uncertainties,
including but not limited to the following: interest rates may increase
more than is currently anticipated; customer response rates may not
continue to increase, or may decrease; additional reserves may be required
for bad debts, returns and allowances; product margins may decrease; paper
prices may not fall, or may increase; postage and shipping rates may
increase; the collective bargaining agreement for union employees at the
registrant's Tennessee facility may result in increased labor or benefits
costs; the performance of the financial markets and the demand for and
market acceptance of the Direct Merchants Credit Card Bank, National
Association credit card and related financial products may deteriorate;
changes in general economic conditions may affect consumer spending and
payment practices.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.c(ii) Series 1996-1 Supplement dated as of April 23, 1996.
11 Computation of (Loss) Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
The registrant filed a Current Report on Form 8-K on
April 18, 1996 containing information under Item 5 with respect
to forward looking statements under the Private Securities
Litigation Reform Act of 1995.
SIGNATURES
Pursuant to the requirements 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.
FINGERHUT COMPANIES, INC.
Date: May 13, 1996 By: /s/ Peter G. Michielutti
Peter G. Michielutti
Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1996 By: /s/ Thomas C. Vogt
Thomas C. Vogt
Corporate Controller
(Principal Accounting Officer)
Exhibit 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
Computation of (Loss) Earnings Per Share
(In thousands of dollars, except per share data)
Unaudited
Thirteen Weeks Ended
March 29, March 31,
1996 1995
Primary
Net (loss) earnings (a) $ (2,051) $ 6,184
Weighted average shares of
common stock outstanding 46,159,097 45,699,556
Common stock equivalents - 2,756,894
Weighted average shares of
common stock and common
stock equivalents (b) 46,159,097 48,456,450
Primary (loss) earnings per share
of common stock and common
stock equivalents (a/b) $ (.04) $ .13
Fully diluted
Net (loss) earnings (c) $ (2,051) $ 6,184
Weighted average shares of
common stock outstanding 46,159,097 45,699,556
Common stock equivalents - 2,756,894
Weighted average shares of
common stock and common
stock equivalents (d) 46,159,097 48,456,450
Fully diluted (loss) earnings per
share of common stock and
common stock equivalents
(c/d) $ (.04) $ .13
Common stock equivalents for primary earnings per share are
computed by the treasury stock method using the average market
price. The computation of primary loss per share for the current
thirteen week period excluded common stock equivalents as they are
anti-dilutive.
Common stock equivalents for quarterly fully diluted earnings per
share are computed by the treasury stock method using the ending
market price, average market price for the last month or the
average of the fully diluted monthly amounts used in the quarter,
whichever is higher. The computation of fully diluted loss per
share for the current thirteen week period excluded common stock
equivalents as they are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Fingerhut Companies, Inc. for the fiscal
quarter ended March 29, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> MAR-29-1996
<CASH> 38,035
<SECURITIES> 0
<RECEIVABLES> 655,273
<ALLOWANCES> 163,376
<INVENTORY> 153,401
<CURRENT-ASSETS> 906,130
<PP&E> 433,057
<DEPRECIATION> 141,410
<TOTAL-ASSETS> 1,275,261
<CURRENT-LIABILITIES> 550,315
<BONDS> 146,556
0
0
<COMMON> 464
<OTHER-SE> 545,546
<TOTAL-LIABILITY-AND-EQUITY> 1,275,261
<SALES> 334,845
<TOTAL-REVENUES> 408,232
<CGS> 169,362
<TOTAL-COSTS> 389,303
<OTHER-EXPENSES> 14,808
<LOSS-PROVISION> 56,346
<INTEREST-EXPENSE> 7,337
<INCOME-PRETAX> (3,216)
<INCOME-TAX> (1,165)
<INCOME-CONTINUING> (2,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
Exhibit 10.c(ii)
_________________________________________________________
FINGERHUT FINANCIAL SERVICES RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1996-1 Certificateholders
SERIES 1996-1 SUPPLEMENT
Dated as of April 23, 1996
to
POOLING AND SERVICING AGREEMENT
Dated as of May 26, 1995
____________________________________
FINGERHUT FINANCIAL SERVICES MASTER TRUST
$518,000,000 6.45% Asset Backed
Certificates, Series 1996-1, Class A
$87,500,000 6.80% Asset Backed
Certificates, Series 1996-1, Class B
$50,000,000 Floating Rate Asset Backed
Certificates, Series 1996-1, Class C
$44,500,000 0% Asset Backed Certificates,
Series 1996-1, Class D
_________________________________________________________
SERIES 1996-1 SUPPLEMENT, dated as of April 23,
1996 (this "Series Supplement") by and among FINGERHUT
FINANCIAL SERVICES RECEIVABLES, INC., a corporation
organized and existing under the laws of the State of
Delaware, as Transferor (the "Transferor"), DIRECT
MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a
national banking association organized under the laws of
the United States, as Servicer (the "Servicer"), and THE
BANK OF NEW YORK (DELAWARE), a Delaware banking
corporation organized and existing under the laws of the
State 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 May 26, 1995
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. SECTION 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 1996-1 Certificates."
The Series 1996-1 Certificates shall be issued in four
Classes, which shall be designated generally as the 6.45%
Asset Backed Certificates, Series 1996-1, Class A (the
"Class A Certificates"), the 6.80% Asset Backed
Certificates, Series 1996-1, Class B (the "Class B
Certificates"), the Floating Rate Asset Backed
Certificates, Series 1996-1, Class C (the "Class C
Certificates") and the 0% Asset Backed Certificates,
Series 1996-1, Class D (the "Class D Certificates").
1. SECTION 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 1996-1 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 1996-1 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 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.
"ABC Investor Default Amount" shall mean (i) on
any Business Day other than a Default Recognition Date,
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 and (ii) on any Default Recognition
Date, an amount equal to the product of (a) the sum of
the Class A Default Recognition Allocation Percentage,
the Class B Default Recognition Allocation Percentage and
the Class C Default Recognition Allocation Percentage
applicable on such Default Recognition Date and (b) the
Default Amount with respect to such Default Recognition
Date.
"Additional Interest" shall mean, at any time
of determination, the sum of the Class A Additional
Interest, Class B Additional Interest and Class C
Additional Interest.
"Adjusted Invested Amount" shall mean as of any
Business Day the Invested Amount minus the Series
Allocation Percentage of the amount then on deposit in
the Excess Funding Account.
"Amortization Period" shall mean the period
beginning on the day following the last day of the
Revolving Period and ending on the Series 1996-1
Termination Date.
"Amortization Period Commencement Date" shall
mean the earlier of the first day of the August 1998
Monthly Period and the Pay Out Commencement Date.
"Available Series 1996-1 Finance Charge
Collections" shall have the meaning specified in
subsection 4.9(a) of the 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 a fraction the numerator of
which is the Adjusted Invested Amount and the denominator
of which is the Invested Amount.
"Carryover Class A Interest" shall mean with
respect to any Business Day (a) any Class A Interest due
but not paid on any previous Distribution Date plus (b)
any Class A Additional Interest due on the next
succeeding Distribution Date.
"Carryover Class B Interest" shall mean with
respect to any Business Day (a) any Class B Interest due
but not paid on any previous Distribution Date plus (b)
any Class B Additional Interest due on the next
succeeding Distribution Date.
"Carryover Class C Interest" shall mean with
respect to any Business Day (a) any Class C Interest due
but not paid on any previous Distribution Date plus (b)
any Class C Additional Interest due on the next
succeeding Distribution Date.
"Carryover Class D Interest" shall mean with
respect to any Business Day (a) any Class D Interest due
but not paid on any previous Distribution Date plus (b)
any Class D Additional Interest due on the next
succeeding Distribution Date.
"Class A Additional Interest" shall have
the meaning specified in subsection 4.6(a) of the
Agreement.
"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 1996-1 Certificateholders'
Interest evidenced by the Class A Certificate.
"Class A Certificate" 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 A1 hereto.
"Class A Certificate Rate" shall mean 6.45% per
annum.
"Class A Controlled Amortization Amount" shall
mean $34,533,333.34.
"Class A Controlled Distribution Amount" shall
mean, with respect to any Distribution Date, an amount
equal to the Class A Controlled Amortization Amount plus
the Class A Deficit Controlled Amortization Amount
determined on the preceding Distribution Date, if any.
"Class A Default Recognition Allocation
Percentage" shall mean, with respect to each Default
Recognition Date, the percentage equivalent of a
fraction, the numerator of which is the Weighted Average
Class A Invested Amount for the related Monthly Period
and the denominator of which is the Weighted Average
Principal Receivables in the Trust for the related
Monthly Period.
"Class A Deficit Controlled Amortization
Amount" shall mean zero on the initial Distribution Date
and, on any subsequent Distribution Date, the excess, if
any, of (i) the Class A Controlled Distribution Amount
over (ii) the sum of (a) 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, (b) any amount on
deposit in the Excess Funding Account allocated to the
Class A Certificates pursuant to subsection 4.9(d) with
respect to the preceding Monthly Period, (c) the amount,
if any, allocated to the Class A Certificates 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) of the Agreement during the preceding Monthly
Period, and (d) the amount of Shared Principal
Collections allocated to the Class A Certificates with
respect to the preceding Monthly Period pursuant to
Section 4.8 of the Agreement.
"Class A Expected Final Payment Date" shall
mean the November 1999 Distribution Date.
"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 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) the sum of the numerators with respect to all Classes
of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class A Initial Invested Amount" shall mean
the aggregate initial principal amount of the Class A
Certificates, which is $518,000,000.
"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 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 Class A Initial Invested Amount less the Class A
Percentage of the initial deposit to the Pre-Funding
Account plus the Class A Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
A Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates, plus (d)
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,
pursuant to subsections 4.10(a) and (b) and 4.16(a), (b)
and (c) of the Agreement, for the purpose of reinstating
amounts reduced pursuant to the foregoing clause (c).
"Class A Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(d) of the Agreement.
"Class A Outstanding Principal Amount" shall
mean with respect to the Class A Certificates, when used
with respect to any Business Day, an amount equal to (a)
the Class A Initial Invested Amount minus (b) the
aggregate amount of principal payments (including
principal payments made from the Pre-Funding Account)
made to the Class A Certificateholders on or prior to
such Business Day.
"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 Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the sum of the Class A
Invested Amount and the Class A Percentage of funds on
deposit in the Pre-Funding Account as of such Record Date
(determined after taking into account any increases or
decreases in the Class A Invested Amount which will
occur, and the amount of funds which will be on deposit
in the Pre-Funding Account, on the following Distribution
Date) to the Class A Initial Invested Amount.
"Class A Pre-Funded Amount" shall mean the
product of the Pre-Funded Amount and the Class A
Percentage.
"Class A Principal" shall mean the principal
distributable in respect of the Class A Certificates as
calculated in accordance with subsection 4.7(a) of the
Agreement.
"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) Class A
Interest for the then current Monthly Period, (ii) any
Carryover Class A Interest, (iii) if DMCCB or an
Affiliate of DMCCB is no longer the Servicer, the Class A
Floating Allocation Percentage of the Servicing Fee for
the then current Monthly Period, (iv) 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, (v) the Class A 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 and (vi) the unreimbursed amount by which
the Class A Invested Amount has been reduced on prior
Business Days pursuant to clause (c) of the definition of
Class A Invested Amount over (y) the Available Series
1996-1 Finance Charge Collections plus any Excess Finance
Charge Collections from other Series and any Transferor
Finance Charge Collections allocated with respect to the
amounts described in clauses (x)(i) through (vi) above.
"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 1996-1 Certificateholders'
Interest evidenced by the Class B Certificates.
"Class B Certificate Rate" shall mean 6.80% per
annum.
"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 A2 hereto.
"Class B Controlled Amortization Amount" shall
mean $29,166,666.67.
"Class B Controlled Distribution Amount" shall
mean, with respect to any Distribution Date, an amount
equal to the Class B Controlled Amortization Amount plus
the Class B Deficit Controlled Amortization Amount
determined on the preceding Distribution Date, if any.
"Class B Deficit Controlled Amortization
Amount" shall mean zero on the initial Distribution Date
and, on any subsequent Distribution Date, the excess, if
any, of (i) the Class B Controlled Distribution Amount
over (ii) the sum of (a) 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 deposited in the Principal Account
to be applied to the payment of Class A Principal, the
ABC Fixed/Floating Allocation Percentage of Principal
Collections from the date on which such deposit is made),
(b) 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, (c) 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, and (d) the amount of Shared Principal
Collections allocated to the Class B Certificates with
respect to the preceding Monthly Period pursuant to
Section 4.8 of the Agreement on and after the Class B
Principal Payment Commencement Date;
"Class B Default Recognition Allocation
Percentage" shall mean, with respect to each Default
Recognition Date, the percentage equivalent of a
fraction, the numerator of which is the Weighted Average
Class B Invested Amount for the related Monthly Period
and the denominator of which is the Weighted Average
Principal Receivables in the Trust for the related
Monthly Period.
"Class B Expected Final Payment Date" means the
February 2000 Distribution Date.
"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 with
respect to all Classes of all series then outstanding
used to calculate the applicable allocation percentage.
"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) the sum of the numerators with respect to all Classes
of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class B Initial Invested Amount" shall mean
the aggregate initial principal amount of the Class B
Certificates which is $87,500,000.
"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 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 Class B Initial Invested Amount less the Class B
Percentage of the initial deposit to the Pre-Funding
Account plus the Class B Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
B Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates, minus (d)
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 (e) 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, pursuant
to subsections 4.10(a) and (b) and 4.16(a) and (b) of the
Agreement, for the purpose of reinstating amounts reduced
pursuant to the foregoing clauses (c) and (d).
"Class B Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(c) of the Agreement.
"Class B Outstanding Principal Amount" shall
mean with respect to the Class B Certificates, when used
with respect to any Business Day, an amount equal to (a)
the Class B Initial Invested Amount minus (b) the
aggregate amount of principal payments (including
principal payments made from the Pre-Funding Account)
made to the Class B Certificateholders on or 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 sum of the Class B
Invested Amount and the Class B Percentage of funds on
deposit in the Pre-Funding Account 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, and the amount of funds
which will be on deposit in the Pre-Funding Account, on
the following Distribution Date) to the Class B Initial
Invested Amount.
"Class B Pre-Funded Amount" shall mean the
product of the Pre-Funded Amount and the Class B
Percentage.
"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) (i) during the Controlled
Amortization Period, the Distribution Date following the
Distribution Date on which the final distribution of
principal is made with respect to the Class A Invested
Amount or (ii) during the Early Amortization Period, the
Distribution Date on which the Class A Invested Amount is
paid in full or, if there are no Principal Collections
allocable to the Series 1996-1 Certificates remaining
after payments have been made to the Class A Certificates
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(a), 12.1 or 12.2
of the Agreement or Section 3 of this Series Supplement.
"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 Class B
Interest for the then current Monthly Period, (ii) any
Carryover Class B Interest, (iii) if DMCCB or an
Affiliate of DMCCB 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, (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 and (vi) the unreimbursed amount by which
the Class B Invested Amount has been reduced on prior
Business Days pursuant to clauses (c) and (d) of the
definition of Class B Invested Amount over (y) the
Available Series 1996-1 Finance Charge Collections plus
any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections allocated
with respect to the amounts described in clauses (x)(i)
through (vi) above.
"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 1996-1 Certificateholders'
Interest evidenced by the Class C Certificates.
"Class C Certificate Rate" shall mean 6.09141%
per annum from April 23, 1996 through and including May
19, 1996 and from May 20, 1996 through and including June
19, 1996 and with respect to each Interest Period
thereafter, a per annum rate .65% 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 A3 hereto.
"Class C Default Recognition Allocation
Percentage" shall mean, with respect to each Default
Recognition Date, the percentage equivalent of a
fraction, the numerator of which is the Weighted Average
Class C Invested Amount for the related Monthly Period
and the denominator of which is the Weighted Average
Principal Receivables in the Trust for the related
Monthly Period.
"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 with
respect to all Classes of all Series then outstanding
used to calculate the applicable allocation percentage.
"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) the sum of the numerators with respect to all Classes
of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class C Initial Invested Amount" shall mean
the aggregate initial principal amount of the Class C
Certificates which is $50,000,000.
"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 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 Class C Initial Invested Amount less the Class C
Percentage of the initial deposit to the Pre-Funding
Account plus the Class C Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
C Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class C Investor
Charge-Offs for all prior Distribution Dates, minus (d)
the aggregate amount of Reallocated Class B Principal
Collections and Reallocated Class C Principal Collections
for which the Class D Invested Amount has not been
reduced for all prior Business Days (provided that the
Class C Invested Amount shall in no event be reduced to
an amount less than zero), and plus (e) the sum of the
aggregate amount allocated and available on all prior
Business Days pursuant to subsection 4.9(a)(xii) of the
Agreement and, with respect to such subsection, pursuant
to subsections 4.10(a) and (b) and 4.16(a) of the
Agreement, for the purpose of reinstating amounts reduced
pursuant to the foregoing clauses (c) and (d).
"Class C Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(b) of the Agreement.
"Class C Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the Class C Initial Invested Amount
minus (b) the aggregate amount of principal payments
(including principal payments made from the Pre-Funding
Account) 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 sum of the Class C
Invested Amount and the Class C Percentage of funds on
deposit in the Pre-Funding Account as of such Record Date
(determined after taking into account any increases or
decreases in the Class C Invested Amount which will
occur, and the amount of funds on deposit in the Pre-
Funding Account, on the following Distribution Date) to
the Class C Initial Invested Amount.
"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) during the Amortization
Period the Distribution Date on which the Class B
Invested Amount is paid in full or, if there are no
Principal Collections allocable to the Series 1996-1
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(a), 12.1 or 12.2 of the Agreement and Section 3 of
this Series Supplement.
"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, (iii) if DMCCB or an
Affiliate of DMCCB 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, (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 and (vi) the unreimbursed amount by which
the Class C Invested Amount has been reduced on prior
Business Days pursuant to clauses (c) and (d) of the
definition of Class C Invested Amount over (y) the
Available Series 1996-1 Finance Charge Collections plus
any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections allocated
with respect to the amounts described in clauses (x)(i)
through (vi) above.
"Class C Reserve Account" shall have the
meaning specified in the Class C Reserve Account
Agreement.
"Class C Reserve Account Agreement" shall mean
the Class C Reserve Account Agreement dated as of April
23, 1996 among the Transferor, the Servicer and the
Trustee as amended and supplemented from time to time.
"Class D Additional Interest" shall have the
meaning specified in subsection 4.6(d) of the Agreement.
"Class D Certificate Rate" shall initially be
0% per annum, but may be modified, at the option of the
Transferor.
"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 1996-1 Certificateholders'
Interest evidenced by the Class D Certificate.
"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 A4 hereto.
"Class D Default Recognition Allocation
Percentage" shall mean with respect to each Default
Recognition Date, the percentage equivalent of a
fraction, the numerator of which is the Weighted Average
Class D Invested Amount for the related Monthly Period
and the denominator of which is the Weighted Average
Principal Receivables in the Trust for the related
Monthly Period.
"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 with
respect to all Classes of all Series then outstanding
used to calculate the applicable allocation percentage.
"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 on such day after taking into
account all adjustments of the Class D Invested Amount on
such 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) the sum of the
numerators with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation
percentage.
"Class D Initial Invested Amount" shall mean
the aggregate initial principal amount of the Class D
Certificates which is $44,500,000.
"Class D Interest" shall mean the interest
distributable in respect of the Class D Certificates as
calculated in accordance with subsection 4.6(d) of the
Agreement.
"Class D Interest Shortfall" shall have the
meaning specified in subsection 4.6(d) of the Agreement.
"Class D Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the initial principal balance of the Class D
Certificates, minus (b) the aggregate amount of principal
payments made to Class D Certificateholders through and
including such Business Day, minus (c) the aggregate
amount of Class D Investor Charge-Offs for all prior
Distribution Dates, minus (d) the aggregate amount of
Reallocated Principal Collections for all prior Business
Days (provided that the Class D Invested Amount shall in
no event be reduced to an amount less than zero), plus
(e) 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 (c) and (d).
"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
(i) on any Business Day other than a Default Recognition
Date, 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 and (ii) on any
Default Recognition Date, an amount equal to the product
of (a) the Class D Default Recognition Allocation
Percentage applicable on such Default Recognition Date
and (b) the Default Amount with respect to such Default
Recognition Date.
"Class D Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the Class D Initial Invested Amount
minus (b) the aggregate amount of principal payments made
to Class D Certificateholders prior to such Business Day.
"Class D Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the Class D Invested
Amount as of such Record Date (determined after taking
into account any increases or decreases in the Class D
Invested Amount which will occur, and the amount of funds
on deposit in the Pre-Funding Account, on the following
Distribution Date) to the Class D Initial Invested
Amount.
"Class D Principal" shall mean the principal
distributable in respect of the Class D Certificate 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 1996-1 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(a), 12.1 and 12.2 of the
Agreement and Section 3 of this Series Supplement.
"Closing Date" shall mean April 23, 1996.
"Default Amount" shall mean, (i) on any
Business Day other than the Default Recognition Date, the
aggregate amount of Principal Receivables in Accounts
which became Defaulted Accounts on such Business Day and
(ii) on any Default Recognition Date the aggregate amount
of Principal Receivables in Accounts which became
Defaulted Accounts during the then current Monthly Period
(other than such Accounts which were included in clause
(i)).
"Default Recognition Date" shall mean the last
day of each calendar month; provided, however, that with
respect to any Monthly Period the "related Default
Recognition Date" shall mean the default Recognition Date
occurring closest to the last day of such Monthly Period
and any amounts allocated or applied on such Default
Recognition Date shall be deemed to apply to the related
Monthly Period.
"Distribution Date" shall mean May 20, 1996,
and the twentieth day of each month thereafter, or if
such day is not a Business Day, the next succeeding
Business Day.
"Early Amortization Period" shall mean the
period beginning on the earlier of (a) the day on which a
Pay Out Event occurs or is deemed to have occurred and
(b) the Class A Expected Final Payment Date if the Class
A Invested Amount has not been paid in full on such date,
or the Class B Expected Final Payment Date if the Class B
Invested Amount has not been paid in full on such date,
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 1996-1
Termination Date.
"Enhancement" shall mean, with respect to the
Class A Certificates, 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 Finance Charge Collections" shall mean,
with respect to any Business Day, as the context
requires, either (x) the amount described in subsection
4.9(a)(xvii) of the Agreement allocated to the Series
1996-1 Certificates but available to cover shortfalls in
amounts paid from Finance Charge Collections for other
Series, if any, or (y) the aggregate amount of Finance
Charge 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 1996-1
Certificates.
"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 with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation
percentage.
"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.
"Full Invested Amount" shall mean $700,000,000.
"Funding Period" shall mean the period from and
including the Closing Date to but excluding the earlier
of (x) the first day for which the Invested Amount equals
the Full Invested Amount; (y) the first day on which a
Pay Out Event is deemed to occur and (z) the first day of
the November 1996 Monthly Period.
"Initial Invested Amount" shall mean the
aggregate principal amount of Investor Certificates of
Series 1996-1, which is $576,554,687.50.
"Initial Pre-Funded Amount" shall mean
$123,445,312.50.
"Interest Accrual Period" shall mean, with
respect to a Distribution Date, the period from and
including the preceding Distribution Date to but
excluding such Distribution Date; provided, however, that
the initial Interest Accrual Period shall be the period
from the Closing Date to but excluding the initial
Distribution Date.
"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.
"Investor Certificateholder" shall mean the
Holder of record of an Investor Certificate of Series
1996-1.
"Investor Certificates" shall mean the Class A
Certificates, the Class B Certificates, the Class C
Certificates and the Class D Certificate.
"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 Finance Charge
Collections prior to the Pay Out Commencement Date,
Receivables in Defaulted Accounts at any time and
Principal Collections during the Revolving Period, the
Floating Allocation Percentage and (b) with respect to
Finance Charge Collections on and after the Pay Out
Commencement Date and Principal Collections during the
Amortization 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.
"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 1996-1 Certificates
shall begin on and include the Closing Date and shall end
on and include April 26, 1996.
"Negative Carry Amount" shall have the meaning
specified in subsection 4.10(a) of the Agreement.
"Paired Series" shall have the meaning
specified in Section 19.
"Paying Agent" shall mean, for the Series
1996-1 Certificates, The Bank of New York.
"Payment Reserve Account" shall have the
meaning specified in subsection 4.18 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 1996-
1 Pay Out Event is deemed to occur pursuant to Section 8
of this Series Supplement.
"Portfolio Yield" shall mean for the Series
1996-1 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 1996-1 Finance
Charge Collections for such Monthly Period (not including
the amounts on deposit in the Payment Reserve Account and
Adjustment Payments made by the Transferor with respect
to Adjustment Payments required to be made but not made
in prior Monthly Periods, 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 during the preceding Monthly
Period; provided, however, that Excess Finance Charge
Collections applied for the benefit of the
Certificateholders may be added to the numerator if
Ratings Event with respect to the Series 1996-1
Certificates would not occur as a result thereof.
"Pre-Funded Amount" shall mean (a) the Initial
Pre-Funded Amount, minus (b) the amount of any increases
in the Invested Amount during the Funding Period pursuant
to Section 4.15 of the Agreement, minus (c) the amount of
any principal losses on funds on deposit in the Pre-
Funding Account and minus (d) the amount withdrawn from
the Pre-Funding Account and deposited in the Excess
Funding Account.
"Pre-Funding Account" shall mean the account
established and maintained pursuant to subsection 4.14(a)
of the Agreement.
"Principal Shortfalls" shall mean on any
Business Day (x) for Series 1996-1, (i) during the
Controlled Amortization Period on or prior to the Class C
Principal Payment Commencement Date, the excess of the
Class A Controlled Distribution Amount or the Class B
Controlled Distribution Amount, as applicable, over the
aggregate amount applied with respect thereto for such
Business Day and for each prior Business Day in such
Monthly Period, and (ii) at all other times, the Invested
Amount of the class then receiving principal payments
after the application of Principal Collections on such
Business Day or (y) for any other Series the amounts
specified as such in the Supplement for such other
Series.
"Rating Agency" shall mean Standard & Poor's, a
Division of the McGraw-Hill Companies, 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.
"Required Amount" shall have the meaning
specified in subsection 4.10(b) 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 1996-1 Termination Date"
shall mean the February 2002 Distribution Date.
"Series 1996-1" shall mean the Series of the
Fingerhut Financial Services Master Trust represented by
the Series 1996-1 Certificates.
"Series 1996-1 Allocation Percentage" shall
mean, on any date of determination, the percentage
equivalent of a fraction the numerator of which is the
Invested Amount and the denominator of which is the sum
of the Invested Amounts relating to all other Series then
outstanding.
"Series 1996-1 Certificates" shall mean the
Class A Certificate, the Class B Certificates, the Class
C Certificates and the Class D Certificate.
"Series 1996-1 Certificateholder" shall mean
the holder of record of any Series 1996-1 Certificate.
"Series 1996-1 Certificateholders' Interest"
shall have the meaning specified in Section 4.4 of the
Agreement.
"Series 1996-1 Pay Out Event" shall have the
meaning specified in Section 8 of this Series Supplement.
"Series 1996-1 Termination Date" shall mean the
earlier to occur of (i) the day after the Distribution
Date on which the Series 1996-1 Certificates are paid in
full, or (ii) the Scheduled Series 1996-1 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) a fraction
the numerator of which is the actual number of days in
such Monthly Period and the denominator of which is 365
or 366, (ii) the applicable Series Servicing Fee
Percentage and (iii) the Adjusted Invested Amount as of
the beginning of the day on the first day of such Monthly
Period, or, in the case of the first Distribution Date,
the Initial Invested Amount.
"Shared Principal Collections" shall mean, as
the context requires, either (a) the amount allocated to
the Series 1996-1 Certificates which, in accordance with
subsections 4.9(b) and 4.9(c)(v) of the Agreement, may be
applied in accordance with Section 4.3(d) 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
1996-1 Certificates.
"Targeted Holder" shall mean each holder of a
right to receive interest or principal with respect to
the Class C Certificates (or other interests in the
Trust), other than certificates (or other such interests)
with respect to which an opinion is rendered that such
certificates (or other such interests) will be treated as
debt for Federal income tax purposes, and any holder of a
right to receive any amount in respect of the Transferor
Interest; provided, that any Person holding more than one
interest each of which would cause such Person to be a
Targeted Holder shall be treated as a single Targeted
Holder.
"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 or a Trigger Event and the occurrence of
the Scheduled Series 1996-1 Termination Date.
"Transferor Finance Charge Collections" shall
mean on any Business Day the product of (a) the Finance
Charge 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, which may include
the Class D Certificate, which the Transferor retains,
but only to the extent that and for so long as the
Transferor is the Holder of such Certificates.
"Transferor Retained Finance Charge
Collections" shall mean with respect to each Business Day
other than a Default Recognition Date, the amount
specified in subsection 4.9(a)(xvii) of the Agreement.
"Weighted Average Class A Adjusted Invested
Amount" shall mean with respect to any Monthly Period the
weighted average Class A Invested Amount based on the
Class A Invested Amount outstanding on each Business Day
after giving effect to all transactions on such Business
Day from but excluding the Default Recognition Date
related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Class B Invested Amount"
shall mean with respect to any Monthly Period the
weighted average Class B Invested Amount based on the
Class B Invested Amount outstanding on each Business Day
after giving effect to all transactions on such Business
Day from but excluding the Default Recognition Date
related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Class C Invested Amount"
shall mean with respect to any Monthly Period the
weighted average Class C Invested Amount based on the
Class C Invested Amount outstanding on each Business Day
after giving effect to all transactions on such Business
Day from but excluding the Default Recognition Date
related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Class D Invested Amount"
shall mean with respect to any Monthly Period the
weighted average Class D Invested Amount based on the
Class D Invested Amount outstanding on each Business Day
after giving effect to all transactions on such Business
Day from but excluding the Default Recognition Date
related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Principal Receivables" shall
mean with respect to any Monthly Period the weighted
average sum of the total amount of Principal Receivables
and the amount on deposit in the Excess Funding Account
on each Business Day after giving effect to all
transactions on such Business Day from but excluding the
Default Recognition Date related to the preceding Monthly
Period to and including the Default Recognition Date with
respect to such Monthly Period.
SECTION 3. Reassignment Terms. The Series
1996-1 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 Class A Initial Invested Amount, the Class B
Initial Invested Amount and the Class C Initial 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 1996-1 Certificates through the day prior
to the Distribution Date on which the final distribution
occurs.
SECTION 4. Delivery and Payment for the Series
1996-1 Certificates. The Transferor shall execute and
deliver the Series 1996-1 Certificates to the Trustee for
authentication in accordance with Section 6.1 of the
Agreement. The Trustee shall deliver the Series 1996-1
Certificates to or upon the order of the Transferor when
authenticated in accordance with Section 6.2 of the
Agreement.
SECTION 5. Form of Delivery of Series 1996-1
Certificates; Denominations. (a) The Class A
Certificates and the Class B Certificates shall be
delivered as Book-Entry Certificates as provided in
Sections 6.1 and 6.10 of the Agreement and shall be
issued in minimum denominations of $1,000 and integral
multiples thereof. The Class C Certificates shall be
delivered as Registered Certificates as provided in
Section 6.1 of the Agreement and shall be issued in
minimum denominations of $1,000,000 and integral
multiples of $1,000 in excess thereof. The Class D
Certificates shall be delivered as Registered
Certificates as provided in Section 6.1 of the Agreement.
(b) The Depositary for Series 1996-1 shall
be The Depository Trust Company and the Class A
Certificates and Class B Certificates shall be initially
registered in the name of Cede & Co., its nominee.
SECTION 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 1996-1 Certificates:
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
A. SECTION 4.4 Rights of Certificateholders.
The Series 1996-1 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 1996-1 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 Finance Charge Collections)
available in the Collection Account, (b) funds allocable
to the Series 1996-1 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 Payment Reserve and the Pre-
Funding Account (for such Series, the "Series 1996-1
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
Certificates; 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. 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.
SECTION 4.5 Collections and Allocation;
Payments on Exchangeable Transferor Certificate.
(a) Collections and Allocations. 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 1996-1
Certificates, and all funds on deposit in the Interest
Funding Account, the Principal Account, the Distribution
Account, the Payment Reserve Account and the Pre-Funding
Account maintained for this Series, as described in this
Article IV. On each Business Day, (i) the amount of
Finance Charge Collections available in the Collection
Account allocable to Series 1996-1 Certificates shall be
determined by multiplying the aggregate amount of such
Finance Charge Collections by (x) prior to the Pay Out
Commencement Date, the Floating Allocation Percentage and
(y) on and after the Pay Out Commencement Date, the
Fixed/Floating Allocation Percentage, (ii) the amount of
Principal Collections available in the Collection Account
allocable to the Series 1996-1 Certificates shall be
determined by multiplying the aggregate amount of such
Principal Collections by (x) during the Revolving Period,
the Floating Allocation Percentage and (y) during any
Amortization Period, the Fixed/Floating Allocation
Percentage, and (iii) the Receivables in Defaulted
Accounts allocable to the Series 1996-1 Certificates
shall be determined by multiplying the aggregate amount
of such Receivables in Defaulted Accounts by the Floating
Allocation Percentage. In addition, on the Closing Date
the Transferor shall make a deposit to the Interest
Funding Account in the amount of $3,181,000, to be
allocated to the Series 1996-1 Certificates and applied
as Available Series 1996-1 Finance Charge Collections in
accordance with subsection 4.9(a) of the Agreement.
(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
1996-1 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:
(i) 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;
(ii) 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; and
(iii) 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) of the Agreement 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 Finance Charge
Receivables or Principal Receivables as provided in the
Agreement.
SECTION 4.6 Determination of Interest for the
Series 1996-1 Certificates. (a) The amount of monthly
interest (the "Class A Interest") allocable to the Class
A Certificates with respect to any Interest Accrual
Period shall be an amount equal to one-twelfth of the
product of (i) the Class A Certificate Rate and (ii) the
Class A Outstanding Principal Amount as of the close of
business on the first day of such Interest Accrual Period
(or in the case of the Initial Distribution Date the
initial principal amount of the Class A Certificates).
On the Determination Date preceding each
Distribution Date, the Servicer shall determine an amount
(the "Class A Interest Shortfall") equal to the excess,
if any, of (x) the Class A Interest for the Interest
Accrual Period applicable to the Distribution Date over
(y) the amount available to be paid to the Class A
Certificateholders in respect of interest on such
Distribution Date. If there is a Class A Interest
Shortfall with respect to any Distribution Date, an
additional amount ("Class A Additional Interest") shall
be payable as provided herein with respect to the Class A
Certificates on each Distribution Date following such
Distribution Date, to and including the Distribution Date
on which such Class A Interest Shortfall is paid to Class
A Certificateholders, equal to one-twelfth of the product
of (i) the Class A Certificate Rate plus 2% per annum and
(ii) such Class A Interest Shortfall remaining unpaid.
Notwithstanding anything to the contrary herein, Class A
Additional Interest shall be payable or distributed to
Class A Certificateholders only to the extent permitted
by applicable law.
(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 one-twelfth of the product of (i) the
Class B Certificate Rate and (ii) the Class B Invested
Amount as of the close of business on the first day of
such Interest Accrual Period (or in the case of the
Initial Distribution Date the initial principal amount of
the Class B Certificates); provided, however, that with
respect to any Distribution Date related to the Funding
Period the amount described in clause (ii) shall be the
Class B Outstanding Principal Amount at the close of
business on the first day of such Interest Accrual
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 one-twelfth of the product
of (i) the Class B Certificate Rate plus 2% per annum,
(ii) such Class B Interest Shortfall remaining unpaid.
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 (for the
Series 1996-1 Certificates, the "Class C Interest")
allocable to the Class C Certificates of the Series 1996-
1 Certificates with respect to any Interest Accrual
Period shall be an amount equal to the product of (i) the
Class C Certificate Rate, (ii) 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 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 Funding Period the
amount described in clause (iii) shall be the Class C
Outstanding Principal Amount at the close of business on
the first day of such Interest Accrual 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, (ii) such
Class C Interest Shortfall remaining unpaid and (iii) a
fraction the numerator of which is the actual number of
days in the related Interest Accrual Period and the
denominator of which is 360. 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.
(d) The amount of monthly interest (for the
Series 1996-1 Certificates, the "Class D Interest")
allocable to the Class D Certificates of the Series 1996-
1 Certificates with respect to any Interest Accrual
Period shall be an amount equal to (A) in the event that
the Class D Certificates accrue interest at a floating
rate, the product of (i) the Class D Certificate Rate,
(ii) 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 and (iii) the Class D
Invested Amount as of the close of business on the first
day of such Interest Accrual Period or (B) in the event
that the Class D Certificates accrue interest at a fixed
rate, one-twelfth of the product of (i) the Class D
Certificate Rate and (ii) the Class D Outstanding
Principal 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
Funding Period the amount described in clauses A(iii) and
B(ii) above shall be the Class D Outstanding Principal
Amounts at the close of business on the first day of such
Interest Accrual Period.
On the Determination Date preceding each
Distribution Date, the Servicer shall determine an amount
(the "Class D Interest Shortfall") equal to the excess,
if any, of (x) the aggregate Class D Interest for the
Interest Accrual Period applicable to the Distribution
Date over (y) the amount available to be paid to the
Class D Certificateholders in respect of interest on such
Distribution Date. If there is a Class D Interest
Shortfall with respect to any Distribution Date, an
additional amount ("Class D Additional Interest") shall
be payable as provided herein with respect to the Class D
Certificates on each Distribution Date following such
Distribution Date, to and including the Distribution Date
on which such Class D Interest Shortfall is paid to Class
D Certificateholders, equal to (A) in the event that the
Class D Certificates accrue interest at a floating rate,
the product of (i) the Class D Certificate Rate plus 2%
per annum, (ii) such Class D Interest Shortfall remaining
unpaid and (iii) a fraction the numerator of which is the
actual number of days in the related Interest Accrual
Period and the denominator of which is 360 and (B) in the
event that the Class D Certificates accrue interest at a
fixed rate, one-twelfth of the product of (i) the Class D
Certificate Rate and (ii) the Class D Interest Shortfall
remaining unpaid. Notwithstanding anything to the
contrary herein, Class D Additional Interest shall be
payable or distributed to Class D Certificateholders only
to the extent permitted by applicable law.
SECTION 4.7 Determination of Principal
Amounts. (a) The amount of principal (the "Class A
Principal") distributable from the Distribution Account
with respect to the Class A Certificates on each
Distribution Date with respect to the Amortization 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 the
preceding Monthly Period, (ii) any amount on deposit in
the Excess Funding Account allocated to the Class A
Certificates pursuant to subsection 4.9(d) of the
Agreement with respect to the preceding Monthly Period,
(iii) the amount, if any, allocated to the Class A
Certificates 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) during the preceding Monthly
Period, (iv) the amount of Shared Principal Collections
allocated to the Class A Certificates with respect to the
preceding Monthly Period pursuant to Section 4.8 and (v)
on and after the Pay Out Commencement Date, any amount on
deposit in the Pre-Funding Account (less investment
earnings thereon); provided, however, that with respect
to any Distribution Date during the Controlled
Amortization Period, Class A Principal may not exceed the
Class A Controlled Distribution Amount for such
Distribution Date; provided, further, that with respect
to any Distribution Date Class A Principal may not exceed
the Class A Invested Amount; provided, further, that with
respect to the Scheduled Series 1996-1 Termination Date,
the Class A Principal shall be an amount equal to the
Class A Invested Amount.
(b) 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 deposited in the
Principal Account to be applied to the payment 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, (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 4.8 of the Agreement
on and after the Class B Principal Payment Commencement
Date, and (v) on and after the later of the Pay Out
Commencement Date and the date on which an amount equal
to the Class A Invested Amount is deposited in the
Principal Account to be applied to the payment of Class A
Principal, any amount on deposit in the Pre-Funding
Account (less investment earnings thereon); provided,
however, that with respect to any Distribution Date
during the Controlled Amortization Period, Class B
Principal may not exceed the Class B Controlled
Distribution Amount for such Distribution Date; 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 1996-1 Termination Date, the Class B
Principal shall be an amount equal to the Class B
Invested Amount.
(c) 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) of the
Agreement with respect to the preceding Monthly Period,
(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) of the Agreement with respect to such
Distribution Date, (iv) the amount of Shared Principal
Collections allocated to the Class C Certificates with
respect to the preceding Monthly Period pursuant to
Section 4.8 of the Agreement on and after the Class C
Principal Payment Commencement Date, (v) on and after the
later of the Pay Out Commencement Date and 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, any amount on deposit in
the Pre-Funding Account (less investment earnings
thereon) and (vi) on the Class C Principal Payment
Commencement Date, the amount, if any, allocated with
respect to Class C Investor Charge-Offs pursuant to
clause (ii) of the second sentence of the Class C Reserve
Account Agreement; 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 1996-1 Termination Date,
the Class C Principal shall be an amount equal to the
Class C Invested Amount.
(d) 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, 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) of the
Agreement with respect to the preceding Monthly Period,
(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 and
(iv) the amount of Shared Principal Collections allocated
to the Class D Certificates with respect to the preceding
Monthly Period pursuant to Section 4.8 of the Agreement
on and after the Class D Principal Payment Commencement
Date; provided, however, that with respect to the
Scheduled Series 1996-1 Termination Date, the Class D
Principal shall be an amount equal to the Class D
Invested Amount.
SECTION 4.8 Shared Principal Collections.
Shared Principal Collections allocated to the Series 1996-
1 Certificates and to be applied pursuant to subsections
4.9(c)(i)(z), 4.9(c)(ii)(z), 4.9(c)(iii)(z) and
4.9(c)(iv)(z) of the Agreement for any Business Day with
respect to the Amortization 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 1996-1 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, Shared
Principal Collections allocated to the Series 1996-1
Certificates shall be zero.
SECTION 4.9 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, to the
extent of the sum of (x) prior to the Pay Out
Commencement Date, the Floating Allocation Percentage of
the sum of Finance Charge Collections and the amount of
Adjustment Payments made by the Transferor with respect
to Adjustment Payments required to be made but not made
in a prior Monthly Period, available in the Collection
Account or, on and after the Pay Out Commencement Date,
the Fixed/Floating Allocation Percentage of the sum of
Finance Charge Collections and the amount of Adjustment
Payments made by the Transferor with respect to
Adjustment Payments required to be made by not made in a
prior Monthly Period, available in the Collection
Account, (y) investment earnings on amounts on deposit in
the Pre-Funding Account deposited into the Collection
Account pursuant to subsection 4.14(b) and (z) of the
Agreement amounts on deposit in the Payment Reserve
Account, if any, if and to the extent the Transferor
designates that such amounts are to be so applied (the
"Available Series 1996-1 Finance Charge Collections";
provided, that with respect to the Closing Date the
amount deposited by the Transferor into the Interest
Funding Account pursuant to subsection 4.5(a) of the
Agreement shall also constitute Available Series 1996-1
Finance Charge Collections) the amounts required to be
withdrawn from the Collection Account pursuant to
subsections 4.9(a)(i) through 4.9(a)(xvii) of the
Agreement.
(i) Class A Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw from the Collection Account and
deposit into the Interest Funding Account for
distribution on the next Distribution Date to the
Class A Certificateholders, to the extent of the
Available Series 1996-1 Finance Charge Collections
for such Business Day, an amount equal to the lesser
of (x) the Available Series 1996-1 Finance Charge
Collections and (y) the excess of (1) the sum of
Class A Interest and Carryover Class A Interest over
(2) any amounts with respect thereto previously
deposited into the Interest Funding Account on any
prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, the
portion of Carryover Class A Interest that
constitutes Class A Additional Interest shall be
payable or distributable to Class A
Certificateholders only to the extent permitted by
applicable law.
(ii) Class B Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw from the Collection Account and
deposit into the Interest Funding Account for
distribution on the next Distribution Date to the
Class B Certificateholders, to the extent of any
Available Series 1996-1 Finance Charge Collections
remaining after giving effect to the withdrawal
pursuant to subsection 4.9(a)(i) of the Agreement,
an amount equal to the lesser of (x) any such
remaining Available Series 1996-1 Finance Charge
Collections and (y) the excess of (1) the sum of
Class B Interest and Carryover Class B Interest
over (2) any amounts with respect thereto previously
deposited into the Interest Funding Account on any
prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, the
portion of Carryover Class B Interest that
constitutes Class B Additional Interest shall be
payable or distributable to Class B
Certificateholders only to the extent permitted by
applicable law.
(c ) Class C Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw from the Collection Account and
deposit into the Interest Funding Account for
distribution on the next Distribution Date to the
Class C Certificateholders, to the extent of any
Available Series 1996-1 Finance Charge Collections
remaining after giving effect to the withdrawal
pursuant to subsections 4.9(a)(i) and (ii) of the
Agreement, an amount equal to the lesser of (x) any
such remaining Available Series 1996-1 Finance
Charge Collections and (y) the excess of (1) the sum
of Class C Interest and Carryover Class C Interest
over (2) any amounts with respect thereto previously
deposited into the Interest Funding Account on any
prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, the
portion of Carryover Class C Monthly Interest that
constitutes Class C Additional Interest shall be
payable or distributable to Class C
Certificateholders only to the extent permitted by
applicable law.
(iv) Investor Servicing Fee. On each
Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw from
the Collection Account and distribute to the
Servicer, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (iii) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the excess of (i) the Servicing Fee for such
Monthly Period plus any unpaid Servicing Fees from
prior Monthly Periods over (ii) any amounts with
respect thereto previously distributed to the
Servicer during such Monthly Period.
(v) ABC Investor Default Amount. On each
Business Day, first if such day is the Default
Recognition Date for the related Monthly Period, the
Transferor will deposit (as described below)
Transferor Retained Finance Charge Collections for
each prior day in the Current Monthly Period and
second the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw to
the extent of any Available Series 1996-1 Finance
Charge Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i)
through (iv) of the Agreement, an amount equal to
the lesser of (x) the sum of any such remaining
Available Series 1996-1 Finance Charge Collections
and, if such day is the related Default Recognition
Date for such Monthly Period, an amount equal to the
aggregate Transferor Retained Finance Charge
Collections for each prior day during the related
Monthly Period 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) treated as Shared
Principal Collections during the Revolving Period,
and (B) to the extent allocated to Class A
Principal, Class B Principal or Class C Principal
pursuant to Section 4.7 of the Agreement during the
Amortization Period, deposited in the Principal
Account for distribution to the applicable Class or
Classes of Certificateholders on the next
Distribution Date.
(vi) Class D Investor Default Amount. On
each Business Day, first if such day is the Default
Recognition Date for the related Monthly Period, the
Transferor will deposit (as described below) the
Transferor Retained Finance Charge Collections for
each prior day in the Current Monthly Period
remaining after giving effect to subsection
4.9(a)(v) of the Agreement and second the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw from the Collection
Account, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (v) of the Agreement, an amount
equal to the lesser of (x) the sum of any such
remaining Available Series 1996-1 Finance Charge
Collections and, if such day is the related Default
Recognition Date for such Monthly Period, an amount
equal to the remaining aggregate Transferor Retained
Finance Charge Collections for each prior day during
the related Monthly Period 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 of the Agreement 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.
(vii) Adjustment Payment Shortfalls. On
each Business Day, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw
from the Collection Account, to the extent of any
Available Series 1996-1 Finance Charge Collections
remaining after giving effect to the withdrawals
pursuant to subsections 4.9(a)(i) through (vi) of
the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1996-1 Finance
Charge 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, to be treated as Shared Principal
Collections, (ii) during the Amortization 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 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, 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, 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, paid to the Class D
Certificateholders.
(viii) Reimbursement of Class A Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw from the Collection
Account, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (vii) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the unreimbursed Class A Investor Charge-
Offs, if any, will be applied to reimburse Class A
Investor Charge-Offs, such amount during the
Revolving Period to be treated as Shared Principal
Collections, and during the Amortization 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.
(ix) Unpaid Class B Interest. On each
Business Day, the Trustee, acting in accordance with
the instructions from the Servicer, shall withdraw
from the Collection Account and deposit in the
Interest Funding Account for distribution to the
Class B Certificateholders on the next Distribution
Date, to the extent of any Available Series 1996-1
Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (viii) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the sum of (1) the amount of interest which
has accrued with respect to the Class B Outstanding
Principal Amount at the Class B Certificate Rate but
which has not 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.
(x) Unpaid Class C Interest. On each
Business Day, the Trustee, acting in accordance with
the instructions from the Servicer, shall withdraw
from the Collection Account and deposit in the
Interest Funding Account for distribution to the
Class C Certificateholders on the next Distribution
Date, to the extent of any Available Series 1996-1
Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (ix) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the sum of (1) the amount of interest which
has accrued with respect to the Class C Outstanding
Principal Amount at the Class C Certificate Rate but
which has not 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.
(xi) Reimbursement of Class B Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw from the Collection
Account, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (x) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the unreimbursed amount by which the Class B
Invested Amount has been reduced on prior Business
Days pursuant to clauses (c) and (d) of the
definition of Class B Invested Amount, if any, such
amount, (i) during the Revolving Period, to be
treated as Shared Principal Collections, (ii) during
the Amortization 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.
(xii) Reimbursement of Class C Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw from the Collection
Account, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (xi) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the unreimbursed amount by which the Class C
Invested Amount has been reduced on prior Business
Days pursuant to clauses (c) and (d) of the
definition of Class C Invested Amount, if any, such
amount, (i) during the Revolving Period, to be
treated as Shared Principal Collections, (ii) during
the Amortization 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 B 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.
(xiii) Reimbursement of Class D Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw from the Collection
Account, to the extent of any Available Series 1996-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (xii) of the Agreement, an amount
equal to the lesser of (x) any such remaining
Available Series 1996-1 Finance Charge Collections
and (y) the unreimbursed amount by which the Class D
Invested Amount has been reduced on prior Business
Days pursuant to clauses (c) and (d) of the
definition of Class D Invested Amount, if any, such
amount, (i) during the Revolving Period, and during
the Amortization Period on and prior to the day on
which an amount equal to the Class C Invested Amount
is deposited in the Principal Account, paid to the
Transferor and (ii) on and after the day such
deposit to the Principal Account with respect to
Class C Invested Amount has been made, deposited in
the Principal Account for payment to the Class D
Certificateholders.
(xiv) Class C Reserve Account. On each
Business Day, the Trustee, acting in accordance with
instructions from the Transferor, shall withdraw
from the Collection Account and distribute to the
Servicer, to the extent of Available Series 1996-1
Finance Charge Collections for such Business Day
(after giving effect to the withdrawals pursuant to
subsections 4.9 (a)(i) through (xiii) of the
Agreement), an amount equal to the lesser of (x) any
such remaining Available Series Finance Charge
Collections and (y) specified to be deposited in the
Class C Reserve Account pursuant to the Class C
Reserve Account Agreement and deposit such amount,
if any, to the Class C Reserve Account.
(xv) Class D Interest. On each Business
Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw from
the Collection Account, to the extent of any
Available Series 1996-1 Finance Charge Collections
remaining after giving effect to the withdrawals
pursuant to subsections 4.9(a)(i) through (xiv) of
the Agreement, an amount equal to the lesser of (A)
any Available Series Finance Charge Collections
remaining and (B) the excess of (a) the sum of (1)
the Class D Monthly Interest, if any, (2) the amount
of any Class D Monthly Interest previously due but
not deposited in the Interest Funding Account in
prior Monthly Periods, and (3) any Class D
Additional Interest over (b) the amount which has
already been deposited in the Interest Funding
Account with respect thereto in the current Monthly
Period, will be deposited in the Interest Funding
Account for distribution on the next succeeding
Distribution Date to the Class D Certificateholders.
(xvi) Payment Reserve Account. On each
Business Day, the Trustee, acting in accordance with
instructions from the Transferor, shall withdraw
from the Collection Account and distribute to the
Servicer, to the extent of Available Series 1996-1
Finance Charge Collections for such Business Day
(after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (xv) of the
Agreement), an amount equal to the lesser of (x) any
such remaining Available Series 1996-1 Finance
Charge Collections and (y) the amount designated by
the Transferor in writing (which includes facsimile
transmission) in its instructions to the Trustee on
such Business Day and deposit such amount, if any,
to the Payment Reserve Account.
(xvii) Excess Finance Charge Collections.
Any amounts remaining in the Collection Account to
the extent of any Available Series 1996-1 Finance
Charge Collections remaining after giving effect to
the withdrawals pursuant to subsection 4.9(a)(i)
through (xvi) of the Agreement, shall be treated as
Excess Finance Charge Collections, and the Servicer
shall direct the Trustee in writing on each Business
Day to withdraw such amounts from 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 Finance Charge
Collections allocated to such other Series, then to
pay any unpaid commercially reasonable costs and
expenses of a Successor Servicer, if any, and then
on each Business Day other than the Default
Recognition Date, pay to the Transferor to be
treated as "Transferor Retained Finance Charge
Collections," and, on each Default Recognition Date
pay any remaining Excess Finance Charge Collections
to the Transferor.
(b) For each Business Day with respect to the
Revolving Period, the funds on deposit in the Collection
Account to the extent of the 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) Principal Collections with
respect to such Business Day (less the amount of
Reallocated Class C Principal Collections and Reallocated
Class B Principal Collections on such Business Day) will
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(d) 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 or the Pre-
Funding Account as 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:
(i) 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
Certificates on such Business Day pursuant to
subsection 4.9(d) of the Agreement, (x) amounts to
be paid pursuant to subsections 4.9(a)(v), (vii),
(viii), (xi) and (xii) of the Agreement from
Available Series Finance Charge 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 amount on deposit in the
Pre-Funding Account on such Business Day (less
investment earnings thereon) and (z) the amount of
Shared Principal Collections allocated to the Series
1996-1 Certificates in accordance with Section 4.8
of the Agreement on such Business Day, will be
deposited into the Principal Account; provided,
however that with respect to any Monthly Period
during the Controlled Amortization Period, the
aggregate amount required to be deposited in the
Principal Account pursuant to this subsection
4.9(c)(i) shall not exceed the Class A Controlled
Distribution Amount;
(ii) on and after 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 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) of the Agreement, (x)
the amount, if any, allocated to be paid to the
Class B Certificates pursuant to subsections
4.9(a)(v), (vii), (xi) and (xii) of the Agreement
from Available Series Finance Charge 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 amount on
deposit in the Pre-Funding Account on such Business
Day (less investment earnings thereon) and (z) the
amount of Shared Principal Collections allocated to
the Series 1996-1 Certificates in accordance with
Section 4.8 on such Business Day will be deposited
into the Principal Account; provided, however, that
with respect to any Monthly Period during the
Controlled Amortization Period, the aggregate amount
required to be deposited in the Principal Account
pursuant to this subsection 4.9(c)(ii) of the
Agreement shall not exceed the Class B Controlled
Distribution Amount;
(iii) 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 (u) 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), (v) 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) of the Agreement, (w)
the amount, if any, allocated to be paid to the
Class C Certificates pursuant to subsections
4.9(a)(v), (vii), and (xii) of the Agreement from
Available Series Finance Charge 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, (x) any amount on deposit in the
Pre-Funding Account on such Business Day (less
investment earnings thereon), (y) the amount of
Shared Principal Collections allocated to the Series
1996-1 Certificates in accordance with Section 4.8
of the Agreement on such Business Day and (z) on the
Class C Principal Payment Commencement Date, the
amount, if any, allocated with respect to Class C
Investor Charge-Offs pursuant to clause (ii) of the
second sentence of Section 3.2 of the Class C
Reserve Account Agreement will be deposited into the
Principal Account;
(iv) 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) of the
Agreement, (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 Finance Charge
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
1996-1 Certificates in accordance with Section 4.8
of the Agreement on such Business Day will be
distributed to the Class D Certificateholders; and
(v) 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(d) 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 to the extent of the lesser of (x) the Invested
Amount and (y) the product of (i) the amount on deposit
in the Excess Funding Account at the beginning of the
Amortization Period and (ii) a fraction, the numerator of
which is equal to the Invested Amount and the denominator
of which is equal to the sum of the invested amounts of
all Series in amortization periods on such day. Such
amounts will be allocated in the following order of
priority (i) to the Class A Certificates in an amount not
to exceed the Class A Principal after subtracting
therefrom any amounts to be deposited in the Principal
Account with respect thereto pursuant to subsections
4.9(c)(i)(v), (x), (y) and (z) of the Agreement, (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), (x), (y)
and (z) of the Agreement, 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)(u), (w), (x), (y) and
(z) of the Agreement. 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 1996-1 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) of the
Agreement, (y) and (z).
SECTION 4.10 Coverage of Required Amount for
the Series 1996-1 Certificates. (a) To the extent that
any amounts are on deposit in the Excess Funding Account
or the Pre-Funding Account on any Business Day, the
Servicer shall apply, in the manner specified for
application of Available Series 1996-1 Finance Charge
Collections in subsections 4.9(a)(i) through (xv) of the
Agreement, Transferor Finance Charge Collections in an
amount (the "Negative Carry Amount") equal to the excess
of (x) the product of (a) the Base Rate, (b) the amounts
on deposit in the Excess Funding Account and the Pre-
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
Excess Funding Account and Pre-Funding Account are
invested.
(b) To the extent that on any Business Day
payments are being made pursuant to any of subsections
4.9(a)(i) through (xv) of the Agreement, 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 1996-1 Finance Charge Collections in
subsections 4.9(a)(i) through (xv) of the Agreement, all
or a portion of the Excess Finance Charge Collections
from other Series with respect to such Business Day
allocable to the Series 1996-1 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
1996-1 Finance Charge Collections and Transferor Finance
Charge Collections on such Business Day (the "Required
Amount"). Excess Finance Charge Collections allocated to
the Series 1996-1 Certificates for any Business Day shall
mean an amount equal to the product of (x) Excess Finance
Charge 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 Finance Charge Collections for all Series for
such Business Day.
SECTION 4.11 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 1996-
1 Certificates and deposit such amount in the
Distribution Account. On each Distribution Date, the
Paying Agent shall pay in accordance with Section 5.1 of
the Agreement to (w) the Class A Certificateholders from
the Distribution Account such amount deposited into the
Distribution Account on the related Transfer Date
allocable thereto pursuant to subsection 4.9(a)(i) of the
Agreement, (x) the Class B Certificateholders from the
Distribution Account the amount deposited into the
Distribution Account on the related Transfer Date
allocable thereto pursuant to subsections 4.9(a)(ii) and
(ix) of the Agreement, (y) the Class C Certificateholders
from the Distribution Account the amount deposited into
the Distribution Account on the related Transfer Date
allocable thereto pursuant to subsections 4.9(a)(iii) and
(x) of the Agreement, and (z) the Class D
Certificateholders from the Distribution Account the
amount deposited into the Distribution Account on the
related Transfer Date allocable thereto pursuant to
subsection 4.9(a)(xv) of the Agreement.
SECTION 4.12 Payment of Certificate Principal.
(a) On the Transfer Date preceding each
Distribution Date with respect to the Amortization
Period, 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 into the Distribution Account, to the
extent funds available, an amount equal to the Class A
Principal for such Distribution Date. On each
Distribution Date with respect to the Amortization
Period, the Paying Agent shall pay in accordance with
Section 5.1 of the Agreement to the Class A
Certificateholders from the Distribution Account such
amount deposited into the Distribution Account on the
related Transfer Date.
(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 Certificates 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 of the Agreement
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 1996-1 Certificates (after giving
effect to transfers pursuant to subsection 4.12(b) of the
Agreement). 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 of the Agreement 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 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 D Invested Amount and
the amount on deposit in the Principal Account allocable
to the Series 1996-1 Certificates (after giving effect to
transfers pursuant to subsection 4.12(c) of the
Agreement). On the Class D Principal Payment
Commencement Date, after the payment of any principal
amounts to the Class C Certificates on such day, and on
each Distribution Date thereafter until the Class D
Invested Amount is paid in full, the Paying Agent shall
pay in accordance with Section 5.1 of the Agreement to
the Class D Certificateholders from the Distribution
Account such amount deposited into the Distribution
Account on the related Transfer Date.
Any amounts remaining in the Principal Account
and allocable to the Series 1996-1 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(d) of the Agreement.
SECTION 4.13 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
1996-1 Finance Charge Collections applied to the payment
thereof pursuant to subsections 4.9(a)(v), (vi) and (vii)
of the Agreement and the amount of Transferor Finance
Charge Collections and Excess Finance Charge 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
ChargeOff").
(b) 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 ChargeOff").
(c ) 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 ChargeOff").
(d) 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 ChargeOff").
SECTION 4.14. Pre-Funding Account. (a)
Establishment of the Pre-Funding Account. The Transferor
hereby directs the Servicer, for the benefit of the
Series 1996-1 Certificateholders, to establish and
maintain or cause to be established and maintained in the
name of the Trustee, on behalf of the Series 1996-1
Certificateholders, with a Qualified Institution (which
initially shall be The Bank of New York) 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 1996-1
Certificateholders. The Transferor does hereby transfer,
assign, set over and otherwise convey to the Trust for
the benefit of the Series 1996-1 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. The Pre-
Funding Account shall be under the sole dominion and
control of the Trustee for the benefit of the Series 1996-
1 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, after
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 any cash and/or
investments to such new Pre-Funding Account and from the
date such new Pre-Funding Account is established, it
shall be, for the Series 1996-1 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.
(b) Administration of Pre-Funding Account.
The Transferor shall on the Closing Date deposit in the
Pre-Funding Account the Initial Pre-Funded Amount. 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. Funds on deposit in the Pre-
Funding Account 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 of the
Agreement. If the Pay Out Commencement Date occurs
during the Funding Period, the remaining Pre-Funded
Amount will be applied to make principal payments with
respect to the Certificates in accordance with subsection
4.9(c) of the Agreement. The Servicer shall withdraw the
remaining Pre-Funded Amount, if any, on deposit in the
Pre-Funding Account on the first Business Day of the
November 1996 Monthly Period and deposit such amount into
the Excess Funding Account.
(c ) Investment on Funds in Pre-Funding
Account. 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.
SECTION 4.15 Increases in Invested Amount.
The Transferor may at any time during the Funding Period
determine to increase the Invested Amount up to the Full
Invested Amount to the extent there are sufficient
Principal Receivables in the Trust to permit such
increase in the Invested Amount without causing a Pay Out
Event to occur with respect to any outstanding Series.
Upon determining to increase the Invested Amount pursuant
to this Section 4.15, the Transferor shall deliver to the
Servicer, the Trustee and each Rating Agency an Officers'
Certificate specifying the amount of the increase in the
Invested Amount 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 Invested Amount.
Upon receipt of such Officer's Certificate by the
Trustee, the Class A Invested Amount, the Class B
Invested Amount and the Class C Invested Amount shall be
increased pro rata by the amount specified in such
Officers' 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 A Invested Amount,
the Class B Invested Amount and the Class C Invested
Amount.
Upon the withdrawal of the remaining Pre-Funded
Amount, if any, on deposit in the Pre-Funding Account on
the first Business Day of the November 1996 Monthly
Period and the deposit of such amount in the Excess
Funding Account, the Class A Invested Amount, the Class B
Invested Amount and the Class C Invested Amount shall be
increased pro rata by such amount.
SECTION 4.16 Reallocated Principal Collections
for the Series 1996-1 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 1996-1 Finance
Charge Collections pursuant to subsection 4.9(a) of the
Agreement.
(b) 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 1996-1 Finance Charge Collections pursuant to
subsection 4.9(a) of the Agreement.
(c ) 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 1996-1
Finance Charge Collections pursuant to subsection 4.9(a)
of the Agreement.
SECTION 4.17 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 LIBOR Determination Date 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).
(b) The Class C Certificate Rate applicable to
the then current and the immediately preceding Interest
Accrual Periods may be obtained by any Series 1996-1
Certificateholder by telephoning the Trustee at its
Corporate Trust Office at (302) 4512500.
(c ) On each LIBOR Determination Date, the
Trustee shall send to the Servicer by facsimile
notification of LIBOR for the following Interest Accrual
Period.
SECTION 4.18 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 10
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) The Transferor, at its discretion, may on
any Business Day withdraw all or a part of any amounts
then on deposit in the Payment Reserve Account and apply
such funds in accordance with Section 4.9(a) of the
Agreement.
(c) 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.
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 1996-1
Certificates.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
SECTION 5.1 Distributions. (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 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 each Class A Certificate held by
such Certificateholder) of amounts on deposit in the
Distribution Account as are payable to each Class A
Certificateholders Sections 4.11 and 4.12 of the
Agreement by check mailed to each Class A
Certificateholder at such Certificateholder's address as
it appears on the Certificate Register or, in the case of
Class A Certificateholders holding Class A Certificates
evidencing Undivided Interests aggregating not less than
80% of the Invested Amount, by wire transfer, at the
expense of such Class A Certificateholder, 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 related Distribution Date; provided,
however, that the final payment in retirement of the
Class A Certificates will be made only upon presentation
and surrender of the Class A 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 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 Sections 4.11
and 4.12 of the Agreement by check mailed to each Class B
Certificateholder at such Certificateholder's address as
it appears on the Certificate Register or, in the case of
Class B Certificateholders holding Class B Certificates
evidencing Undivided Interest aggregating not less than
80% of the Invested Amount, by wire transfer, at the
expense of such Class B Certificateholder, 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.
(c ) 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 Sections 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.
(d) 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 D 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 D
Certificates held by such Certificateholder) of amounts
on deposit in the Distribution Account as are payable to
the Class D Certificateholders pursuant to Sections 4.11
and 4.12 of the Agreement by wire transfer to each Class
D Certificateholder to an account or accounts designated
by such Class D 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 D Certificates
will be made only upon presentation and surrender of the
Class D Certificates at the office or offices specified
in the notice of such final distribution delivered by the
Trustee pursuant to Section 12.3.
SECTION 5.2 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 B 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):
(i) the total amount distributed;
(ii) the amount of such distribution
allocable to Certificate Principal;
(iii) the amount of such distribution
allocable to Certificate Interest;
(iv) the amount of Principal Collections
received in the Collection Account during the
preceding Monthly Period and allocated in respect of
the Class A Certificates, the Class B Certificates,
the Class C Certificates and the Class D
Certificates, respectively;
(v) the amount of Finance Charge
Collections processed during the preceding Monthly
Period and allocated in respect of the Class A
Certificates, the Class B Certificates, the Class C
Certificates and the Class D Certificates,
respectively;
(vi) 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,
as of the end of the day on the last day of the
related Monthly Period;
(vii) the aggregate outstanding balance
of Receivables which are current, 3059, 6089, and 90
days and over delinquent as of the end of the day on
the last day of the related Monthly Period;
(viii) the aggregate Investor Default
Amount for the preceding Monthly Period;
(ix) 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;
(x) the amount of the Servicing Fee for
the preceding Monthly Period;
(xi) 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;
(xii) the amount of unreimbursed
Reallocated Class B Principal Collections,
Reallocated Class C Principal Collections and
Reallocated Class D Principal Collections for the
related Monthly Period;
(xiii) the aggregate amount of funds in
the Excess Funding Account and the Pre-Funding
Account as of the last day of the Monthly Period
immediately preceding the Distribution Date;
(xiv) the Specified Class C Reserve
Amount, the amount then on deposit in the Class C
Reserve Account and whether a Class C Trigger Event
has occurred; and
(xv) the number of new Accounts the
Receivables in which have been added to the Trust
during the related Monthly Period.
(xvi) Annual Certificateholders' Tax
Statement. On or before January 31 of each calendar
year, beginning with calendar year 1997, the Paying Agent
shall distribute to each Person who at any time during
the preceding calendar year was a Series 1996-1
Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in
the regular report to Series 1996-1 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
1996-1 Certificateholder, together with, on or before
January 31 of each year, beginning in 1997, 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 1996-1
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 8. Series 1996-1 Pay Out Events.
If any one of the following events shall occur with
respect to the Series 1996-1 Certificates:
(a) 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 1996-1
Certificateholders and which continues unremedied for a
period of 60 days after the date on which written notice
of such failure, requiring the same to be remedied, shall
have been given to the Transferor by the Trustee, or to
the Transferor and the Trustee by the Holders of Series
1996-1 Certificates evidencing Undivided Interests
aggregating not less than 50% of the Invested Amount of
this Series 1996-1, and continues to affect materially
and adversely the interests of the Series 1996-1
Certificateholders for such period;
(b) 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 1996-1
Certificates evidencing Undivided Interests aggregating
more than 50% of the Invested Amount of this Series 1996-
1, and (ii) as a result of which the interests of the
Series 1996-1 Certificateholders are materially and
adversely affected and continue to be materially and
adversely affected for such period; provided, however,
that a Series 1996-1 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 (or such longer period as
the Trustee may specify) in accordance with the
provisions of the Agreement;
(c ) the average of the Portfolio Yields
for any three consecutive Monthly Periods is reduced to a
rate which is less than the weighted average Base Rates
for such three consecutive Monthly Periods;
(d) (i) the Transferor Interest shall be
less than the Minimum Transferor Interest, (ii) (A) the
sum of the amount on deposit in the Pre-Funding Account
plus 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, (iii) the total amount of Principal
Receivables and the amount on deposit in the Excess
Funding Account shall be less than the Minimum Aggregate
Principal Receivables or (iv) the Retained Percentage
shall be equal to or less than 2%, in each case as of any
Determination Date; or
(e) any Servicer Default shall occur
which would have a material adverse effect on the Series
1996-1 Certificateholders;
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 1996-1 Certificates evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of this
Series 1996-1, by notice then given in writing to the
Trustee, the Transferor and the Servicer may declare that
a pay out event (a "Series 1996-1 Pay Out Event") has
occurred as of the date of such notice, and in the case
of any event described in subparagraphs (c) or (d), a
Series 1996-1 Pay Out Event shall occur without any
notice or other action on the part of the Trustee or the
Series 1996-1 Certificateholders immediately upon the
occurrence of such event.
SECTION 9. Series 1996-1 Termination. The
right of the Series 1996-1 Certificateholders to receive
payments from the Trust will terminate on the first
Business Day following the Series 1996-1 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 1996-1 Certificateholders shall
remain entitled to receive proceeds of such sale when
such sale occurs.
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1996-1 Certificates;
Tax Treatment.
(a) Each Class B Certificate will bear a
legend or legends substantially in the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT FINANCIAL SERVICES
RECEIVABLES, INC. AND THE TRUSTEE 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, (III) A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32)
OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR
LOCAL LAW WHICH IS, TO A MATERIAL EXTENT,
SIMILAR TO THE PROVISIONS OF SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE, (IV) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS"
OF ANY SUCH PLAN (EXCLUDING FOR PURPOSES OF
THIS CLAUSE (V), ANY ENTITY REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
(b) No Class C Certificate or any
interest therein may be sold (including in the initial
offering), conveyed, assigned, hypothecated, pledged,
participated, or otherwise transferred (each, a
"Transfer") except in accordance with this Section 10.
Any Transfer of a Class C Certificate otherwise permitted
by this Section 10 will be permitted only if it consists
of a pro rata percentage interest in all payments made
with respect to such Holder's Class C Certificates and no
Transfers of partial interests in a Class C Certificate
shall be permitted. No Class C Certificate or any
interest therein may be Transferred to any Person (each,
an "Assignee"), unless the Assignee shall have executed
and delivered the certification referred to in subsection
10(d) below and the Transferor shall have granted its
prior consent thereto. Such consent shall be granted
unless the Transferor determines in its sole and absolute
discretion that such Transfer would create a risk that
the Trust would be classified for federal or any
applicable state tax purposes as an association or
publicly traded partnership taxable as a corporation;
provided, further, that any attempted Transfer that would
cause the number of Targeted Holders to exceed ninety-
nine shall be void; and provided, further, that there
shall not at any time be more than 10 Class C
Certificateholders or such other number as may be
consented to by the Transferor which consent may be
withheld in its sole and absolute discretion.
(c ) Each initial purchaser of a Class C
Certificate or any interest therein and any Assignee
thereof shall certify to the Transferor, the Servicer,
and the Trustee that it is either (A)(i) a citizen or
resident of the U.S., (ii) a corporation, partnership or
other entity organized in or under the laws of the U.S.
or any political subdivision thereof which, if such
entity is a taxexempt entity, recognizes that payments
with respect to the Class C Certificates may constitute
unrelated business taxable income or (iii) a person not
described in (i) or (ii) whose ownership of the Class C
Certificates is effectively connected with the conduct of
a trade or business within the United States (within the
meaning of the Code) and whose ownership of any interest
in a Class C Certificate will not result in any
withholding obligation with respect to any payments with
respect to the Class C Certificates by any person and who
will furnish to the Certificateholder making the
Transfer, the Servicer and the Trustee, a properly
executed U.S. Internal Revenue Service Form 4224 (and to
agree to provide a new Form 4224 upon the expiration or
obsolescence of any previously delivered form and
comparable statements in accordance with applicable U.S.
laws) or (B) an estate or trust the income of which is
includible in gross income for U.S. federal income tax
purposes.
(d) Each initial purchaser of a Class C
Certificate or any interest therein and any Assignee
thereof shall further certify to the Transferor, the
Servicer and the Trustee that it has neither acquired nor
will it sell, trade or transfer any interest in a Class C
Certificate or cause an interest in a Class C Certificate
to be marketed on or through (i) an "established
securities market" within the meaning of Section
7704(b)(1) of the Code and any treasury regulation
thereunder, including, without limitation, an over-the-
counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations or
(ii) a "secondary market" within the meaning of Section
7704(b)(2) of the Code and any treasury regulation
thereunder, including a market wherein interests in the
Class C Certificates are regularly quoted by any Person
making a market in such interests and a market wherein
any Person regularly makes available bid or offer quotes
with respect to interests in the Class C Certificates and
stands ready to effect buy or sell transactions at the
quoted prices for itself or on behalf of others. In
addition, each initial purchaser of a Class C Certificate
or any interest therein and any Assignee shall certify,
prior to any delivery or Transfer to it of a Class C
Certificate that it is not and will not become a
partnership, Subchapter S corporation or grantor trust
for U.S. federal income tax purposes. If an initial
purchaser of an interest in a Class C Certificate or an
Assignee cannot make the certification described in the
preceding sentence, the Transferor may, in its sole
discretion, prohibit a Transfer to such entity; provided,
however, that if the Transferor agrees to permit such a
Transfer, the Transferor, the Servicer or the Trustee may
require additional certifications in order to prevent the
Trust from being treated as a publicly traded
partnership. Each initial purchaser of an interest in a
Class C Certificate and Assignee acknowledges that the
Opinion of Counsel to the effect that the Trust will not
be treated as a publicly traded partnership taxable as a
corporation is dependent in part on the accuracy of the
certifications described in this Section 10(d).
(e) Each Class C Certificate will bear
legends substantially in the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR
THE BENEFIT OF FINGERHUT FINANCIAL SERVICES
RECEIVABLES, INC. AND THE TRUSTEE 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, (III) A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32)
OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR
LOCAL LAW WHICH IS, TO A MATERIAL EXTENT,
SIMILAR TO THE PROVISIONS OF SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE, (IV) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS"
OF ANY SUCH PLAN (EXCLUDING FOR PURPOSES OF
THIS CLAUSE (V), ANY ENTITY REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
THIS CERTIFICATE MAY NOT BE ACQUIRED,
SOLD, TRADED OR TRANSFERRED, NOR MAY AN
INTEREST IN THIS CERTIFICATE BE MARKETED, ON OR
THROUGH (I) AN "ESTABLISHED SECURITIES MARKET"
WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE
CODE AND ANY PROPOSED, TEMPORARY OR FINAL
TREASURY REGULATION THEREUNDER, INCLUDING,
WITHOUT LIMITATION, AN OVERTHECOUNTERMARKET OR
AN INTERDEALER QUOTATION SYSTEM THAT REGULARLY
DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR
(II) A "SECONDARY MARKET" WITHIN THE MEANING OF
SECTION 7704(b)(2) OF THE CODE AND ANY
PROPOSED, TEMPORARY OR FINAL TREASURY
REGULATION THEREUNDER, INCLUDING A MARKET
WHEREIN INTERESTS IN THE CLASS C CERTIFICATES
ARE REGULARLY QUOTED BY ANY PERSON MAKING A
MARKET IN SUCH INTERESTS AND A MARKET WHEREIN
ANY PERSON REGULARLY MAKES AVAILABLE BID OR
OFFER QUOTES WITH RESPECT TO INTERESTS IN THE
CLASS C CERTIFICATES AND STANDS READY TO EFFECT
BUY OR SELL TRANSACTIONS AT THE QUOTED PRICES
FOR ITSELF OR ON BEHALF OF OTHERS.
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 (1) TO THE TRANSFEROR OR (2) TO A
LIMITED NUMBER OF INSTITUTIONAL "ACCREDITED
INVESTORS" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) AND IN A
TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (UPON
DELIVERY OF THE DOCUMENTATION REQUIRED BY THE
POOLING AND SERVICING AGREEMENT AND, IF THE
TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE). EACH CERTIFICATE
OWNER BY ACCEPTING A BENEFICIAL INTEREST IN
THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT). THIS CERTIFICATE
WILL NOT BE ACCEPTED FOR REGISTRATION OF
TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE
SATISFACTORY TO THE TRANSFER AGENT AND
REGISTRAR THAT THE RESTRICTIONS ON TRANSFER SET
FORTH IN THE SERIES 1996-1 SUPPLEMENT HAVE BEEN
COMPLIED WITH. THIS CERTIFICATE MAY NOT BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE TRANSFEROR AND UNLESS AND UNTIL THE
TRUSTEE SHALL HAVE RECEIVED THE CERTIFICATIONS
REQUIRED BY THE SERIES 1996-1 SUPPLEMENT.
(f) Upon surrender for registration of
transfer of a Class C Certificate at the office of the
Transfer Agent and Registrar, accompanied by a
certification by the Class C Certificateholder
substantially in the form attached as Exhibit C, executed
by the registered owner, in person or by such Class C
Certificateholder's attorney thereunto duly authorized in
writing, and receipt by the Trustee of the written
consent of each of the Transferor and the Servicer to
such transfer, such Class C Certificate shall be
transferred upon the Certificate 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. Such
transfers of Class C Certificates shall be subject to the
restrictions set forth in this Section 11, to such other
restrictions as shall be set forth in the text of the
Class C Certificates and to 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 Certificate Register.
(g) The Transferor may, in its
discretion, sell or transfer any Class D Certificates
upon satisfaction of the following conditions:
(i) the Transferor shall give notice to
the Trustee, the Servicer and the Rating Agencies of
such sale or transfer of the Class D Certificates on
or before the fifth Business Day prior to such
transfer;
(ii) the Trustee shall have been advised
in writing by the Rating Agencies that none of the
then current ratings on the Investor Certificates
then outstanding will be reduced or withdrawn as a
result of the sale or transfer of the Class D
Certificates;
(iii) the Transferor shall have delivered
to the Trustee an Officer's Certificate stating that the
Transferor reasonably believes that the sale of such
Class D Certificates will not have a material adverse
effect on the Class A Certificates, Class B Certificates
or the Class C Certificates;
(iv) as of the date of such sale or
transfer of the Class D Certificates, there will be
no outstanding Investor Charge-Offs for any Class of
Investor Certificates of this Series;
(v) the purchasers or transferees of the
Class D Certificates shall have agreed that they
shall not be entitled to principal payments with
respect to the Class D Certificates until the Class
A Invested Amount, Class B Invested Amount and Class
C Invested Amount have each been reduced to zero;
(vi) no Pay Out Event with respect to
this Series shall have occurred; and
(vii) the Transferor shall have delivered
to the Trustee an Opinion of Counsel to the effect
that the Class D Certificates which are sold or
transferred will be characterized as either
indebtedness or partnership interests for Federal
and Applicable State Tax income tax purposes or that
the issuance of the Class D Certificates will not
materially adversely affect the Federal or
Applicable Tax State income tax characterization of
any outstanding series of Investor Certificates or
the taxability of the Trust under Federal or
Applicable Tax State income tax laws.
Any such sale or transfer shall be made only pursuant to
an effective registration statement or in a valid private
placement.
SECTION 11. Compliance with Withholding
Requirements. Notwithstanding any other provision of the
Agreement, the Trustee and any Paying Agent shall comply
with all Federal withholding requirements with respect to
payments to the Class C Certificateholders of interest,
original issue discount, or other amounts that the
Trustee, any Paying Agent, the Servicer or the Transferor
reasonably believes are applicable under the Code. The
consent of the Class C Certificateholders shall not be
required for any such withholding. In the event the
Trustee or the Paying Agent withholds any amount from
payments made to any Class C Certificateholder pursuant
to federal withholding requirements, the Trustee or the
Paying Agent shall indicate to such Class C
Certificateholder the amount withheld and all such
amounts shall be deemed to have been paid to such Class C
Certificateholders and the Class C Certificateholders
shall have no claim therefor.
SECTION 12. Tax Characterization of the Class
C Certificates. It is the intention of the parties
hereto that the Class C Certificates be treated for tax
purposes as indebtedness. In the event that the Class C
Certificates are not so treated, it is the intention of
the parties that the Class C Certificates be treated as
an interest in a partnership that owns the Receivables.
In the event that the Class C Certificates are treated as
an interest in a partnership, it is the intention of the
parties that interest payable on the Class C Certificates
be treated as guaranteed payment and, if for any reason
it is not so treated, that the holders of the Class C
Certificates be specially allocated gross interest income
equal to the interest accrued during each Interest
Accrual Period on the Class C Certificates.
SECTION 13. Ratification of Agreement. (a)
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. The Transferor hereby confirms the
conveyance of the Trust Property to the Trustee for the
benefit of the Series 1996-1 Certificateholders.
(b) For so long as any of 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 C Certificateholder, and
to any prospective purchaser of Class C Certificates
designated by such Class C Certificateholder upon the
request of such 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 Regulation D under the Securities
Act.
SECTION 14. Registration of the Class A
Certificates under the Securities Exchange Act of 1934.
The Transferor shall cause the Class A Certificates to be
registered under the Securities Exchange Act of 1934, as
amended, on or before February 28, 1997 and thereafter
maintain such registration until the Class A Invested
Amount has been reduced to zero.
SECTION 15. 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 16. 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 17. 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 18. Certain Amendments. (a) In the
event that federal legislation creates a new type of
entity for federal income tax purposes, the "financial
asset securitization investment trust" (a "FASIT") the
Transferor may amend this Series Supplement in order to
effect a FASIT election for all or a portion of the Trust
or the Investor Certificates; provided, that the
Transferor delivers an opinion to the Trustee to the
effect that such election will not adversely affect the
Federal or Applicable Tax State income tax
characterization of any outstanding Series of Investor
Certificates or the taxability of the Trust under Federal
or Applicable Tax State income tax laws.
(b) By purchasing their Series 1996-1
Certificates each Investor Certificateholder shall be
deemed to have consented to an amendment of the Agreement
such that wherever "FCI" is referred to in subsection
9.1(a) of the Agreement, such reference may be amended to
refer to "FCI or any successor or assignee to the rights
and obligations of FCI under the Purchaser Agreements."
SECTION 19. Paired Series. Subject to
obtaining confirmation by each Rating Agency of the then
existing ratings of each class of Certificates which is
then rated, and prior to the commencement of the Early
Amortization Period, the Certificates may be paired with
one or more other Series (each a "Paired Series"). Each
Paired Series either will be pre-funded with an initial
deposit to a pre-funding account in an amount up to the
initial principal balance of such Paired Series and
primarily from the proceeds of the sale of such Paired
Series or will have a variable principal amount. Any
such pre-funding account will be held for the benefit of
such Paired Series and not for the benefit of the
Certificateholders. As principal is paid with respect to
the Certificates, either (i) in the case of a pre-funded
Paired Series, an equal amount of funds on deposit in any
pre-funding account for such pre-funded Paired Series
will be released (which funds will be distributed to the
Transferor) or (ii) in the case of a Paired Series having
a variable principal amount, an interest in such variable
Paired Series in an equal or lesser amount may be sold by
the Trust (and the proceeds thereof will be distributed
to the Transferor) and, in either case, the invested
amount in the Trust of such Paired Series will increase
by up to a corresponding amount. Upon payment in full of
the Certificates, assuming that there have been no
unreimbursed charge-offs with respect to any related
Paired Series, the aggregate invested amount of such
related Paired Series will have been increased by an
amount up to an aggregate amount equal to the Invested
Amount paid to the Certificateholders since the issuance
of such Paired Series. The issuance of a Paired Series
will be subject to the conditions described in subsection
6.9(b) of the Agreement.
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Series 1996-1
Supplement to be duly executed by their respective
officers as of the day and year first above written.
FINGERHUT FINANCIAL SERVICES
RECEIVABLES, INC.
Transferor
By:_______________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION
Servicer
By:_________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:_________________________
Name:
Title:
Exhibit A1
FORM OF CLASS A INVESTOR CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN
INTEREST HEREIN.
No. ___ $_________
CUSIP NO. 317869AA30
FINGERHUT FINANCIAL SERVICES MASTER TRUST
6.45% ASSET BACKED
CERTIFICATE, SERIES 1996-1, 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 revolving consumer credit card accounts
transferred or to be transferred by Fingerhut Financial
Services Receivables, Inc. (the "Transferor") and other
assets and interests constituting the Trust under the
Agreement described below.
(Not an interest in or a recourse obligation
of Fingerhut Financial Services Receivables, Inc., Direct
Merchants Credit Card Bank, National Association or any
affiliate of either of them.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Financial
Services Master Trust (the "Trust") issued pursuant to
the Pooling and Servicing Agreement, dated as of May 26,
1995 (the "Pooling and Servicing Agreement"; such term to
include any amendment thereto) by and between the
Transferor, Direct Merchants Credit Card Bank, National
Association, as Servicer (the "Servicer"), and The Bank
of New York (Delaware) as Trustee (the "Trustee"), and
the Series 1996-1 Supplement, dated as of April 23, 1996
(the "Series 1996-1 Supplement"), among the Transferor,
the Servicer and the Trustee. The Pooling and Servicing
Agreement, as supplemented by the Series 1996-1
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
the Trust Property (as defined in the Agreement).
This Certificate does not purport to summarize
the Agreement and reference is made to that 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 Financial
Services Master Trust 6.45% Asset Backed Certificates,
Series 1996-1, Class A" (the "Class A 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.
The Transferor has structured the Agreement,
the Class A Certificates, the Fingerhut Financial
Services Master Trust 6.80% Asset Backed Certificates,
Series 1996-1, Class B (the "Class B Certificates" and
collectively with the Class A Certificates the "Offered
Certificates") and the Fingerhut Financial Services
Master Trust Floating Rate Asset Backed Certificates,
Series 1996-1, Class C (the "Class C Certificates") with
the intention that the Offered 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
Certificates 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 A
Certificateholders until the first Distribution Date in
the Amortization Period. No principal will be payable to
the Class B Certificateholders, Class C
Certificateholders or Class D Certificateholders until
all principal payments have been made to the Class A
Certificateholders.
Interest on the Class A Certificates will be
payable on May 20, 1996 and on the 20th day of each month
thereafter or, if such day is not a business day, on the
next succeeding business day (each, a "Distribution
Date"), in an amount equal to one-twelfth of the product
of the Class A Certificate Rate and the outstanding
principal balance of the Class A Certificates as of the
preceding Record Date (or in the case of the first
Distribution Date, the initial principal amount of the
Class A Certificates). Interest for the first
Distribution Date will include accrued interest at the
applicable Certificate Rate (the "Certificate Rates")
from the Closing Date through May 19, 1996. Interest
will be calculated on the basis of a 360-day year of
twelve 30-day months.
Interest payments on the Class A Certificates
on each Distribution Date will be funded from Available
Series Finance Charge Collections with respect to the
preceding Monthly Period (or, with respect to the first
Distribution Date, such collections from and including
the Closing Date to and including April 26, 1996 plus the
amount of the initial deposit to the Interest Funding
Account to be made on the Closing Date) and from certain
other funds allocated as set forth in the Pooling and
Servicing Agreement to the respective classes of the
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
Subject to the prior payment of interest on the
Class A Certificates, interest payments on the Class B
Certificates on each Distribution Date will be funded
from the portion of Available Series Finance Charge
Collections with respect to the preceding Monthly Period
and from certain other funds allocated as set forth in
the Pooling and Servicing Agreement to the Class B
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
"Class A Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the Class A Initial Invested Amount less the Class A
Percentage of the initial deposit to the Pre-Funding
Account plus the Class A Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
A Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates, and plus
(d) 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 4.16(a), (b) and (c) of the Agreement, for the
purpose of reinstating amounts reduced pursuant to the
foregoing clause (c).
During the period from and including the
Closing Date to but excluding the earlier of (x) the
first day for which the Invested Amount equals the Full
Invested Amount; (y) the first day on which a Pay Out
Event is deemed to occur; and (z) the first day of the
November 1996 Monthly Period (the "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 1996-1
Supplement in connection with the increase in the amount
of Receivables in the Trust. On the Closing Date a cash
deposit will be made to the Pre-Funding Account such that
the amount of Principal Receivables plus the amount of
such cash deposit on such date will at least equal the
sum of the initial outstanding principal balances of the
Class A Certificates, the Class B Certificates, the Class
C Certificates and the Class D Certificates, and the then
current outstanding principal amount of the Series 19951
Variable Funding Certificates. 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 Funding Period, funds on deposit in
the Pre-Funding Account will be withdrawn and paid to the
Transferor to the extent of any increases in the Invested
Amount as a result of the increase in the amount of
Receivables in the Trust. In the event of the occurrence
of a Pay Out Event during the Funding Period, the amounts
remaining on deposit in the Pre-Funding Account, will be
payable as principal first to the Class A
Certificateholders until the Class A Invested Amount is
paid in full and then to the Class B Certificateholders
until the Class B Invested Amount is paid in full and
then to the Class C Certificateholders until the Class C
Invested Amount is paid in full. Should the Pre-Funded
Amount be greater than zero on the first day of the
November 1996 Monthly Period, such amount will be
deposited in the Excess Funding Account.
Subject to the Agreement, payments of principal
are limited to the unpaid Class A Invested Amount of the
Class A Certificates, which may be less than the unpaid
balance of the Class A Certificates pursuant to the terms
of the Agreement. All principal of and interest on the
Class A Certificates is due and payable no later than the
February 2002 Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the
"Series Termination Date"). After the Series Termination
Date neither the Trust nor the Transferor will have any
further obligation to distribute principal or interest on
the Class A Certificates. 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 Certificates, 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 FINANCIAL SERVICES
RECEIVABLES, INC.
By:_____________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates
referred to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK
By: _______________________
Name:
Title:
Exhibit A2
FORM OF CLASS B INVESTOR CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN
INTEREST HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT FINANCIAL SERVICES 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
THIS CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT
IN THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" OR 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. ___ $__________
CUSIP NO. 317869AB13
FINGERHUT FINANCIAL SERVICES MASTER TRUST
6.80% ASSET BACKED
CERTIFICATE, SERIES 1996-1, 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 revolving consumer credit card accounts
transferred or to be transferred by Fingerhut Financial
Services Receivables, Inc. (the "Transferor") and other
assets and interests constituting the Trust under the
Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Financial Services Receivables, Inc., Direct
Merchants Credit Card Bank, National Association or any
affiliate of either of them.)
This certifies that __________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Financial
Services Master Trust (the "Trust") issued pursuant to
the Pooling and Servicing Agreement, dated as of May 26,
1995 (the "Pooling and Servicing Agreement"; such term to
include any amendment thereto) by and between the
Transferor, Direct Merchants Credit Card Bank, National
Association, as the Servicer (the "Servicer"), and The
Bank of New York (Delaware), as Trustee (the "Trustee"),
and the Series 1996-1 Supplement, dated as of April 23,
1996 (the "Series 1996-1 Supplement"), among the
Transferor, the Servicer and the Trustee. The Pooling
and Servicing Agreement, as supplemented by the Series
1996-1 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 the Trust Property (as defined in the Agreement).
This Certificate does not purport to summarize
the Agreement and reference is made to that 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 Financial
Services Master Trust 6.80% Asset Backed Certificates,
Series 1996-1, 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.
The Transferor has structured the Agreement,
the Class B Certificates, the Fingerhut Financial
Services Master Trust 6.45% Asset Backed Certificates,
Series 1996-1, Class A (the "Class A Certificates" and
collectively with the Class B Certificates the "Offered
Certificates") and the Fingerhut Financial Services
Master Trust Floating Rate Asset Backed Certificates,
Series 1996-1, Class C (the "Class C Certificates") with
the intention that the Offered 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 Certificates 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 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.
Interest on the Offered Certificates will be
payable on May 20, 1996 and on the 20th day of each month
thereafter or, if such day is not a business day, on the
next succeeding business day (each, a "Distribution
Date"), in an amount equal to (i) with respect to the
Class A Certificates, one-twelfth of the product of the
Class A Certificate Rate and the outstanding principal
balance of the Class A Certificates as of the preceding
Record Date (or in the case of the first Distribution
Date, the initial principal amount of the Class A
Certificates) and (ii) with respect to the Class B
Certificates, one-twelfth of the product of the Class B
Certificate Rate and the outstanding principal balance of
the Class B Certificates as of the preceding Record Date
(or in the case of the first Distribution Date, the
initial principal amount of the Class B Certificates).
Interest for the first Distribution Date will include
accrued interest at the applicable Certificate Rate (the
"Certificate Rates") from the Closing Date through May
19, 1996. Interest will be calculated on the basis of a
360-day year of twelve 30-day months.
Interest payments on the Class A Certificates
on each Distribution Date will be funded from Available
Series Finance Charge Collections with respect to the
preceding Monthly Period (or, with respect to the first
Distribution Date, such collections from and including
the Closing Date to and including April 26, 1996 plus the
amount of the initial deposit to the Interest Funding
Account to be made on the Closing Date) and from certain
other funds allocated as set forth in the Pooling and
Servicing Agreement to the respective classes of the
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
Subject to the prior payment of interest on the
Class A Certificates, interest payments on the Class B
Certificates on each Distribution Date will be funded
from the portion of Available Series Finance Charge
Collections with respect to the preceding Monthly Period
and from certain other funds allocated as set forth in
the Pooling and Servicing Agreement to the Class B
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
"Class B Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the Class B Initial Invested Amount less the Class B
Percentage of the initial deposit to the Pre-Funding
Account plus the Class B Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
B Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates, minus (d)
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 (e) 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 4.16(a) and
(b) of the Agreement, for the purpose of reinstating
amounts reduced pursuant to the foregoing clauses (c) and
(d).
During the period from and including the
Closing Date to but excluding the earlier of (x) the
first day for which the Invested Amount equals the Full
Invested Amount; (y) the first day on which a Pay Out
Event is deemed to occur; and (z) the first day of the
November 1996 Monthly Period (the "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 1996-1
Supplement in connection with the increase in the amount
of Receivables in the Trust. On the Closing Date a cash
deposit will be made to the Pre-Funding Account such that
the amount of Principal Receivables plus the amount of
such cash deposit on such date will at least equal the
sum of the initial outstanding principal balances of the
Class A Certificates, the Class B Certificates, the Class
C Certificates and the Class D Certificates, and the then
current outstanding principal amount of the Series 19951
Variable Funding Certificates. 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 Funding Period, funds on deposit in
the Pre-Funding Account will be withdrawn and paid to the
Transferor to the extent of any increases in the Invested
Amount as a result of the increase in the amount of
Receivables in the Trust. In the event of the occurrence
of a Pay Out Event during the Funding Period, the amounts
remaining on deposit in the Pre-Funding Account, will be
payable as principal first to the Class A
Certificateholders until the Class A Invested Amount is
paid in full and then to the Class B Certificateholders
until the Class B Invested Amount is paid in full and
then to the Class C Certificateholders until the Class C
Invested Amount is paid in full. Should the Pre-Funded
Amount be greater than zero on the first day of the
November 1996 Monthly Period, such amount will be
deposited in the Excess Funding Account.
Subject to the Agreement, payments of principal
are limited to the unpaid Class B Invested Amount of the
Class B Certificates, which may be less than the unpaid
balance of the Class B Certificates pursuant to the terms
of the Agreement. All principal of and interest on the
Class B Certificates is due and payable no later than the
February 2000 Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the
"Series Termination Date"). After the Series Termination
Date neither the Trust nor the Transferor will have any
further obligation to distribute principal or interest on
the Class B Certificates. In the event that the Class B
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 Certificates, 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 FINANCIAL SERVICES
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 A3
FORM OF CLASS C INVESTOR CERTIFICATE
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT FINANCIAL SERVICES RECEIVABLES, INC.
AND THE TRUSTEE 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, (III) A GOVERNMENTAL PLAN, AS DEFINED IN SECTION
3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL
LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR
(V) A PERSON INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(EXCLUDING FOR PURPOSES OF THIS CLAUSE (V), ANY ENTITY
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
THIS CERTIFICATE MAY NOT BE ACQUIRED, SOLD, TRADED
OR TRANSFERRED, NOR MAY AN INTEREST IN THIS CERTIFICATE
BE MARKETED, ON OR THROUGH (I) AN "ESTABLISHED SECURITIES
MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE
CODE AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY
REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN
OVERTHECOUNTERMARKET OR AN INTERDEALER QUOTATION SYSTEM
THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS
OR (II) A "SECONDARY MARKET" WITHIN THE MEANING OF
SECTION 7704(b)(2) OF THE CODE AND ANY PROPOSED,
TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER,
INCLUDING A MARKET WHEREIN INTERESTS IN THE Class C
CERTIFICATES ARE REGULARLY QUOTED BY ANY PERSON MAKING A
MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY PERSON
REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH
RESPECT TO INTERESTS IN THE CLASS C CERTIFICATES AND
STANDS READY TO EFFECT BUY OR SELL TRANSACTIONS AT THE
QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS.
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 (1) TO
THE TRANSFEROR OR (2) TO A LIMITED NUMBER OF
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) AND
IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (UPON DELIVERY OF THE
DOCUMENTATION REQUIRED BY THE POOLING AND SERVICING
AGREEMENT AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF
COUNSEL SATISFACTORY TO THE TRUSTEE). EACH CERTIFICATE
OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS
CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT).
THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF
TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE
SATISFACTORY TO THE TRANSFER AGENT AND REGISTRAR THAT THE
RESTRICTIONS ON TRANSFER SET FORTH IN THE SERIES 1996-1
SUPPLEMENT HAVE BEEN COMPLIED WITH. THIS CERTIFICATE MAY
NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF EACH OF
THE TRANSFEROR AND THE SERVICER AND UNLESS AND UNTIL THE
TRUSTEE SHALL HAVE RECEIVED THE CERTIFICATIONS REQUIRED
BY THE SERIES 1996-1 SUPPLEMENT.
No. ___
$_____________
FINGERHUT FINANCIAL SERVICES MASTER TRUST
FLOATING RATE ASSET BACKED
CERTIFICATE, SERIES 1996-1, 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 revolving consumer credit card accounts
transferred or to be transferred by certain subsidiaries
of Fingerhut Financial Services Receivables, Inc. (the
"Transferor") and other assets and interests constituting
the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Financial Services Receivables, Inc., Direct
Merchants Credit Card Bank, National Association or any
affiliate of either of them.)
This certifies that ___________________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Financial
Services Master Trust (the "Trust") issued pursuant to
the Pooling and Servicing Agreement, dated as of May 26,
1995 (the "Pooling and Servicing Agreement"; such term to
include any amendment thereto) by and between the
Transferor, Direct Merchants Credit Card Bank, National
Association as the Servicer (the "Servicer"), and The
Bank of New York (Delaware), as Trustee (the "Trustee"),
and the Series 1996-1 Supplement, dated as of April 23,
1996 (the "Series 1996-1 Supplement"), among the
Transferor, the Servicer and the Trustee. The Pooling
and Servicing Agreement, as supplemented by the Series
1996-1 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 the Trust Property (as defined in the Agreement).
This Certificate does not purport to summarize
the Agreement and reference is made to that 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 Financial
Services Master Trust Floating Rate Asset Backed
Certificates, Series 1996-1, 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.
The Transferor has structured the Agreement,
the Class C Certificates, the Fingerhut Financial
Services Master Trust 6.45% Asset Backed Certificates,
Series 1996-1, Class A (the "Class A Certificates") and
the Fingerhut Financial Services Master Trust 6.80% Asset
Backed Certificates, Series 1996-1, Class B (the "Class B
Certificates") with the intention that the Class A, Class
B and 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 Certificates 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 Payment Commencement
Date, which is the Distribution Date either on or
following the Distribution Date, on which the Class A
Invested Amount and the Class B Invested Amount have been
paid in full. No principal payments will be payable 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.
Interest on the Offered Certificates will be
payable on May 20, 1996 and on the 20th day of each month
thereafter or, if such day is not a business day, on the
next succeeding business day (each, a "Distribution
Date"), in an amount equal to (i) with respect to the
Class A Certificates, one-twelfth of the product of the
Class A Certificate Rate and the outstanding principal
balance of the Class A Certificates as of the preceding
Record Date (or in the case of the first Distribution
Date, the initial principal amount of the Class A
Certificates) and (ii) with respect to the Class B
Certificates, one-twelfth of the product of the Class B
Certificate Rate and the outstanding principal balance of
the Class B Certificates as of the preceding Record Date
(or in the case of the first Distribution Date, the
initial principal amount of the Class B Certificates).
Interest for the first Distribution Date will include
accrued interest at the applicable Certificate Rate (the
"Certificate Rates") from the Closing Date through May
19, 1996. Interest will be calculated on the basis of a
360-day year of twelve 30-day months.
Interest payments on the Class A Certificates
on each Distribution Date will be funded from Available
Series Finance Charge Collections with respect to the
preceding Monthly Period (or, with respect to the first
Distribution Date, such collections from and including
the Closing Date to and including April 26, 1996 plus the
amount of the initial deposit to the Interest Funding
Account to be made on the Closing Date) and from certain
other funds allocated as set forth in the Pooling and
Servicing Agreement to the respective classes of the
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
Subject to the prior payment of interest on the
Class A Certificates, interest payments on the Class B
Certificates on each Distribution Date will be funded
from the portion of Available Series Finance Charge
Collections with respect to the preceding Monthly Period
and from certain other funds allocated as set forth in
the Pooling and Servicing Agreement to the Class B
Certificates and deposited on each business day during
such Monthly Period in the Interest Funding Account.
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.
"Class C Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the Class C Initial Invested Amount less the Class C
Percentage of the initial deposit to the Pre-Funding
Account plus the Class C Percentage of any withdrawals
from the Pre-Funding Account (i) during the Funding
Period in connection with the addition of Receivables to
the Trust or (ii) at the end of the Funding Period for
deposit into the Excess Funding Account, minus (b) the
aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to Class
C Certificateholders through and including such Business
Day, minus (c) the aggregate amount of Class C Investor
Charge-Offs for all prior Distribution Dates, minus (d)
the aggregate amount of Reallocated Class B Principal
Collections and Reallocated Class C Principal Collections
for which the Class D Invested Amount has not been
reduced for all prior Business Days (provided that the
Class C Invested Amount shall in no event be reduced to
an amount less than zero), and plus (e) the sum of the
aggregate amount allocated and available on all prior
Business Days pursuant to subsection 4.9(a)(xii) of the
Agreement and, with respect to such subsection, pursuant
to subsections 4.10(a) and (b), Section 4.15 and
subsection 4.20(b) of the Agreement, for the purpose of
reinstating amounts reduced pursuant to the foregoing
clauses (c) and (d).
During the period from and including the
Closing Date to but excluding the earlier of (x) the
first day for which the Invested Amount equals the Full
Invested Amount; (y) the first day on which a Pay Out
Event is deemed to occur; and (z) the first day of the
November 1996 Monthly Period (the "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 1996-1
Supplement in connection with the increase in the amount
of Receivables in the Trust. On the Closing Date a cash
deposit will be made to the Pre-Funding Account such that
the amount of Principal Receivables plus the amount of
such cash deposit on such date will at least equal the
sum of the initial outstanding principal balances of the
Class A Certificates, the Class B Certificates, the Class
C Certificates and the Class D Certificates, and the then
current outstanding principal amount of the Series 19951
Variable Funding Certificates. 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 Funding Period, funds on deposit in
the Pre-Funding Account will be withdrawn and paid to the
Transferor to the extent of any increases in the Invested
Amount as a result of the increase in the amount of
Receivables in the Trust. In the event of the occurrence
of a Pay Out Event during the Funding Period, the amounts
remaining on deposit in the Pre-Funding Account, will be
payable as principal first to the Class A
Certificateholders until the Class A Invested Amount is
paid in full and then to the Class B Certificateholders
until the Class B Invested Amount is paid in full and
then to the Class C Certificateholders until the Class C
Invested Amount is paid in full. Should the Pre-Funded
Amount be greater than zero on the first day of the
November 1996 Monthly Period, such amount will be
deposited in the Excess Funding Account.
Subject to the Agreement, payments of principal
are limited to the unpaid Class C Invested Amount of the
Class C Certificates, which may be less than the unpaid
balance of the Class C Certificates pursuant to the terms
of the Agreement. All principal of and interest on the
Class C Certificates is due and payable no later than the
__________ Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the
"Series Termination Date"). After the Series 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 C
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 Certificates, 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 FINANCIAL SERVICES
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 A4
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 FINANCIAL SERVICES
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. IN
NO EVENT SHALL THE TRANSFEROR BE PERMITTED TO
TRANSFER ANY INTEREST IN OR PORTION OF THIS
CERTIFICATE IF, AFTER GIVING EFFECT TO SUCH PROPOSED
TRANSFER, TAKING INTO ACCOUNT THE CERTIFICATES WHOSE
TRANSFER IS PROPOSED, MORE THAN 20% (BY INVESTED
AMOUNT AND BY VALUE) OF THE OUTSTANDING CERTIFICATES
ISSUED BY THE TRUST WITH RESPECT TO WHICH NO OPINION
OF COUNSEL WAS ISSUED THAT THE APPLICABLE CLASS
WOULD BE TREATED AS DEBT FOR FEDERAL INCOME TAX
PURPOSES (INCLUDING THE EXCHANGEABLE TRANSFEROR
CERTIFICATE AND EACH TRANSFEROR RETAINED CLASS)
WOULD NOT BE BENEFICIALLY OWNED BY FINGERHUT
FINANCIAL SERVICES RECEIVABLES, INC.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT FINANCIAL SERVICES 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 FINANCIAL SERVICES MASTER TRUST
0% ASSET BACKED
CERTIFICATE, SERIES 1996-1, 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 revolving consumer credit card accounts
transferred or to be transferred by Fingerhut Financial
Services Receivables, Inc. (the "Transferor") and other
assets and interests constituting the Trust under the
Agreement described below.
(Not an interest in or a recourse obligation of
Fingerhut Financial Services Receivables, Inc., Direct
Merchants Credit Card Bank, National Association or any
affiliate of either of them.)
This certifies that ______________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Financial
Services Master Trust (the "Trust") issued pursuant to
the Pooling and Servicing Agreement, dated as of May 26,
1995 (the "Pooling and Servicing Agreement"; such term to
include any amendment or Supplement thereto) by and
between the Transferor, Direct Merchants Credit Card
Bank, National Association as the Servicer (the
"Servicer"), and The Bank of New York (Delaware), as
Trustee (the "Trustee"), and the Series 1996-1
Supplement, dated as of April 23, 1996 (the "Series 1996-
1 Supplement"), among the Transferor, the Servicer and
the Trustee. The Pooling and Servicing Agreement, as
supplemented by the Series 1996-1 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 the Trust Property (as defined
in the Agreement).
This Certificate does not purport to summarize
the Agreement and reference is made to that 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 Financial
Services Master Trust 0% Asset Backed Certificates,
Series 1996-1, 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 Financial Services 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, or
applicable state income tax characterization of any
outstanding Series of Investor Certificate or the
taxability (or tax characterization) of the Trust under
Federal, or applicable state income tax laws.
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 accrue on the unpaid principal
amount of the Class D Certificates at the Class D
Certificate Rate.
"Class D Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the initial principal balance of the Class D
Certificates, minus (b) the aggregate amount of principal
payments made to Class D Certificateholders through and
including such Business Day, minus (c) the aggregate
amount of Class D Investor Charge-Offs for all prior
Distribution Dates, minus (d) the aggregate amount of
Reallocated Principal Collections for all prior Business
Days (provided that the Class D Invested Amount shall in
no event be reduced to an amount less that zero), plus
(e) 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).
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 the
February 2002 Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the
"Series Termination Date"). After the Series 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
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 Certificates, 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 FINANCIAL SERVICES
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
[Form of Monthly Certificateholders' Statement]
EXHIBIT C
FORM OF PURCHASER'S LETTER
Fingerhut Financial Securities
Receivables, Inc.
4400 Baker Road, Suite F470
Minnetonka, MN 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Re: Class C Certificates, Series 1996-1
Ladies and Gentlemen:
In connection with our proposed purchase of
Fingerhut Financial Services Master Trust, Class C
Certificates, Series 1996-1 (the "Certificates"), we
confirm that:
I. We have received a copy of the Private
Placement Memorandum dated April 18, 1996 relating to the
Certificates (the "Private Placement Memorandum") and
such other information as we deem necessary in order to
make our investment decision. We understand that the
Private Placement Memorandum and any such other
information speaks only as of its date and that the
information contained in the Private Placement Memorandum
and such other information may not be correct or complete
as of any time subsequent to such date.
I. We agree to be bound by the restrictions
and conditions set forth in the Pooling and Servicing
Agreement, dated as of May 26, 1995, as supplemented by
the Series 1996-1 Supplement dated as of April 23, 1996
(the "Series 1996-1 Supplement" and together with the
Pooling and Servicing Agreement, the "Pooling and
Servicing Agreement"), each by and among Fingerhut
Financial Services Receivables, Inc., as transferor (the
"Transferor"), Direct Merchants Credit Card Bank,
National Association, as servicer (the "Servicer") and
The Bank of New York (Delaware) as trustee (the
"Trustee"), relating to the Certificates and agree to be
bound by, and not reoffer, resell, pledge or otherwise
transfer (any such act, a "Transfer") the Certificates
except in compliance with such restrictions and
conditions including but not limited to those in Section
10 of the Series 1996-1 Supplement.
I. We understand that the Certificates have
not been and will not be registered under the Securities
Act of 1933, as amended (the "Securities Act") or any
state securities law and agree that the Certificates may
be reoffered, resold, pledged or otherwise transferred
only in compliance with the Securities Act and other
applicable laws and only (i) to the Transferor or (ii) to
a limited number of institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and in a transaction exempt from the
registration requirements of the Securities Act (upon
delivery of the documentation required by the Pooling and
Servicing Agreement and, if the Trustee so requires, an
opinion of counsel satisfactory to the Trustee).
I. We have neither acquired nor will we Transfer
any Certificate we acquire (or any interest therein) or
cause any Certificate (or any interest therein) to be
marketed on or through (i) an "established securities
market" within the meaning of Section 7704(b)(1) of the
Internal Revenue Code of 1986, as amended (the "Code")
and any treasury regulation thereunder, including,
without limitation, an over-the-counter-market or an
interdealer quotation system that regularly disseminates
firm buy or sell quotations or (ii) a "secondary market"
within the meaning of Section 7704(b)(2) of the Code and
any treasury regulation thereunder, including a market
wherein interests in the Certificates are regularly
quoted by any Person making a market in such interests
and a market wherein any person regularly makes available
bid or offer quotes with respect to interests in the
Certificates and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf
of others.
I. We are not and will not become a
partnership, Subchapter S corporation or grantor trust
for United States federal income tax purposes. [If this
representation cannot be made, the Transferor, the
Servicer or the Trustee may require additional
representations.]
I. We are a person who is either (A)(i) a
citizen or resident of the United States, (ii) a
corporation, partnership or other entity organized in or
under the laws of the United States or any political
subdivision thereof or (iii) a person not described in
(i) or (ii) whose ownership of the Certificates is
effectively connected with a such person's conduct of a
trade or business within the United States (within the
meaning of the Code) and our ownership of any interest in
a Certificate will not result in any withholding
obligation with respect to any payments with respect to
the Certificates by any person or (B) an estate or trust
the income of which is includible in gross income for
United States federal income tax purposes. We agree that
if we are a person described in clause (A)(iii) above, we
will furnish to the person from whom we are acquiring a
Certificate, the Servicer and the Trustee, a properly
executed U.S. Internal Revenue Service Form 4224 and a
new Form 4224 upon the expiration or obsolescence of any
previously delivered form (and such other certifications,
representations or opinions of counsel as may be
requested by the Transferor, the Servicer or the
Trustee). We recognize that if we are a tax-exempt
entity, payments with respect to the Certificates may
constitute unrelated business taxable income.
I. We understand that no subsequent Transfer
of a Certificate is permitted unless (i) such Transfer
is of a Certificate with a denomination of at least
$[1,000,000] and (ii) the Transferor and the Servicer
each consent in writing to the proposed Transfer, which
consent shall be granted unless either the Transferor or
the Servicer determines in its sole and absolute
discretion that such Transfer would create a risk that
the Trust would be classified for federal or any
applicable state tax purposes as an association or
publicly traded partnership taxable as a corporation;
provided, that any attempted Transfer that would cause
the number of Targeted Holders (as defined in the
Purchase Agreement) to exceed ninety-nine shall be void;
and provided, further, that there shall not at any time
be more than ten Certificateholders or such other number
as may be consented to by the Transferor which consent
may be withheld in its sole and absolute discretion.
I. We understand that the opinion of tax
counsel that the Trust is not a publicly traded
partnership taxable as a corporation is dependent in part
on the accuracy of the representations in paragraphs 4,
5, 6 and 7 and that in addition to our being subject to
having our purchase rescinded, we will be liable for
damages.
I. We are an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3), or (7) of
Regulation D under the Securities Act) and have such
knowledge and experience in financial and business
matters as to be capable of evaluating the merits and
risks of our investment in the Certificates, and we and
any account for which we are acting are each able to bear
the economic risk of our or its investment.
I. We are acquiring each of the Certificates
purchased by us for our own account or for a single
account (each of which is an institutional "accredited
investor") as to which we exercise sole investment
discretion.
I. We are 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, (iii) a governmental
plan, as defined in Section 3(32) of ERISA, subject to
any federal, state or local law which is, to a material
extent, similar to the provisions of Section 406 of ERISA
or Section 4975 of the Code, (iv) an entity whose
underlying assets include plan assets by reason of a
plan's investment in the entity, or (v) a person
investing "plan assets" of any such plan (excluding for
purposes of this clause (v) any entity registered under
the Investment Company Act of 1940, as amended).
I. We understand that any purported Transfer
of any Certificate in contravention of the restrictions
and conditions in paragraphs 1 through 11 above
(including any violation of the representation in
paragraph 5 by an investor who continues to hold a
Certificate occurring any time after the Transfer in
which it acquired such Certificate) shall be null and
void and the purported transferee shall not be recognized
by the Trust or any other person as a Certificateholder
for any purpose.
I. We further understand that, on any
proposed resale, pledge or transfer of any Certificates,
we will be required to furnish to the Trustee and the
Registrar, such certification and other information as
the Trustee or the Registrar may reasonably require to
confirm that the proposed sale complies with the
foregoing restrictions and with the restrictions and
conditions of the Certificates and the Pooling and
Servicing Agreement pursuant to which the Certificates
were issued and we agree that if we determine to Transfer
any Certificate, we will cause our proposed transferee to
provide the Transferor, the Servicer and the Trustee with
a letter substantially in the form of this letter. We
further understand that Certificates purchased by us will
bear a legend to the foregoing effect.
You are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or
legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours
[Purchaser]
By:________________________
Name:
Title:
