SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 1-8668
December 27, 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 21, 1997, 46,188,013 shares of the Registrant's
Common Stock were outstanding and the aggregate market value of
Common Stock held by non-affiliates of the Registrant on that
date was approximately $646,012,236 based upon the New York Stock
Exchange closing price on March 21, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the
fiscal year ended December 27, 1996, are incorporated by
reference in Parts II and IV.
Certain portions of the Proxy Statement for the Annual Meeting of
Shareholders of Fingerhut Companies, Inc. to be held on May 13,
1997, which will be filed with the Securities and Exchange
Commission within 120 days after December 27, 1996, are
incorporated by reference in Part III.
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of
the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management 19
Item 13. Certain Relationships and Related
Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 20
Signatures 21
Exhibit Index 23
PART I
Item 1. Business
General
Fingerhut Companies, Inc. (the "Company") is a database
marketing company that sells products and services directly to
consumers via catalogs, telemarketing, television and other
media. The Company had 1996 revenues of $2.027 billion. Its
principal subsidiaries are Fingerhut Corporation ("Fingerhut"),
Metris Companies Inc. ("Metris") and Figi's Inc. ("Figi's"). The
Company's Direct-to-the-Consumer Marketing segment is conducted
by Fingerhut, Figi's and Infochoice USA, Inc. ("Infochoice").
Fingerhut has been in the direct mail marketing business for over
45 years and sells general merchandise using catalogs and other
direct marketing solicitations. Fingerhut's 1996 net sales were
$1.538 billion. Figi's markets specialty foods and other gifts,
primarily through catalogs, and had net sales of approximately
$93 million in 1996.
The Company's Financial Services segment business is
conducted through Metris (an 83% owned subsidiary), an
information-based direct marketer of consumer credit products,
extended service plans, and fee-based products and services to
moderate income consumers. Metris' subsidiaries include Direct
Merchants Credit Card Bank, National Association ("Direct
Merchants Bank") and Metris Direct, Inc. (formerly Fingerhut
Financial Services Corporation). The Company formed Metris in
1996 and contributed to it the assets, liabilities and equity in
the Company's financial services business. In October 1996,
Metris completed an initial public offering of approximately 17%
of its common stock.
The Company is the successor to the business of several
related companies, the first of which was a partnership formed in
1948. Fingerhut became a publicly held corporation in 1970 and
was acquired by a predecessor of Travelers Group Inc.
("Travelers") in 1979. The Company was incorporated in 1978 in
connection with Travelers' acquisition of Fingerhut and became a
publicly held company in May 1990.
Unless the context otherwise indicates, references to the
Company refer to Fingerhut Companies, Inc. and its subsidiaries.
Direct-to-the-Consumer Marketing Segment
The Company's Direct-to-the-Consumer Marketing segment
businesses are conducted by Fingerhut, Figi's and Infochoice.
The business discussion includes five-year summaries of key
operating statistics and a two-year segment Statement of
Operations to assist in understanding this segment's results.
Fingerhut Corporation
Introduction
Fingerhut, one of the largest catalog marketers in the United
States, sells general merchandise and financial service products
to moderate income consumers. It is the only large general
merchandise retailer that serves this market exclusively through
catalog direct marketing. The median age of Fingerhut's
customers is slightly higher than the national average and
families are a significant portion of its customer base.
Fingerhut offers extended payment terms on all purchases under
fixed term, fixed payment installment contracts and makes
substantially all of its sales on credit utilizing proprietary
closed-end credit. Fingerhut's core competency is the
development and use of a proprietary database to provide credit,
target offers and build relationships with its customers.
Fingerhut has used its extensive database, credit programs and
proprietary database segmentation software to establish a
dominant position in this market, with a large base of loyal,
repeat customers. Fingerhut's active list of existing customers
accounts for approximately 80% of its net sales.
Marketing
Marketing activities are divided into three primary programs:
new customer acquisition, a transitional program and existing
customer programs. During 1996, Fingerhut mailed approximately
502 million catalogs and other promotions to existing and
prospective customers.
Fingerhut's new customer acquisition program is designed to
identify and attract new customers on a cost-effective basis.
The primary sources of new customers are rented lists, catalog
requests, customer referrals and other direct marketing
solicitations. Fingerhut mails catalogs and other multi-product
offerings to prospective customers and adds them to its database
as responses are received. These programs are intended to
identify and target new customers who will become long-term
Fingerhut customers. New customers account for approximately 20%
of Fingerhut's net sales.
The decisions on which prospective customers to solicit,
which products to offer and which media to use are based upon the
projected long-term profitability and internal rates of return of
the program. Maintaining acceptable financial rates of return on
new customers depends on balancing the cost of acquisition of new
customers with their long-term profitability to Fingerhut. To
determine whether the cost to obtain new customers is acceptable,
Fingerhut maintains a system that monitors profitability by
source of new customers, by product type and by promotional media
type. Fingerhut continuously tests various media, products,
offerings and incentives and analyzes the results in order to
maximize the effectiveness of its customer acquisition efforts.
<TABLE>
Dec. 27, Dec. 29, Dec. 30, Dec. 31, Dec. 25,
For the Fiscal Year Ended: 1996 1995 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost per new customer $13.92 $15.36 $8.52 $11.50 $14.27
New customer mailings (in 000's) 162,493 193,646 155,050 149,737 141,389
</TABLE>
After first-time buyers commence payments on their initial
purchases, they are placed in a transitional program. The time a
person remains in a transitional program and the number and type
of products he or she is offered depends on the buyer's
purchasing and payment practices. A customer is placed on
Fingerhut's promotable customer list after demonstrating his or
her creditworthiness.
Fingerhut reaches its existing customers through extensive
promotional mailing efforts, primarily catalogs, and through
telemarketing. In 1996, Fingerhut mailed 132 different catalogs
and other promotions to its established customers. These
mailings included general merchandise catalogs, specialty
catalogs, small and large multi-product mailers and single
product promotions. In addition, Fingerhut has a home page on
the Internet (www.fingerhut.com) through which customers can
contact Fingerhut customer service or order catalogs.
<TABLE>
Dec. 27, Dec. 29, Dec. 30, Dec. 31, Dec. 25,
For the Fiscal Year Ended: 1996 1995 1994 1993 1992
---------------------------------------------------
Sales per mailing --
<S> <C> <C> <C> <C> <C>
existing customer list $3.43 $3.02 $2.91 $3.41 $3.23
Existing customer mailings (in 000's) 339,377 404,894 402,476 326,473 283,219
Active customer list (in 000's)* 4,706 5,174 5,104 4,756 4,465
Contribution margin per existing customer $ 90 $ 77 $ 78 $ 75 $ 70
- ------------------------
</TABLE>
*Includes existing customers who have made a purchase from
Fingerhut in the last 12 months.
The Company believes the key factors in maximizing the
profitability of its existing customer list are developing
long-term repeat buyers and balancing customer response with
appropriate credit losses and customer return rates for each
segment of its customer list. Fingerhut promotes customer
satisfaction and loyalty by extending credit, by using a number
of marketing devices (including targeted promotions, deferred
payments, 30-day free home trials, a satisfaction pledge, free
gifts, merchandise giveaways, sweepstakes, and personalized
mailings), and by offering attractive brand name and private
label merchandise.
Fingerhut Database
Fingerhut is a leader in the development and use of
information-based marketing concepts and its extensive database
and proprietary database segmentation software afford it a
competitive advantage within its market niche. The database
contains information on more than 30 million consumers, including
approximately 9 million customers who have made a purchase from
Fingerhut within the past 24 months. Included within the
database are up to 1,400 potential data items in a customer
record, including names, addresses, behavioral characteristics,
general demographic information and information provided by the
customer. Fingerhut uses this information, along with
sophisticated proprietary credit scoring models, to produce
proprietary credit scores for Fingerhut customers. The Fingerhut
database also includes a "suppress" file, which contains
information on approximately 8 million individuals about whom the
Company has information relating to fraud and similar indicators
of unacceptably high risk. The database is continually updated
as new information is obtained. Fingerhut also uses the database
for marketing decisions. Fingerhut does not report its credit
information to the credit bureaus, which means this information
is not publicly available.
Credit Management
Fingerhut generally does not require its customers to provide
traditional credit information in order to approve purchases on
credit. Instead of using traditional credit applications,
Fingerhut has developed sophisticated and highly automated
proprietary techniques for evaluating the creditworthiness of new
and existing customers and for selecting those customers who will
receive various categories of mailings. Management believes
Fingerhut's more than 45 years of experience in the mail order
business, its database containing purchase and payment histories
and its significant investment in computer technology and
proprietary analytical models give Fingerhut a unique ability to
analyze the creditworthiness of customers in its market. The
goal of the analysis is not to achieve the lowest possible credit
losses but to balance credit losses and return rates with
customer response, thereby optimizing profitability.
Consequently, Fingerhut's planned credit losses typically are
higher than other direct mail and retail companies.
Once a consumer places an order, Fingerhut employs
proprietary techniques designed to identify consumers whose
orders can be automatically shipped, consumers from whom
additional information, including credit applications, must be
obtained and reviewed and consumers to whom credit is declined.
After purchases are shipped, customer payments are continuously
monitored to identify credit problems as early as possible.
Fingerhut has a flexible policy of working with certain
delinquent customers, including adjusting their payment
schedules, which Fingerhut believes reduces default rates and
maintains customer loyalty.
Substantially all of Fingerhut's sales are made using a
proprietary closed-end credit program, which uses fixed term,
fixed payment installment plans. Monthly payments are made by
customers and processed through the use of coupons contained in
payment books delivered with each order shipment. Payment terms
to existing customers generally range from 4 to 36 monthly
payments. In addition, a majority of sales are to customers who
receive a deferred payment option, which extends the due date of
the first payment by approximately four to five months. Many
customers pay their accounts in full before the end of the
scheduled payment term.
In late 1996, the Company received approval from the Office
of the Comptroller of the Currency to charter a limited purpose
national bank. Fingerhut National Bank, a wholly owned
subsidiary of the Company, is a special purpose credit card bank.
Commencing in January 1997, Fingerhut National Bank began
extending private label credit card loans for Fingerhut
purchases. Fingerhut National Bank offers closed-end credit card
loans but is also testing revolving credit.
Merchandising
Fingerhut offers a broad mix of brand name and private label
consumer products, including electronics, housewares, home
textiles, apparel, furniture, home accessories, jewelry, sporting
goods and toys, tools, automotive, lawn and garden, and financial
service products. In 1996, Fingerhut offered approximately
16,000 different products. Fingerhut's sales mix by product
category for 1996 is shown in the following table:
Fingerhut Corporation 1996 Product Mix
Percent of
Gross Retail Sales
-------------------
Electronics 22%
Home Textiles 18%
Housewares 18%
Furniture/Home Accessories 10%
Leisure 9%
Jewelry 8%
Apparel 7%
Tools/Automotive/Lawn & Garden 6%
Other 2%
----
100%
====
Fingerhut selects merchandise to be offered to its customers
by evaluating historical product and category demand and by
analyzing emerging merchandise trends in conjunction with
proprietary marketing information. Fingerhut is constantly
developing unique brand name and private label product groupings,
such as coordinated kitchen ensembles, coordinated bed and bath
ensembles and tool sets, targeted to appeal to its customers and
to add value and/or style to its merchandise.
Fingerhut's general merchandise catalogs feature a wide array
of products; they are updated and published throughout the year,
including a 496-page holiday big book. Specialty catalogs mailed
to targeted portions of Fingerhut's customer list include outdoor
living, jewelry, electronics, domestics/housewares, gifts,
juvenile, home fitness, home improvement and Spanish-language
catalogs.
Vendor Relations
The Company purchases merchandise from approximately 2,100
different suppliers and maintains strong relations with its
vendors. In 1996, the top ten vendors accounted for
approximately 19% of the Company's total merchandise purchases,
with Thomson Consumer Electric Inc. accounting for approximately
4% of the total merchandise purchases and Pioneer Electronics
(USA) Inc. and Springs Industries, Inc. each accounting for
approximately 3% of the total merchandise purchases.
The Company maintains close relations with overseas
representatives in Hong Kong, Taiwan, Korea, China, the
Philippines, Thailand and Europe. In 1996, approximately 15% of
the Company's merchandise was imported directly from foreign
vendors and an additional 27% was purchased through importers.
Management Information Systems
Fingerhut was a pioneer in the use of information-based
marketing concepts in the mail order industry, using computer
technology and related software developed by the Company. The
Company continues to be highly dependent on information systems
and its computer operations are among the largest and most
sophisticated in the direct marketing industry.
Fingerhut's management information systems provide data
processing capabilities to Fingerhut, Metris, Figi's and
Infochoice and support all areas of the Company, including
marketing, credit, order fulfillment, customer service, inventory
control and finance. Fingerhut's management information systems
currently operate on mainframe computers connected to on-line
terminals and client-server systems used in all aspects of the
Company's business.
In early 1996, Fingerhut started an aggressive conversion
effort to address the Year 2000 programming issues. By mid-1996,
the most critical mainframe processing system was converted to be
Year 2000 compliant and Fingerhut initiated a large project to
address the remaining systems. This project consists of 20 sub-
projects that will span the remainder of 1997 and 1998 and use a
combination of Fingerhut and off-shore programmers. The Company
anticipates the majority of the conversion will be completed by
late 1998.
Preparation and Mailing of Promotional Materials
Fingerhut performs a large portion of the production process
for its promotional materials in house. The creative department
uses desktop publishing for the design and production of all
Fingerhut's mailings. A substantial portion of the color
photographs used in Fingerhut's catalogs and other marketing
materials are taken at the in-house photo studio and Fingerhut
prepares color separations for approximately 47% of its
promotional materials. In addition, Fingerhut's eight-color web
printing presses print more than half of its catalog "wraps," the
personalized outside cover used on Fingerhut catalogs.
Substantially all of Fingerhut's promotional materials, except
the wraps, are printed at outside vendors.
Fingerhut's mailing operations are designed to provide the
flexibility and rapid response time required to keep pace with
its changing marketing and merchandising needs. Fingerhut has
two mailing facilities in Minnesota that cut, fold, insert, sort
and deliver to the post office its single and multiple product
promotions. For catalog mailings, Fingerhut personalizes the
catalog wraps and delivers them to its outside printers
pre-sorted for mailing.
Order Processing and Fulfillment
Fingerhut provides order processing and fulfillment services
for Infochoice and its affiliate, USA Direct (defined below).
Although most of Fingerhut's customer orders are received by
mail, telephone ordering has become a more important part of
Fingerhut's business. In 1996, Fingerhut processed approximately
20 million Fingerhut and USA Direct orders and approximately 52
million Fingerhut customer payments.
In 1996, Fingerhut shipped approximately 25 million packages
from its warehouse and distribution facilities in Minnesota and
Tennessee. In order to minimize shipping costs, packages are
trucked to drop points throughout the country where they enter
the United States Postal Service or the United Parcel Service
systems for delivery to the customer. In addition, Fingerhut
offers optional express delivery in selected promotions.
Figi's Inc.
Figi's is a mail order retailer of specialty food gifts (such
as quality cheeses, smoked meats, candies and baked goods) and
other gifts headquartered in Marshfield, Wisconsin. The Company
acquired Figi's in 1981. Figi's is one of the largest direct
mail food gifts marketers in the United States, with 1996 net
sales of approximately $93 million, which was up 13% over 1995
net sales of $82 million.
New customers are acquired from sources similar to those used
by Fingerhut, although Figi's customers include both moderate
income consumers attracted by Figi's in-house credit terms and
more affluent customers who use credit cards. Sales using Figi's
interest-free, three payment credit terms constituted
approximately 85% of its net sales in 1996.
Figi's offerings are made predominantly in catalogs mailed
prior to holidays and other gift-giving occasions such as
Christmas, Easter, Valentine's Day and Mother's Day. Figi's
business is highly seasonal, with approximately 80% of its net
sales in the fourth quarter. Figi's seeks to develop repeat
business from customers by offering a satisfaction pledge.
During 1996, Figi's sales mix by product category was as follows:
Figi's Inc. 1996 Product Mix
Percent of
Gross Retail Sales
------------------
Cheese/Meat Selections 44%
Other Food Gifts 15%
Non-Food Gifts 14%
Baked Goods 12%
Candy 8%
Nuts/Snack Foods 7%
---
100%
====
Figi's uses marketing techniques similar to those developed
by Fingerhut, such as sweepstakes and in-house credit terms, to
improve customer response and expand its customer base. Figi's
also uses mailing list evaluation and segmentation techniques
similar to those used by Fingerhut. In addition, Figi's offers
its customers the opportunity to place orders by telephone and
accepts payment by major credit card.
Infochoice USA, Inc.
Infochoice reported lower net earnings in 1996 than in 1995
as a result of fewer successful infomercials and a substantial
reduction in residual royalties from prior infomercials. To
mitigate the downside risk of exposure from television marketing,
Infochoice entered into an agreement with Guthy-Renker
Corporation, under which Guthy-Renker manages infomercial
production, media placement and market distribution and
Infochoice provides product development and sourcing, customer
service and fulfillment. As amended, the agreement currently
provides for the production of six more infomercials. Infochoice
and Guthy-Renker conduct the business under the agreement through
USA Direct/Guthy-Renker, Inc. ("USA Direct"), a corporation in
which Infochoice and Guthy Renker Corporation each have a 50%
interest. In 1996, USA Direct tested several shows and had more
extensive media placement of the Denise Austin(TM) Complete Ten and
the Pilates(R) Performer infomercials. USA Direct generated $10
million in net sales, which consisted almost entirely of
fitness/leisure products. The Company accounts for USA Direct
using the equity method of accounting; accordingly, 50% of USA
Direct's profits or losses are recorded in administrative
expenses included in "Administrative and selling expenses" in the
Company's Consolidated Statements of Earnings.
Costs of Mailing
In 1996, the Company spent an aggregate of $257 million on
postage for the Direct-to-the-Consumer Marketing segment
businesses (including the cost of parcel shipments that were
passed on to customers) of which 48% was attributable to the
mailing of promotional materials, 44% was attributable to parcel
shipments and 8% was attributable to various correspondence with
customers. As is customary in the direct mail industry, the
Company passes on the cost of parcel shipments directly to the
customer as part of the shipping and handling charge. The costs
of mailing promotional material and certain other correspondence
(including postage) are not directly passed on to customers, but
are considered in the Company's overall product pricing and
mailing strategies.
The Company substantially reduces mailing costs by
effectively using discounts offered by the United States Postal
Service from basic postal rates. For example, Fingerhut sorts
mailings by zip code to the carrier route level and also prints
the "zip plus four" bar-code to obtain optimum postal discounts,
resulting in savings not always available to smaller direct mail
companies. The Company intends to adopt new innovations in mail
processing techniques, as appropriate, and believes the
increasing requirement for dynamic systems to manage the
complexity of the postal rate structure will strengthen the
long-term competitive position of larger, more sophisticated mail
order firms such as the Company.
Other Business Activities
Andy's Garage Sale, Inc. is a wholly owned subsidiary that
allows the Company to market excess inventory on the Internet.
Andy's Garage Sale(R) (www.andysgarage.com) mixes product offerings
with stories of a fictional cast of Minnesota characters. The
Company also derives additional revenues from wholesaling excess
merchandise and list rental and package inserts. Wiman
Corporation manufactures plastic products. Taken together, such
activities accounted for less than 3% of the Company's 1996 net
sales.
Direct-to-the-Consumer Marketing Segment
Statements of Operations
For the Fiscal Year Ended
(In thousands of dollars, except Dec. 27, 1996 Dec. 29, 1995
per share data)
Revenues:
Net sales $1,638,363 $1,782,282
Finance income and other revenues 241,130 245,001
---------- ----------
1,879,493 2,027,283
---------- ----------
Costs and expenses:
Product cost 827,086 890,737
Administrative and selling expenses 633,448 687,789
Provision for uncollectible accounts 283,762 272,295
Discount on sale of accounts receivable 77,447 82,392
Interest expense, net 25,305 25,213
---------- ----------
1,847,048 1,958,426
---------- ----------
Earnings before income taxes 32,445 68,857
Provision for income taxes 11,322 22,580
---------- ----------
Net earnings $ 21,123 $ 46,277
========== ==========
Earnings per share $ .44 $ .96
========== ==========
<TABLE>
Dec. 27, Dec. 29, Dec. 30, Dec. 31, Dec. 25,
For the Fiscal Year Ended: 1996 1995 1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital expenditures (in 000's) $47,742 $93,089 $69,339 $51,722 $50,900
Depreciation (in 000's) $45,069 $41,031 $33,543 $25,969 $13,983
Net Earnings (in millions)
Catalog Operations $ 19.5 $ 37.4 $ 69.9 $ 68.1 $ 57.9
Television 1.6 8.9 (26.2) 6.0 1.9
------- ------- -------- ------- -------
Total Segment Earnings $ 21.1 $ 46.3 $ 43.7 $ 74.1 $ 59.8
======= ======= ======= ======= =======
</TABLE>
Financial Services Segment
The Company's Financial Services segment businesses are
conducted by Metris Companies Inc. ("Metris") and its
subsidiaries. Two-year segment Statements of Operations and key
operating statistics are included at the end of the business
description to assist in understanding this segment's results.
Metris is an information-based direct marketer of consumer
credit products, extended service plans, and fee-based products
and services to moderate income consumers. Metris' consumer
credit products currently are unsecured and secured credit cards
issued by Direct Merchants Bank. Metris' customers and prospects
include existing customers of Fingerhut ("Fingerhut Customers")
and individuals who are not Fingerhut Customers but for whom
credit bureau information is available ("External Prospects").
Metris Direct, Inc., a subsidiary, also provides extended service
plans on certain categories of products sold by Fingerhut that
extend service coverage beyond the manufacturer's warranty.
Metris markets its fee-based products and services, including
debt waiver programs, card registration, third party insurance,
and membership clubs to its credit card customers, Fingerhut
Customers and customers of a third party credit card issuer.
Metris Companies Inc. is a Delaware corporation incorporated on
August 20, 1996, and is an 83% owned indirect subsidiary of
Fingerhut Companies, Inc. Metris became a publicly held company
in October 1996 after completing an initial public offering.
Metris' principal subsidiaries are Direct Merchants Bank, Metris
Direct, Inc. and Metris Receivables, Inc.
Metris currently operates three businesses: (i) consumer
credit products, (ii) extended service plans, and (iii) fee-based
products and services.
Consumer Credit Products
Products. Consumer credit products currently are unsecured
and secured credit cards, including the Fingerhut co-branded
MasterCard(R) and the Direct Merchants Bank MasterCard. In the
future, Metris may offer other co-branded credit cards and may
also offer other consumer credit products either directly or
through alliances with other companies. At December 31, 1996,
Direct Merchants Bank had over 1.4 million credit card accounts
with over $1.6 billion in managed credit card loans. Fingerhut
Customers represented approximately 50% of the accounts and
approximately 51% of the managed loans. At December 31, 1996,
according to the Nilson Report, Direct Merchants Bank was the
19th largest MasterCard issuer in the United States based on the
number of cards issued and the 32nd largest credit card issuer in
the United States based on managed credit card loan balances.
Solicitation. Prospects for solicitation include both
Fingerhut Customers and External Prospects. They are contacted
on a nationwide basis through pre-screened direct mail and
telephone solicitations.
Pricing. Metris' strategy to maximize customer profitability
relies on risk-based pricing. The specific pricing for each
credit card offer is determined primarily based on the prospect's
risk profile prior to solicitation. Each prospect is evaluated
to determine credit needs, credit risk, and existing credit
availability. A customized offer is developed that includes the
most appropriate product, brand, pricing, and credit line.
Metris currently offers 43 different pricing structures on its
credit card products, with annual fees ranging from $0 to $48
($60 for some secured cards) and annual percentage rates ranging
from prime plus 6.45% to prime plus 16.65%. After credit card
accounts are opened, Direct Merchants Bank actively monitors
customers' internal and external credit performance and
periodically recalculates behavior and risk scores. As customers
evolve through the credit lifecycle and are regularly rescored,
the lending relationship can evolve to include more competitive
(or more restrictive) pricing and product configurations.
For the Year Ended Dec. 31,
Key Statistics: 1996 1995
- ------------------ ---------------------------
Managed net charge-off ratio 6.2% 2.2%
Period-end managed loans (in 000's) $1,615,940 $543,619
Total accounts 1,418,062 702,891
Managed loan loss reserves (in 000's) $ 95,669 $ 22,219
Managed delinquency ratio 5.5% 4.0%
Period-end managed allowance for
loan losses ratio 5.9% 4.1%
Extended Service Plans
Extended service plans provide warranty service coverage
beyond the manufacturer's warranty. In general, Metris' extended
service plans provide customers with the right to have their
covered purchases repaired, cleaned or replaced within certain
parameters determined by Metris. Metris currently provides
extended service plans for consumer electronics, furniture, and
jewelry ("Warrantable Products") purchased from Fingerhut.
Fingerhut has an extended service plan agreement with Metris,
during the term of which Fingerhut agrees only to offer Metris'
extended service plans to its customers.
For consumer electronics, Fingerhut Customers may purchase
extended service plans that give them the right to have their
purchases repaired or replaced in the event of electrical or
mechanical failure or defects in materials and workmanship.
Quality Jewelry Care(R) is Metris' extended service plan for
jewelry. The services provided to Quality Jewelry Care customers
include repair, soldering, ring sizing, and cleaning, for which
Metris contracts with Fingerhut to perform such services.
Metris' extended service plan program for furniture is called
Quality Furniture Care(SM) and the services include stain cleaning,
structural defect or damage repair, or replacement if the
merchandise cannot be fixed. Repairs and stain cleaning are
performed by independent service providers.
Sales and Marketing. When Fingerhut Customers purchase
Warrantable Products, they have the option to buy an extended
service plan. For consumer electronics, approximately 30% of
Metris' extended service plans are purchased with the product;
the remainder are originated through telemarketing.
Substantially all of the Quality Furniture Care and Quality
Jewelry Care plans are originated through telemarketing and other
direct marketing programs.
Operations. Through the end of 1996, claims risk and claims
processing for electronics items were the responsibility of a
third party. Metris is responsible for claims risk and claims
processing for furniture and jewelry. In 1997, Metris
internalized operations related to extended service plans for
consumer electronics, and will incur the resulting claims risk.
Fee-based Products and Services
Metris currently sells a variety of fee-based products and
services to its credit card customers, Fingerhut Customers and
credit card customers of a third party, including (i) debt waiver
protection for unemployment, disability, and death, (ii) programs
such as card registration and shopping and dining clubs, and
(iii) third-party insurance. In addition, Metris develops
customized targeted mailing lists, using both Metris' database
and the Fingerhut database, for external companies to use in
their own noncompeting financial services product solicitation
efforts.
Metris Companies Inc.
Statements of Operations
For the Year Ended Dec. 31,
(In thousands of dollars, except 1996 1995
per share data)
Revenues:
Net sales $ 22,077 $ 19,596
Finance income and other revenues 133,357 38,616
---------- ----------
155,434 58,212
---------- ----------
Costs and expenses:
Product cost 6,463 5,855
Administrative and selling expenses 94,840 39,785
Provision for uncollectible accounts 18,477 4,393
Discount on sale of accounts receivable - -
Interest expense, net 3,108 730
---------- ----------
122,888 50,763
Earnings before income taxes 32,546 7,449
Provision for income taxes 12,530 2,868
----------- ----------
Net earnings $ 20,016 $ 4,581
=========== ==========
Earnings per share $ .41 $ .09
=========== ==========
Other Information
Competition
The direct marketing industry includes a wide variety of
specialty and general merchandise retailers and is both highly
fragmented and highly competitive. The Company sells its
products to customers in all states of the United States and
competes in the purchase and sale of merchandise with all
retailers. Fingerhut's traditional principal competitor in the
business of direct marketing general merchandise to moderate
income customers is J.C. Penney Company, Inc., which operates a
large number of retail stores in addition to its mail order
businesses and generates substantial catalog sales at its retail
premises in addition to direct mail marketing. In the direct
marketing retail industry, Fingerhut also competes with
television shopping marketers, such as QVC Network, Inc. and Home
Shopping Network, Inc. Fingerhut also competes with retail
department stores, discount department stores and variety stores,
many of which are national chains, for the general merchandise
spending of its customers.
The principal methods of competition within the direct
marketing industry and in the Company's market segments include
purchasing convenience, extension of credit, customer service,
free trial and merchandise value. The Company believes that it
is able to compete on the strength of its marketing strategy
despite strong competitive pressures. Although barriers to
entering the direct marketing business are minimal and many new
companies have entered and may continue to enter the industry in
competition with the Company, a substantial capital investment
would be required to develop customer databases and software
capabilities comparable to those of the Company. The Company
believes that these assets are necessary to compete effectively
in the Company's market niche, where the predictability of
response rates and combined credit and return losses is critical.
As a marketer of consumer credit products, Metris faces
increasing competition from numerous providers of financial
services, many of which have greater resources than Metris. In
particular, Metris competes with national, regional and local
bank card issuers as well as other general purpose credit card
issuers, such as American Express, Discover Card and Diners Club.
In general, customers are attracted to credit card issuers
largely on the basis of price, credit limit and other product
features, and customer loyalty is often limited. However, Metris
believes that its strategy of focusing on an underserved market
and its access to information from the Fingerhut database will
allow it to more effectively compete in the market for moderate
income cardholders. During the term of the extended service plan
agreement, Fingerhut will only offer its customers extended
service plans provided by Metris. As Metris attempts to expand
its business to market extended service plans to the customers of
third-party retailers, it will compete with manufacturers,
financial institutions, insurance companies and a number of
independent administrators, many of which have greater operating
experience and financial resources than Metris.
Seasonality
The Company's business is seasonal. In 1996, approximately
37% of the Company's net sales and approximately 78% of its net
earnings occurred in the fourth quarter. In addition to seasonal
variations, the Company experiences variances in quarterly
results from year to year that result from changes in the timing
of its promotions and the types of customers and products
promoted and, to some extent, variations in dates of holidays and
the timing of quarter ends resulting from a 52/53 week year.
Accordingly, the results of interim periods are not necessarily
indicative of the results for the year.
Employees
As of December 27, 1996, the Company had approximately 9,500
employees, of whom approximately 2300 were represented by the
Midwest Regional Joint Board or the Tennessee/Kentucky District --
Southern Regional Joint Board of the Amalgamated Clothing and
Textile Workers Union. The Company's principal collective
bargaining agreements expire on February 6, 1999 and February 6,
2000. The Company believes its relations with its employees and
the union are good.
Trademarks and Tradenames
The Company and its subsidiaries have registered and continue
to register, when appropriate, various trademarks, tradenames and
service marks used in connection with its business and for
private label marketing of certain of its products. The Company
considers these trademarks and service marks to be readily
identifiable with, and valuable to its business.
Withdrawal from Montgomery Ward Direct
In June 1996, the Company withdrew as a partner in the
Montgomery Ward Direct L.P. joint venture. The Company had
accounted for Montgomery Ward Direct using the equity method of
accounting. The withdrawal did not have a material impact on the
Company's consolidated financial statements.
Governmental Matters
The Company's Direct-to-the-Consumer Marketing segment is
subject to regulation by a variety of state and federal laws and
regulations related to, among other things, advertising, offering
and extending of credit, charging and collecting state sales/use
taxes and product safety. The Company's practices in certain of
these areas are subject to periodic inquiries and proceedings by
various regulatory agencies. None of these actions has had a
material adverse effect upon the Company.
From time to time the Company has received notices and
inquiries from states with respect to collection of use taxes for
sales to residents of these states. To the extent that any
states are successful in such claims, the Company's cost of doing
business could be increased, although it does not believe any
increase would be material.
Substantially all of the extensions of credit for Fingerhut
purchases prior to early January 1997 were by Fingerhut.
Fingerhut relies on the Minnesota "time-price" doctrine in
extending credit on products sold in many states. Under this
doctrine, the difference between the time price and the cash
price for the same goods is not treated as interest subject to
regulation under laws governing the extension of credit. In
other states, Fingerhut is subject to regulations that limit
maximum finance charges and require refunding of finance charges
to customers under certain circumstances. Fingerhut believes
that its time payment pricing and credit practices are in
compliance with applicable state requirements.
In late 1996, Fingerhut National Bank began offering credit
card loans to finance purchase of products and services from
Fingerhut. Commencing in January 1997, Fingerhut National Bank
began extending all credit for Fingerhut purchases.
Direct Merchants Bank and Fingerhut National Bank are limited
purpose credit card banks chartered as national banking
associations and members of the Federal Reserve System, the
deposits of which are insured by the Bank Insurance Fund of the
FDIC. Direct Merchants Bank and Fingerhut National Bank are
subject to comprehensive regulation and periodic examination by
the Office of the Comptroller of the Currency, the Federal
Reserve Board and the FDIC. Neither Direct Merchants Bank nor
Fingerhut National Bank is a "bank" as defined under the Bank
Holding Company Act of 1956, as amended (the "BHCA") because it
(i) engages only in credit card operations, (ii) does not accept
demand deposits or deposits that the depositor may withdraw by
check or similar means for payment to third parties or others,
(iii) does not accept any savings or time deposit of less than
$100,000, (iv) maintains only one office that accepts deposits
and (v) does not engage in the business of making commercial
loans. As a result, the Company is not a bank holding company
under the BHCA. If Direct Merchants Bank or Fingerhut National
Bank failed to meet the credit card bank criteria described
above, the Company would become subject to the provisions of the
BHCA. The Company believes that becoming a bank holding company
would limit the Company's ability to pursue future opportunities.
Under current judicial interpretations of Federal law,
national banks such as Direct Merchants Bank and Fingerhut
National Bank may charge interest at the rate allowed by the laws
of the state where the bank is located, and may "export" interest
rates by charging the interest rate allowed by the laws of the
state where the bank is located on loans to borrowers in all
states, without regard to the laws of such other states.
The Supreme Court of the United States recently held that
national banks may also impose late-payment fees allowed by the
laws of the state where the national bank is located on borrowers
in other states, without regard to the laws of such other states.
The Supreme Court based its opinion largely on its deference to a
regulation adopted by the Comptroller of the Currency that
includes certain fees, including late fees, overlimit fees,
annual fees, cash advance fees and membership fees, within the
term "interest" under the provision of the National Bank Act that
has been interpreted to permit national banks to export interest
rates. As a result, national banks such as Direct Merchants Bank
and Fingerhut National Bank may impose such fees.
Direct Merchants Bank's and Fingerhut National Bank's
activities as credit card lenders are also subject to regulation
under various federal laws including the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Community Reinvestment Act and the Soldiers' and Sailors'
Civil Relief Act. Regulators are authorized to impose penalties
for violations of these statutes and, in certain cases, to order
national banks to pay restitution to injured cardmembers.
Cardholders may also bring actions for certain alleged violations
of such regulations. Federal and state bankruptcy and debtor
relief laws also affect Direct Merchants Bank's and Fingerhut
National Bank's ability to collect outstanding balances owed by
cardholders who seek relief under these statutes.
Several states have passed legislation which attempts to tax
the income from interstate financial activities, including credit
cards, derived from accounts held by local state residents.
Based on current interpretations of the enforceability of such
legislation, coupled with the volume of its business in these
states, the Company believes that this will not materially affect
Direct Merchants Bank or Fingerhut National Bank.
Executive Officers of the Registrant
Name Age Present Office
Theodore Deikel 61 Chairman of the Board,
Chief Executive Officer and
President
Thomas J. Bozlinski 49 Senior Vice President,
Information Services
John D. Buck 46 Senior Vice President, Human
Resources
Andrew V Johnson 41 Senior Vice President,
Marketing
Peter G. Michielutti 40 Senior Vice President, Chief
Financial Officer
James B. Moran 60 Senior Vice President,
Operations
Michael P. Sherman 44 Senior Vice President,
Business Development,
General Counsel and
Secretary
Richard L. Tate 51 Senior Vice President,
Merchandising
Ronald N. Zebeck 42 Chief Executive Officer
Metris Companies Inc.
Thomas C. Vogt 50 Corporate Controller
James M. Wehmann 31 Treasurer
Theodore Deikel has served as Chairman of the Board, Chief
Executive Officer and President since 1989. From 1985 until
rejoining the Company, Mr. Deikel served as Chairman and CEO of
CVN Companies, Inc. ("CVN"), a direct marketing company using
television and direct mail. From 1979 to 1983, Mr. Deikel was
Executive Vice President of American Can Company (a predecessor
to Travelers Group Inc.) and Chairman of American Can Company's
specialty retailing division, which included the Company. In
addition, Mr. Deikel was Chief Executive Officer of Fingerhut
from 1975 to 1983.
Thomas J. Bozlinski has been Senior Vice President,
Information Systems since January 1996. He was Vice President,
Information Systems of the Company from June 1993 to January
1996. Prior to that he was Managing Director, Systems &
Operations of Northwest Airlines Corp.
John D. Buck has been Senior Vice President, Human Resources
since March, 1996. For more than five years prior to that, he
was Vice President, Administration of Alliant Techsystems, Inc.,
a supplier of defense products and services to the United States
government and its allies.
Andrew V Johnson has been Senior Vice President, Marketing of
the Company since January 1993. Prior to that time, he was Vice
President, Marketing of the Company from November 1989 to January
1993.
Peter G. Michielutti has been Senior Vice President, Chief
Financial Officer of the Company since July 1995. Prior to that
he held various positions with divisions/subsidiaries of
Household International Inc. (consumer finance services). He was
Chief Financial Officer of Household Credit Services from May
1992 to July 1995, Vice President-Financial Administration-Canada
of Household Financial Corporation Limited from March 1991 to May
1992, and Vice President-Financial Administration of Household
Bank FSB from August 1990 to March 1991.
James B. Moran has been Senior Vice President, Operations
since January 1992 and was Senior Vice President, Subsidiaries
from September 1991 to January 1992.
Michael P. Sherman joined the Company as Senior Vice
President, Business Development, General Counsel and Secretary in
May 1996. He was Executive Vice President, Corporate Affairs,
General Counsel and Secretary of Hanover Direct, Inc., a catalog
retailer, for more than the previous five years.
Richard L. Tate has been Senior Vice President, Merchandising
of the Company since October 1993. Prior to that time he was
Vice President, Merchandising of the Company from December 1989
to October 1993.
Ronald N. Zebeck was hired as President of Metris Direct, Inc.
(now a wholly owned subsidiary of Metris) in March 1994 and
became President and Chief Executive Officer of Metris when it
was formed in 1996. He is also a Senior Vice President of the
Company. He was Managing Director, GM Card Operations of General
Motors Corporation from 1991 to 1993.
Thomas C. Vogt has been Corporate Controller since November
1994. Prior to that time, he was Assistant Controller,
Operations of the Company from August 1991 to October 1994 and
was Vice President and Controller of Hanover Direct, Inc. from
April 1989 to July 1991.
James M. Wehmann became Treasurer of the Company in March
1997. He was Assistant Treasurer From June 1996 to March 1997
and held other finance and treasury positions at Fingerhut since
March 1993. From 1991 until joining Fingerhut, he was a
financial analyst, international finance for Honeywell, Inc.
Officers of the Company are elected by, and hold office at
the will of, the Board of Directors and do not serve a "term of
office" as such.
Item 2. Properties
The Company's executive and administrative offices and
warehouse and distribution facilities are located in a number of
facilities in Minnesota, Tennessee, Wisconsin, Utah, Florida,
Oklahoma, Maryland and South Dakota. The total facilities
presently used by the Company's operations have an aggregate of
approximately 6.3 million square feet, of which approximately 6.1
million square feet, located in Minnesota, Tennessee, Wisconsin,
Utah, Florida and South Dakota, are used for the Direct-to-the-
Consumer Marketing segment and 147,000 square feet, located in
Minnesota, Utah, Oklahoma and Maryland, are used for the
Financial Services segment. Of these, Fingerhut owns a 193,000
square foot office building in Minnetonka, Minnesota, a 186,000
square foot data and technology center in Plymouth, Minnesota,
buildings in St. Cloud, Minnesota with an aggregate of
approximately 2.0 million square feet, buildings in Alexandria,
Minnesota with an aggregate of approximately 53,000 square feet
and buildings in Mora, Minnesota with approximately 160,000
square feet. Figi's owns buildings in Marshfield, Wisconsin with
an aggregate of approximately 317,000 square feet. Tennessee
Distribution, Inc., a subsidiary of the Company, has beneficial
ownership of a one million square foot warehouse and distribution
facility near Bristol, Tennessee. Western Distribution, Inc., a
subsidiary of the Company, owns a one million square foot
warehouse and distribution facility near Spanish Fork, Utah.
The Company leases the remainder of the facilities it uses,
which consist of office, photo studio, operations and warehouse
space.
Item 3. Legal Proceedings
The Company is a party to various claims, legal actions,
disputes and other complaints arising in the ordinary course of
business. In the opinion of management, any losses that may
occur are adequately covered by insurance, are provided for in
the financial statements, or are without merit and the ultimate
outcome of these matters will not have a material effect on the
financial position or operations of the Company.
In October 1995, the Company was served with a legal action
commenced in federal district court in Arizona by two
shareholders against the Company, a current officer and a former
officer alleging violations of Sections 10(b) and 20 of the
Securities Exchange Act of 1934, as amended and Rule 10b-5
thereunder. The complaint (i) alleges that the Company made
false and misleading statements or omissions with respect to its
plans regarding a proposed television shopping network, (ii)
requests certification as a class action on behalf of
shareholders of the Company who purchased Common Stock during a
specified period and (iii) alleges unspecified damages. The
Company considers the plaintiffs' claims to be without merit and
intends to vigorously defend the matter. Venue has been
transferred to federal district court in Minnesota. On March 4,
1997, the court heard oral arguments on the Company's motion to
dismiss and has taken the matter under advisement.
On January 11, 1996 and February 13, 1996, Fingerhut was
served with legal actions commenced in Minnesota District Court,
Fourth Judicial District on behalf of certain Fingerhut
customers. The complaints were substantially similar and (i)
alleged violations of the consumer credit sales act, usury and
related claims and (ii) requested certification as a class
action, declaratory and injunctive relief, money damages with
interest, including the principal and interest paid on
plaintiffs' credit purchases, and class damages and equitable
relief, attorneys' fees and costs. On March 5, 1997, the Court
granted Fingerhut's motion for summary judgment on all counts and
entered judgment in favor of Fingerhut on March 12, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ended December
27, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is set forth in
"Quarterly Financial and Stock Data" on page 42 of the Company's
Annual Report to Shareholders for the fiscal year ended December
27, 1996 (the "1996 Annual Report") and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required by this item is set forth under the
caption "Five Year Summary of Selected Consolidated Financial
Data" on page 15 of the 1996 Annual Report and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward Looking
Statements" on pages 16 to 21 of the 1996 Annual Report and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The audited Consolidated Financial Statements of the
Registrant and independent auditors' report thereon and the
unaudited Quarterly Financial and Stock Data set forth on pages
22 to 42 of the 1996 Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to
directors is set forth under "Proposal 1: Election of Directors"
in the Company's proxy statement for the annual meeting of
shareholders to be held on May 13, 1997, which will be filed
within 120 days of December 27, 1996 (the "Proxy Statement") and
is incorporated herein by reference. The information required by
this item with respect to executive officers is, pursuant to
instruction 3 of Item 401(b) of Regulation S-K, set forth in Part
I of this Form 10-K under "Business--Executive Officers of the
Registrant." The information required by this item with respect
to reports required to be filed under Section 16(a) of the
Securities Exchange Act of 1934 is set forth under "Security
Ownership of Certain Beneficial Owners and Management_Compliance
with Section 16" in the Proxy Statement and is incorporated
herein by reference.
Item 11. Executive Compensation
The information required by this item is set forth under
"Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is set forth under
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under
"Arrangements and Transactions with Related Parties" in the Proxy
Statement and is incorporated herein by reference.
With the exception of the information incorporated by
reference in Items 10-13 above, the Proxy Statement is not to be
deemed filed as part of this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are made part of this report:
1. Consolidated Financial Statements.
The following consolidated financial
statements, the related notes and the report of the
Company's independent auditors are incorporated
herein by reference from the 1996 Annual Report as
part of this report at Item 8 hereof:
Independent Auditors' Report dated
January 22, 1997.
Consolidated Statements of Earnings
for each of the three fiscal years ended
December 27, 1996.
Consolidated Statements of Financial
Position at December 27, 1996 and December 29,
1995.
Consolidated Statements of Changes
in Stockholders' Equity for each of the three
fiscal years ended December 27, 1996.
Consolidated Statements of Cash
Flows for each of the three fiscal years ended
December 27, 1996.
Notes to Consolidated Financial Statements.
With the exception of the foregoing
information and the information incorporated by
reference in Items 5-8 of this Part II, the 1996
Annual Report is not to be deemed filed as part of
this Form 10-K.
2. Financial Statement Schedule: The following
schedule for each of the three years ended
December 27, 1996 is included in this Form 10-K:
Independent Auditors' Report on
consolidated financial statement schedule dated
January 22, 1997.
Schedule II -- Valuation and Qualifying Accounts.
Certain schedules have been omitted because
they are not required under the related instructions
or are inapplicable, or because the required
information is included elsewhere in the financial
statements or related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index on page 23 of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 26th day of March, 1997.
FINGERHUT COMPANIES, INC.
(Registrant)
By /s/Theodore Deikel
----------------------
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Fingerhut Companies, Inc., the Registrant, and in
the capacities and on the dates indicated.
Signature Title Date
Principal executive Chairman of the Board, March 26, 1997
officer and director: Chief Executive Officer
and President
/s/Theodore Deikel
- ---------------------
Theodore Deikel
Principal financial officer: Senior Vice President, March 26, 1997
Chief Financial Officer
/s/Peter G. Michielutti
- ------------------------
Peter G. Michielutti
Principal accounting officer: Corporate Controller March 26, 1997
/s/Thomas C. Vogt
- -------------------
Thomas C. Vogt
Directors:
/s/Wendell R. Anderson Director March 26, 1997
- -----------------------
Wendell R. Anderson
/s/Edwin C. Gage Director March 26, 1997
- ------------------------
Edwin C. Gage
/s/Stanley S. Hubbard Director March 26, 1997
- -------------------------
Stanley S. Hubbard
/s/Kenneth A. Macke Director March 26, 1997
- -------------------------
Kenneth A. Macke
/s/Dudley C. Mecum Director March 26, 1997
- --------------------------
Dudley C. Mecum
/s/John M. Morrison Director March 26, 1997
- --------------------------
John M. Morrison
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
Articles of Incorporation and Bylaws
3.a Amended and Restated
Articles of Incorporation of the
Registrant (restated in
electronic format as amended to
July 29, 1993) (Incorporated by
reference to Exhibit 3.a to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
3.b Bylaws of the
Registrant (restated in
electronic format as amended to
July 29, 1993) (Incorporated by
reference to Exhibit 3.b to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
Material Contracts
10.a Amended and Restated Pooling and
Servicing Agreement dated as of
January 12, 1997 among Fingerhut
Receivables, Inc., as Transferor,
Fingerhut National Bank, as
Servicer, and The Bank of New
York (Delaware), as Trustee.
(i) Series 1994-1 Supplement
dated as of June 29, 1994
(Incorporated by reference to
Exhibit 10.b(i) to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended July 1, 1994).
(ii) Series 1994-2 Supplement
dated as of November 15, 1994
(Incorporated by reference to
Exhibit 10.b(ii) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1994).
(iii) Series 1997-1
Supplement dated as of January
21, 1997.
10.b Purchase Agreement dated as of
June 29, 1994 between Fingerhut
Receivables, Inc., as Buyer, and
Fingerhut Corporation, as Seller
(Incorporated by reference to
Exhibit 10.a. to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended July 1, 1994).
10.c Pooling and Servicing
Agreement dated as of May 26,
1995 among Metris Receivables,
Inc. (formerly Fingerhut
Financial Services Receivables,
Inc.), as Transferor, Direct
Merchants Credit Card Bank,
National Association, as
Servicer, and The Bank of New
York (Delaware), as Trustee
(Incorporated by reference to
Exhibit 10.u to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended June 30, 1995).
(i) Amendment No. 1 to
the Pooling and Servicing
Agreement dated as of June 10,
1996 (Incorporated by reference
to Exhibit 10.a(iii) to Metris
Companies Inc.'s Registration
Statement on Form S-1 (No. 333-
10831)).
(ii) Amendment No. 2
to the Pooling and Servicing
Agreement dated as of September
16, 1996 (Incorporated by
reference to Exhibit 10.a(iv) to
Metris Companies Inc.'s
Registration Statement on Form S-
1 (No. 333-10831)).
(iii) Amended and
Restated Series 1995-1 Supplement
dated as of September 16, 1996.
(Incorporated by reference to
Exhibit 10.a(i) to Metris
Companies Inc.'s Registration
Statement on Form S-1 (No. 333-
10831)).
(iv) Series 1996-1
Supplement dated as of April 23,
1996 (Incorporated by reference
to Exhibit 10.a(ii) to Metris
Companies Inc.'s Registration
Statement on Form S-1 (No. 333-
10831)).
10.d* Fingerhut Corporation
Profit Sharing Plan 1989 Revision
(Incorporated by reference to
Exhibit 10(d) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.e Intentionally left blank.
10.f* Fingerhut Corporation
Pension Plan 1990 Revision
(Incorporated by reference to
Exhibit 10(f) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.g* Fingerhut Companies,
Inc. Stock Option Plan
(Incorporated by reference to
Exhibit 10(h) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
(i)* Amendment dated
as of February 4, 1997.
10.h* Executive Tax
Planning/Preparation and
Financial Planning Policy.
(Incorporated by reference to
Exhibit 10.h to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1994).
10.i* Fingerhut Companies,
Inc. 1995 Long-Term Incentive and
Stock Option Plan (Incorporated
by reference to Exhibit 10.i to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
29, 1995).
(i)* Amendment dated
as of February 4, 1997.
(ii)* Form of option
agreement (Incorporated by
reference to Exhibit 10.i(i) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
29, 1995).
(iii)* Form of
restricted stock agreement.
10.j* Fingerhut Companies,
Inc. 1992 Long-Term Incentive and
Stock Option Plan. (Incorporated
by reference to (Exhibit 10(j) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
25, 1992).
(i)* Amendment dated
as of February 4, 1997.
10.k* Fingerhut Companies,
Inc. and Subsidiaries Annual
Incentive Bonus Plan for
Designated Corporate Officers
(Incorporated by reference to
Exhibit 10.k to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1993).
10.l* Stock Option and
Valuation Rights Agreement dated
as of March 21, 1994, between
Fingerhut Companies, Inc. and
Ronald N. Zebeck, as amended
(Incorporated by reference to
Exhibit 10.l to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 29, 1995).
(i)*Amendment dated as of October 24,
1996. (Incorporated by reference
to Exhibit 10.d(i) to Metris
Companies Inc.'s Annual Report on
Form 10-K (File No. 001-12351)
for the fiscal year ended
December 31, 1996.)
10.m* Fingerhut Companies,
Inc. Directors' Retainer Stock
Deferral Plan (Incorporated by
reference to Exhibit 10.m to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
10.n Amended and Restated
Revolving Credit and Letter of
Credit Facility dated as of
September 16, 1996, among
Fingerhut Companies, Inc., the
Guarantors party thereto, the
Lenders party thereto, the
Issuing Banks party thereto, The
Chase Manhattan Bank, as
Administrative Agent and
NationsBank, N.A., as Co-Agent.
(Incorporated by reference to
Exhibit 10.n to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended September 27,
1996.)
10.o Form of Purchase
Agreement dated as of January 14,
1991, relating to $25,000,000 of
10.12% Senior Notes, Series B,
due December 30, 1997
(Incorporated by reference to
Exhibit 10(o) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 28, 1990).
(i) First Amendment
Agreement dated as of March 1,
1992. (Incorporated by reference
to Exhibit 10(o)(i) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
(ii) Second Amendment
Agreement dated as of
June 17, 1994 (Incorporated by
reference to Exhibit 10.o(ii) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1994).
(iii) Third Amendment
Agreement dated as of October 30,
1995 (Incorporated by reference
to Exhibit 10.o(iii) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
29, 1995).
(iv) Fifth Amendment
Agreement dated as of August 14,
1996 (Incorporated by reference
to Exhibit 10.o(iv) to
Registrant's Quarterly Report on
Form 10-Q (File No. 1-8668) for
the fiscal quarter ended
September 27, 1996).
10.p Revolving Credit and
Letter of Credit Facility
Agreement dated as of September
16, 1996 among Metris Companies
Inc., the Lenders party thereto,
the Issuing Banks party thereto,
and The Chase Manhattan Bank, as
Administrative Agent
(Incorporated by reference to
Exhibit 10.s to Metris Companies
Inc.'s Registration Statement on
Form S-1 (No. 333-10831)).
10.q* Metris Companies Inc.
Long-Term Incentive and Stock
Option Plan (Incorporated by
reference to Exhibit 10.h to
Metris Companies Inc. Annual
Report on Form 10-K (File No. 001-
12351) for the fiscal year ended
December 31, 1996).
(i)*Form of option agreement
(Incorporated by reference to
Exhibit 10.h(i) to Metris
Companies Inc. Annual Report on
Form 10-K (File No. 001-12351)
for the fiscal year ended
December 31, 1996).
10.r Indenture dated as of
September 15, 1996 between
Fingerhut Companies, Inc. and
First Bank, National Association,
as trustee (Incorporated by
reference to Ex. 4.1 to
Registrant's Registration
Statement on Form S-4 (No. 333-
15491)).
10.s Purchase Agreement
dated as of June 15, 1992,
relating to $60,500,000 of 8.92%
Senior Unsecured Notes, Series A,
due June 15, 2002 and $14,500,000
of 8.92% Senior Unsecured Notes,
Series B, due June 15, 2004
(Incorporated by reference to
Exhibit 10(s) to Registrant's
Quarterly Report on form 10-Q
(File No. 1-8668) for the fiscal
quarter ended June 26, 1992).
(i) First Amendment
Agreement dated as of June
17, 1994. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(ii) Second Amendment
dated as of October 30, 1995.
This document is being omitted
from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(iii) Fourth Amendment
dated as of August 14, 1996
(Incorporated by reference to
Exhibit 10.s(iii) to Registrant's
Quarterly Report on Form 10-Q
(File No 1-8668) for the fiscal
quarter ended September 27,
1996).
10.t Purchase Agreement
dated as of August 1, 1993,
relating to the sale of
$45,000,000 of 6.83% Senior
Unsecured Notes, Series C, due
August 1, 2000 (Incorporated by
reference to Exhibit 10.t to
Registrant's Quarterly Report on
Form 10-Q (File No. 1-8668) for
the fiscal quarter ending
September 24, 1993).
(i) First Amendment
Agreement dated as of June
17, 1994. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(ii) Second Amendment
Agreement dated as of October 30,
1995. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(iii) Fourth Amendment
Agreement dated as of August 14,
1996. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
10.u* Fingerhut Corporation
Pension Excess Plan -- 1996
Revision.
10.v* Fingerhut Corporation
Profit Sharing Excess Plan -- 1996 Revision.
10.w* Fingerhut Companies,
Inc. Supplemental Executive
Retirement Plan (Incorporated by
reference to Exhibit 10.w to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended
December 29, 1995).
10.x* Fingerhut Companies,
Inc. Non-employee Directors Stock
Option Plan (Incorporated by
reference to Exhibit 10.x to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
29, 1995).
10.y Co-Brand Credit Card Agreement
dated as of October 31, 1996
between the Registrant and
Fingerhut Corporation
(Incorporated by reference to
Exhibit 10.k to Metris Companies
Inc.'s Annual Report on Form 10-K
(File No. 001-2351) for the
fiscal year ended December 31,
1996).
10.z Extended Service Plan Agreement
dated as of October 31, 1996
between the Registrant and
Fingerhut Corporation
(Incorporated by reference to
Exhibit 10.l to Metris Companies
Inc.'s Annual Report on Form 10-K
(File No. 001-2351) for the
fiscal year ended December 31,
1996).
10.aa Database Access Agreement dated
as of October 31, 1996 between
the Registrant and Fingerhut
Corporation (Incorporated by
reference to Exhibit 10.m to
Metris Companies Inc.'s Annual
Report on Form 10-K (File No. 001-
2351) for the fiscal year ended
December 31, 1996).
10.bb Administrative Services Agreement
dated as of October 31, 1996
between the Registrant and
Fingerhut Companies, Inc.
(Incorporated by reference to
Exhibit 10.n to Metris Companies
Inc.'s Annual Report on Form 10-K
(File No. 001-2351) for the
fiscal year ended December 31,
1996).
10.cc Tax Sharing Agreement dated as of
October 31, 1996 between the
Registrant and Fingerhut
Companies, Inc. (Incorporated by
reference to Exhibit 10.o to
Metris Companies Inc.'s Annual
Report on Form 10-K (File No. 001-
2351) for the fiscal year ended
December 31, 1996).
10.dd Registration Rights Agreement
dated as of October 31, 1996
between the Registrant and
Fingerhut Companies, Inc.
(Incorporated by reference to
Exhibit 10.p to Metris Companies
Inc.'s Annual Report on Form 10-K
(File No. 001-2351) for the
fiscal year ended December 31,
1996).
10.ee Data Sharing Agreement dated as
of October 31, 1996 between
Fingerhut Corporation and Direct
Merchants Credit Card Bank,
National Association
(Incorporated by reference to
Exhibit 10.q to Metris Companies
Inc.'s Annual Report on Form 10-K
(File No. 001-2351) for the
fiscal year ended December 31,
1996).
Other Exhibits
11 Computation of Earnings per Share
13 Pages 15 to 42 of the
1996 Annual Report to
Shareholders. The 1996 Annual
Report shall not be deemed to be
filed with the Commission except
to the extent that information is
specifically incorporated herein
by reference. Exhibit 13 also
includes a financial statement
schedule, and independent
auditors' report thereon, that
was not part of the 1996 Annual
Report.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Cautionary Statement Regarding Forward Looking Statements
______
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
EXHIBIT 10.A
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT NATIONAL BANK
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of Certificateholders
of the Fingerhut Master Trust
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of January 12, 1997
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS 2
Section 1.1 Definitions. . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions . . . . . . . 22
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF CERTIFICATES 24
Section 2.1 Conveyance of Receivables . . . . . . . . . 24
Section 2.2 Acceptance by Trustee . . . . . . . . . . . 25
Section 2.3 Representations and Warranties of the
Transferor . . . . . . . . . . . . . . . . 26
Section 2.4 Representations and Warranties of the
Transferor Relating to the Agreement and
the Receivables . . . . . . . . . . . . . . 29
Section 2.5 Covenants of the Transferor . . . . . . . . 35
Section 2.6 Addition of Receivables . . . . . . . . . . 38
Section 2.7 Defaulted Receivables . . . . . . . . . . . 38
Section 2.8 Covenants of the Transferor with Respect
to the Purchase Agreements . . . . . . . . 40
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES 41
Section 3.1 Acceptance of Appointment and Other
Matters Relating to the Servicer . . . . . 41
Section 3.2 Servicing Compensation . . . . . . . . . . 42
Section 3.3 Representations and Warranties of the
Servicer . . . . . . . . . . . . . . . . . 44
Section 3.4 Reports and Records for the Trustee . . . . 46
Section 3.5 Annual Servicer's Certificate . . . . . . . 49
Section 3.6 Annual Independent Accountants' Servicing
Report . . . . . . . . . . . . . . . . . . 49
Section 3.7 Tax Treatment . . . . . . . . . . . . . . . 50
Section 3.8 Adjustments . . . . . . . . . . . . . . . . 51
Section 3.9 Notices to Fingerhut . . . . . . . . . . . 52
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS 53
Section 4.1 Rights of Certificateholders . . . . . . . 53
Section 4.2 Establishment of Accounts . . . . . . . . . 53
Section 4.3 Collections and Allocations . . . . . . . . 57
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES] 61
ARTICLE VI
THE CERTIFICATES 62
Section 6.1 The Certificates . . . . . . . . . . . . . 62
Section 6.2 Authentication of Certificates . . . . . . 63
Section 6.3 Registration of Transfer and Exchange of
Certificates . . . . . . . . . . . . . . . 63
Section 6.4 Mutilated, Destroyed, Lost or Stolen
Certificates . . . . . . . . . . . . . . . 68
Section 6.5 Persons Deemed Owners . . . . . . . . . . . 68
Section 6.6 Appointment of Paying Agent . . . . . . . . 69
Section 6.7 Access to List of Certificate-holders'
Names and Addresses . . . . . . . . . . . . 71
Section 6.8 Authenticating Agent . . . . . . . . . . . 71
Section 6.9 Tender of Exchangeable Transferor
Certificate . . . . . . . . . . . . . . . . 73
Section 6.10 Book-Entry Certificates . . . . . . . . . . 77
Section 6.11 Notices to Clearing Agency . . . . . . . . 79
Section 6.12 Definitive Certificates . . . . . . . . . . 79
Section 6.13 Global Certificate; Euro-Certificate
Exchange Date . . . . . . . . . . . . . . . 80
Section 6.14 Meetings of Certificateholders . . . . . . 80
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR 81
Section 7.1 Liability of the Transferor . . . . . . . . 81
Section 7.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Transferor . . . 81
Section 7.3 Limitation on Liability . . . . . . . . . . 82
Section 7.4 Liabilities . . . . . . . . . . . . . . . . 83
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER 85
Section 8.1 Liability of the Servicer . . . . . . . . . 85
Section 8.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer . . . . 85
Section 8.3 Limitation on Liability of the Servicer
and Others . . . . . . . . . . . . . . . . 86
Section 8.4 Servicer Indemnification of the
Transferor, the Trust and the Trustee . . . 87
Section 8.5 The Servicer Not to Resign . . . . . . . . 88
Section 8.6 Access to Certain Documentation and
Information Regarding the Receivables . . . 89
Section 8.7 Delegation of Duties . . . . . . . . . . . 89
ARTICLE IX
PAY OUT EVENTS 91
Section 9.1 Pay Out Events . . . . . . . . . . . . . . 91
Section 9.2 Additional Rights Upon the Occurrence of
Certain Events . . . . . . . . . . . . . . 92
ARTICLE X
SERVICER DEFAULTS 95
Section 10.1 Servicer Defaults . . . . . . . . . . . . . 95
Section 10.2 Trustee to Act; Appointment of Successor . 98
Section 10.3 Notification to Certificateholders . . . . 101
Section 10.4 Waiver of Past Defaults . . . . . . . . . . 101
ARTICLE XI
THE TRUSTEE 102
Section 11.1 Duties of Trustee . . . . . . . . . . . . . 102
Section 11.2 Certain Matters Affecting the Trustee . . . 104
Section 11.3 Trustee Not Liable for Recitals in
Certificates . . . . . . . . . . . . . . . 106
Section 11.4 Trustee May Own Certificates . . . . . . . 107
Section 11.5 The Servicer to Pay Trustee's Fees and
Expenses. . . . . . . . . . . . . . . . . . 107
Section 11.6 Eligibility Requirements for Trustee . . . 108
Section 11.7 Resignation or Removal of Trustee. . . . . 108
Section 11.8 Successor Trustee . . . . . . . . . . . . . 110
Section 11.9 Merger or Consolidation of Trustee . . . . 110
Section 11.10 Appointment of Co-Trustee or Separate
Trustee . . . . . . . . . . . . . . . . . . 111
Section 11.11 Tax Returns . . . . . . . . . . . . . . . . 112
Section 11.12 Trustee May Enforce Claims Without
Possession of Certificates . . . . . . . . 113
Section 11.13 Suits for Enforcement . . . . . . . . . . . 113
Section 11.14 Rights of Certificateholders to Direct
Trustee . . . . . . . . . . . . . . . . . . 114
Section 11.15 Representations and Warranties of Trustee . 114
Section 11.16 Maintenance of Office or Agency . . . . . . 115
ARTICLE XII
TERMINATION 116
Section 12.1 Termination of Trust . . . . . . . . . . . 116
Section 12.2 Optional Termination . . . . . . . . . . . 118
Section 12.3 Final Payment with Respect to any Series. . 119
Section 12.4 Termination Rights of Holder of
Exchangeable Transferor Certificate . . . . 121
ARTICLE XIII
MISCELLANEOUS PROVISIONS 122
Section 13.1 Amendment . . . . . . . . . . . . . . . . . 122
Section 13.2 Protection of Right, Title and Interest to
Trust . . . . . . . . . . . . . . . . . . . 125
Section 13.3 Limitation on Rights of Certificateholders 126
Section 13.4 Governing Law . . . . . . . . . . . . . . . 127
Section 13.5 Notices . . . . . . . . . . . . . . . . . . 127
Section 13.6 Severability of Provisions . . . . . . . . 128
Section 13.7 Assignment . . . . . . . . . . . . . . . . 128
Section 13.8 Certificates Non-Assessable and Fully Paid 128
Section 13.9 Further Assurances . . . . . . . . . . . . 129
Section 13.10 No Waiver; Cumulative Remedies . . . . . . 129
Section 13.11 Counterparts . . . . . . . . . . . . . . . 129
Section 13.12 Third-Party Beneficiaries . . . . . . . . . 129
Section 13.13 Actions by Certificateholders . . . . . . . 130
Section 13.14 Rule 144A Information . . . . . . . . . . . 130
Section 13.15 Merger and Integration . . . . . . . . . . 131
Section 13.16 Heading . . . . . . . . . . . . . . . . . . 131
Schedule 1 Tax Returns and Payments
Exhibit A Form of Exchangeable Transferor Certificate
Exhibit B Form of Daily Report
Exhibit C Form of Settlement Statement
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Annual Opinion of Counsel
Exhibit F Form of Reconveyance of Receivables
Exhibit G Form of Agreed-Upon Procedures
AMENDED AND RESTATED POOLING AND SERVICING
AGREEMENT, dated as of January 12, 1997 by and among
FINGERHUT RECEIVABLES INC., a corporation organized and
existing under the laws of the State of Delaware, as
Transferor, FINGERHUT NATIONAL BANK, a national banking
association organized and existing under the laws of the
United States, as Servicer, and THE BANK OF NEW YORK
(DELAWARE), a banking corporation organized and existing
under the laws of the State of Delaware, as Trustee.
WHEREAS, Fingerhut Receivables, Inc., as
Transferor, Fingerhut Corporation, as Servicer, and The
Bank of New York (Delaware), as Trustee, are parties to a
Pooling and Servicing Agreement, dated as of June 29,
1994 (the "Original Pooling and Servicing Agreement") as
amended by the First Amendment to the Original Pooling
and Servicing Agreement, dated as of November 15, 1994
(the "First Amendment") and the Second Amendment to the
Original Pooling and Servicing Agreement, dated as of
September 27, 1996 (the "Second Amendment," and together
with the Original Pooling and Servicing Agreement and the
First Amendment thereto, the "Amended Pooling and
Servicing Agreement"), in each case by and among the
parties to the Original Pooling and Servicing Agreement;
WHEREAS, in accordance with the provisions of
subsection 3.1(a) of the Amended Pooling and Servicing
Agreement, and pursuant to an assumption agreement among
Fingerhut Corporation, as predecessor Servicer, Fingerhut
Receivables, Inc., as Transferor, The Bank of New York
(Delaware), as Trustee, and Fingerhut National Bank, as
successor Servicer, dated as of January 12, 1997 (the
"Servicing Assumption Agreement"), Fingerhut Corporation
has appointed its Affiliate, Fingerhut National Bank, to
act as Servicer in full substitution for Fingerhut
Corporation and Fingerhut National Bank has expressly
assumed the performance of every covenant and obligation
of the Servicer hereunder and Fingerhut Corporation has
agreed to remain jointly and severally liable with
Fingerhut National Bank with respect to the performance
of Fingerhut National Bank as Servicer; and
WHEREAS, Fingerhut Receivables, Inc., as
Transferor, Fingerhut National Bank, as Servicer and The
Bank of New York (Delaware), as Trustee desire to amend
and restate the Amended Pooling and Servicing Agreement
to read in its entirety as set forth below;
NOW, THEREFORE, pursuant to the second
paragraph of Section 13.1(a) of the Amended Pooling and
Servicing Agreement, including the third proviso thereto,
the parties hereto hereby agree that effective on and as
of the date hereof, the Amended Pooling and Servicing
Agreement is hereby amended to read in its entirety as
follows:
In consideration of the mutual agreements
herein contained, each party agrees as follows for the
benefit of the other parties and the Certificateholders:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in
this Agreement, the following words and phrases shall
have the following meanings:
"Adjustment Payment" shall have the meaning
specified in subsection 3.8(a).
"Affiliate" means, with respect to a particular
Person, any Person that, directly or indirectly, is in
control of, is controlled by, or is under common control
with, such Person.
"Aggregate Invested Amount" shall mean, as of
any date of determination, the sum of the Invested
Amounts of all Series of Certificates issued and
outstanding on such date of determination.
"Aggregate Investor Percentage" with respect to
Principal Collections, Imputed Yield Collections and
Defaulted Receivables, as the case may be, shall mean, as
of any date of determination, the sum of such Investor
Percentages of all Series of Certificates issued and
outstanding on such date of determination; provided,
however, that the Aggregate Investor Percentage shall not
exceed 100%.
"Aggregate Principal Receivables" shall mean,
for any day, the aggregate amount of Principal
Receivables at the end of such day.
"Agreement" shall mean this Amended and
Restated Pooling and Servicing Agreement and all
amendments hereof and supplements hereto, including any
Supplement.
"Amended Pooling and Servicing Agreement" shall
have the meaning assigned in the Preamble hereto.
"Amortization Period" shall mean, with respect
to any Series, the period following the Revolving Period
for such Series, which shall be the Amortization Period,
the Early Amortization Period, or other amortization or
accumulation period, in each case as defined with respect
to such Series in the related Supplement.
"Amortization Period Commencement Date" shall
mean with respect to any Series, the date on which the
Amortization Period with respect thereto commences.
"Applicants" shall have the meaning specified
in Section 6.7.
"Appointment Day" shall have the meaning
specified in subsection 9.2(a).
"Authentication Agent" shall have the meaning
specified in Section 6.8.
"Authorized Newspaper" shall mean a newspaper
of general circulation in the Borough of Manhattan, The
City of New York printed in the English language and
customarily published on each Business Day, whether or
not published on Saturdays, Sundays and holidays.
"Back End Customer" means with respect to any
date of determination a customer who has purchased at
least one previous product from Fingerhut and has either
paid for or on such date of determination is current on
payments for the initial purchase or the related
installment loan.
"Bank Receivables Purchase Agreement" shall
mean the receivables purchase agreement dated as of
January 12, 1997 between FCI, as purchaser of such
Receivables, and FNB, as seller of Receivables, as
amended from time to time and any other receivables
purchase agreement between FCI, as purchaser of
Receivables, and an Originator, as seller of such
Receivables.
"Bearer Certificates" shall have the meaning
specified in Section 6.1.
"Bearer Rules" shall mean the provisions of the
Internal Revenue Code, in effect from time to time,
governing the treatment of bearer obligations, including
sections 163(f), 871, 881, 1441, 1442 and 4701, and any
regulations thereunder including, to the extent
applicable to any Series, proposed or temporary
regulations of the Internal Revenue Service.
"Book-Entry Certificates" shall mean
certificates evidencing a beneficial interest in the
Investor Certificates, ownership and transfers of which
shall be made through book entries by a Clearing Agency
as described in Section 6.10; provided, that after the
occurrence of a condition whereupon book-entry
registration and transfer are no longer authorized and
Definitive Certificates are to be issued to the
Certificate Owners, such certificates shall no longer be
"Book-Entry Certificates".
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions
in New York, New York or Delaware (or, with respect to
any Series, any additional city specified in the related
Supplement) are authorized or obligated by law or
executive order to be closed, and such other days in each
year designated by the Servicer in writing to the Trustee
by the first day of December in the preceding year.
"Cash Equivalents" shall mean, unless otherwise
provided in the Supplement with respect to any Series,
(a) negotiable instruments or securities represented by
instruments in bearer or registered form which evidence
(i) obligations of or fully guaranteed by the United
States of America; (ii) time deposits, promissory notes,
or certificates of deposit of any depositary institution
or trust company; provided, however, that at the time of
the Trust's investment or contractual commitment to
invest therein, the certificates of deposit or short-term
deposits of such depositary institution or trust company
shall have a credit rating from Standard & Poor's of A-1+
and from Moody's of P-1; (iii) commercial paper having,
at the time of the Trust's investment or contractual
commitment to invest therein, a rating from Standard &
Poor's of A-1+ and from Moody's of P-1; (iv) bankers
acceptances issued by any depositary institution or trust
company described in clause (a)(ii) above; and (v)
investments in money market funds rated AAA-m or AAA-mg
by Standard & Poor's and Aaa by Moody's or otherwise
approved in writing by Moody's and Standard & Poor's; (b)
time deposits and demand deposits in the name of the
Trust or the Trustee in any depositary institution or
trust company referred to in clause (a)(ii) above; (c)
securities not represented by an instrument that are
registered in the name of the Trustee or its nominee
(which may not be Fingerhut or an Affiliate) upon books
maintained for that purpose by or on behalf of the issuer
thereof and identified on books maintained for that
purpose by the Trustee as held for the benefit of the
Trust or the Certificateholders, and consisting of (x)
shares of an open end diversified investment company
which is registered under the Investment Company Act
which (i) invests its assets exclusively in obligations
of or guaranteed by the United States of America or any
instrumentality or agency thereof having in each instance
a final maturity date of less than one year from their
date of purchase or other Cash Equivalents, (ii) seeks to
maintain a constant net asset value per share, (iii) has
aggregate net assets of not less than $100,000,000 on the
date of purchase of such shares and (iv) which the Rating
Agency designates in writing will not result in a
withdrawal or downgrading of its then current rating of
any Series rated by it or (y) Eurodollar time deposits of
a depository institution or trust company that are rated
A-1+ by Standard & Poor's and P-1 by Moody's; provided,
however, that at the time of the Trust's investment or
contractual commitment to invest therein, the Eurodollar
deposits of such depositary institution or trust company
shall have a credit rating from Standard & Poor's of A-1+
and P-1 by Moody's; and (d) any other investment if the
Rating Agency confirms in writing that such investment
will not adversely affect its then current rating of the
Investor Certificates.
"CEDEL" shall mean Cedel S.A.
"Certificate" shall mean any one of the
Investor Certificates of any Series or the Exchangeable
Transferor Certificate.
"Certificateholder" or "Holder" shall mean the
Person in whose name a Certificate is registered in the
Certificate Register and, if applicable, the holder of
any Bearer Certificate or Coupon, as the case may be.
"Certificate Interest" shall mean interest
payable in respect of the Investor Certificates of any
Series pursuant to Article IV of the Agreement as
supplemented by the Supplement for such Series.
"Certificate Owner" shall mean, with respect to
a Book-Entry Certificate, the Person who is the
beneficial owner of such Book-Entry Certificate, as may
be reflected on the books of the Clearing Agency, or on
the books of a Person maintaining an account with such
Clearing Agency (directly or as an indirect participant,
in accordance with the rules of such Clearing Agency).
"Certificate Principal" shall mean principal
payable in respect of the Investor Certificates of any
Series pursuant to Article IV of this Agreement.
"Certificate Rate" shall mean, with respect to
any Series of Certificates (or, for any Series with more
than one Class, for each Class of such Series), the
percentage (or formula on the basis of which such rate
shall be determined) stated in the related Supplement.
"Certificate Register" shall mean the register
maintained pursuant to Section 6.3, providing for the
registration of the Certificates and transfers and
exchanges thereof.
"Class" shall mean, with respect to any Series,
any one of the classes of Certificates of that Series as
specified in the related Supplement.
"Clearing Agency" shall mean an organization
registered as a "clearing agency" pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended.
"Clearing Agency Participant" shall mean a
broker, dealer, bank, other financial institution or
other Person for whom from time to time a Clearing Agency
or Foreign Clearing Agency effects book-entry transfers
and pledges of securities deposited with the Clearing
Agency or Foreign Clearing Agency.
"Closing Date" shall mean, with respect to any
Series, the date of issuance of such Series of
Certificates, as specified in the related Supplement.
"Collection Account" shall have the meaning
specified in subsection 4.2(a).
"Collections" shall mean all payments received
by the Servicer in respect of the Eligible Receivables in
the form of cash, checks or any other form of payment in
accordance with the Contract in effect from time to time
on any Eligible Receivables, other than pre-paid
insurance premiums.
"Contract" means an agreement between an
Originator and another person for the extension of
closed-end credit, including pursuant to a credit card,
in the form of a written contract, invoice or closed-end
agreement, in each case pursuant to or under which such
other person shall be obligated to either pay for, or to
pay a loan made to finance the purchase of, merchandise,
financial service products or services or return any such
merchandise to Fingerhut.
"Corporate Trust Office" shall mean the
principal office of the Trustee at which at any
particular time its corporate trust business shall be
administered, which office at the date of the execution
of this Agreement is located at White Clay Center, Route
273, Newark, Delaware 19711, Attention: Corporate Trust
Specialized Agency Services.
"Coupon" shall have the meaning specified in
Section 6.1.
"Credit and Collection Policy" means those
credit, collection, customer relations and service
policies and practices in effect on the date hereof
relating to the Contracts and the Receivables as such may
be modified from time to time.
"Daily Report" shall mean a report in the form
specified in subsection 1.2(e) as may be supplemented
pursuant to any Supplement.
"Date of Processing" shall mean, with respect
to any transaction, the date on which such transaction is
first recorded on the Servicer's computer master file of
installment sale contracts (without regard to the
effective date of such recordation).
"Default Amount" shall mean, on any Business
Day, the product of (i) the aggregate Outstanding
Balances of Defaulted Receivables on such Business Day
and (ii) one minus the Discount Factor.
"Defaulted Receivable" shall mean each Eligible
Receivable which, in accordance with the Credit and
Collection Policy or the Servicer's customary and usual
servicing procedures, the Servicer has charged off as
uncollectible; a Receivable shall become a Defaulted
Receivable on the day on which such Receivable is
recorded as charged off as uncollectible on the
Servicer's computer master file of installment sale
contracts. Notwithstanding any other provision hereof,
any Defaulted Receivables that are Ineligible Receivables
shall be treated as Ineligible Receivables rather than
Defaulted Receivables.
"Defeasance Account" shall have the meaning
specified in the applicable Supplement.
"Definitive Certificate" shall have the meaning
specified in Section 6.10.
"Depositary" shall have the meaning specified
in Section 6.10.
"Depositary Agreement" shall mean, with respect
to each Series, the agreement among the Transferor, the
Trustee and the Clearing Agency, or as otherwise provided
in the related Supplement.
"Determination Date" shall mean the second
Business Day prior to each Distribution Date.
"Discount Factor" shall mean 25%; provided,
however, that such percentage may be changed from time to
time by the Transferor if such change will not cause a
Pay Out Event to occur and the Rating Agencies will have
confirmed that the change will not result in any of the
Rating Agencies reducing or withdrawing its original
rating on any then outstanding Series rated by it.
"Disposition" shall have the meaning specified
in Section 9.2(a).
"Distribution Account" shall have the meaning
specified in subsection 4.2(c).
"Distribution Date" shall mean, unless
otherwise specified in any Supplement for the related
Series, the twentieth day of each month or, if such
twentieth day is not a Business Day, the next succeeding
Business Day.
"Dollars", "$" or "U.S. $" shall mean United
States dollars.
"Eligible Receivable" shall mean each
Receivable that satisfies each of the following criteria:
(a) it is payable in United States dollars, (b) it has
not been sold or pledged to any other party, (c) it
constitutes an "account" or a "general intangible" as
defined in Article 9 of the UCC as then in effect in the
Relevant UCC State, (d) it is at the time of its transfer
to the Trust the legal, valid, and binding obligation of,
or is guaranteed by, a person who is competent to enter
into a contract and incur debt, and is enforceable
against such person in accordance with its terms, (e) it
and the related Contract do not contravene in any
material respect, and the Originator with respect to such
Receivable is not in violation of, any material laws,
rules, or regulations applicable thereto (including,
without limitation, laws, rules and regulations relating
to truth in lending, usury, fair credit billing, time
price plan billing, fair credit reporting, equal credit
opportunity and fair debt collection practices) that
could reasonably be expected to have an adverse impact on
the amount of collections thereunder, (f) all material
consents, licenses, or authorizations of, or
registrations with, any governmental authority required
to be obtained or given in connection with the creation
of such Receivable or the execution, delivery, creation,
and performance of the related Contract have been duly
obtained or given and are in full force and effect as of
the date of the creation of such Receivables, (g) at the
time of its transfer to the Trust, the Transferor or the
Trust will have good and marketable title free and clear
of all liens and security interests arising under or
through the Transferor (other than Permitted Liens), and
(h) it is not a Receivable which, during the period
specified in subsection 2.6(b), is in excess of the
percentage test specified in subsection 2.6(b).
"Enhancement" shall mean, with respect to any
Series, any cash collateral account, cash collateral
guaranty, collateral invested amount, letter of credit,
guaranteed rate agreement, maturity guaranty facility,
tax protection agreement, interest rate cap, interest
rate swap, subordination of the rights of one class to
another, or any other contract, agreement or arrangement
for the benefit of the Certificateholders of such Series
(or Certificateholders of a Class within such Series) as
designated in the applicable Supplement.
"Enhancement Provider" shall mean, with respect
to any Series, the Person, if any, designated as such in
the related Supplement.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to
time.
"Euroclear Operator" shall mean Morgan Guaranty
Trust Company of New York, Brussels, Belgium office, as
operator of the Euroclear System.
"Excess Funding Account" shall have the meaning
specified in subsection 4.2(d).
"Exchange" shall mean either of the procedures
described in Section 6.9(b).
"Exchangeable Transferor Certificate" shall
mean the certificate executed by the Transferor and
authenticated by the Trustee, substantially in the form
of Exhibit A and exchangeable as provided in Section 6.9;
provided, that at any time there shall be only one
Exchangeable Transferor Certificate.
"Exchange Date" shall have the meaning, with
respect to any Series issued pursuant to an Exchange,
specified in subsection 6.9(b).
"Exchange Notice" shall have the meaning, with
respect to any Series issued pursuant to an Exchange,
specified in subsection 6.9(b).
"Extended Trust Termination Date" shall have
the meaning specified in subsection 12.1(a).
"FCI" shall mean Fingerhut Companies, Inc., a
corporation organized and existing under the laws of the
State of Minnesota.
"FDIC" shall mean the Federal Deposit Insurance
Corporation, or any successor thereto.
"Fingerhut" shall mean Fingerhut Corporation, a
corporation organized and existing under the laws of the
State of Minnesota.
"Fixed/Floating Allocation Percentage" shall
mean for a Series for any Business Day or Distribution
Date, as applicable, the percentage equivalent of a
fraction, the numerator of which is the Invested Amount
of such Series at the end of the Revolving Period of
such Series and the denominator of which is the greater
of (a) the total amount of Principal Receivables in the
Trust and amounts on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) the sum of the numerators used to calculate the
allocation percentages with respect to Principal
Collections for all Series.
"Floating Allocation Percentage" shall mean
for a Series on any Business Day the sum of the
percentage equivalents of fractions, the numerator of
each of which is the Invested Amount (or adjusted
Invested Amount as specified in the applicable
Supplement) for each Class of such Series as of the end
of the preceding Business Day and the denominator of
which is the greater of (a) the sum of the 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) with respect to
Principal Collections only, the sum of the numerators for
all classes of all Series then outstanding used to
calculate the applicable allocation percentage.
"FNB" shall mean Fingerhut National Bank, a
national banking association.
"Foreign Clearing Agency" shall mean CEDEL and
the Euroclear Operator.
"FRI" shall mean Fingerhut Receivables, Inc., a
Delaware corporation.
"Global Certificate" shall have the meaning
specified in Section 6.13.
"Governmental Authority" shall mean the United
States of America, any state or other political
subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Holder" or "Certificateholder" shall mean the
Person in whose name a Certificate is registered in the
Certificate Register, and if applicable, the holder of
any Bearer Certificate or Coupon, as the case may be.
"Imputed Yield Collections" shall mean the sum
of (A) the product of (x) the aggregate amount of
Collections (other than Recoveries) and (y) the Discount
Factor, (B) investment earnings on amounts on deposit in
the Excess Funding Account on such business day, (C)
Recoveries and (D) collections on Receivables which are
not Eligible Receivables.
"Imputed Yield Receivables" shall mean the
product of the aggregate unpaid balance of the Eligible
Receivables and the Discount Factor.
"Ineligible Receivable" means any Receivable
that does not satisfy the definition of Eligible
Receivable.
"Initial Closing Date" shall mean June 29,
1994.
"Initial Invested Amount" shall mean, with
respect to any Series of Certificates, the amount stated
in the related Supplement.
"Insolvency Event" shall have the meaning
specified in subsection 9.2(a).
"Interest Funding Account" shall have the
meaning specified in subsection 4.2(b).
"Internal Revenue Code" shall mean the Internal
Revenue Code of 1986, as amended from time to time.
"Invested Amount" shall have, with respect to
any Series of Certificates, the meaning stated in the
related Supplement.
"Investment Company Act" shall mean the
Investment Company Act of 1940, as amended from time to
time.
"Investor Account" shall mean each of the
Interest Funding Account, any Principal Account, the
Excess Funding Account, any Distribution Account and any
Series Account.
"Investor Certificate" shall mean any one of
the certificates (including, without limitation, the
Bearer Certificates or the Registered Certificates)
executed by the Transferor and authenticated by the
Trustee substantially in the form (or forms in the case
of a Series with multiple classes) of the investor
certificate or variable funding certificate attached to
the related Supplement.
"Investor Certificateholder" shall mean the
Holder of an Investor Certificate.
"Investor Charge Off" shall have, with respect
to each Series, the meaning specified in the applicable
Supplement.
"Investor Default Amount" shall have, with
respect to any Series of Certificates, the meaning stated
in the related Supplement.
"Investor Exchange" shall have the meaning
specified in subsection 6.9(b).
"Investor Percentage" shall mean, with respect
to Principal Collections, Imputed Yield Collections and
Defaulted Receivables, and any Series of Certificates,
the Floating Allocation Percentage or the Fixed/Floating
Allocation Percentage, as applicable.
"Lien" shall mean any lien, security interest
or other encumbrance; provided, however, that any
assignment pursuant to Section 7.2 shall not be deemed to
constitute a Lien.
"Minimum Aggregate Principal Receivables" shall
mean, as of any date of determination, an amount equal to
the sum of (a) the Initial Invested Amounts for all
outstanding Series on such date except a Series created
pursuant to a Variable Funding Supplement at any time
and (b) with respect to a Series created pursuant to a
Variable Funding Supplement, during the Revolving Period
for such Series, the Invested Amount of such Series on
such date of determination or, during the Amortization
Period for such Series, the Invested Amount of such
Series on the last day of the Revolving Period for such
Series.
"Minimum Retained Interest" shall mean the
product of the weighted average Minimum Retained
Percentages for all Series and the sum of the outstanding
principal amounts of all classes of all Series.
"Minimum Retained Percentage" shall mean the
highest Minimum Retained Percentage specified in any
Supplement.
"Minimum Transferor Interest" shall mean, as of
any date of determination, the product of (i) the sum of
(a) the aggregate Principal Receivables and (b) the
amounts on deposit in the Excess Funding Account and (ii)
the highest Minimum Transferor Percentage for any Series.
"Minimum Transferor Percentage" shall mean the
highest Minimum Transferor Percentage specified in any
Supplement for an outstanding Series.
"Monthly Investor Servicing Fee" shall mean the
Servicing Fee payable to the Servicer with respect to a
Monthly Period.
"Monthly Period" shall mean, unless otherwise
defined with respect to a Series in the related
Supplement, the period from and including the first day
of each fiscal month of the Transferor to and including
the last day of such fiscal month.
"Moody's" shall mean Moody's Investors Service,
Inc. or its successor.
"Obligor" shall mean a Person obligated to make
payments with respect to a Receivable pursuant to a
Contract.
"Officer's Certificate" shall mean a
certificate signed by any Vice President, Treasurer,
Assistant Treasurer or more senior officer of the
Transferor or Servicer and delivered to the Trustee.
"Opinion of Counsel" shall mean a written
opinion of counsel, who may be counsel for or an employee
of the Person providing the opinion, and who shall be
reasonably acceptable to the Trustee.
"Originator" shall mean (i) each of Fingerhut
and FNB and any of their respective successors or
assigns, (ii) any of their Affiliates, or (iii) any other
originator of Receivables that is a party to a Purchase
Agreement so long as the Transferor shall have received
prior written notice from each Rating Agency that the
addition of such Originator will not result in the
reduction or withdrawal of its then existing rating of
any Class of Investor Certificates then issued and
outstanding and shall have delivered such notice to the
Trustee.
"Outstanding Balance" shall mean, with respect
to a Receivable on any day, the aggregate amount owed by
the Obligor thereunder as of the close of business on the
prior Business Day (net of returns and adjustments)
assuming that the related Obligor has selected the
installment credit terms with respect to such Receivable.
"Paying Agent" shall mean any paying agent
appointed pursuant to Section 6.6 and shall initially be
The Bank of New York.
"Pay Out Commencement Date" shall mean, with
respect to each Series, the date on which (a) a Trust Pay
Out Event is deemed to occur pursuant to Section 9.1 or
(b) a Series Pay Out Event is deemed to occur pursuant to
the Supplement for such Series.
"Pay Out Event" shall mean, with respect to
each Series, a Trust Pay Out Event or a Series Pay Out
Event.
"Permitted Lien" shall mean with respect to the
Receivables: (i) Liens in favor of the Transferor
created pursuant to the Purchase Agreement assigned to
the Trustee pursuant to this Agreement; (ii) Liens in
favor of the Trustee pursuant to this Agreement; and
(iii) Liens which secure the payment of taxes,
assessments and governmental charges or levies, if such
taxes are either (a) not delinquent or (b) being
contested in good faith by appropriate legal or
administrative proceedings and as to which adequate
reserves in accordance with generally accepted accounting
principles shall have been established.
"Person" shall mean any legal person, including
any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization, governmental entity or other entity of
similar nature.
"Pool Factor" shall mean, as of any Record
Date, a number carried out to seven decimals representing
the ratio of the applicable Invested Amount as of such
Record Date (determined after taking into account any
reduction in the Invested Amount which will occur on the
following Distribution Date) to the applicable Initial
Invested Amount unless otherwise specified with respect
to a Series in the related Supplement.
"Principal Account" shall have the meaning
specified in subsection 4.2(b).
"Principal Collections" shall mean, with
respect to any Business Day, the Collections received
with respect to Principal Receivables on such Business
Day.
"Principal Receivables" shall mean amounts
shown on the Servicer's records as amounts payable by
Obligors with respect to Eligible Receivables other than
such amounts that are Imputed Yield Receivables or
Defaulted Receivables.
"Principal Shortfalls" shall mean, with respect
to any Business Day and any outstanding Series, the
amount which the related Supplement specifies as the
"Principal Shortfall" for such Business Day.
"Principal Terms" shall have the meaning, with
respect to any Series issued pursuant to an Exchange,
specified in subsection 6.9(c).
"Prospective Pay Out Event" shall have the
meaning specified in subsection 2.3(m).
"Publication Date" shall have the meaning
specified in subsection 9.2(a).
"Purchase Agreement" shall mean (i) the
receivables purchase agreement dated as of June 29, 1994
between the Transferor, as purchaser of such Receivables,
and Fingerhut, as seller of such Receivables, as amended
from time to time, (ii) the receivables purchase
agreement to be dated as of January 12, 1997 between the
Transferor, as purchaser of such Receivables and FCI, as
seller of such Receivables, as amended from time to time,
and (iii) any receivables purchase agreement between a
seller of Receivables and the Transferor, substantially
in the form of the receivables purchase agreement
referred to in clause (i) above.
"Qualified Institution" shall have the meaning
specified in subsection 4.2(a).
"Rating Agency" shall mean, with respect to
each Series, the rating agency or agencies, if any,
specified in the related Supplement.
"Reassignment Date" shall have the meaning
specified in subsection 2.4(e).
"Receivable" shall mean with respect to any
Obligor, any right to payment of amounts owed by that
Obligor created at a time that such Obligor was a Back
End Customer under a closed end installment sale, or
closed end installment loan, Contract relating to the
sale, or financing of the sale, of merchandise, financial
service products or services, including, without
limitation, all rights of each Originator and obligations
of the Obligor under the applicable Contract, other than
insurance premiums.
"Record Date" shall mean, with respect to any
Distribution Date, unless otherwise specified in the
applicable Supplement, the Business Day preceding such
Distribution Date, except that, with respect to any
Definitive Certificates, Record Date shall mean the fifth
day of the then current Monthly Period.
"Recoveries" shall mean any amounts received by
the Servicer with respect to Receivables that previously
were charged off as uncollectible in accordance with the
Servicer's customary and usual servicing procedures.
"Registered Certificates" shall have the
meaning specified in Section 6.1.
"Related Person" shall mean a Person that is an
Affiliate of Fingerhut, any Investor Certificateholder,
any Enhancement Provider, or any Person whose status
would violate the conditions for a trustee contained in
Section (4)(i) of Rule 3a-7 under the Investment Company
Act of 1940, as amended.
"Relevant UCC State" shall mean each
jurisdictions in which the filing of a UCC financing
statement is necessary to perfect the ownership interest
and security interest of the Transferor pursuant to the
Purchase Agreement or the ownership or security interest
of the Trustee established under this Agreement.
"Requirements of Law" for any Person shall mean
the certificate of incorporation or articles of
association and by-laws or other organizational or
governing documents of such Person, and any material law,
treaty, rule or regulation, or determination of an
arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which
such Person is subject.
"Responsible Officer" shall mean any officer
within the Corporate Trust Office (or any successor group
of the Trustee), including the President, any Vice
President or any other officer of the Trustee customarily
performing functions similar to those performed by any
person who at the time shall be an above-designated
officer and who shall have direct responsibility for the
administration of this Agreement.
"Retained Interest" shall mean, on any date of
determination, the sum of the Transferor Interest and the
Invested Amount represented by any Transferor Retained
Certificate.
"Retained Percentage" shall mean, on any date
of determination, the percentage equivalent of a fraction
the numerator of which is the Retained Interest and the
denominator of which is the aggregate amount of Principal
Receivables at the end of the day immediately prior to
such date of determination plus all amounts on deposit in
the Excess Funding Account (but not including investment
earnings on such amounts).
"Revolving Period" shall have, with respect to
each Series, the meaning specified in the related
Supplement.
"Secured Obligations" shall have the meaning
specified in Section 2.1.
"Securities Act" shall mean the Securities Act
of 1933, as amended from time to time.
"Series" shall mean any series of Investor
Certificates, which may include within any such Series a
Class or Classes of Investor Certificates subordinate to
another such Class or Classes of Investor Certificates.
"Series Account" shall mean any account or
accounts established pursuant to a Supplement for the
benefit of the related Series.
"Series Allocation Percentage" shall mean with
respect to any Series, on any date of determination, the
percentage equivalent of a fraction the numerator of
which is the Invested Amount of such Series and the
denominator of which is the sum of the Invested Amounts
of all Series then outstanding.
"Series Pay Out Event" shall have, with respect
to any Series, the meaning specified in the related
Supplement.
"Series Servicing Fee Percentage" shall mean,
with respect to any Series, the amount specified as such
in the related Supplement.
"Series Termination Date" shall mean, with
respect to any Series of Certificates, the date stated as
such in the related Supplement.
"Servicer" shall mean Fingerhut National Bank
or any Person appointed as successor as herein provided
to service the Receivables.
"Servicer Default" shall have the meaning
specified in Section 10.1.
"Servicing Fee" shall have the meaning
specified in the related Supplements.
"Settlement Statement" shall mean a report in
the form specified in subsection 1.2(e) as may be
supplemented pursuant to any Supplement.
"Shared Principal Collections" shall mean, with
respect to any Business Day, for all outstanding Series
the aggregate amount of Principal Collections which the
related Supplements specify are to be treated as "Shared
Principal Collections" available to be allocated to other
Series for such Business Day.
"Standard & Poor's" shall mean Standard &
Poor's Ratings Group or its successor.
"Successor Servicer" shall have the meaning
specified in subsection 10.2(a).
"Supplement" shall mean, with respect to any
Series, a supplement to this Agreement complying with the
terms of Section 6.9 of this Agreement, executed in
conjunction with any issuance of Certificates of such
Series (or, in the case of the issuance of Certificates
on the Initial Closing Date, the supplements executed in
connection with the issuance of such Certificates).
"Termination Notice" shall have, with respect
to any Series, the meaning specified in Section 10.1.
"Transfer" shall mean transfer, sell, exchange,
pledge, hypothecate, participate, or otherwise assign, in
whole or in part.
"Transfer Agent and Registrar" shall have the
meaning specified in Section 6.3 and shall initially be
The Bank of New York.
"Transfer Date" shall mean, with respect to any
Series, the Business Day immediately prior to each
Distribution Date.
"Transferor" shall mean Fingerhut Receivables,
Inc., a corporation organized and existing under the laws
of the State of Delaware, and any successor thereto.
"Transferor Exchange" shall have the meaning
specified in subsection 6.9(b).
"Transferor Interest" shall mean, on any date
of determination, the aggregate amount of Principal
Receivables at the end of the day immediately prior to
such date of determination plus all amounts on deposit in
the Excess Funding Account (but not including investment
earnings on such amounts) at the end of such immediately
preceding day, minus the Aggregate Invested Amount at the
end of such immediately preceding day.
"Transferor Percentage" shall mean, on any date
of determination, when used with respect to Principal
Collections, Imputed Yield Collections and Defaulted
Receivables, a percentage equal to 100% minus the
Aggregate Investor Percentage with respect to such
categories of Receivables.
"Transferor Retained Certificates" shall mean
Investor Certificates of any Series which the Transferor
is required to retain pursuant to the terms of any
Supplement.
"Transferor Retained Class" shall mean any
Class of Investor Certificates of any Series which the
Transferor retained pursuant to the terms of any
Supplement.
"Trigger Event" shall have the meaning
specified in subsection 9.2(a).
"Trust" shall mean the trust created by this
Agreement, the corpus of which shall consist of the Trust
Property.
"Trust Extension" shall have the meaning
specified in subsection 12.1(a).
"Trust Pay Out Event" shall have, with respect
to each Series, the meaning specified in Section 9.1.
"Trust Property" shall have the meaning
assigned in Section 2.1.
"Trust Termination Date" shall mean the
earliest to occur of (i) unless a Trust Extension shall
have occurred, the day after the Distribution Date with
respect to any Series following the date on which funds
shall have been deposited in the Distribution Account or
the applicable Series Account for the payment of Investor
Certificateholders of each Series then issued and
outstanding sufficient to pay in full the Aggregate
Invested Amount plus interest accrued at the applicable
Certificate Rate through the end of the day prior to the
Distribution Date with respect to each such Series and
certain other amounts as may be specified in any Series
Supplement, (ii) if a Trust Extension shall have
occurred, the Extended Trust Termination Date, and (iii)
the date specified in Section 12.1.
"Trustee" shall mean The Bank of New York
(Delaware), a Delaware banking corporation, and its
successors and any Person resulting from or surviving any
consolidation or merger to which it or its successors may
be a party and any successor trustee appointed as herein
provided.
"UCC" shall mean the Uniform Commercial Code,
as amended from time to time, as in effect in the
applicable jurisdiction.
"Undivided Interest" shall mean the undivided
interest in the Trust evidenced by an Investor
Certificate.
"Variable Funding Certificates" shall mean a
Series of Investor Certificates, in one or more Classes,
issued pursuant to Section 6.9 and a Variable Funding
Supplement.
"Variable Funding Supplement" shall mean a
Supplement executed in connection with the issuance of
Variable Funding Certificates.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or
this Agreement shall have the defined meanings when used
in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or
other document made or delivered pursuant hereto or
thereto, accounting terms not defined in Section 1.1, and
accounting terms partially defined in Section 1.1 to the
extent not defined, shall have the respective meanings
given to them under generally accepted accounting
principles. To the extent that the definitions of
accounting terms herein are inconsistent with the
meanings of such terms under generally accepted
accounting principles, the definitions contained herein
shall control.
(c) The agreements, representations and
warranties of FNB in this Agreement and in any Supplement
in its capacity as Servicer and of FRI in its capacity as
Transferor shall be deemed to be the agreements,
representations and warranties of FNB and FRI solely in
each such capacity for so long as either of them acts in
each such capacity under this Agreement.
(d) The words "hereof," "herein" and
"hereunder" and words of similar import when used in this
Agreement shall refer to any Supplement or this Agreement
as a whole and not to any particular provision of this
Agreement or any Supplement; and Section, subsection,
Schedule and Exhibit references contained in this
Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this
Agreement or any Supplement unless otherwise specified.
(e) The Daily Report and Settlement Statement
shall be in substantially the forms of Exhibits B and C,
with such changes as the Servicer may determine to be
necessary or desirable; provided, however, that no such
change shall serve to exclude information required by
this Agreement or any Supplement and each such change
shall be reasonably acceptable to the Trustee. The
Servicer shall, upon making such determination and
receiving the consent of the Trustee to such change,
deliver to the Trustee and each Rating Agency an
Officer's Certificate to which shall be annexed the form
of the related Exhibit, as so changed. Upon the delivery
of such Officer's Certificate to the Trustee, the related
Exhibit, as so changed, shall for all purposes of this
Agreement constitute such Exhibit. The Trustee may
conclusively rely upon such Officer's Certificate in
determining whether the related Exhibit, as changed,
conforms to the requirements of this Agreement.
[End of Article I]
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF CERTIFICATES
Section 2.1 Conveyance of Receivables. The
Transferor does hereby transfer, assign, set-over, and
otherwise convey to the Trust for the benefit of the
Certificateholders, without recourse, all of its right,
title and interest in, to and under (i) the Receivables
now existing and hereafter created, in each case,
immediately upon the Seller's acquisition of rights
therein, and all monies due or to become due with respect
thereto, (ii) the Purchase Agreement and the Bank
Receivables Purchase Agreement (with respect to closed-
end installment loan contract receivables of Back-End
Customers), (iii) Recoveries and (iv) all proceeds of the
foregoing. Such property, together with all monies as
are from time to time deposited in the Collection
Account, any Interest Funding Account, any Principal
Account, any Distribution Account, any Series Account and
the Excess Funding Account and all amounts on deposit in
or credited to such accounts (excluding any investment
earnings on any such deposited amount except for such
amounts as are on deposit in the Excess Funding Account)
and any other account and all monies as are from time to
time available under any Enhancement for any Series for
payment to Certificateholders shall constitute the
property of the Trust (the "Trust Property"). The
foregoing transfer, assignment, set-over and conveyance
does not constitute and is not intended to result in a
creation or an assumption by the Trust, the Trustee or
any Investor Certificateholder of any obligation of the
Transferor, the Servicer or any other Person in
connection with the Receivables or any agreement or
instrument relating thereto, including, without
limitation, any obligation to any Obligors or insurers,
or in connection with the Purchase Agreement or the Bank
Receivables Purchase Agreement.
In connection with such transfer, assignment,
set-over and conveyance, the Transferor agrees to record
and file, at its own expense, one or more financing
statements (including any continuation statements with
respect to such financing statements when applicable)
with respect to the Receivables now existing and
hereafter created for the transfer of "accounts" and
"general intangibles" (each as defined in Section 9-106
of the UCC as in effect in the Relevant UCC State)
meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to
perfect the assignment of the Receivables to the Trust,
and to deliver file-stamped copies of such financing
statements or continuation statements or other evidence
of such filing (which may, for purposes of this Section
2.1, consist of facsimile confirmation of such filing) to
the Trustee on or prior to the date of issuance of the
Certificates, and in the case of any continuation
statements filed pursuant to this Section 2.1, as soon as
practicable after receipt thereof by the Transferor. The
foregoing transfer, assignment, set-over and conveyance
to the Trust shall be made to the Trustee, on behalf of
the Trust, and each reference in this Agreement to such
transfer, assignment, set-over and conveyance shall be
construed accordingly.
To the extent that the transfer of the
Receivables from the Transferor to the Trust hereunder
may be characterized as a pledge rather than as a sale,
the Transferor hereby grants and transfers to the Trustee
for the benefit of the Certificateholders a first
priority perfected security interest in all of the
Transferor's right, title and interest in, to and under
the Trust Property to secure a loan in an amount equal to
the unpaid principal amount of the Investor Certificates
issued hereunder or to be issued pursuant to this
Agreement and the interest accrued thereon at the related
Certificate Rate and to secure all of the Transferor's
and Servicer's obligations hereunder, including, without
limitation, the Transferor's obligation to transfer
Receivables hereafter created to the Trust (the "Secured
Obligations"), and agrees that this Agreement shall
constitute a security agreement under applicable law.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its
acceptance, on behalf of the Trust, of all right, title
and interest previously held by the Transferor in, to and
under the Trust Property and declares that it shall
maintain such right, title and interest, upon the Trust
herein set forth, for the benefit of all
Certificateholders.
(b) The Trustee shall have no power to create,
assume or incur indebtedness or other liabilities in the
name of the Trust other than as contemplated in this
Agreement.
Section 2.3 Representations and Warranties of
the Transferor. The Transferor hereby represents and
warrants to the Trustee, on behalf of the Trust, as of
the Initial Closing Date and, with respect to any Series
of Certificates, as of the date of the related Supplement
and the related Closing Date for such Series:
(a) Organization and Good Standing. The
Transferor is a corporation duly organized and validly
existing in good standing under the laws of the State of
Delaware and has the corporate power and authority and
legal right to own its properties and conduct its
business as such properties are presently owned and such
business is presently conducted, and to execute, deliver
and perform its obligations under this Agreement and the
Purchase Agreement and to execute and deliver to the
Trustee the Certificates pursuant hereto.
(b) Due Qualification. The Transferor is duly
qualified to do business and is in good standing (or is
exempt from such requirements) as a foreign corporation
in any state required in order to conduct business, and
has obtained all necessary licenses and approvals with
respect to the Transferor required under federal and
Delaware law.
(c) Due Authorization. The execution and
delivery of this Agreement and the Purchase Agreement and
the consummation of the transactions provided for herein
and therein, have been duly authorized by the Transferor
by all necessary corporate action on its part.
(d) Binding Obligation. Each of this
Agreement and the Purchase Agreement, and the
consummation of the transactions provided for herein and
therein, constitutes a legal, valid, and binding
obligation of the Transferor, enforceable in accordance
with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereinafter in
effect, affecting the enforcement of creditors' rights in
general and as such enforceability may be limited by
general principles of equity (whether considered in a
proceeding at law or in equity).
(e) No Conflicts. The execution and delivery
of this Agreement and the Purchase Agreement and the
performance of the transactions contemplated hereby and
thereby, do not (i) contravene the Transferor's charter
or by-Laws, (ii) violate any material provision of law
applicable to it or require any filing (except for the
filings under the UCC), registration, consent or approval
under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in
effect having applicability to the Transferor, except for
such filings, registrations, consents or approvals as
have already been obtained and are in full force and
effect.
(f) Taxes. Except as specified on Schedule 1,
the Transferor and each prior owner of the Receivables
has filed all tax returns required to be filed and has
paid or made adequate provision for the payment of all
taxes, assessments and other governmental charges due
from the Transferor or such prior owner or is contesting
any such tax, assessment or other governmental charge in
good faith through appropriate proceedings.
(g) No Violation. The execution and delivery
of this Agreement and the Purchase Agreement and the
execution and delivery to the Trustee of the
Certificates, the performance of the transactions
contemplated by this Agreement and the Purchase Agreement
and the fulfillment of the terms hereof and thereof will
not violate any Requirements of Law applicable to the
Transferor, will not violate, result in any breach of any
of the material terms and provisions of, or constitute
(with or without notice or lapse of time or both) a
default under any Requirement of Law applicable to the
Transferor or any material indenture, contract,
agreement, mortgage, deed of trust or other material
instrument to which the Transferor is a party or by which
it or its properties are bound.
(h) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Transferor, threatened against the Transferor, before
any Governmental Authority (i) asserting the invalidity
of this Agreement and the Purchase Agreement, (ii)
seeking to prevent the consummation of any of the
transactions contemplated hereby or thereby, (iii)
seeking any determination or ruling that would materially
and adversely affect the performance by the Transferor of
its obligations thereunder, (iv) seeking any
determination or ruling that would materially and
adversely affect the validity or enforceability thereof
or (v) seeking to affect adversely the tax attributes of
the Trust.
(i) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any
Governmental Authority required in connection with the
execution and delivery of this Agreement, the Purchase
Agreement and the Certificates, the performance of the
transactions contemplated by this Agreement and the
Purchase Agreement and the fulfillment of the terms
hereof and thereof, have been obtained.
(j) Bona Fide Receivables. Each Receivable is
or will be an account receivable arising out of the
performance by the applicable Originator in accordance
with the terms of the Contract giving rise to such
Receivables. The Transferor has no knowledge of any fact
which should have led it to expect at the time of the
classification of any Receivable as an Eligible
Receivable that such Receivable would not be paid in full
when due, and each Receivable classified as an Eligible
Receivable by the Transferor in any document or report
delivered under this Agreement satisfies the requirements
of eligibility contained in the definition of Eligible
Receivable set forth in this Agreement.
(k) Place of Business. The principal
executive offices of the Transferor are in Minnetonka,
Minnesota, and the offices where the Transferor keeps its
records concerning the Receivables and related Contracts
are in Minnetonka, Minnesota, St. Cloud, Minnesota and
Hennepin County, Minnesota.
(l) Use of Proceeds. No proceeds of the
issuance of any Certificate will be used by the
Transferor to purchase or carry any margin security.
(m) Pay Out Event. As of the Initial Closing
Date, no Pay Out Event and no condition that with the
giving of notice and/or the passage of time would
constitute a Pay Out Event (a "Prospective Pay Out
Event"), has occurred and is continuing.
(n) Not an Investment Company. The Transferor
is not an "investment company" within the meaning of the
Investment Company Act, or is exempt from all provisions
of such Act.
For the purposes of the representations and
warranties contained in this Section 2.3 and made by the
Transferor on the Initial Closing Date, "Certificates"
shall mean the Certificates issued on the Initial Closing
Date. The representations and warranties set forth in
this Section 2.3 shall survive the transfer and
assignment of the respective Receivables to the Trust,
and termination of the rights and obligations of the
Servicer pursuant to Section 10.1. The Transferor hereby
represents and warrants to the Trust, with respect to any
Series of Certificates, as of its Closing Date, unless
otherwise stated in the related Supplement, that the
representations and warranties of the Transferor set
forth in Section 2.3, are true and correct as of such
date (and for the purposes of such representations and
warranties, "Certificates" shall mean the Certificates
issued on the related Closing Date) and that each
representation and warranty set forth in this Section 2.3
and in Section 2.4(a)(i) with respect to the Agreement
shall be made at such time with respect to the applicable
Supplement. Upon discovery by the Transferor, the
Servicer or a Responsible Officer of the Trustee of a
breach of any of the foregoing representations and
warranties, the party discovering such breach shall give
prompt written notice to the others.
Section 2.4 Representations and Warranties of
the Transferor Relating to the Agreement and the
Receivables.
(a) Binding Obligation; Valid Transfer and
Assignment. The Transferor hereby represents and
warrants to the Trustee, on behalf of the Trust, that, as
of the Initial Closing Date and with respect to any
Series of Certificates, as of the date of its related
Supplement and Closing Date:
(i) The Purchase Agreement and this
Agreement each constitutes the legal, valid and
binding obligation of the Transferor, enforceable
against the Transferor in accordance with its terms,
except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in
effect, affecting the enforcement of creditors'
rights in general, and (B) as such enforceability
may be limited by general principles of equity
(whether considered in a suit at law or in equity).
(ii) The transfer of Receivables by the
Transferor to the Trust under this Agreement
constitutes either (A) a valid transfer, assignment,
set-over and conveyance to the Trust of all right,
title and interest of the Transferor in and to the
Trust Property, and such Trust Property will be held
by the Trust free and clear of any Lien of any
Person claiming through or under the Transferor or
any of its Affiliates except for (x) Permitted
Liens, (y) the interest of the Transferor as Holder
of the Exchangeable Transferor Certificate and any
other Class of Certificates held by the Transferor
from time to time and (z) the Transferor's right, if
any, to interest accruing on, and investment
earnings, if any, in respect of any Interest Funding
Account, any Principal Account, the Excess Funding
Account, or any Series Account, as provided in this
Agreement or the related Supplement, or (B) a grant
of a first priority security interest (as defined in
the UCC as in effect in the Relevant UCC State) in,
to and under the Trust Property, which grant is
enforceable with respect to the existing Receivables
and the proceeds thereof upon execution and delivery
of this Agreement, and which will be enforceable
with respect to such Receivables hereafter created
and the proceeds thereof, upon such creation. If
this Agreement constitutes the grant of a security
interest to the Trust in such property, upon the
filing of the financing statement described in
Section 2.1 and in the case of the Receivables
hereafter created and proceeds thereof, upon such
creation, the Trust shall have a first priority
perfected security interest in such property, except
for Permitted Liens. Except as contemplated in this
Agreement or any Supplement, neither the Transferor
nor any Person claiming through or under the
Transferor shall have any claim to or interest in
the Collection Account, any Principal Account, any
Interest Funding Account, the Distribution Account,
the Excess Funding Account, any principal funding
account for any Series or any other Series Account,
except for the Transferor's rights to receive
interest accruing on, and investment earnings in
respect of, any such account as provided in this
Agreement (or, if applicable, any Series Account as
provided in any Supplement) and, if this Agreement
constitutes the grant of a security interest in such
property, except for the interest of the Transferor
in such property as a debtor for purposes of the UCC
as in effect in the Relevant UCC State. The
Purchase Agreement constitutes a valid transfer,
assignment, set-over and conveyance to the
Transferor of all right, title and interest of the
seller which is a party thereto in and to the
Receivables purported to be sold thereunder, whether
then existing or thereafter created in the
applicable Accounts and the proceeds thereof.
(iii) The Transferor is not insolvent and
will not be rendered insolvent upon the transfer of
the Receivables to the Trust.
(iv) The Transferor is (or, with respect
to Receivables arising after the date hereof, will
be) the legal and beneficial owner of all right,
title and interest in and to each Receivable and
each Receivable has been or will be transferred to
the Trust free and clear of any Lien other than
Permitted Liens.
(v) All consents, licenses, approvals or
authorizations of or registrations or declarations
with any Governmental Authority required in
connection with the transfer of Trust Property to
the Trust have been obtained.
(vi) Each Receivable classified as an
"Eligible Receivable" by the Transferor in any
document or report delivered hereunder will satisfy
the requirements contained in the definition of
Eligible Receivable as of the time of such document
or report.
(vii) Each Receivable then existing has
been conveyed to the Trust free and clear of any
Lien of any Person claiming through or under the
Transferor or any of its Affiliates (other than
Permitted Liens) and in compliance, in all material
respects, with all Requirements of Law applicable to
the Transferor.
(b) Daily Representations and Warranties. On
each day on which any new Receivable is purchased by the
Transferor, the Transferor shall be deemed to represent
and warrant to the Trust that (A) each Receivable
purchased by the Transferor on such day has been conveyed
to the Trust in compliance, in all material respects,
with all Requirements of Law applicable to the Transferor
and free and clear of any Lien of any Person claiming
through or under the Transferor or any of its Affiliates
(other than Permitted Liens) and (B) with respect to each
such Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with,
any Governmental Authority required to be obtained,
effected or given by the Transferor in connection with
the conveyance of such Receivable to the Trust have been
duly obtained, effected or given and are in full force
and effect.
(c) Notice of Breach. The representations and
warranties set forth in this Section 2.4 shall survive
the transfer and assignment of the respective Receivables
to the Trust. Upon discovery by the Transferor, the
Servicer or a Responsible Officer of the Trustee of a
breach of any of the representations and warranties set
forth in this Section 2.4, the party discovering such
breach shall give prompt written notice to the other
parties mentioned above. The Transferor agrees to
cooperate with the Servicer and the Trustee in attempting
to cure any such breach.
(d) Designation of Ineligible Receivables. In
the event of a breach with respect to a Receivable of any
representations and warranties set forth in subsection
2.3(j) or subsections 2.4(a)(iii) through (vii) or
subsection 2.4(b), or in the event that a Receivable is
not an Eligible Receivable on the date of its transfer to
the Trust as a result of the failure to satisfy the
conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an
"Ineligible Receivable" and shall be assigned an
Outstanding Balance of zero for the purpose of
determining the aggregate amount of Principal Receivables
on any day; provided, however, that if such
representations and warranties with respect to such
Receivable shall subsequently be true and correct in all
material respects as if such Receivable had been created
on such day or such Receivable shall subsequently satisfy
the conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an
Eligible Receivable, and the Outstanding Balance of such
Receivable shall be included in determining the aggregate
amount of Principal Receivables on such day. On and
after the date of its designation as an Ineligible
Receivable, each Ineligible Receivable shall not be given
credit in determining the aggregate amount of Principal
Receivables used in the calculation of any Investor
Percentage, the Transferor Percentage or the Transferor
Interest. In the event that on any Business Day the
exclusion of an Ineligible Receivable from the
calculation of the Transferor Interest would cause the
Transferor Interest to be reduced below the Minimum
Transferor Interest, the Transferor shall immediately
make a deposit in the Excess Funding Account (for
allocation as a Principal Receivable) in immediately
available funds prior to the next succeeding Business Day
in an amount equal to the amount by which the Transferor
Interest would be reduced below the Minimum Transferor
Interest as a result of the exclusion of such Ineligible
Receivable. The portion of such deposit allocated to the
Investor Certificates of each Series shall be distributed
to the Investor Certificateholders of each Series in the
manner specified in Article IV.
(e) Reassignment of Trust Portfolio. In the
event of a breach of any of the representations and
warranties set forth in subsections 2.3(a), (b) and (c)
and 2.4(a)(i) and (ii) with respect to any Series, either
the Trustee or the Holders of Investor Certificates
evidencing Undivided Interests aggregating more than 50%
of the Invested Amount of such Series, by notice then
given in writing to the Transferor (and to the Trustee
and the Servicer, if given by the Investor
Certificateholders of such Series), may direct the
Transferor to accept reassignment of an amount of
Principal Receivables equal to the face amount of the
Invested Amount to be repurchased (as specified below)
within 60 days of such notice (or within such longer
period as may be specified in such notice), and the
Transferor shall be obligated to accept reassignment of
such Receivables on a Distribution Date specified by the
Transferor (such Distribution Date, the "Reassignment
Date") occurring within such applicable period on the
terms and conditions set forth below; provided, however,
that no such reassignment shall be required to be made,
and no notice of such reassignment may be given, if, at
any time during such applicable period, the
representations and warranties contained in subsections
2.3(a), (b) and (c) and subsections 2.4(a)(i) and (ii)
shall then be true and correct in all material respects.
The Transferor shall, on the Transfer Date (in next day
funds) preceding the Reassignment Date, deposit an amount
equal to the reassignment deposit amount for such Series
in the related Distribution Account or Series Account, as
provided in the related Supplement, for distribution to
the Investor Certificateholders pursuant to Article XII.
The reassignment deposit amount with respect to any
Series, unless otherwise stated in the related
Supplement, shall be equal to (i) the Invested Amount of
such Series at the end of the day on the last day of the
Monthly Period preceding the Reassignment Date (provided,
however, that with respect to any Series issued pursuant
to a Variable Funding Supplement such amount shall be the
Invested Amount of such Series as of the Reassignment
Date, less the amount, if any, previously allocated for
payment of principal to such Certificateholders on the
related Reassignment Date, in the Monthly Period in which
the Reassignment Date occurs), plus (ii) an amount equal
to all interest accrued but unpaid on the Investor
Certificates of such Series at the applicable Certificate
Rate through such last day, less the amount, if any,
previously allocated for payment of interest to the
Certificateholders of such Series on the related
Distribution Date in the Monthly Period in which the
Reassignment Date occurs plus any other amounts accrued
and owing as specified in the applicable Supplement.
Payment of the reassignment deposit amount with respect
to any Series, and all other amounts in the Distribution
Account or the applicable Series Account in respect of
the preceding Monthly Period, shall be considered a
prepayment in full of the Receivables represented by the
Investor Certificates of such Series. On the
Distribution Date following the Transfer Date on which
such amount has been deposited in full into the
Distribution Account or the applicable Series Account,
the Receivables and all monies due or to become due with
respect thereto and all proceeds of the Receivables shall
be released to the Transferor after payment of all
amounts otherwise due hereunder on or prior to such dates
and the Trustee shall execute and deliver such
instruments of transfer or assignment, in each case
without recourse, representation or warranty, as shall be
prepared by and as are reasonably requested by the
Transferor to vest in the Transferor, or its designee or
assignee, all right, title and interest of the Trust in
and to such Receivables, all monies due or to become due
with respect thereto and all proceeds of such Receivables
allocated to such Receivables pursuant to the related
Supplement. If the Trustee or the Investor
Certificateholders of any Series give notice directing
the Transferor to accept reassignment as provided above,
the obligation of the Transferor to accept reassignment
of the applicable Receivables and pay the reassignment
deposit amount pursuant to this subsection 2.4(e) shall
constitute the sole remedy respecting a breach of the
representations and warranties contained in subsections
2.3(a), (b) and (c) and 2.4(a)(i) and (ii) available to
the Investor Certificateholders of such Series or the
Trustee on behalf of the Investor Certificateholders of
such Series. The Trustee shall have no duty to conduct
any affirmative investigation as to the occurrence of any
condition requiring the repurchase of any Receivable by
the Transferor pursuant to this Agreement or any
Supplement or the eligibility of any Receivable for
purposes of this Agreement or any Supplement.
Section 2.5 Covenants of the Transferor. The
Transferor hereby covenants that:
(a) Receivables to be Accounts or General
Intangibles. The Transferor will take no action to cause
any Receivable to be evidenced by any instrument (as
defined in the UCC as in effect in the Relevant UCC
State), except in connection with the enforcement or
collection of a Receivable. Except in such
circumstances, the Transferor will take no action to
cause any Receivable to be anything other than an
"account" or a "general intangible" (each as defined in
the UCC as in effect in the Relevant UCC State).
(b) Security Interests. Except for the
conveyances hereunder, the Transferor will not sell,
pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or
any interest therein; the Transferor will immediately
notify the Trustee of the existence of any Lien on any
Receivable; and the Transferor shall defend the right,
title and interest of the Trust in, to and under the
Receivables, whether now existing or hereafter created,
against all claims of third parties claiming through or
under the Transferor; provided, however, that nothing in
this subsection 2.5(b) shall prevent or be deemed to
prohibit the Transferor from suffering to exist upon any
of the Receivables any Permitted Lien.
(c) Contracts and Credit and Collection
Policies. The Transferor shall take all actions
reasonably within its control to cause each Originator to
comply with and perform its obligations under the
Contracts relating to the Receivables and the Credit and
Collection Policy except insofar as any failure to comply
or perform would not materially and adversely affect the
rights of the Trust or the Certificateholders hereunder
or under the Certificates. The Transferor may change,
and permit an Originator to change, the terms and
provisions of the Contracts or the Credit and Collection
Policy in any respect (i) if it would not, in the
reasonable belief of the Transferor, materially impair
the collectibility of any Receivable or cause,
immediately or with the passage of time, a Pay Out Event
to occur and (ii) if such change (A) (if it owns a
comparable segment of receivables) is made applicable to
the comparable segment of the receivables owned by the
Transferor or such Originator, if any, which have
characteristics the same as, or substantially similar to,
the Receivables that are the subject of such change and
(B) (if it does not own such a comparable segment of
receivables) will not be made with the intent to
materially benefit the Transferor over the Investor
Certificateholders or to materially adversely affect the
Investor Certificateholders, except as otherwise
restricted by an endorsement, sponsorship, or other
agreement between the Transferor and an unrelated third
party or by the terms of the Contracts.
(d) [Reserved]
(e) Delivery of Collections. In the event
that the Transferor receives Collections, the Transferor
agrees to deposit such Collections into the Collection
Account as soon as practicable after the receipt thereof,
but in no event later than two Business Days following
the Date of Processing thereof.
(f) Conveyance of Receivables. The Transferor
covenants and agrees that it will not permit any
Originator to convey, assign, exchange or otherwise
transfer any Receivable, to any Person other than the
Transferor prior to the termination of this Agreement
pursuant to Article XII except for transfers to FCI;
provided, however, that the Transferor shall not be
prohibited hereby from permitting an Originator to
convey, assign, exchange or otherwise transfer a
Receivable in connection with a transaction in which such
Originator and its successor agree to comply with
provisions substantially similar to those of Section 7.2.
(g) Notice of Liens. The Transferor shall
notify the Trustee promptly after becoming aware of any
Lien on any Receivable other than Permitted Liens.
(h) Enforcement of Purchase Agreement. The
Transferor agrees to take all action necessary and
appropriate to enforce its rights and claims under the
Purchase Agreement and the Bank Receivables Purchase
Agreement.
(i) Separate Business. The Transferor shall
at all times (i) to the extent the Transferor's office is
located in the offices of any Affiliate of the
Transferor, pay fair market rent for its office space
located in the offices of such affiliate and a fair share
of any overhead costs, (ii) maintain the Transferor's
books, financial statements, accounting records and other
corporate documents and records separate from those of
its Affiliates or any other entity, (iii) not commingle
the Transferor's assets with those of any Affiliate or
any other entity, (iv) maintain the Transferor's books or
account and payroll (if any) separate from those of any
affiliate of the Transferor, (v) act solely in its
corporate name and through its own authorized officers
and agents, invoices and letterhead, (vi) separately
manage the Transferor's liabilities from those of any of
its Affiliates and pay its own material liabilities,
including all material administrative expenses, from its
own separate assets, provided that the Transferor's
stockholder or other Affiliates may pay certain of the
organizational expenses of the Transferor and expenses
relating to the preparation, negotiation, execution and
delivery of the documentation with respect to the
issuance of Certificates from time to time, and the
Transferor shall reimburse any Affiliate for its
allocable portion of shared expenses paid by such
Affiliate, and (vii) pay from the Transferor's assets all
obligations and indebtedness of any kind incurred by the
Transferor except as otherwise provided in clause (vi).
The Transferor shall abide by all corporate formalities,
including the maintenance of current minute books, and
the Transferor shall cause its financial statements to be
prepared in accordance with generally accepted accounting
principles in a manner that indicates the separate
existence of the Transferor and its assets and
liabilities. The Transferor shall not assume the
liabilities of any Affiliate, and shall not guarantee the
liabilities of any Affiliate. The officers and directors
of the Transferor (as appropriate) shall make decisions
with respect to the business and daily operations of
Transferor independent of and not dictated by any
Affiliate of the Transferor.
(j) Purchase Agreement Notices. The
Transferor (i) shall promptly give the Trustee copies of
any notices, reports or certificates given or delivered
to the Transferor under the Purchase Agreement, (ii)
shall not, without the consents, approvals and opinions,
if any, required by Section 13.1, as if Section 13.1
related to the Purchase Agreement rather than this
Agreement, enter into any amendment, supplement or other
modification to, or waiver of any provision of, the
Purchase Agreement and (iii) shall not permit the
addition or removal of a Receivable to or from the
operation of the Purchase Agreement unless there is a
corresponding right or obligation of the Transferor to
add or remove such Receivable to or from the Trust.
Section 2.6 Addition of Receivables.
(a) All receivables which meet the definition
of Receivables shall be included as Receivables from and
after the date upon which such Receivables are created
and all such Receivables, whether such Receivables are
then existing or thereafter created, shall be transferred
automatically to the Trust upon purchase by the
Transferor.
(b) Receivables shall be transferred to the
Trust as Eligible Receivables if, in addition to
satisfying the requirements of clauses (a) through (g) of
the definition of Eligible Receivables, the following
condition is met: unless Moody's otherwise consents,
with respect to any Monthly Period the number of new
obligors on Fingerhut and FNB receivables (which shall
include any obligors who, prior to the relevant measuring
period, did not have a relationship with Fingerhut or
FNB) since the first day of the eleventh preceding
Monthly Period (or, in the case of any date on or before
the last day of the June 1995 Monthly Period, the last
day of the June 1994 Monthly Period) that are Back End
Customers on Receivables minus the number of new obligors
on Fingerhut and FNB receivables that are Back End
Customers on Receivables who have previously been
approved by Moody's since the first day of such eleventh
preceding Monthly Period (or the last day of the June
1994 Monthly Period, as the case may be) shall not exceed
25% of the number of Back End Customers on Receivables at
the close of business on the last day of such Monthly
Period.
Section 2.7. Defaulted Receivables. On the date
on which a Receivable becomes a Defaulted Receivable, the
Trust shall automatically and without further action or
consideration be deemed to transfer, set over, and
otherwise convey to the Transferor, without recourse,
representation or warranty, all the right, title and
interest of the Trust in and to such Defaulted
Receivable, all monies due or to become due with respect
thereto and all proceeds of such Defaulted Receivable
allocable to the Trust with respect to such Defaulted
Receivable, excluding Recoveries relating thereto, which
shall remain a part of the Trust Property. On each
Determination Date, the Servicer shall calculate the
aggregate Investor Default Amount for the preceding
Monthly Period with respect to each Series.
Section 2.8 Covenants of the Transferor with
Respect to the Purchase Agreement. The Transferor, in
its capacity as purchaser of the Receivables from FCI or
any Originator pursuant to a Purchase Agreement, hereby
covenants that the Transferor will at all times enforce
the covenants and agreements of FCI and each Originator
in a Purchase Agreement and of FNB in the Bank
Receivables Purchase Agreement, including, without
limitation, the covenant to the effect set forth below.
Contracts and Credit and Collection
Policies. Each Originator shall take all
actions reasonably within its control to comply
with and perform its obligations under the
Contracts relating to the Receivables and the
Credit and Collection Policy except insofar as
any failure to comply or perform would not
materially and adversely affect the rights of
the Trust or the Certificateholders hereunder
or under the Certificates. Each Originator may
change the terms and provisions of the
Contracts or the Credit and Collection Policy
in any respect (i) if it would not, in the
reasonable belief of such Originator,
materially impair the collectibility of any
Receivable or cause, immediately or with the
passage of time, a Pay Out Event to occur and
(ii) if such change (A) (if it owns a
comparable segment of receivables) is made
applicable to the comparable segment of the
receivables owned by such Originator, if any,
which have characteristics the same as, or
substantially similar to, the Receivables that
are the subject of such change and (B) (if it
does not own such a comparable segment of
receivables) will not be made with the intent
to materially benefit such Originator over the
Trust or the Investor Certificateholders or to
materially adversely affect the Trust or the
Investor Certificateholders, except as
otherwise restricted by an endorsement,
sponsorship, or other agreement between such
Originator and an unrelated third party or by
the terms of the Contracts.
[End of Article II]
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and
Other Matters Relating to the Servicer.
(a) FNB agrees to act as the Servicer under
this Agreement. The Investor Certificateholders of each
Series by their acceptance of the related Certificates
and pursuant to subsection 3.1(a) of the Amended Pooling
and Servicing Agreement consent to FNB acting as
Servicer. Notwithstanding the foregoing or any other
provisions of this Agreement or any Supplement, the
Investor Certificateholders consent to Fingerhut or an
Affiliate of Fingerhut acting as Servicer hereunder, in
full substitution for FNB; provided that Fingerhut or any
such Affiliate acting as Servicer shall expressly assume
in writing (unless such assumption occurs by operation of
law), by an agreement supplemental hereto, executed and
delivered to the Trustee, the performance of every
covenant and obligation of the Servicer, as applicable
hereunder, and shall in all respects be designated the
Servicer under this Agreement; provided, further, that,
with respect to any Affiliate of Fingerhut acting as
Servicer hereunder, Fingerhut will remain jointly and
severally liable with such Affiliate.
(b) The Servicer shall service and administer
the Receivables and shall collect payments due under the
Receivables in accordance with its customary and usual
servicing procedures and the Credit and Collection
Policies and shall have full power and authority, acting
alone or through any party properly designated by it
hereunder, to do any and all things in connection with
such servicing and administration that it may deem
necessary or desirable. Without limiting the generality
of the foregoing and subject to Section 10.1, the
Servicer is hereby authorized and empowered (i) to make
withdrawals from the Collection Account as set forth in
this Agreement, (ii) unless such power and authority is
revoked by the Trustee on account of the occurrence of a
Servicer Default pursuant to Section 10.1, to instruct
the Trustee in writing to make withdrawals and payments,
from any Interest Funding Account, the Excess Funding
Account, any Principal Account and any Series Account, in
accordance with such instructions as set forth in this
Agreement, (iii) unless such power and authority is
revoked by the Trustee on account of the occurrence of a
Servicer Default pursuant to Section 10.1, to instruct
the Trustee in writing to take any action permitted or
required under any Enhancement at such time as set forth
in this Agreement and any Supplement, (iv) to execute and
deliver, on behalf of the Trust for the benefit of the
Certificateholders, any and all instruments of
satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable
instruments, with respect to the Receivables and, after
the delinquency of any Receivable and to the extent
permitted under and in compliance with applicable law and
regulations, to commence enforcement proceedings with
respect to such Receivables, (v) to make any filings,
reports, notices, applications, registrations with, and
to seek any consents or authorizations from, the
Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be
necessary or advisable to comply with any federal or
state securities or reporting requirements and (vi) to
delegate certain of its service, collection, enforcement
and administrative duties hereunder with respect to the
Receivables to any Person who agrees to conduct such
duties in accordance with the Credit and Collection
Policies; provided, however, that the Servicer shall
notify the Trustee in writing of any such delegation; and
provided further that the Servicer shall remain jointly
and severally liable with such Person. The Trustee
agrees that it shall promptly follow the instructions of
the Servicer to withdraw funds from the Collection
Account, any Principal Account, any Interest Funding
Account, the Excess Funding Account, or any Series
Account and to take any action required under any
Enhancement at such time as required under this
Agreement. The Trustee shall execute at the Servicer's
written request such documents prepared by the Transferor
and acceptable to the Trustee as the Servicer certifies
are necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties
hereunder.
(c) [Reserved]
(d) The Servicer shall not be obligated to use
separate servicing procedures, offices or employees for
servicing the Receivables from the procedures, offices
and employees used by the Servicer in connection with
servicing other receivables.
Section 3.2 Servicing Compensation. As
compensation for its servicing activities hereunder and
reimbursement for its expenses as set forth in the
immediately following paragraph, the Servicer shall be
entitled to receive a servicing fee in respect of each
day prior to the termination of the Trust pursuant to
Section 12.1 (the "Servicing Fee"), payable in arrears on
each date and in the manner specified in the applicable
Supplement, equal to the product of (i) a fraction, the
numerator of which is the actual number of days in the
measuring period specified in the applicable Supplement
and the denominator of which is the actual number of days
in the year, (ii) the weighted average Series Servicing
Fee Percentage for all Outstanding Series (based upon the
Series Servicing Fee Percentage for each Series and the
Invested Amount of such Series) and (iii) the daily
average aggregate Outstanding Balance of all Principal
Receivables over the term of such measuring period. The
share of the Servicing Fee allocable to each Series with
respect to any date of payment shall be equal to the
product of (i) a fraction, the numerator of which is the
actual number of days in the measuring period specified
in the applicable Supplement and the denominator of which
is the actual number of days in the year, (ii) the
applicable Series Servicing Fee Percentage for such
Series and (iii) the Invested Amount of such Series, as
appropriate, as of the date of determination for such
payment as specified in the applicable Supplement. The
remainder of the Servicing Fee shall be paid by the
Transferor, or retained by the Servicer as provided in
Article IV, and in no event shall the Trust, the Trustee,
any Enhancement Provider, or the Investor
Certificateholders be liable for the share of the
Servicing Fee to be paid by the Transferor.
The Servicer shall be responsible for its own
expenses, which shall include the amounts due to the
Trustee pursuant to Section 11.5 and the reasonable fees
and disbursements of independent public accountants and
all other expenses incurred by the Servicer in connection
with its activities hereunder; provided, that the
Servicer shall not be liable for any liabilities, costs
or expenses of the Trust, the Investor Certificateholders
or the Certificate Owners arising under any tax law,
including without limitation any federal, state or local
income or franchise taxes or any other tax imposed on or
measured by income (or any interest, penalties or
additions with respect thereto or arising from a failure
to comply therewith). In the event that the Servicer
fails to pay any amounts due to the Trustee pursuant to
Section 11.5, the Trustee shall be entitled to deduct and
receive such amounts from the Servicing Fee prior to the
payment thereof to the Servicer and the obligations of
the Trust to pay any such amounts shall thereby be fully
satisfied. The Servicer shall be required to pay such
expenses for its own account and shall not be entitled to
any payment therefor other than the Servicing Fee.
Section 3.3 Representations and Warranties of
the Servicer. FNB hereby makes, and any Successor
Servicer by its appointment hereunder shall make, the
following representations and warranties on which the
Trustee has relied in accepting the Receivables in trust
and in authenticating the Certificates issued on the
Initial Closing Date:
(a) Organization and Good Standing. The
Servicer is either (i) a national banking association
duly organized, validly existing and in good standing
under the laws of the United States or (ii) a corporation
duly organized, validly existing and in good standing
under the laws of its state of incorporation and has the
corporate power, authority and legal right to own its
properties and conduct its business as such properties
are presently owned and such business is presently
conducted, and to execute, deliver and perform its
obligations under this Agreement.
(b) Due Qualification. The Servicer is duly
qualified to do business and is in good standing (or is
exempt from such requirements) as a foreign corporation
in any state where such qualification is necessary in
order to service the Receivables as required by this
Agreement and has obtained all necessary licenses and
approvals as required under Federal and state law in
order to service the Receivables as required by this
Agreement, and if the Servicer shall be required by any
Requirement of Law to so qualify or register or obtain
such license or approval, then it shall do so except
where the failure to obtain such license or approval does
not materially affect the Servicer's ability to perform
its obligations hereunder or the enforceability of the
Receivables.
(c) Due Authorization. The execution and
delivery of this Agreement and the consummation of the
transactions provided for herein, have been duly
authorized by the Servicer by all necessary corporate
action on the part of the Servicer.
(d) Binding Obligation. This Agreement and
the consummation of the transactions provided for herein,
constitutes a legal, valid and binding obligation of the
Servicer, enforceable in accordance with its terms,
except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general
and as such enforceability may be limited by general
principles of equity (whether considered in a proceeding
at law or in equity).
(e) No Violation. The execution and delivery
of this Agreement by the Servicer, and the performance of
the transactions contemplated by this Agreement and the
fulfillment of the terms hereof applicable to the
Servicer, will not violate, result in any breach of any
of the material terms and provisions of, or constitute
(with or without notice or lapse of time or both) a
default under, any Requirement of Law applicable to the
Servicer or any material indenture, contract, agreement,
mortgage, deed of trust or other material instrument to
which the Servicer is a party or by which it is bound.
(f) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Servicer, threatened against the Servicer before any
Governmental Authority (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the issuance of
the Certificates or the consummation of any of the
transactions contemplated by this Agreement, (iii)
seeking any determination or ruling that would materially
and adversely affect the performance by the Servicer of
its obligations under this Agreement, (iv) seeking any
determination or ruling that would materially and
adversely affect the validity or enforceability of this
Agreement or (v) seeking to affect adversely the tax
attributes of the Trust.
(g) Compliance with Requirements of Law. The
Servicer shall duly satisfy all obligations on its part
to be fulfilled under or in connection with each
Receivable, will maintain in effect all qualifications
required under Requirements of Law in order to service
properly each Receivable and will comply in all material
respects with all other Requirements of Law in connection
with servicing each Receivable the failure to comply with
which would have a material adverse effect on the
Certificateholders or any Enhancement Provider.
(h) Protection of Certificateholders' Rights.
The Servicer shall take no action which, nor omit to take
any action the omission of which, would impair the rights
of Certificateholders in any Receivable or the rights of
any Enhancement Provider, nor shall it reschedule, revise
or defer payments due on any Receivable except in
accordance with the Credit and Collection Policies.
(i) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any
Governmental Authority required in connection with the
execution and delivery of this Agreement and the
performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof, have
been obtained; provided, however, that the Servicer makes
no representation or warranty regarding State securities
or "Blue Sky" laws in connection with the distribution of
the Certificates.
(j) Rescission or Cancellation. The Servicer
shall not permit any rescission or cancellation of any
Receivable except as ordered by a court of competent
jurisdiction or other Governmental Authority or in
accordance with the Credit and Collection Policy or the
normal operating procedures of the Servicer.
(k) Receivables Not To Be Evidenced by
Promissory Notes. Except in connection with its
enforcement or collection of a Receivable (in which case
any such promissory note would be made in the name of the
Trust on behalf of the Certificateholders), the Servicer
will take no action to cause any Receivable to be
evidenced by an instrument (as defined in the UCC as in
effect in the Relevant UCC State).
(l) Principal Place of Business. The Servicer
shall at all times maintain its principal executive
offices within the United States.
Section 3.4 Reports and Records for the
Trustee.
(a) Daily Records. Upon reasonable prior
notice by the Trustee, the Servicer shall make available
at an office of the Servicer (or other location
designated by the Servicer if such records are not
accessible by the Servicer at an office of the Servicer)
selected by the Servicer for inspection by the Trustee or
its agent (reasonably acceptable to the Servicer) on a
Business Day during the Servicer's normal business hours
a record setting forth (i) the Collections on the
Receivables and (ii) the amount of Receivables for the
Business Day preceding the date of the inspection. The
Servicer shall, at all times, maintain its computer files
with respect to the Receivables in such a manner so that
the Receivables may be specifically identified and, upon
reasonable prior request of the Trustee, shall make
available to the Trustee, at an office of the Servicer
(or other location designated by the Servicer if such
computer files are not located at an office of the
Servicer) selected by the Servicer, on any Business Day
of the Servicer during the Servicer's normal business
hours any computer programs necessary to make such
identification. (b) Daily Report.
(i) On each Business Day the Servicer
shall prepare a completed Daily Report.
(ii) The Servicer shall deliver to the
Trustee and the Paying Agent the Daily Report by
3:00 p.m. (New York City time) on each Business Day
with respect to activity in the Receivables for the
prior Business Day (or, in the case of a Daily
Report delivered on the second Business Day
following a Saturday, Sunday or other non-Business
Day, the aggregate activity for the preceding
Business Day and such preceding non-Business Days).
(iii) Upon discovery of any error or
receipt of notice of any error in any Daily Report,
the Servicer, the Transferor and the Trustee shall
arrange to confer and shall agree upon any
adjustments necessary to correct any such errors.
If any such error is material, the Servicer or the
Trustee, as the case may be, shall retain all
Collections which would otherwise be paid from the
Trust (or such lesser amount as the Trustee and the
Servicer shall agree to be necessary to cover any
such error) in the Collection Account until such
material error is corrected. Unless the Trustee has
received written notice of any error or discrepancy,
the Trustee may rely on each Daily Report delivered
to it for all purposes hereunder.
(c) Settlement Statement. On the second
Business Day prior to each Distribution Date, the
Servicer shall, prior to 3:00 p.m. (New York City time)
on such day, deliver to the Trustee and the Paying Agent
the Settlement Statement for the related Monthly Period
substantially in the form of Exhibit C hereto, including
the following information (which, in the case of clauses
(iii), (iv) and (v) below, will be stated on the basis of
an original principal amount of $1,000 per Certificate):
(i) the aggregate amount of Collections received in the
Collection Account for the Monthly Period preceding such
Determination Date and the aggregate amount of Imputed
Yield Collections and the aggregate amount of Principal
Collections processed during such Monthly Period; (ii)
with respect to the preceding Monthly Period for each
Series of Certificates the aggregate amount of the
applicable Investor Percentage of Principal Collections,
and the aggregate amount of the applicable Investor
Percentage of Imputed Yield Collections; (iii) for each
Series and for each Class within any such Series, the
total amount to be distributed to Investor
Certificateholders on the next succeeding Distribution
Date; (iv) for each Series and for each Class within any
such Series, the amount of such distribution to
Certificateholders allocable to principal; (v) for each
Series and for each Class within any such Series, the
amount of such distribution to Certificateholders
allocable to interest; (vi) for each Series and each
Class within a Series, the Investor Default Amount for
the immediately preceding Monthly Period; (vii) for each
Series and each Class within a Series, the amount of the
Investor Charge-Offs and the amount of the reimbursements
of Investor Charge-Offs for such Distribution Date;
(viii) for each Series, the Servicing Fee for such
Distribution Date; (ix) for each Series, the existing
deficit controlled amortization amount, if applicable;
(x) the Aggregate Principal Receivables in the Trust at
the close of business on the last day of the Monthly
Period preceding such Distribution Date; (xi) for each
Series, the Invested Amount at the close of business on
the last day of the Monthly Period immediately preceding
such Distribution Date; (xii) the available amount of any
Enhancement for each Class of each Series, if any; (xiii)
for each Series and each Class within a Series, the Pool
Factor as of the end of the related Monthly Period; (xiv)
whether a Pay Out Event or a Prospective Pay Out Event
with respect to any Series shall have occurred during or
with respect to the related Monthly Period; (xv) the
amount of any Adjustment Payments for the Related Monthly
Period; and (xvi) such other calculations as may be
required by any Supplement. The Trustee shall be under
no duty to recalculate, verify or recompute the
information supplied to it under this Section 3.4 or such
other matters as are set forth in any Settlement
Statement. The Servicer shall also provide a copy of the
Settlement Statement in a prompt manner to each Rating
Agency.
Section 3.5 Annual Servicer's Certificate.
The Servicer will deliver, in accordance with Section
13.5, to the Trustee, any Enhancement Provider and the
Rating Agencies, within 100 days of the end of each
fiscal year, beginning in 1994, an Officer's Certificate
substantially in the form of Exhibit D stating that (a) a
review of the activities of the Servicer during the
preceding fiscal year and of its performance under this
Agreement was made under the supervision of the officer
signing such certificate and (b) to such officer's
knowledge, based on such review, the Servicer has fully
performed all its obligations under this Agreement
throughout such period, or, if there has been a default
in the performance of any such obligation, specifying
each such default known to such officer and the nature
and status thereof. A copy of such certificate may be
obtained by any Investor Certificateholder by a request
in writing to the Trustee addressed to the Corporate
Trust Office.
Section 3.6 Annual Independent Accountants'
Servicing Report.
(a) Within 100 days of the end of each fiscal
year, the Servicer shall cause a firm of nationally
recognized independent public accountants (who may also
render other services to the Servicer or the Transferor)
to furnish a report with respect to the prior fiscal year
(or, in the case of the first such period, the period
beginning on the Initial Closing Date and ending on the
last day of the related fiscal year) to the Trustee, any
Enhancement Provider and each Rating Agency, to the
effect that such firm has applied certain procedures,
agreed upon with the Servicer and the Trustee and
substantially as set forth in Exhibit G hereto, which
would re-perform certain accounting procedures performed
by the Servicer pursuant to certain documents and records
relating to the servicing of the Receivables under this
Agreement. In addition, each report shall set forth the
agreed upon procedures performed and the results of such
procedures.
(b) Within 100 days of the end of each fiscal
year, the Servicer shall cause a firm of nationally
recognized independent certified public accountants (who
may also render other services to the Servicer or the
Transferor) to furnish a report to the Trustee, any
Enhancement Provider and the Rating Agency to the effect
that they have compared the mathematical calculations set
forth in each of the monthly certificates forwarded by
the Servicer pursuant to subsection 3.4(c) during the
period covered by such report with the computer reports
which were the source of such amounts and that on the
basis of such comparison, such amounts are in agreement,
except for such exceptions as they believe to be
immaterial and such other exceptions as shall be set
forth in such report. A copy of such report will be sent
by the Trustee to each Investor Certificateholder.
Section 3.7 Tax Treatment. The Transferor has
structured this Agreement and the Investor Certificates
with the intention that the Investor Certificates will
qualify under applicable federal, state, local and
foreign tax law as indebtedness. Except to the extent
expressly specified to the contrary in any Supplement,
the Transferor, the Servicer, the Holder of the
Exchangeable Transferor Certificate, each Investor
Certificateholder, Holder of a Variable Funding
Certificate, and each Certificate Owner agree to treat
and to take no action inconsistent with the treatment of
the Investor Certificates (or beneficial interest
therein) as indebtedness for purposes of federal, state,
local and foreign income or franchise taxes and any other
tax imposed on or measured by income. Each Investor
Certificateholder, Holder of a Variable Funding
Certificate and the Holder of the Exchangeable Transferor
Certificate, by acceptance of its Certificate and each
Certificate Owner, by acquisition of a beneficial
interest in a Certificate, agree to be bound by the
provisions of this Section 3.7. Each Certificateholder
agrees that it will cause any Certificate Owner acquiring
an interest in a Certificate through it to comply with
this Agreement as to treatment as indebtedness under
applicable tax law, as described in this Section 3.7.
Furthermore, subject to Section 11.11, the Trustee shall
treat the Trust as a security device only, and shall not
file tax returns or obtain an employer identification
number on behalf of the Trust.
Section 3.8 Adjustments. (a) If the Servicer
adjusts downward the amount of any Receivable because of
a rebate, refund, unauthorized charge or billing error to
an Obligor, because such Receivable was created in
respect of merchandise which was refused or returned by
an Obligor, or if the Servicer otherwise adjusts downward
the amount of any Receivable without receiving
Collections therefor or without charging off such amount
as uncollectible, then, in any such case, the Transferor
Interest will be reduced and the aggregate amount of the
Principal Receivables used to calculate the Investor
Percentages applicable to any Series will be reduced by
the principal amount of any such adjustment. Similarly,
the aggregate amount of the Principal Receivables used to
calculate the Investor Percentages applicable to any
Series will be reduced by the amount of any Principal
Receivable which was discovered as having been created
through a fraudulent or counterfeit charge or with
respect to which the covenant contained in subsection
2.5(b) was breached. Any adjustment required pursuant to
either of the two preceding sentences shall be made on or
prior to the end of the Monthly Period in which such
adjustment obligation arises. In the event that,
following any such exclusion, the Transferor Interest
(excluding the interest represented by any Supplemental
Certificate) would be less than the Minimum Transferor
Interest, within two Business Days of the date on which
such adjustment obligation arises, the Transferor shall
pay to the Servicer, for deposit into the Excess Funding
Account, in immediately available funds an amount equal
to the amount by which the Transferor Interest (excluding
the interest represented by any Supplemental Certificate)
would be reduced below the Minimum Transferor Interest as
a result of such adjustment or exclusion. Any amount
deposited into the Excess Funding Account in connection
with the adjustment of a Receivable (an "Adjustment
Payment") shall be applied in accordance with Article IV
and the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into
the Collection Account in respect of a Collection of a
Receivable and such Collection was received in the form
of a check which is not honored for any reason or (ii)
the Servicer makes a mistake with respect to the amount
of any Collection and deposits an amount that is less
than or more than the actual amount of such Collection,
the Servicer shall appropriately adjust the amount
subsequently deposited into the Collection Account to
reflect such dishonored check or mistake. Any Receivable
in respect of which a dishonored check is received shall
be deemed not to have been paid. Notwithstanding the
first two sentences of this paragraph, any adjustments
made pursuant to this paragraph will be reflected in a
current report but will not change any amount of
Collections previously reported pursuant to subsection
3.4(b).
Section 3.9 Notices to Fingerhut. In the
event that FNB or any Affiliate thereof is no longer
acting as Servicer, any Successor Servicer appointed
pursuant to Section 10.2 shall deliver or make available
to FNB and Fingerhut each certificate and report required
to be prepared, forwarded or delivered thereafter
pursuant to Sections 3.4, 3.5 and 3.6.
[End of Article III]
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Certificateholders.
Each Series of Investor Certificates shall represent
Undivided Interests in the Trust, including the benefits
of any Enhancement issued with respect to such Series and
the right to receive the Collections and other amounts at
the times and in the amounts specified in this Article IV
to be deposited in the Investor Accounts or to be paid to
the Investor Certificateholders of such Series; provided,
however, that the aggregate interest represented by such
Certificates at any time in the Principal Receivables
shall not exceed an amount equal to the Invested Amount
of such Certificates. The Exchangeable Transferor
Certificate shall represent the remaining undivided
interest in the Trust, including the right to receive the
Collections and other amounts at the times and in the
amounts specified in this Article IV to be paid to the
Holder of the Exchangeable Transferor Certificate;
provided, however, that the aggregate interest
represented by such Certificate at any time in the
Principal Receivables shall not exceed the Transferor
Interest at such time and such Certificate shall not
represent any interest in the Investor Accounts, except
as provided in this Agreement, or the benefits of any
Enhancement issued with respect to any Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for
the benefit of the Certificateholders, shall establish in
the name of the Trustee, on behalf of the Trust, a non-
interest bearing segregated account (the "Collection
Account") bearing a designation clearly indicating that
the funds deposited therein are held in trust for the
benefit of the Certificateholders, and shall cause such
Collection Account to be established and maintained, (i)
in a segregated trust account with the corporate trust
department of a depositary institution or trust company
(which may include the Trustee) organized under the laws
of the United States of America or any one of the states
thereof or the District of Columbia which has a long-term
unsecured debt rating of at least Baa3 by Moody's and
whose deposits are insured to the limits provided by law
by the FDIC having corporate trust powers and acting as
trustee for funds deposited therein (provided, however,
that such account need not be maintained as a segregated
trust account with the corporate trust department of such
institution if at all times the certificates of deposit,
short-term deposits or commercial paper or the long-term
unsecured debt obligations (other than such obligation
whose rating is based on collateral or on the credit of a
Person other than such institution or trust company) of
such depositary institution or trust company shall have a
credit rating from Standard & Poor's of at least A-1+ and
P-1 from Moody's in the case of the certificates of
deposit, short-term deposits or commercial paper, or a
rating from Standard & Poor's of AAA and from Moody's of
Aaa in the case of the long-term unsecured debt
obligations) or (ii) with a depositary institution, which
may include the Trustee, which is acceptable to the
Rating Agency (in the case of (i) and (ii), a "Qualified
Institution"). If, at any time, the institution holding
the Collection Account ceases to be a Qualified
Institution, the Transferor shall direct the Servicer to
establish within 10 Business Days a new Collection
Account with a Qualified Institution, transfer any cash
and/or any investments to such new Collection Account and
from the date such new Collection Account is established,
it shall be the "Collection Account." The Servicer shall
give written notice to the Trustee of the location and
account number of the Collection Account and shall notify
the Trustee in writing prior to any subsequent change
thereof. Pursuant to authority granted to it pursuant to
subsection 3.1(b), the Servicer shall have the power
revocable by the Trustee to withdraw funds from the
Collection Account for the purposes of carrying out its
duties hereunder.
The Collection Account shall be under the sole
dominion and control of the Trustee and the Trustee shall
possess all right, title and interest in all funds from
time to time on deposit in such account.
(b) The Interest Funding and Principal
Accounts. The Trustee, for the benefit of the Investor
Certificateholders, shall establish and maintain with a
Qualified Institution in the name of the Trust two
segregated trust accounts for each Series (an "Interest
Funding Account" and a "Principal Account,"
respectively), each bearing a designation clearly
indicating that the funds therein are held for the
benefit of the Investor Certificateholders of such
Series. Except as provided in subsection 4.2(e), each
Interest Funding Account and each Principal Account shall
be under the sole dominion and control of the Trustee for
the benefit of the Investor Certificateholders. Pursuant
to authority granted to it hereunder, the Servicer shall
have the revocable power to instruct the Trustee to
withdraw funds from the Interest Funding Account and any
Principal Account for any purpose of carrying out the
Servicer's or the Trustee's duties hereunder. The
Trustee at all times shall maintain accurate records
reflecting each transaction in each Principal Account and
each Interest Funding Account and that funds held therein
shall at all times be held in trust for the benefit of
the Investor Certificateholders of such Series. If, at
any time, the institution holding the Interest Funding
Account ceases to be a Qualified Institution, the
Servicer shall direct the Trustee to establish within 10
Business Days a new Interest Funding Account meeting the
conditions specified above with a Qualified Institution,
transfer any cash and/or any investments to such new
Interest Funding Account and from the date such new
Interest Funding Account is established, it shall be the
"Interest Funding Account." Similarly, if, at any time,
the institution holding any Principal Account ceases to
be a Qualified Institution, the Servicer shall direct the
Trustee to establish within 10 Business Days a new
Principal Account meeting the conditions specified above
with a Qualified Institution, transfer any cash and/or
any investments to such new Principal Account and from
the date such new Principal Account is established, it
shall be a "Principal Account."
(c) Distribution Accounts. The Trustee, for
the benefit of the Investor Certificateholders of each
Series, shall cause to be established and maintained in
the name of the Trust, with an office or branch of a
Qualified Institution a non-interest-bearing segregated
demand deposit account for each Series (a "Distribution
Account") bearing a designation clearly indicating that
the funds deposited therein are held in trust for the
benefit of the Investor Certificateholders of such
Series. Each Distribution Account shall be under the
sole dominion and control of the Trustee for the benefit
of the Investor Certificateholders of the related Series.
Pursuant to the authority granted to the Paying Agent
herein, the Paying Agent shall have the power, revocable
by the Trustee, to make withdrawals and payments from the
Distribution Account for the purpose of carrying out the
Paying Agent's duties hereunder. If, at any time, the
institution holding a Distribution Account ceases to be a
Qualified Institution, the Servicer shall direct the
Trustee to establish within 10 Business Days a new
Distribution Account meeting the conditions specified
above with a Qualified Institution, transfer any cash
and/or any investments to such new Distribution Account
and from the date such new Distribution Account is
established, it shall be a "Distribution Account."
(d) The Excess Funding Account. The Trustee,
for the benefit of the Certificateholders, shall cause to
be established in the name of the Trustee, on behalf of
the Certificateholders, with a Qualified Institution, a
segregated trust account (the "Excess Funding Account")
bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the
Certificateholders. Except as provided in subsection
4.3(f), the Excess Funding Account shall, except as
otherwise provided herein, be under the sole dominion and
control of the Trustee for the benefit of the
Certificateholders. Pursuant to the authority granted to
the Servicer herein, the Servicer shall have the power,
revocable by the Trustee, to make withdrawals and
payments from the Excess Funding Account for the purpose
of carrying out the Servicer's or Trustee's duties
hereunder. If, at any time, the institution holding the
Excess Funding Account ceases to be a Qualified
Institution, the Servicer shall direct the Trustee to
establish within 10 Business Days a new Excess Funding
Account meeting the conditions specified above with a
Qualified Institution, transfer any cash and/or any
investments to such new Excess Funding Account and from
the date such new Excess Funding Account is established,
it shall be the "Excess Funding Account."
(e) Administration of the Principal Accounts
and the Interest Funding Accounts. Funds on deposit in
each Principal Account and each Interest Funding Account
shall at all times be invested by the Servicer (or, at
the written direction of the Transferor, by the Trustee)
on behalf of the Transferor in Cash Equivalents. Any
such investment shall mature and such funds shall be
available for withdrawal on the Transfer Date following
the Monthly Period in which such funds were processed for
collection. No such investments shall be liquidated
prior to maturity. At the end of each month, all
interest and earnings (net of losses and investment
expenses) on funds on deposit in each Principal Account
and each Interest Funding Account (unless otherwise
specified in the applicable Supplement) shall be
deposited by the Trustee in a separate deposit account
with a Qualified Institution in the name of the Servicer,
or a Person designated in writing by the Servicer, which
shall not constitute a part of the Trust, or shall
otherwise be turned over by the Trustee to the Servicer
not less frequently than monthly. Subject to the
restrictions set forth above, the Servicer, or a Person
designated in writing by the Servicer, of which the
Trustee shall have received written notification, shall
have the authority to instruct the Trustee with respect
to the investment of funds on deposit in any Principal
Account and any Interest Funding Account. Any investment
instructions to the Trustee shall be in writing, shall be
given no later than 10:00 a.m. New York City time on a
Business Day that such investment is proposed to be made
and shall include a certification that the proposed
investment is a Cash Equivalent that matures at or prior
to the time required by this Agreement. For purposes of
determining the availability of funds or the balances in
any Interest Funding Account and any Principal Account
for any reason under this Agreement, all investment
earnings on such funds shall be deemed not to be
available or on deposit.
Section 4.3 Collections and Allocations.
(a) Collections. Obligors shall make payments
on the Receivables to the Servicer who shall deposit all
such payments in the Collection Account no later than the
second Business Day following the Date of Processing
thereof.
The Servicer shall allocate such amounts to
each Series of Investor Certificates and to the Holder of
the Exchangeable Transferor Certificate in accordance
with this Article IV and shall cause the Trustee to
withdraw the required amounts from the Collection Account
or pay such amounts to the Holder of the Exchangeable
Transferor Certificate in accordance with this Article
IV. The Servicer shall make such deposits or payments on
the date indicated herein by wire transfer or as
otherwise provided in the Supplement for any Series of
Certificates with respect to such Series.
Notwithstanding anything in this Agreement to
the contrary, but subject to the terms of any Supplement,
for so long as, and only so long as, Fingerhut (or any
successors to Fingerhut) or an Affiliate of Fingerhut
shall remain the Servicer hereunder, and (a)(i) Fingerhut
(or any successors to Fingerhut) or an Affiliate of
Fingerhut provides to the Trustee a letter of credit or
other form of Enhancement rated at least A-1 by Standard
& Poor's and P-1 by Moody's (as certified to the Trustee
by the Servicer), and (ii) after notifying each Rating
Agency of the proposed use of such letter of credit or
other form of Enhancement the Transferor shall have
received a notice from each Rating Agency that making
payments monthly rather than daily would not result in a
downgrading or withdrawal of any of such Rating Agency's
then-existing ratings of the Investor Certificates, or
(b) FCI (or any successors to FCI) shall have and
maintain a short-term credit rating of at least A-1 by
Standard & Poor's and P-1 by Moody's (as certified to the
Trustee by the Servicer), the Servicer need not deposit
Collections from the Collection Account into the
Principal Account or the Interest Funding Account or any
Series Account, or make payments to the Holder of the
Exchangeable Transferor Certificate, prior to the close
of business on the day any Collections are deposited in
the Collection Account as otherwise provided in this
Article IV, but may instead make such deposits, payments
and withdrawals on each Transfer Date in an amount equal
to the net amount of such deposits, payments and
withdrawals which would have been made but for the
provisions of this paragraph.
(b) Allocations for the Exchangeable
Transferor Certificate. Throughout the existence of the
Trust, unless otherwise stated in any Supplement, on each
Business Day the Servicer shall allocate to the Holder of
the Exchangeable Transferor Certificate an amount equal
to the product of (A) the Transferor Percentage as of the
end of the preceding Business Day and (B) the aggregate
amount of Principal Collections and Imputed Yield
Collections available in the Collection Account. The
Servicer shall pay such amount to the Holder of the
Exchangeable Transferor Certificate on each Business Day;
provided, however, that amounts payable to the Holder of
the Exchangeable Transferor Certificate pursuant to this
clause (b) 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.
(c) [Reserved]
(d) Allocation for Series. On each Business
Day, (i) the amount of Imputed Yield Collections
available in the Collection Account allocable to each
Series shall be determined by multiplying the aggregate
amount of such Imputed Yield Collections by the Floating
Allocation Percentage for such Series, (ii) the amount of
Principal Collections available in the Collection Account
allocable to each Series shall be determined by
multiplying the aggregate amount of such Principal
Collections by (x) during the Revolving Period for a
Series, the Floating Allocation Percentage for such
Series and (y) during any Amortization Period for a
Series, the Fixed/Floating Allocation Percentage for such
Series, and (iii) the Defaulted Receivables allocable to
each Series shall be determined by multiplying the
aggregate amount of such Defaulted Receivables by the
Floating Allocation Percentage for such Series. The
Servicer shall, prior to the close of business on the day
any Collections are deposited in the Collection Account,
cause the Trustee to withdraw the required amounts from
the Collection Account and cause the Trustee to deposit
such amounts into the applicable Principal Account, the
applicable Interest Funding Account, the Excess Funding
Account, or any Series Account or pay such amounts to the
Holder of the Exchangeable Transferor Certificate in
accordance with the provisions of this Article IV.
(e) Unallocated Principal Collections; Excess
Funding Account. On each Business Day, Shared Principal
Collections shall be allocated to each outstanding Series
pro rata based on the Principal Shortfall, if any, for
each such Series, and then, at the option of the
Transferor, any remainder may be applied as principal
with respect to the Variable Funding Certificates. The
Servicer shall pay any remaining Shared Principal
Collections on such Business Day to the Transferor;
provided, that if the Transferor Interest as determined
on such Business Day does not exceed the Minimum
Transferor Interest, then such remaining Shared Principal
Collections shall be deposited in the Excess Funding
Account to the extent necessary to increase the
Transferor Interest above the Minimum Transferor
Interest; provided, further, that if an Amortization
Period has commenced and is continuing with respect to
more than one outstanding Series, such remaining Shared
Principal Collections shall be allocated to such Series
pro rata based on the Investor Percentage for Principal
Receivables applicable for such Series.
(f) Amounts in Excess Funding Account. Amounts
on deposit in the Excess Funding Account on any Business
Day will be invested by the Servicer (or, at the
direction of the Transferor, by the Trustee) on behalf of
the Transferor in Cash Equivalents which shall mature and
be available on or before the next Business Day on which
amounts may be released from the Excess Funding Account.
Earnings from such investments received shall be
deposited in the Collection Account and treated as
Imputed Yield Collections. Any investment instructions
to the Trustee shall be in writing and shall include a
certification that the proposed investment is a Cash
Equivalent that matures at or prior to the date required
by this Agreement. If on any Business Day other than a
Business Day on which a Prospective Pay Out Event has
occurred and is continuing, the Transferor Interest is
greater than the Minimum Transferor Interest, amounts on
deposit in the Excess Funding Account may, at the option
of the Transferor, be released to the Holder of the
Exchangeable Transferor Certificate. On the first
Business Day of the Amortization Period for any Series,
funds on deposit in the Excess Funding Account will be
deposited in the Principal Account for such Series to the
extent of the lesser of (x) the Invested Amount of such
Series and (y) the amount then on deposit in the Excess
Funding Account.
[THE REMAINDER OF ARTICLE IV IS RESERVED
AND SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]
[End of Article IV]
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE
SPECIFIED IN ANY SUPPLEMENT WITH RESPECT
TO ANY SERIES]
[End of Article V]
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. Subject to
Sections 6.10 and 6.13, the Investor Certificates of each
Series and any Class thereof may be issued in bearer form
(the "Bearer Certificates") with attached interest
coupons and, if applicable, a special coupon
(collectively, the "Coupons") or in fully registered form
(the "Registered Certificates"), and shall be
substantially in the form of the exhibits with respect
thereto attached to the related Supplement. The
Exchangeable Transferor Certificate shall be
substantially in the form of Exhibit A. The Investor
Certificates and the Exchangeable Transferor Certificate
shall, upon issue pursuant hereto or to Section 6.9 or
Section 6.10, be executed and delivered by the Transferor
to the Trustee for authentication and redelivery as
provided in Sections 2.1 and 6.2. Any Investor
Certificate shall be issuable in a minimum denomination
of $1,000 Undivided Interest and integral multiples
thereof, unless otherwise specified in any Supplement,
and shall be issued upon original issuance in an original
aggregate principal amount equal to the Initial Invested
Amount. The Exchangeable Transferor Certificate shall be
issued as a single certificate. Each Certificate shall
be executed by manual or facsimile signature on behalf of
the Transferor by its President or any Vice President.
Certificates bearing the manual or facsimile signature of
the individual who was, at the time when such signature
was affixed, authorized to sign on behalf of the
Transferor or the Trustee shall not be rendered invalid,
notwithstanding that such individual has ceased to be so
authorized prior to the authentication and delivery of
such Certificates or does not hold such office at the
date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid
for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form
provided for herein, executed by or on behalf of the
Trustee by the manual signature of a duly authorized
signatory, and such certificate upon any Certificate
shall be conclusive evidence, and the only evidence, that
such Certificate has been validly issued and duly
authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication except
Bearer Certificates which shall be dated the applicable
Issuance Date as provided in the related Supplement.
Section 6.2 Authentication of Certificates.
Contemporaneously with the initial assignment and
transfer of the Receivables, whether now existing or
hereafter created and the other components to the Trust,
the Trustee shall authenticate and deliver the initial
Series of Investor Certificates, upon the written order
of the Transferor. Upon the issuance of such Investor
Certificates, such Investor Certificates shall be validly
issued, fully paid and non-assessable. The Trustee shall
authenticate and deliver the Exchangeable Transferor
Certificate to the Transferor simultaneously with its
delivery of the initial Series of Investor Certificates.
Upon an Exchange as provided in Section 6.9 and the
satisfaction of certain other conditions specified
therein, the Trustee shall authenticate and deliver the
Investor Certificates of additional Series (with the
designation provided in the related Supplement), upon the
written order of the Transferor. Upon the written order
of the Transferor, the Certificates of any Series shall
be duly authenticated by or on behalf of the Trustee, in
authorized denominations equal to (in the aggregate) the
Initial Invested Amount of such Series of Investor
Certificates. If specified in the related Supplement for
any Series, the Trustee shall authenticate and deliver
outside the United States the Global Certificate that is
issued upon original issuance thereof, upon the written
order of the Transferor, to the Depositary. If specified
in the related Supplement for any Series, the Trustee
shall authenticate Book-Entry Certificates that are
issued upon original issuance thereof, upon the written
order of the Transferor, to a Clearing Agency or its
nominee as provided in Section 6.10.
Section 6.3 Registration of Transfer and
Exchange of Certificates.
(a) The Trustee shall cause to be kept at the
office or agency to be maintained by a transfer agent and
registrar (the "Transfer Agent and Registrar") in
accordance with the provisions of Section 11.16, a
register (the "Certificate Register") in which, subject
to such reasonable regulations as it may prescribe, the
Transfer Agent and Registrar shall provide for the
registration of the Investor Certificates of each Series
(unless otherwise provided in the related Supplement) and
of transfers and exchanges of the Investor Certificates
as herein provided. Whenever reference is made in this
Agreement to the transfer or exchange of the Certificates
by the Trustee, such reference shall be deemed to include
the transfer or exchange on behalf of the Trustee by a
Transfer Agent and Registrar. The Bank of New York is
hereby initially appointed Transfer Agent and Registrar
for the purposes of registering the Investor Certificates
and transfers and exchanges of the Investor Certificates
as herein provided. If any form of Investor Certificate
is issued as a Global Certificate, The Bank of New York
may, or if and so long as any Series of Investor
Certificates are listed on a stock exchange and such
exchange shall so require, The Bank of New York shall
appoint a co-transfer agent and co-registrar, which will
also be a co-paying agent, in such city as the Transferor
may specify. Any reference in this Agreement to the
Transfer Agent and Registrar shall include any co-
transfer agent and co-registrar unless the context
otherwise requires. The Bank of New York shall be
permitted to resign as Transfer Agent and Registrar upon
30 days' written notice to the Servicer. In the event
that The Bank of New York shall no longer be the Transfer
Agent and Registrar, the Transferor shall appoint a
successor Transfer Agent and Registrar. If any Series
with respect to which Book Entry Certificates were
originally issued is no longer issued as Book-Entry
Certificates, then the Servicer may appoint a successor
Transfer Agent and Registrar.
Upon surrender for registration of transfer of
any Certificate at any office or agency of the Transfer
Agent and Registrar maintained for such purpose, the
Transferor shall execute, subject to the provisions of
subsection 6.3(c), and the Trustee shall (unless the
Transfer Agent and Registrar is different than the
Trustee, in which case the Transfer Agent and Registrar
shall) authenticate and deliver, in the name of the
designated transferee or transferees, one or more new
Certificates in authorized denominations of like
aggregate Undivided Interests; provided, that the
provisions of this paragraph shall not apply to Bearer
Certificates.
At the option of any Holder of Registered
Certificates, Registered Certificates may be exchanged
for other Registered Certificates of the same Series in
authorized denominations of like aggregate Undivided
Interests in the Trust, upon surrender of the Registered
Certificates to be exchanged at any office or agency of
the Transfer Agent and Registrar maintained for such
purpose. At the option of a Bearer Certificateholder,
subject to applicable laws and regulations (including
without limitation, the Bearer Rules), Bearer
Certificates may be exchanged for other Bearer
Certificates or Registered Certificates of the same
Series in authorized denominations of like aggregate
Undivided Interests in the Trust, in the manner specified
in the Supplement for such Series, upon surrender of the
Bearer Certificates to be exchanged at an office or
agency of the Transfer Agent and Registrar located
outside the United States. Each Bearer Certificate
surrendered pursuant to this Section 6.3 shall have
attached thereto (or be accompanied by) all unmatured
Coupons, provided that any Bearer Certificate so
surrendered after the close of business on the Record
Date preceding the relevant Distribution Date after the
related Series Termination Date need not have attached
the Coupons relating to such Distribution Date.
Whenever any Investor Certificates of any
Series are so surrendered for exchange, the Transferor
shall execute, and the Trustee shall (unless the Transfer
Agent and Registrar is different than the Trustee, in
which case the Transfer Agent and Registrar shall)
authenticate and deliver, the Investor Certificates of
such Series which the Certificateholder making the
exchange is entitled to receive. Every Investor
Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to the
Trustee and the Transfer Agent and Registrar duly
executed by the Certificateholder thereof or his
attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.3
notwithstanding, the Trustee or the Transfer Agent and
Registrar, as the case may be, shall not be required to
register the transfer of or exchange any Investor
Certificate of any Series for the period from the Record
Date preceding the due date for any payment to the
Distribution Date with respect to the Investor
Certificates of such Series.
Unless otherwise provided in the related
Supplement, no service charge shall be made for any
registration of transfer or exchange of Certificates, but
the Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or
exchange of Certificates.
All Investor Certificates (together with any
Coupons attached to Bearer Certificates) surrendered for
registration of transfer or exchange shall be canceled by
the Transfer Agent and Registrar and disposed of in a
manner satisfactory to the Trustee. The Trustee shall
cancel and dispose of any Global Certificate upon its
exchange in full for Definitive Certificates, but shall
not be required to destroy such Global Certificates.
Such certificate shall also state that a certificate or
certificates of each Foreign Clearing Agency to the
effect referred to in Section 6.13 was received with
respect to each portion of the Global Certificate
exchanged for Definitive Certificates.
The Transferor shall execute and deliver to the
Trustee or the Transfer Agent and Registrar, as
applicable, Bearer Certificates and Registered
Certificates in such amounts and at such times as are
necessary to enable the Trustee to fulfill its
responsibilities under this Agreement and the
Certificates.
(b) Except as provided in Section 6.9 or 7.2
or in any Supplement, in no event shall the Exchangeable
Transferor Certificate or any interest therein be
transferred, sold, exchanged, pledged, participated or
otherwise assigned hereunder, in whole or in part, unless
the Transferor shall have consented in writing to such
transfer and unless the Trustee shall have received (1)
confirmation in writing from each Rating Agency that such
transfer will not result in a lowering or withdrawal of
its then-existing rating of any Series of Investor
Certificates and (2) an Opinion of Counsel that such
transfer does not (i) adversely affect the conclusions
reached in any of the federal income tax opinions issued
in connection with the original issuance of any Series of
Investor Certificates or (ii) result in a taxable event
to the holders of any such Series.
(c) Unless otherwise provided in the related
Supplement, registration of transfer of Registered
Certificates containing a legend relating to the
restrictions on transfer of such Registered Certificates
(which legend shall be set forth in the Supplement
relating to such Investor Certificates) shall be effected
only if the conditions set forth in such related
Supplement are satisfied.
Whenever a Registered Certificate containing
the legend set forth in the related Supplement is
presented to the Transfer Agent and Registrar for
registration of transfer, the Transfer Agent and
Registrar shall promptly seek instructions from the
Servicer regarding such transfer. The Transfer Agent and
Registrar and the Trustee shall be entitled to receive
written instructions signed by an officer of the Trustee
prior to registering any such transfer or authenticating
new Registered Certificates, as the case may be. The
Servicer hereby agrees to indemnify the Transfer Agent
and Registrar and the Trustee and to hold each of them
harmless against any loss, liability or expense incurred
without negligence or bad faith on their part arising out
of or in connection with actions taken or omitted by them
in reliance on any such written instructions furnished
pursuant to this subsection 6.3(c).
(d) The Transfer Agent and Registrar will
maintain at its expense in the Borough of Manhattan, The
City of New York, an office or offices or an agency or
agencies where Investor Certificates of such Series may
be surrendered for registration of transfer or exchange.
(e) Prior to the Transfer of any portion of a
Transferor Retained Class, the Trustee shall have
received (i) an Officer's Certificate of the Transferor
that on the date of the 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 Transferor Certificate
and each Transferor Retained Class) shall be owned by the
Transferor and (ii) an Opinion of Counsel to the effect
that such proposed Transfer will not adversely affect the
Federal, Minnesota or Delaware income tax
characterization of any outstanding Series of Investor
Certificates or the taxability (or tax characterization)
of the Trust under Federal, Minnesota or Delaware income
tax laws. The Transferor shall provide to Moody's notice
of any such Transfer and a copy of the Opinion of Counsel
described in clause (ii) above.
Section 6.4 Mutilated, Destroyed, Lost or
Stolen Certificates. If (a) any mutilated Certificate
(together, in the case of Bearer Certificates, with all
unmatured Coupons, if any, appertaining thereto) is
surrendered to the Transfer Agent and Registrar, or the
Transfer Agent and Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any
Certificate and (b) there is delivered to the Transfer
Agent and Registrar and the Trustee such security or
indemnity as may be required by them to hold each of them
and the Trust harmless, then, in the absence of notice to
the Trustee that such Certificate has been acquired by a
bona fide purchaser, the Trustee shall (unless the
Transfer Agent and Registrar is different from the
Trustee, in which case the Transfer Agent and Registrar
shall) authenticate and deliver (in compliance with
applicable law), in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and aggregate Undivided
Interest. In connection with the issuance of any new
Certificate under this Section 6.4, the Trustee or the
Transfer Agent and Registrar may require the payment of a
sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the
Trustee and the Transfer Agent and Registrar) connected
therewith. Any duplicate Certificate issued pursuant to
this Section 6.4 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
Section 6.5 Persons Deemed Owners. Prior to
due presentation of a Certificate for registration of
transfer, the Trustee, the Paying Agent, the Transfer
Agent and Registrar and any agent of any of them may
treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Article V
(as described in any Supplement) and Article XII and for
all other purposes whatsoever, and neither the Trustee,
the Paying Agent, the Transfer Agent and Registrar nor
any agent of any of them shall be affected by any notice
to the contrary; provided, however, that in determining
whether the holders of Investor Certificates evidencing
the requisite Undivided Interests have given any request,
demand, authorization, direction, notice, consent or
waiver hereunder, Investor Certificates owned by the
Transferor, the Servicer or any Affiliate thereof shall
be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be
protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Investor Certificates which a Responsible Officer in the
Corporate Trust Office of the Trustee knows to be so
owned shall be so disregarded. Investor Certificates so
owned that have been pledged in good faith shall not be
disregarded as outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to
act with respect to such Investor Certificates and that
the pledgee is not the Transferor, the Servicer or an
Affiliate thereof.
In the case of a Bearer Certificate, the
Trustee, the Paying Agent, the Transfer Agent and
Registrar and any agent of any of them may treat the
holder of a Bearer Certificate or Coupon as the owner of
such Bearer Certificate or Coupon for the purpose of
receiving distributions pursuant to Article V (as
described in any Supplement) and Article XII and for all
other purposes whatsoever, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar nor any
agent of any of them shall be affected by any notice to
the contrary. Certificates so owned that have been
pledged in good faith shall not be disregarded and may be
regarded as outstanding, if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to
act with respect to such Investor Certificates and that
the pledgee is not the Transferor, the Servicer or an
Affiliate thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions
to Investor Certificateholders from the appropriate
account or accounts maintained for the benefit of
Certificateholders as specified in this Agreement or the
related Supplement for any Series pursuant to Articles IV
and V hereof. Any Paying Agent shall have the revocable
power to withdraw funds from such appropriate account or
accounts for the purpose of making distributions referred
to above. The Trustee (or the Servicer if the Trustee is
the Paying Agent) may revoke such power and remove the
Paying Agent, if the Trustee (or the Servicer if the
Trustee is the Paying Agent) determines in its sole
discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement in any
material respect or for other good cause. The Paying
Agent, unless the Supplement with respect to any Series
states otherwise, shall initially be The Bank of New
York. The Bank of New York shall be permitted to resign
as Paying Agent upon 30 days' written notice to the
Servicer. Upon the resignation of the Paying Agent, if
the Paying Agent was not the Trustee, the Trustee shall
be the successor Paying Agent unless and until another
successor has been appointed as Paying Agent. In the
event that the Trustee, shall no longer be the Paying
Agent, the Transferor shall appoint a successor to act as
Paying Agent (which shall be a bank or trust company).
Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires
otherwise.
If specified in the related Supplement for any
Series, so long as the Investor Certificates of such
Series are outstanding and the Paying Agent is not
located in New York City, the Transferor shall maintain a
co-paying agent in New York City (for Registered
Certificates only) or any other city designated in such
Supplement.
(b) The Trustee shall cause each Paying Agent
(other than itself) to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with
the Trustee that such Paying Agent will hold all sums, if
any, held by it for payment to the Certificateholders in
trust for the benefit of the Certificateholders entitled
thereto and waive all rights of set off the Paying Agent
may have against any sums held by it until such sums
shall be paid to such Certificateholders and shall agree,
and if the Trustee is the Paying Agent it hereby agrees,
that it shall comply with all requirements of the
Internal Revenue Code regarding the withholding by the
Trustee of payments in respect of federal income taxes
due from Certificate Owners.
Section 6.7 Access to List of Certificate-
holders' Names and Addresses. The Trustee will furnish
or cause to be furnished by the Transfer Agent and
Registrar to the Servicer or the Paying Agent, within
five Business Days after receipt by the Trustee of a
request therefor from the Servicer or the Paying Agent,
respectively, in writing, a list in such form as the
Servicer or the Paying Agent may reasonably require, of
the names and addresses of the Investor Certificate-
holders as of the most recent Record Date for pay-
ment of distributions to Investor Certificateholders.
Unless otherwise provided in the related Supplement,
holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 25% of the Invested
Amount of the Investor Certificates of any Series (the
"Applicants") may apply in writing to the Trustee, and if
such application states that the Applicants desire to
communicate with other Investor Certificateholders of any
Series with respect to their rights under this Agreement
or under the Investor Certificates and is accompanied by
a copy of the communication which such Applicants propose
to transmit, then the Trustee, after having been
adequately indemnified by such Applicants for its costs
and expenses, shall afford or shall cause the Transfer
Agent and Registrar to afford such Applicants access
during normal business hours to the most recent list of
Certificateholders held by the Trustee and shall give the
Servicer notice that such request has been made, within
five Business Days after the receipt of such application.
Such list shall be as of a date no more than 45 days
prior to the date of receipt of such Applicants' request.
Every Certificateholder, by receiving and holding a
Certificate, agrees with the Trustee that neither the
Trustee, the Transfer Agent and Registrar, nor any of
their respective agents shall be held accountable by
reason of the disclosure of any such information as to
the names and addresses of the Certificateholders
hereunder, regardless of the source from which such
information was obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more
authenticating agents (each, an "Authenticating Agent")
with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in
authenticating the Certificates in connection with the
issuance, delivery, registration of transfer, exchange or
repayment of the Certificates. The Trustee will appoint
any Transfer Agent and Registrar to be an Authentication
Agent. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the
Trustee's certificate of authentication, such reference
shall be deemed to include authentication on behalf of
the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent must be
acceptable to the Transferor. The Trustee hereby
initially appoints The Bank of New York as its
Authenticating Agent.
(b) Any institution succeeding to the
corporate agency business of an Authenticating Agent
shall continue to be an Authenticating Agent without the
execution or filing of any paper or any further act on
the part of the Trustee or such Authenticating Agent.
(c) An Authenticating Agent may at any time
resign by giving written notice of resignation to the
Trustee and to the Transferor. The Trustee may at any
time terminate the agency of an Authenticating Agent by
giving notice of termination to such Authenticating Agent
and to the Transferor. Upon receiving such a notice of
resignation or upon such a termination, or in case at any
time an Authenticating Agent shall cease to be acceptable
to the Trustee or the Transferor, the Trustee promptly
may appoint a successor Authenticating Agent. Any
successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder,
with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent
shall be appointed unless acceptable to the Trustee and
the Transferor.
(d) The Servicer agrees to pay each
Authenticating Agent from time to time reasonable
compensation for its services under this Section 6.8.
(e) The provisions of Sections 11.1, 11.2 and
11.3 shall be applicable to any Authenticating Agent.
(f) Pursuant to an appointment made under this
Section 6.8, the Certificates may have endorsed thereon,
in lieu of the Trustee's certificate of authentication,
an alternate certificate of authentication in
substantially the following form:
Trustee's Certificate of Authentication
This is one of the certificates described in
the Pooling and Servicing Agreement.
--------------------------
as Authenticating Agent
for the Trustee,
By:-----------------------
Authorized Signatory
Dated:
Section 6.9 Tender of Exchangeable Transferor
Certificate.
(a) Upon any Exchange, the Transferor shall
deliver to the Trustee for authentication under Section
6.2, one or more new Series of Investor Certificates.
Any such Series of Investor Certificates shall be
substantially in the form specified in the related
Supplement and shall bear, upon its face, the designation
for such Series to which it belongs, as selected by the
Transferor. Except as specified in any Supplement for a
related Series, all Investor Certificates of any Series
shall rank pari passu and be equally and ratably entitled
as provided herein to the benefits hereof (except that
the Enhancement provided for any Series shall not be
available for any other Series) without preference,
priority or distinction on account of the actual time or
times of authentication and delivery, all in accordance
with the terms and provisions of this Agreement and the
related Supplement.
(b) The Holder of the Exchangeable Transferor
Certificate may (i) tender the Exchangeable Transferor
Certificate to the Trustee in exchange for (A) one or
more newly issued Series of Investor Certificates or,
with respect to any pre-funded Series, interests therein
and (B) a reissued Exchangeable Transferor Certificate,
(ii) request the Trustee to issue to it one or more
Classes of any newly issued Series of Investor
Certificates which upon payment by the purchaser thereof
of the Initial Invested Amount of such Certificates to a
Defeasance Account, will represent an interest in the
Trust equal to such Initial Invested Amount (an "Unfunded
Certificate") or (iii) take a combination of the actions
specified in clauses (i) and (ii) provided that the sum
of the amount of Transferor Interest which is tendered
under clause (i) and the amount to be paid to the
Defeasance Account under clause (ii) equals the Initial
Invested Amount of the Investor Certificates delivered to
the Holder of the Exchangeable Transferor Certificate
(any such event under clauses (i), (ii) or (iii), a
"Transferor Exchange"). In addition, to the extent
permitted for any Series of Investor Certificates as
specified in the related Supplement, the Investor
Certificateholders of such Series may tender their
Investor Certificates and the Holder of the Exchangeable
Transferor Certificate may tender the Exchangeable
Transferor Certificate to the Trustee pursuant to the
terms and conditions set forth in such Supplement in
exchange for (i) one or more newly issued Series of
Investor Certificates and (ii) a reissued Exchangeable
Transferor Certificate (an "Investor Exchange").
Notwithstanding anything to the contrary herein, the
Transferor shall not be permitted to deposit money into
any Defeasance Account. The Transferor Exchange and
Investor Exchange are referred to collectively herein as
an "Exchange." The Holder of the Exchangeable Transferor
Certificate may perform an Exchange by notifying the
Trustee, in writing, at least five Business Days in
advance (an "Exchange Notice") of the date upon which the
Exchange is to occur (an "Exchange Date"). Any Exchange
Notice shall state the designation of any Series to be
issued on the Exchange Date and, with respect to each
such Class or Series: (a) its Initial Invested Amount
(or the method for calculating such Initial Invested
Amount), which at any time may not be greater than the
current principal amount of the Exchangeable Transferor
Certificate at such time (or in the case of an Investor
Exchange, the sum of the Invested Amount of any Class or
Series of Investor Certificates to be exchanged plus the
current principal amount of the Exchangeable Transferor
Certificate) taking into account any Receivables
transferred to the Trust simultaneous with such Exchange,
(b) its Certificate Rate (or the method for allocating
interest payments or other cash flows to such Series), if
any, and (c) the Enhancement Provider, if any, with
respect to such Series. On the Exchange Date, the
Trustee shall authenticate and deliver any such Class or
Classes of Series of Investor Certificates only upon
delivery to it of the following: (a) a Supplement
satisfying the criteria set forth in subsection 6.9(c)
and in form reasonably satisfactory to the Trustee
executed by the Transferor and the Servicer and
specifying the Principal Terms of such Series, (b) the
applicable Enhancement, if any, (c) the agreement, if
any, pursuant to which the Enhancement Provider agrees to
provide the Enhancement, if any, (d) an Opinion of
Counsel to the effect that (i) any Class of the newly
issued Series of Investor Certificates sold to third
parties will be characterized as either indebtedness or
partnership interests for Federal and applicable state
income tax purposes or (ii) that the issuance of the
newly issued Series of Investor Certificates will not
adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of
Investor Certificates or the taxability of the Trust
under Federal, Minnesota or Delaware income tax laws, (e)
written confirmation from each Rating Agency that the
Exchange will not result in such Rating Agency's reducing
or withdrawing its rating on any then outstanding Series
as to which it is a Rating Agency, (f) an Officer's
Certificate of the Transferor, that on the Exchange Date
(i) after giving effect to such Exchange, the Transferor
Interest would be at least equal to the Minimum
Transferor Interest and (ii) the Retained Interest would
be at least equal to the Minimum Retained Interest, (g)
the existing Exchangeable Transferor Certificate or
applicable Investor Certificates, as the case may be and
(h) such other documents, certificates and Opinions of
Counsel as may be required by the applicable Supplement.
Upon satisfaction of such conditions, the Trustee shall
cancel the existing Exchangeable Transferor Certificate
or applicable Investor Certificates, as the case may be,
and issue, as provided above, such Series of Investor
Certificates and a new Exchangeable Transferor
Certificate, dated the Exchange Date. There is no limit
to the number of Exchanges that may be performed under
this Agreement.
(c) In conjunction with an Exchange, the
parties hereto shall execute a Supplement, which shall
specify the relevant terms with respect to any newly
issued Series of Investor Certificates, which may include
without limitation: (i) its name or designation, (ii)
the Initial Invested Amount or the method of calculating
the Initial Invested Amount, (iii) the Certificate Rate
(or formula for the determination thereof), (iv) the
Closing Date, (v) the rating agency or agencies rating
such Series, (vi) the name of the Clearing Agency, if
any, (vii) the rights of the Holder of the Exchangeable
Transferor Certificate that have been transferred to the
Holders of such Series pursuant to such Exchange
(including any rights to allocations of Collections of
Imputed Yield Receivables and Principal Receivables),
(viii) the interest payment date or dates and the date or
dates from which interest shall accrue, (ix) the method
of allocating Principal Collections for such Series and
the method by which the principal amount of Investor
Certificates of such Series shall amortize or accrete and
the method for allocating Imputed Yield Collections and
Defaulted Receivables, (x) the names of any accounts to
be used by such Series and the terms governing the
operation of any such account, (xi) the Series Servicing
Fee Percentage, (xii) the Minimum Transferor Interest,
(xiii) the Series Termination Date, (xiv) the terms of
any Enhancement with respect to such Series, (xv) the
Enhancement Provider, if applicable, (xvi) the base rate
applicable to such Series, (xvii) the terms on which the
Certificates of such Series may be repurchased or
remarketed to other investors, (xviii) any deposit into
any account provided for such Series, (xix) the number of
Classes of such Series and, if more than one Class, the
rights and priorities of each such Class, (xx) whether
any fees will be included in the funds available to be
paid for such Series, (xxi) the subordination of such
Series to any other Series, (xxii) the Pool Factor,
(xxiii) the Minimum Aggregate Principal Receivables,
(xxiv) whether such Series will be a part of a group or
subject to being paired with any other Series, (xxv)
whether such Series will be pre-funded, and (xxvi) any
other relevant terms of such Series (including whether or
not such Series will be pledged as collateral for an
issuance of any other securities, including commercial
paper) (all such terms, the "Principal Terms" of such
Series). The terms of such Supplement may modify or
amend the terms of this Agreement solely as applied to
such new Series. If on the date of the issuance of such
Series there is issued and outstanding one or more Series
of Investor Certificates and no Series of Investor
Certificates is currently rated by a Rating Agency, then
as a condition to such Exchange a nationally recognized
investment banking firm or commercial bank shall also
deliver to the Trustee an officer's certificate stating,
in substance, that the Exchange will not have an adverse
effect on the timing or distribution of payments to such
other Series of Investor Certificates then issued and
outstanding.
(d) The Transferor may surrender the
Exchangeable Transferor Certificate to the Trustee in
exchange for a newly issued Exchangeable Transferor
Certificate and a second certificate (a "Supplemental
Certificate"), the terms of which shall be defined in a
supplement to this Agreement (which supplement shall be
subject to Section 13.01 hereof to the extent that it
amends any of the terms of this Agreement), to be
delivered to or upon the order of the Transferor (or a
Person designated by the Transferor, in the case of the
transfer or exchange thereof, as provided below), upon
satisfaction of the following conditions: (i) following
such exchange, the Transferor Interest (less any interest
therein represented by any Supplemental Certificates) in
the Principal Receivables in the Trust equals or exceeds
the greater of the Minimum Transferor Interest and the
Minimum Retained Interest following such exchange and
(ii) the Trustee received prior to such exchange (A) a
letter from the Rating Agency stating that the then
current ratings on the Investor Certificates of each
rated class of each Series then outstanding will not be
reduced or withdrawn because of the issuance of such
Supplemental Certificate and (B) an Opinion of Counsel to
the effect that (x) such Supplemental Certificate will be
characterized as either indebtedness or a partnership
interest for Federal and applicable state income tax
purposes or (y) that such Supplemental Certificate will
not adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of
Investor Certificates or the taxability of the Trust
under Federal, Minnesota or Delaware income tax laws.
Section 6.10 Book-Entry Certificates. Unless
otherwise provided in any related Supplement, the
Investor Certificates, upon original issuance, shall be
issued in the form of typewritten Certificates
representing the Book-Entry Certificates, to be delivered
to the depositary specified in such Supplement (the
"Depositary") which shall be the Clearing Agency or
Foreign Clearing Agency, by or on behalf of such Series.
The Investor Certificates of each Series shall, unless
otherwise provided in the related Supplement, initially
be registered on the Certificate Register in the name of
the nominee of the Clearing Agency or Foreign Clearing
Agency. No Certificate Owner will receive a definitive
certificate representing such Certificate Owner's
interest in the related Series of Investor Certificates,
except as provided in Section 6.12. Unless and until
definitive, fully registered Investor Certificates of any
Series ("Definitive Certificates") have been issued to
Certificate Owners pursuant to Section 6.12:
(i) the provisions of this Section 6.10
shall be in full force and effect with respect to
each such Series;
(ii) the Transferor, the Servicer, the
Paying Agent, the Transfer Agent and Registrar and
the Trustee may deal with the Clearing Agency and
the Clearing Agency Participants for all purposes
(including the making of distributions on the
Investor Certificates of each such Series) as the
authorized representatives of the Certificate
Owners;
(iii) to the extent that the provisions
of this Section 6.10 conflict with any other
provisions of this Agreement, the provisions of this
Section 6.10 shall control with respect to each such
Series; and
(iv) the rights of Certificate Owners of
Investor Certificates of each such Series shall be
exercised only through the Clearing Agency or
Foreign Clearing Agency and the applicable Clearing
Agency Participants and shall be limited to those
established by law and agreements between such
Certificate Owners and the Clearing Agency or
Foreign Clearing Agency and/or the Clearing Agency
Participants. Pursuant to the Depositary Agreement
applicable to a Series, unless and until Definitive
Certificates of such Series are issued pursuant to
Section 6.12, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions
of principal and interest on the Investor
Certificates to such Clearing Agency Participants.
Section 6.11 Notices to Clearing Agency.
Whenever notice or other communication to the
Certificateholders is required under this Agreement,
unless and until Definitive Certificates shall have been
issued to Certificate Owners pursuant to Section 6.12,
the Trustee shall give all such notices and
communications specified herein to be given to Holders of
the Investor Certificates to the Clearing Agency or
Foreign Clearing Agency.
Section 6.12 Definitive Certificates. If (i)
(A) the Transferor advises the Trustee in writing that
the Clearing Agency or Foreign Clearing Agency is no
longer willing or able to discharge properly its
responsibilities under the applicable Depositary
Agreement, and (B) the Transferor is unable to locate a
qualified successor, (ii) the Transferor, at its option,
advises the Trustee in writing that it elects to
terminate the book-entry system through the Clearing
Agency or Foreign Clearing Agency with respect to any
Series of Certificates or (iii) after the occurrence of a
Servicer Default, Certificate Owners of a Series
representing beneficial interests aggregating not less
than 50% of the Invested Amount of such Series advise the
Trustee and the applicable Clearing Agency or Foreign
Clearing Agency through the applicable Clearing Agency
Participants in writing that the continuation of a book-
entry system through the applicable Clearing Agency or
Foreign Clearing Agency is no longer in the best
interests of the Certificate Owners, the Trustee shall
notify all Certificate Owners of such Series, through the
applicable Clearing Agency Participants, of the
occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners of such
Series requesting the same. Upon surrender to the
Trustee of the Investor Certificates of such Series by
the applicable Clearing Agency or Foreign Clearing Agency
for registration, accompanied by registration
instructions from the applicable Clearing Agency or
Foreign Clearing Agency, the Trustee shall issue the
Definitive Certificates of such Series. Neither the
Transferor nor the Trustee shall be liable for any delay
in delivery of such instructions and may conclusively
rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive
Certificates of such Series, all references herein to
obligations imposed upon or to be performed by the
applicable Clearing Agency or Foreign Clearing Agency
shall be deemed to be imposed upon and performed by the
Trustee, to the extent applicable with respect to such
Definitive Certificates, and the Trustee shall recognize
the Holders of the Definitive Certificates of such Series
as Certificateholders of such Series hereunder.
Section 6.13 Global Certificate; Euro-
Certificate Exchange Date. If specified in the related
Supplement for any Series, the Investor Certificates may
be initially issued in the form of a single temporary
Global Certificate (the "Global Certificate") in bearer
form, without interest coupons, in the denomination of
the Initial Invested Amount of such Series and
substantially in the form attached to the related
Supplement. Unless otherwise specified in the related
Supplement, the provisions of this Section 6.13 shall
apply to such Global Certificate. The Global Certificate
will be authenticated by the Trustee upon the same
conditions, in substantially the same manner and with the
same effect as the Definitive Certificates. The Global
Certificate may be exchanged in the manner described in
the related Supplement for Registered Certificates or
Bearer Certificates in definitive form.
Section 6.14 Meetings of Certificateholders.
To the extent provided by the Supplement for
any Series issued in whole or in part in Bearer
Certificates, the Servicer or the Trustee may at any time
call a meeting of the Certificateholders of such Series,
to be held at such time and at such place as the Servicer
or the Trustee, as the case may be, shall determine, for
the purpose of approving a modification of or amendment
to, or obtaining a waiver of, any covenant or condition
set forth in this Agreement with respect to such Series
or in the Certificates of such Series, subject to Section
13.1 of this Agreement.
[End of Article VI]
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The
Transferor shall be liable in accordance herewith solely
to the extent of the obligations specifically undertaken
by the Transferor.
Section 7.2 Merger or Consolidation of, or
Assumption of the Obligations of, the Transferor.
(a) The Transferor shall not consolidate with
or merge into any other business entity or convey or
transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the business entity formed by such
consolidation or into which the Transferor is merged
or the Person which acquires by conveyance or
transfer the properties and assets of the Transferor
substantially as an entirety shall be, if the
Transferor is not the surviving entity, organized
and existing under the laws of the United States of
America or any State or the District of Columbia and
shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the performance of
every covenant and obligation of the Transferor, as
applicable hereunder and shall benefit from all the
rights granted to the Transferor, as applicable
hereunder. To the extent that any right, covenant
or obligation of the Transferor, as applicable
hereunder, is inapplicable to the successor entity,
such successor entity shall be subject to such
covenant or obligation, or benefit from such right,
as would apply, to the extent practicable, to such
successor entity. In furtherance hereof, in
applying this Section 7.2 to a successor entity,
Section 9.2 hereof shall be applied by reference to
events of involuntary liquidation, receivership or
conservatorship applicable to such successor entity
as shall be set forth in the officer's certificate
described in subsection 7.2(a)(ii);
(ii) the Transferor shall have delivered
to the Trustee an Officer's Certificate signed by a
Vice President (or any more senior officer) of the
Transferor stating that such consolidation, merger,
conveyance or transfer and such supplemental
agreement comply with this Section 7.2 and that all
conditions precedent herein provided for relating to
such transaction have been complied with and an
Opinion of Counsel that such supplemental agreement
is legal, valid and binding and that the entity
surviving such consolidation, conveyance or transfer
is organized and existing under the laws of the
United States of America or any State or the
District of Columbia and, subject to customary
limitations and qualifications, such entity will not
be substantively consolidated with Fingerhut, FCI,
any Originator or the Servicer;
(iii) the Transferor shall have delivered
notice to the Rating Agency of such consolidation,
merger, conveyance or transfer and the Rating Agency
shall have provided written confirmation that such
consolidation, merger, conveyance or transfer will
not result in the Rating Agency reducing or
withdrawing its rating on any then outstanding
Series as to which it is a Rating Agency;
(iv) the successor entity shall be a
special purpose bankruptcy remote entity; and
(v) if the Transferor is not the
surviving entity, the surviving entity shall file
new UCC-1 financing statements with respect to the
interest of the Trust in the Receivables.
(b) The obligations of the Transferor
hereunder shall not be assignable nor shall any Person
succeed to the obligations of the Transferor hereunder
except for mergers, consolidations, assumptions or
transfers in accordance with the provisions of the
foregoing paragraph.
Section 7.3 Limitation on Liability. The
directors, officers, employees or agents of the
Transferor shall not be under any liability to the Trust,
the Trustee, the Certificateholders, any Enhancement
Provider or any other Person hereunder or pursuant to any
document delivered hereunder, it being expressly
understood that all such liability is expressly waived
and released as a condition of, and as consideration for,
the execution of this Agreement and any Supplement and
the issuance of the Certificates; provided, however, that
this provision shall not protect the officers, directors,
employees, or agents of the Transferor against any
liability which would otherwise be imposed upon them by
reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder.
Except as provided in Sections 7.1 and 7.4 with respect
to the Trust and the Trustee and its officers, directors,
employees and agents, the Transferor shall not be under
any liability to the Trust, the Trustee, its officers,
directors, employees and agents, the Certificateholders,
any Enhancement Provider or any other Person for any
action taken or for refraining from the taking of any
action in its capacity as Transferor pursuant to this
Agreement or any Supplement whether arising from express
or implied duties under this Agreement or any Supplement
or otherwise; provided, however, that this provision
shall not protect the Transferor against any liability
which would otherwise be imposed upon it by reason of
willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Transferor and
any director, officer, employee or agent may rely in good
faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any
matters arising hereunder.
Section 7.4 Liabilities. Notwithstanding
Section 7.3, by entering into this Agreement, the
Transferor agrees to be liable, directly to the injured
party, for the entire amount of any losses, claims,
damages, penalties or liabilities (other than those
incurred by a Certificateholder in the capacity of an
investor in the Investor Certificates as a result of the
performance of the Receivables, market fluctuations, a
shortfall or failure by the Enhancement Provider to make
payment under any Enhancement or other similar market or
investment risks associated with ownership of the
Investor Certificates) arising out of or based on the
arrangement created by this Agreement and the actions of
the Servicer taken pursuant hereto as though this
Agreement created a partnership under the Delaware
Uniform Partnership Law, in which the Transferor is a
general partner. The Transferor agrees to pay, indemnify
and hold harmless each Investor Certificateholder against
and from any and all such loses, claims, damages and
liabilities (other than those incurred by a
Certificateholder in the capacity of an investor in the
Investor Certificates as a result of the performance of
the Receivables, market fluctuations, a shortfall or
failure by an Enhancement Provider to make payment under
an Enhancement or other similar market or investment
risks) except to the extent that they arise from any
action by such Investor Certificateholder. Subject to
Sections 8.3 and 8.4, in the event of a Service Transfer,
the Successor Servicer will indemnify and hold harmless
the Transferor for any losses, claims, damages and
liabilities of the Transferor as described in this
Section 7.4 arising from the actions or omissions of such
Successor Servicer.
[End of Article VII]
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The
Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically undertaken by
the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or
Assumption of the Obligations of, the Servicer. Subject
to subsection 3.1(a), the Servicer shall not consolidate
with or merge into any other corporation or convey or
transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the corporation formed by such
consolidation or into which the Servicer is merged
or the Person which acquires by conveyance or
transfer the properties and assets of the Servicer
substantially as an entirety shall be a corporation
organized and existing under the laws of the United
States of America or any State or the District of
Columbia and, if the Servicer is not the surviving
entity, shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the
Trustee in form satisfactory to the Trustee, the
performance of every covenant and obligation of the
Servicer hereunder (to the extent that any right,
covenant or obligation of the Servicer, as
applicable hereunder, is inapplicable to the
successor entity, such successor entity shall be
subject to such covenant or obligation, or benefit
from such right, as would apply, to the extent
practicable, to such successor entity); and
(ii) the Servicer shall have delivered to
the Trustee an Officer's Certificate that such
consolidation, merger, conveyance or transfer and
such supplemental agreement comply with this Section
8.2 and that all conditions precedent herein
provided for relating to such transaction have been
complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding
with respect to the Servicer and that the entity
surviving such consolidation, conveyance or transfer
is organized and existing under the laws of the
United States of America or any State or the
District of Columbia; and
(iii) the Servicer shall have delivered
notice to the Rating Agency of such consolidation,
merger, conveyance or transfer.
Section 8.3 Limitation on Liability of the
Servicer and Others. The directors, officers, employees
or agents of the Servicer shall not be under any
liability to the Trust, the Trustee, the
Certificateholders, any Enhancement Provider or any other
Person hereunder or pursuant to any document delivered
hereunder, it being expressly understood that all such
liability is expressly waived and released as a condition
of, and as consideration for, the execution of this
Agreement and any Supplement and the issuance of the
Certificates; provided, however, that this provision
shall not protect the directors, officers, employees and
agents of the Servicer against any liability which would
otherwise be imposed upon them by reason of willful
misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard
of obligations and duties hereunder. Except as provided
in Sections 8.1 and 8.4 with respect to the Trustee, its
officers, directors, employees and agents, the Servicer
shall not be under any liability to the Trust, the
Trustee, its officers, directors, employees and agents,
the Certificateholders, any Enhancement Provider or any
other Person for any action taken or for refraining from
the taking of any action in its capacity as Servicer
pursuant to this Agreement or any Supplement; provided,
however, that this provision shall not protect the
Servicer against any liability which would otherwise be
imposed upon it by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or
by reason of its reckless disregard of its obligations
and duties hereunder or under any Supplement. The
Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder. The
Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not
incidental to its duties to service the Receivables in
accordance with this Agreement which in its reasonable
opinion may involve it in any expense or liability.
Section 8.4 Servicer Indemnification of the
Transferor, the Trust and the Trustee. Subject to the
limitations on liability set forth in Section 8.3, the
Servicer shall indemnify and hold harmless the
Transferor, the Trustee and the Trust (each, an
"Indemnified Party") from and against any loss,
liability, reasonable expense, damage or injury,
including, but not limited to, any judgment, award,
settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim,
suffered or sustained by reason of any acts or omissions
or alleged acts or omissions of the Servicer with respect
to activities of the Trust or the Trustee for which the
Servicer is responsible pursuant to this Agreement;
provided, however, that the Servicer shall not indemnify
or hold harmless an Indemnified Party if such acts,
omissions or alleged acts or omissions constitute or are
caused by fraud, gross negligence, or willful misconduct
by such Indemnified Party (or any of such Indemnified
Party's officers, directors, employees or agents) or the
Investor Certificateholders; provided, further, that the
Servicer shall not indemnify or hold harmless the Trust,
the Investor Certificateholders or the Certificate Owners
for any losses, liabilities, expenses, damages or
injuries suffered or sustained by any of them with
respect to any action taken by the Trustee at the request
of the Investor Certificateholders; provided further,
that the Servicer shall not indemnify or hold harmless
the Trust, the Investor Certificateholders or the
Certificate Owners as to any losses, liabilities,
expenses, damages or injuries suffered or sustained by
any of them in their capacities as investors, including
without limitation losses incurred as a result of
Defaulted Receivables; provided further, that the
Servicer shall not indemnify or hold harmless the
Transferor, the Trust, the Investor Certificateholders or
the Certificate Owners for any losses, liabilities,
expenses, damages or injuries suffered or sustained by
the Trust, the Investor Certificateholders or the
Certificate Owners arising under any tax law, including
without limitation, any federal, state, local or foreign
income or franchise taxes or any other tax imposed on or
measured by income (or any interest, penalties or
additions with respect thereto or arising from a failure
to comply therewith) required to be paid by the Trust,
the Investor Certificateholders or the Certificate Owners
in connection herewith to any taxing authority; and,
provided, further, that in no event will the Servicer be
liable, directly or indirectly, for or in respect of any
indebtedness or obligation evidenced or created by any
Certificate, recourse as to which shall be limited solely
to the assets of the Trust allocated for the payment
thereof as provided in this Agreement and any applicable
Supplement. Any such indemnification shall not be
payable from the assets of the Trust, but the Servicer
shall be subrogated to the rights of the Trust with
respect to the foregoing matters if and to the extent
that the Servicer shall have indemnified the Trust with
respect thereto. The Servicer shall indemnify and hold
harmless the Trustee and its officers, directors,
employees or agents from and against any loss, liability,
reasonable expense, damage or injury suffered or
sustained by reason of the acceptance of this Trust by
the Trustee, the issuance by the Trust of the
Certificates or any of the other matters contemplated
herein or in any Supplement; provided, however, that the
Servicer shall not indemnify the Trustee or its officers,
directors, employees or agents for any loss, liability,
expense, damage or injury caused by the fraud, negligence
or willful misconduct of any of them. The provisions of
this indemnity shall run directly to and be enforceable
by an injured party subject to the limitations hereof and
shall survive the resignation or removal of the Servicer,
the resignation or removal of the Trustee and/or the
termination of the Trust and shall survive the
termination of the Agreement.
Section 8.5 The Servicer Not to Resign.
Subject to subsection 3.1(a), the Servicer shall not
resign from the obligations and duties hereby imposed on
it except upon determination that (i) the performance of
its duties hereunder is no longer permissible under
applicable law and (ii) there is no reasonable action
which the Servicer could take to make the performance of
its duties hereunder permissible under applicable law.
Any such determination permitting the resignation of the
Servicer shall be evidenced as to clause (i) above by an
Opinion of Counsel to such effect delivered to the
Trustee. No such resignation shall become effective
until the Trustee or a Successor Servicer shall have
assumed the responsibilities and obligations of the
Servicer in accordance with Section 10.2 hereof. If the
Trustee is unable within 120 days of the date of delivery
to it of such Opinion of Counsel to appoint a Successor
Servicer, the Trustee shall serve as Successor Servicer
hereunder (but shall have continued authority to appoint
another Person as Successor Servicer).
Section 8.6 Access to Certain Documentation
and Information Regarding the Receivables. The Servicer
shall provide to the Trustee and its agents (who shall be
reasonably acceptable to the Servicer) access to the
documentation regarding the Receivables in such cases
where the Trustee is required in connection with the
enforcement of the rights of the Investor
Certificateholders, or by applicable statutes or
regulations, to review such documentation, such access
being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours,
(iii) subject to the Servicer's normal security and
confidentiality procedures and (iv) at offices designated
by the Servicer. Nothing in this Section 8.6 shall
derogate from the obligation of the Transferor, the
Trustee or the Servicer to observe any applicable law
prohibiting disclosure of information regarding the
Obligors and the failure of the Servicer to provide
access as provided in this Section 8.6 as a result of
such obligations shall not constitute a breach of this
Section 8.6.
Section 8.7 Delegation of Duties. In the
ordinary course of business, the Servicer may at any time
delegate any duties hereunder to any Person who agrees to
conduct such duties in accordance with the Credit and
Collection Policies. Any such delegations shall not
relieve the Servicer of its liability and responsibility
with respect to such duties, and shall not constitute a
resignation within the meaning of Section 8.5 hereof and
the Servicer will remain jointly and severally liable
with such Person for any amounts which would otherwise be
payable pursuant to this Article VIII as if the Servicer
had performed such duty; provided, however, that in the
case of any significant delegation to a Person other than
an Affiliate of FNB (i) written notice shall be given to
the Trustee and to each Rating Agency of such delegation,
(ii) Moody's shall have notified the Transferor and the
Trustee in writing that such delegation will not result
in the lowering or withdrawal of its then existing rating
of any Series or Class of Investor Certificates and (iii)
the Transferor shall not have received written notice
from Standard & Poor's that such delegation would result
in the lowering or withdrawal of its then existing rating
of any Series or Class of Investor Certificates.
[End of Article VIII]
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the
following events (each, a "Trust Pay Out Event") shall
occur:
(a) the Transferor or Fingerhut shall consent
to the appointment of a bankruptcy trustee or receiver or
liquidator in any bankruptcy proceeding or any other
insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to
all or substantially all of its property; or a decree or
order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment
of a bankruptcy trustee or receiver or liquidator in any
bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up
or liquidation of its affairs, shall have been entered
against the Transferor, or Fingerhut; or the Transferor,
or Fingerhut shall admit in writing its inability to pay
its debts generally as they become due, file a petition
to take advantage of any applicable insolvency or
reorganization statute including the U.S. bankruptcy
code, make an assignment for the benefit of its creditors
or voluntarily suspend payment of its obligations; or the
Transferor shall become unable for any reason to transfer
Receivables to the Trust in accordance with the
provisions of this Agreement; or
(b) the Trust shall become subject to
regulation by the Securities and Exchange Commission as
an "investment company" within the meaning of the
Investment Company Act;
then a Pay Out Event with respect to all Series of
Certificates shall occur without any notice or other
action on the part of the Trustee or the Investor
Certificateholders immediately upon the occurrence of
such event. The Trustee shall provide notice of a Pay
Out Event in a prompt manner to each Rating Agency.
Section 9.2 Additional Rights Upon the
Occurrence of Certain Events.
(a) If (x) the Transferor shall consent to the
appointment of a bankruptcy trustee or receiver or
liquidator for the winding-up or liquidation of its
affairs, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises
for the appointment of a bankruptcy trustee or receiver
or liquidator for the winding-up or liquidation of its
affairs shall have been entered against the Transferor
(an "Insolvency Event"), on the day of such Insolvency
Event (the "Appointment Day") or (y) the Retained
Percentage shall at any time be equal to or less than 2%
(a "Trigger Event"), the following actions shall be taken
and processes begun:
(i) If an Insolvency Event shall have
occurred, the Transferor shall immediately cease to
transfer Receivables to the Trust and shall promptly give
written notice to the Trustee of such Insolvency Event.
Notwithstanding any cessation of the transfer to the
Trust of additional Receivables, Collections with respect
thereto shall continue to be allocated and paid in
accordance with Article IV.
(ii) If an Insolvency Event or a Trigger Event
shall have occurred this Agreement and the Trust shall be
deemed to have terminated, subject to the liquidation,
winding-up and dissolution procedures described below;
provided, however, that within 15 days of the date of
written notice to the Trustee, the Trustee shall (i)
publish a notice in an Authorized Newspaper that an
Insolvency Event or a Trigger Event has occurred, that
the Trust has terminated, and that the Trustee intends to
sell, dispose of or otherwise liquidate the Receivables
pursuant to this Agreement in a commercially reasonable
manner and on commercially reasonable terms, which shall
include the solicitation of competitive bids (a
"Disposition"), and (ii) send written notice to the
Investor Certificateholders describing the provisions of
this Section 9.2 and requesting each Investor
Certificateholder to advise the Trustee in writing that
it elects one of the following options: (A) the Investor
Certificateholder wishes the Trustee to instruct the
Servicer not to effectuate a Disposition, or (B) the
Investor Certificateholder refuses to advise the Trustee
as to the specific action the Trustee shall instruct the
Servicer to take or (C) the Investor Certificateholder
wishes the Servicer to effect a Disposition. If after 90
days from the day notice pursuant to clause (i) above is
first published (the "Publication Date"), the Trustee
shall not have received the written instruction described
in clause (A) above from Holders of Investor Certificates
representing Undivided Interests aggregating in excess of
50% of the related Invested Amount of each Series (or, in
the case of a Series having more than one Class, each
Class of such Series) and the holders of any Supplemental
Certificates or any other interest in the Exchangeable
Transferor Certificate other than the Transferor as
provided in Section 6.3(b) for each Series, a "Holders'
Majority"), the Trustee shall instruct the Servicer to
effectuate a Disposition, and the Servicer shall proceed
to consummate a Disposition. If, however, with respect
to the portion of the Receivables allocable to any
outstanding Series, a Holders' Majority instruct the
Trustee not to effectuate a Disposition of the portion of
the Receivables allocable to such Series, the Trust shall
be reconstituted and continue with respect to such Series
pursuant to the terms of this Agreement and the
applicable Supplement (as amended in connection with such
reconstitution). The portion of the Receivables
allocable to any Series shall be equal to the sum of (1)
the product of (A) the Transferor Percentage, (B) the
aggregate outstanding Principal Receivables and (C) a
fraction the numerator of which is the related Investor
Percentage of Imputed Yield Collections and the
denominator of which is the sum of all Investor
Percentages with respect to Imputed Yield Collections for
all Series outstanding and (2) the Invested Amount of
such Series. The Transferor or any of its Affiliates
shall be permitted to bid for the Receivables. In
addition, the Transferor or any of its Affiliates shall
have the right to match any bid by a third person and be
granted the right to purchase the Receivables at such
matched bid price. The Trustee may obtain a prior
determination from any such bankruptcy trustee, receiver
or liquidator that the terms and manner of any proposed
Distribution are commercially reasonable. The provisions
of Sections 9.1 and 9.2 shall not be deemed to be
mutually exclusive.
(b) The proceeds from the Disposition pursuant
to subsection (a) above shall be treated as Collections
on the Receivables and shall be allocated and deposited
in accordance with the provisions of Article IV;
provided, however, that the proceeds from a Disposition
with respect to any Series shall be applied solely to
make payments to such Series; provided further, that the
Trustee shall determine conclusively in its sole
discretion the amount of such proceeds that are allocable
to Imputed Yield Collections and the amount of such
proceeds that are allocable to Collections of Principal
Receivables. Unless the Trustee receives written
instructions from Investor Certificateholders of one or
more Series to continue the Trust with respect to such
Series as provided in subsection 9.2(a) above, on the day
following the last Distribution Date in the Monthly
Period during which such proceeds are distributed to the
Investor Certificateholders of each Series, the Trust
shall terminate.
(c) The Trustee may appoint an agent or agents
to assist with its responsibilities pursuant to this
Article IX with respect to competitive bids.
[End of Article IX]
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of
the following events (a "Servicer Default") shall occur
and be continuing:
(a) any failure by the Servicer to make any
payment, transfer or deposit or to give instructions or
notice to the Trustee pursuant to Article IV or to
instruct the Trustee to make any required drawing,
withdrawal, or payment under any Enhancement on or before
the date occurring five Business Days after the date such
payment, transfer, deposit, withdrawal or drawing or such
instruction or notice is required to be made or given, as
the case may be, under the terms of this Agreement;
provided, however, that any such failure caused by a non-
willful act of the Servicer shall not constitute a
Servicer Default if the Servicer promptly remedies such
failure within five Business Days after receiving notice
of such failure or otherwise becoming aware of such
failure;
(b) failure on the part of the Servicer duly
to observe or perform in any respect any other covenants
or agreements of the Servicer set forth in this
Agreement, which has a material adverse effect on the
Investor Certificateholders of any Series 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
Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than
50% of the Invested Amount of any Series materially
adversely affected thereby and continues to materially
adversely affect such Investor Certificateholders for
such period; or the Servicer shall delegate its duties
under this Agreement, except as permitted by Section 8.7;
(c) any representation, warranty or
certification made by the Servicer in this Agreement or
in any certificate delivered pursuant to this Agreement
shall prove to have been incorrect when made, which has a
material adverse effect on the Investor
Certificateholders of any Series and which continues to
be incorrect in any material respect for a period of 60
days after the date on which written notice of such
failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Holders of Investor
Certificates evidencing Undivided Interests aggregating
not less than 50% of the Invested Amount of any Series
materially adversely affected thereby and continues to
materially adversely affect such Investor
Certificateholders for such period; or
(d) the Servicer shall consent to the
appointment of a bankruptcy trustee or receiver or
liquidator in any bankruptcy proceeding or any other
insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to
the Servicer or of or relating to all or substantially
all of its property; or a decree or order of a court or
agency or supervisory authority having jurisdiction in
the premises for the appointment of a bankruptcy trustee
or receiver or liquidator in any bankruptcy proceeding or
any other insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have
been entered against the Servicer, and such decree or
order shall have remained in force undischarged or
unstayed for a period of 60 days; or the Servicer shall
admit in writing its inability to pay its debts generally
as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make
any assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations;
then, so long as such Servicer Default shall not have
been remedied, either the Trustee, or the Holders of
Investor Certificates evidencing Undivided Interests
aggregating more than 50% of the Aggregate Invested
Amount, by notice then given in writing to the Servicer
(and to the Trustee if given by the Investor
Certificateholders) (a "Termination Notice"), may
terminate all of the rights and obligations of the
Servicer as Servicer under this Agreement. After receipt
by the Servicer of such Termination Notice, and on the
date that a Successor Servicer shall have been appointed
by the Trustee pursuant to Section 10.2, all authority
and power of the Servicer under this Agreement shall pass
to and be vested in a Successor Servicer; and, without
limitation, the Trustee is hereby authorized and
empowered (upon the failure of the Servicer to cooperate)
to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other
instruments upon the failure of the Servicer to execute
or deliver such documents or instruments, and to do and
accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of
servicing rights and obligations. The Servicer agrees to
cooperate with the Trustee and such Successor Servicer in
effecting the termination of the responsibilities and
rights of the Servicer to conduct servicing hereunder
including, without limitation, the transfer to such
Successor Servicer of all authority of the Servicer to
service the Receivables provided for under this
Agreement, including, without limitation, all authority
over all Collections which shall on the date of transfer
be held by the Servicer for deposit, or which have been
deposited by the Servicer, in the Collection Account, the
Excess Funding Account, the Interest Funding Account or
the Principal Account, and any Series Account, or which
shall thereafter be received with respect to the
Receivables. The Servicer shall promptly transfer its
electronic records or electronic copies thereof relating
to the Receivables to the Successor Servicer in such
electronic form as the Successor Servicer may reasonably
request and shall promptly transfer to the Successor
Servicer all other records, correspondence and documents
necessary for the continued servicing of the Receivables
in the manner and at such times as the Successor Servicer
shall reasonably request. To the extent that compliance
with this Section 10.1 shall require the Servicer to
disclose to the Successor Servicer information of any
kind which the Servicer deems to be confidential, the
Successor Servicer shall be required to enter into such
customary licensing and confidentiality agreements as the
Servicer shall deem necessary to protect its interests.
The Servicer shall, on the date of any servicing
transfer, transfer all of its rights and obligations
under the Enhancement with respect to any Series to the
Successor Servicer. In connection with any service
transfer, all reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring
the records, correspondence and other documents with
respect to the Receivables and the other Trust Property
to the Successor Servicer and amending this Agreement to
reflect such succession as Successor Servicer pursuant to
this Section 10.1 and Section 10.2 shall be paid by the
Servicer (unless the Trustee is acting as the Servicer on
a temporary basis, in which case the original Servicer
shall be responsible therefor) upon presentation of
reasonable documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or
failure of performance referred to in subsection 10.1(a)
for a period of five Business Days or under subsection
10.1(b) or (c) for a period of 60 days, shall not
constitute a Servicer Default if such delay or failure
could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was
caused by an act of God or the public enemy, acts of
declared or undeclared war, public disorder, rebellion,
riot or sabotage, epidemics, landslides, lightning, fire,
hurricanes, tornadoes, earthquakes, nuclear disasters or
meltdowns, floods, power outages, bank closings,
communications outages, computer failure or similar
causes. The preceding sentence shall not relieve the
Servicer from using its best efforts to perform its
obligations in a timely manner in accordance with the
terms of this Agreement and the Servicer shall provide
the Trustee, any Enhancement Provider, the Transferor and
the Holders of Investor Certificates with an Officer's
Certificate giving prompt notice of such failure or delay
by it, together with a description of the cause of such
failure or delay and its efforts so to perform its
obligations.
Section 10.2 Trustee to Act; Appointment of
Successor.
(a) On and after the receipt by the Servicer
of a Termination Notice pursuant to Section 10.1, the
Servicer shall continue to perform all servicing
functions under this Agreement until the date specified
in the Termination Notice or as otherwise specified by
the Trustee in writing or, if no such date is specified
in such Termination Notice, or otherwise specified by the
Trustee, until a date mutually agreed upon by the
Servicer and Trustee. The Trustee shall notify each
Rating Agency of such removal of the Servicer. The
Trustee shall, as promptly as possible after the giving
of a Termination Notice, appoint a successor servicer
(the "Successor Servicer"), and such Successor Servicer
shall accept its appointment by a written assumption in a
form acceptable to the Trustee. If such Successor
Servicer is unable to accept such appointment, the
Trustee may obtain bids from any potential successor
servicer. If the Trustee is unable to obtain any bids
from any potential successor servicer and the Servicer
delivers an Officer's Certificate to the effect that it
cannot in good faith cure the Servicer Default which gave
rise to a transfer of servicing, and if the Trustee is
legally unable to act as Successor Servicer, then the
Trustee shall offer the Transferor the right to accept
reassignment of all of the Receivables for an amount
equal to the Aggregate Invested Amount on the date of
such purchase plus all interest accrued but unpaid on all
of the outstanding Investor Certificates at the
applicable Certificate Rate through the date of such
purchase; provided, however, that no such purchase by the
Transferor shall occur unless the Transferor shall
deliver an Opinion of Counsel reasonably acceptable to
the Trustee that such purchase would not constitute a
fraudulent conveyance of the Transferor. The proceeds of
such sale shall be deposited in the Distribution Account
or any Series Account, as provided in the related
Supplement, for distribution to the Investor
Certificateholders of each outstanding Series pursuant to
Section 12.3 of the Agreement. In the event that a
Successor Servicer has not been appointed and has not
accepted its appointment at the time when the Servicer
ceases to act as Servicer, the Trustee without further
action shall automatically be appointed the Successor
Servicer (but shall have continued authority to appoint
another Person as Successor Servicer). The Trustee may
delegate any of its servicing obligations to an affiliate
or agent of the Trustee in accordance with Article III
hereof. Any such delegations shall not relieve the
Trustee of its liability and responsibility with respect
to such duties. Notwithstanding the above, the Trustee
shall, if it is legally unable to act, petition a court
of competent jurisdiction to appoint any established
financial institution having, in the case of an entity
that is subject to risk-based capital adequacy
requirements, risk-based capital of at least $50,000,000
or, in the case of an entity that is not subject to risk-
based capital requirements, having a net worth of not
less than $50,000,000 and whose regular business includes
the servicing of receivables similar to the Receivables
as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor
Servicer shall be the successor in all respects to the
Servicer with respect to servicing functions under this
Agreement and shall be subject to all the
responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions
hereof, and all references in this Agreement to the
Servicer shall be deemed to refer to the Successor
Servicer. Any Successor Servicer, by its acceptance of
its appointment, will automatically agree to be bound by
the terms and provisions of each Enhancement.
(c) In connection with such appointment and
assumption, the Trustee shall be entitled to such
compensation, or may make such arrangements for the
compensation of the Successor Servicer out of
Collections, as it and such Successor Servicer shall
agree; provided, however, that no such compensation shall
be in excess of the Servicing Fee permitted to the
Servicer pursuant to Section 3.2. The Transferor agrees
that if the Servicer is terminated hereunder, it will
agree to deposit a portion of the Collections in respect
of Imputed Yield Receivables that it is entitled to
receive pursuant to Article IV to pay its ratable share
of the compensation of the Successor Servicer.
(d) All authority and power granted to the
Successor Servicer under this Agreement shall
automatically cease and terminate upon termination of the
Trust pursuant to Section 12.1 and shall pass to and be
vested in the Transferor and, without limitation, the
Transferor is hereby authorized and empowered to execute
and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or
things necessary or appropriate to effect the purposes of
such transfer of servicing rights. The Successor
Servicer agrees to cooperate with the Transferor in
effecting the termination of the responsibilities and
rights of the Successor Servicer to conduct servicing on
the Receivables. The Successor Servicer shall transfer
its electronic records relating to the Receivables to the
Transferor in such electronic form as the Transferor may
reasonably request and shall transfer all other records,
correspondence and documents to the Transferor in the
manner and at such times as the Transferor shall
reasonably request. To the extent that compliance with
this Section 10.2 shall require the Successor Servicer to
disclose to the Transferor information of any kind which
the Successor Servicer deems to be confidential, the
Transferor shall be required to enter into such customary
licensing and confidentiality agreements as the Successor
Servicer shall deem necessary to protect its interests.
Section 10.3 Notification to Certificate-
holders. Upon the Servicer becoming aware of
any Servicer Default, the Servicer shall give prompt
written notice thereof to the Trustee and any Enhancement
Provider and, upon receipt of such written notice, the
Trustee shall give notice to the Investor
Certificateholders at their respective addresses
appearing in the Certificate Register. Upon any
termination or appointment of a Successor Servicer
pursuant to this Article X, the Trustee shall give prompt
written notice thereof to Investor Certificateholders at
their respective addresses appearing in the Certificate
Register.
Section 10.4 Waiver of Past Defaults. The
Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 66-2/3% of the
Invested Amount of each Series materially adversely
affected by any default by the Servicer or Transferor
may, on behalf of all Certificateholders of such Series,
waive any default by the Servicer or Transferor in the
performance of its obligations hereunder and its
consequences, except a default in the failure to make any
required deposits or payments of interest or principal
relating to such Series pursuant to Article IV, which
default does not result from the failure of the Paying
Agent to perform its obligations to make any required
deposits or payments of interest and principal in
accordance with Article IV. Upon any such waiver of a
past default, such default shall cease to exist, and any
default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent
expressly so waived.
[End of Article X]
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of
any Servicer Default of which a Responsible Officer of
the Trustee has actual knowledge and after the curing of
all Servicer Defaults which may have occurred, undertakes
to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied
covenants or duties shall be read into this Agreement
against the Trustee. If a Responsible Officer has
received written notice that a Servicer Default has
occurred (and such Servicer Default has not been cured or
waived), the Trustee shall exercise such of the rights
and powers vested in it by this Agreement, and use the
same degree of care and skill in its exercise, as a
prudent person would exercise or use under the
circumstances in the conduct of such person's own
affairs; provided, however, that if the Trustee shall
assume the duties of the Servicer pursuant to Section 8.5
or 10.2, the Trustee in performing such duties shall use
the degree of skill and attention customarily exercised
by a servicer with respect to comparable receivables that
it services for itself or others.
(b) The Trustee, upon receipt of all
resolutions, certificates, statements, opinions, reports,
documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished
pursuant to any provision of this Agreement, shall
examine them to determine whether they substantially
conform to the requirements of this Agreement. The
Trustee shall retain all such items for at least one year
after receipt and shall make such items available for
inspection by any Investor Certificateholder at the
Corporate Trust Office, such inspection to be made during
regular business hours and upon reasonable prior notice
to the Trustee.
(c) Subject to subsection 11.1(a), no
provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action,
its own negligent failure to act or its own misconduct;
provided, however, that:
(i) the Trustee shall not be personally
liable for an error of judgment made in good faith
by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent
facts;
(ii) the Trustee shall not be personally
liable with respect to any action taken, suffered or
omitted to be taken by it in good faith in
accordance with the direction of the Holders of
Investor Certificates evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of
any Series relating to the time, method and place of
conducting any proceeding for any remedy available
to the Trustee with respect to such Series, or
exercising any trust or power conferred upon the
Trustee with respect to such Series, under this
Agreement; and
(iii) the Trustee shall not be charged
with knowledge of any failure by the Servicer
referred to in clauses (a) and (b) of Section 10.1
or of any breach by the Servicer contemplated by
clause (c) of Section 10.1 or any Pay Out Event
unless a Responsible Officer of the Trustee obtains
actual knowledge of such failure, breach or Pay-Out
Event or the Trustee receives written notice of such
failure, breach or Pay Out Event from the Servicer
or any Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 10% of
the Invested Amount of any Series adversely affected
thereby.
(d) The Trustee shall not be required to
expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or
powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it,
and none of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or be
responsible for the manner of performance of, any of the
obligations of the Servicer under this Agreement except
during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with
the terms of this Agreement.
(e) Except for actions expressly authorized by
this Agreement, the Trustee shall take no action
reasonably likely to impair the interests of the Trust in
any Receivable now existing or hereafter created or to
impair the value of any Receivable now existing or
hereafter created.
(f) Except as provided in this Agreement, the
Trustee shall have no power to vary the corpus of the
Trust.
(g) If a Responsible Officer of the Trustee,
has received written notice that the Paying Agent or the
Transfer Agent and Registrar shall fail to perform any
obligation, duty or agreement in the manner or on the day
required to be performed by the Paying Agent or the
Transfer Agent and Registrar, as the case may be, under
this Agreement, the Trustee shall be obligated promptly
upon its obtaining knowledge thereof by a Responsible
Officer of the Trustee to perform such obligation, duty
or agreement in the manner so required.
(h) If the Transferor has agreed to transfer
any of its accounts receivable (other than the
Receivables) to another Person, upon the written request
of the Transferor, the Trustee on behalf of the Trust
will enter into such intercreditor agreements with the
transferee of such receivables as are customary and
necessary to identify separately the rights, if any, of
the Trust and such other Person in the Transferor's
accounts receivable; provided, however, that the Trust
shall not be required to enter into any intercreditor
agreement that could adversely affect the interests of
the Certificateholders or the Trustee and, upon the
request of the Trustee, the Transferor will deliver an
Opinion of Counsel on any matters relating to such
intercreditor agreement, reasonably requested by the
Trustee.
Section 11.2 Certain Matters Affecting the
Trustee. Except as otherwise provided in Section 11.1:
(a) the Trustee may rely on and shall be
protected in acting on, or in refraining from acting in
accordance with, the initial report, the Daily Report,
the Settlement Statement, the annual Servicer's
certificate, the monthly payment instructions and
notification to the Trustee, the monthly
Certificateholder's statement, any resolution, Officer's
Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to
have been signed or presented to it pursuant to this
Agreement by the proper party or parties;
(b) the Trustee may consult with counsel, and
the advice or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in
good faith and in accordance with such advice or Opinion
of Counsel;
(c) the Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by
this Agreement or any Enhancement, or to institute,
conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders or any Enhancement Provider, pursuant
to the provisions of this Agreement, unless such
Certificateholders or Enhancement Provider shall have
offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be
incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligations,
upon the occurrence of any Servicer Default (which has
not been cured or waived) of which a Responsible Officer
of the Trustee has knowledge, to exercise such of the
rights and powers vested in it by this Agreement and any
Enhancement, and to use the same degree of care and skill
in its exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own
affairs;
(d) the Trustee shall not be personally liable
for any action taken, suffered or omitted by it in good
faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this
Agreement;
(e) the Trustee shall not be bound to make any
investigation into the facts of matters stated in the
initial report, the Daily Report, the Settlement
Statement, the annual Servicer's certificate, the monthly
payment instructions and notification to the Trustee, the
monthly Certificateholders statement, any resolution,
certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing so to do
by Holders of Investor Certificates evidencing Undivided
Interests aggregating more than 50% of the Invested
Amount of any Series which could be adversely affected if
the Trustee does not perform such acts;
(f) the Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys or a
custodian, and the Trustee shall not be responsible for
any misconduct or negligence on the part of any such
agent, attorney or custodian appointed with due care by
it hereunder;
(g) except as may be required by subsection
11.1(a), the Trustee shall not be required to make any
initial or periodic examination of any documents or
records related to the Receivables for the purpose of
establishing the presence or absence of defects, the
compliance by the Transferor with its representations and
warranties or for any other purpose;
(h) whenever in the administration of this
Agreement the Trustee shall deem it desirable that a
matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed)
may, in the absence of bad faith on its part, rely upon
an Officer's Certificate; and
(i) the right of the Trustee to perform any
discretionary act enumerated in this Agreement or any
Supplement shall not be construed as a duty, and the
Trustee shall not be answerable for performance of any
such act.
Section 11.3 Trustee Not Liable for Recitals
in Certificates. The Trustee assumes no responsibility
for the correctness of the recitals contained herein and
in the Certificates (other than the certificate of
authentication on the Certificates). Except as set forth
in Section 11.15, the Trustee makes no representations as
to the validity or sufficiency of this Agreement or of
the Certificates (other than the certificate of
authentication on the Certificates) or of any Receivable
or related document. The Trustee shall not be
accountable for the use or application by the Transferor
of any of the Certificates or of the proceeds of such
Certificates, or for the use or application of any funds
paid to the Transferor in respect of the Receivables or
deposited in or withdrawn from the Collection Account,
the Excess Funding Account, the Principal Account or the
Interest Funding Account, or any Series Account or other
accounts now or hereafter established to effectuate the
transactions contemplated herein and in accordance with
the terms hereof. The Trustee shall have no
responsibility for filing any financing or continuation
statement in any public office at any time or to
otherwise perfect or maintain the perfection of any
security interest or Lien granted to it hereunder (unless
the Trustee shall have become the Successor Servicer) or
to prepare or file any Securities and Exchange Commission
filing for the Trust or to record this Agreement or any
Supplement.
Section 11.4 Trustee May Own Certificates.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Investor Certificates and
may deal with the Transferor, the Servicer or any
Enhancement Provider with the same rights as it would
have if it were not the Trustee. The Trustee in its
capacity as Trustee shall exercise its duties and
responsibilities hereunder independent of and without
reference to its investment, if any, in Investor
Certificates.
Section 11.5 The Servicer to Pay Trustee's
Fees and Expenses. The Servicer covenants and agrees to
pay to the Trustee from time to time, and the Trustee
shall be entitled to receive, reasonable compensation
(which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express
trust) for all services rendered by the Trustee in the
execution of the trust hereby created and in the exercise
and performance of any of the powers and duties hereunder
of the Trustee, and, subject to Section 8.4, the Servicer
will pay or reimburse the Trustee (without reimbursement
from any Investor Account, any Series Account or
otherwise) upon its request for all reasonable expenses,
disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this
Agreement (including the reasonable fees and expenses of
its agents and counsel) except any such expense,
disbursement or advance as may arise from its own
negligence or bad faith and except as provided in the
following sentence. If the Trustee is appointed
Successor Servicer pursuant to Section 10.2, the
provisions of this Section 11.5 shall not apply to
expenses, disbursements and advances made or incurred by
the Trustee in its capacity as Successor Servicer (which
shall be covered out of the Servicing Fee).
The obligations of the Servicer under this
Section 11.5 shall survive the termination of the Trust
and the resignation or removal of the Trustee.
Section 11.6 Eligibility Requirements for
Trustee. The Trustee hereunder shall at all times (a) be
a corporation organized and doing business under the laws
of the United States of America or any state thereof
authorized under such laws to exercise corporate trust
powers, having a long-term unsecured debt rating of at
least Baa3 by Moody's, having, in the case of an entity
that is subject to risk-based capital adequacy
requirements, risk-based capital of at least $50,000,000
or, in the case of an entity that is not subject to risk-
based capital adequacy requirements, having a combined
capital and surplus of at least $50,000,000 and subject
to supervision or examination by federal or state
authority and (b) not be a Related Person. If such
corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for
the purpose of this Section 11.6, the combined capital
and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most
recent report of condition so published. In case at any
time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 11.6, the Trustee
shall resign immediately in the manner and with the
effect specified in Section 11.7.
Section 11.7 Resignation or Removal of
Trustee.
(a) The Trustee may at any time resign and be
discharged from the Trust hereby created by giving
written notice thereof to the Servicer. Upon receiving
such notice of resignation, the Servicer shall promptly
appoint a successor trustee by written instrument, in
duplicate, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have
been so appointed and have accepted such appointment
within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court
of competent jurisdiction for the appointment of a
successor trustee.
(b) If at any time the Trustee shall cease to
be eligible in accordance with the provisions of Section
11.6 hereof and shall fail to resign after written
request therefor by the Transferor, or if at any time the
Trustee shall be legally unable to act, or shall be
adjudged bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the
Transferor may, but shall not be required to, remove the
Trustee and promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed
and one copy to the successor trustee.
(c) If (i) the Trustee shall fail to perform
any of its obligations hereunder, (ii) a
Certificateholder shall deliver written notice of such
failure to the Trustee, and (iii) the Trustee shall not
have corrected such failure for 60 days thereafter, then
the Holders of Investor Certificates representing more
than 50% of the Invested Amount (including related
commitments of holders of Variable Funding Certificates)
shall have the right to remove the Trustee and (with the
consent of the Transferor, which shall not be
unreasonably withheld) promptly appoint a successor
trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
(d) Any resignation or removal of the Trustee
and appointment of a successor trustee pursuant to any of
the provisions of this Section 11.7 shall not become
effective until acceptance of appointment by the
successor trustee as provided in Section 11.8 hereof and
any liability of the Trustee arising hereunder shall
survive such appointment of a successor trustee. Notice
of any resignation or removal of the Trustee and
appointment of a successor trustee shall be provided to
Moody's and Standard & Poor's by the Servicer in a prompt
manner.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as
provided in Section 11.7 hereof shall execute,
acknowledge and deliver to the Transferor and to its
predecessor Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective
and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor
hereunder, with the like effect as if originally named as
Trustee herein. The predecessor Trustee shall deliver to
the successor trustee all documents and statements held
by it hereunder, and the Transferor and the predecessor
Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully
and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept
appointment as provided in this Section 11.8 unless at
the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a
successor trustee as provided in this Section 11.8, such
successor trustee shall mail notice of such succession
hereunder to all Certificateholders at their addresses as
shown in the Certificate Register.
Section 11.9 Merger or Consolidation of
Trustee. Any Person into which the Trustee may be merged
or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or
any Person succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of
Section 11.6 hereof, without the execution or filing of
any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary
notwithstanding.
Section 11.10 Appointment of Co-Trustee or
Separate Trustee.
(a) Notwithstanding any other provisions of
this Agreement, at any time, for the purpose of meeting
any legal requirements of any jurisdiction in which any
part of the Trust may at the time be located, the Trustee
shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Trust, and
to vest in such Person or Persons, in such capacity and
for the benefit of the Certificateholders, such title to
the trust, or any part thereof, and, subject to the other
provisions of this Section 11.10, such powers, duties,
obligations, rights and trusts as the Trustee may
consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the
terms of eligibility as a successor trustee under Section
11.6 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall
be required under Section 11.8 hereof.
(b) Every separate trustee and co-trustee
shall, to the extent permitted by law, be appointed and
act subject to the following provisions and conditions:
(i) all rights, powers, duties and
obligations conferred or imposed upon the Trustee
shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee
or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such
act), except to the extent that under any laws of
any jurisdiction in which any particular act or acts
are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee
shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers,
duties and obligations (including the holding of
title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(ii) no trustee hereunder shall be
personally liable by reason of any act or omission
of any other trustee hereunder; and
(iii) the Trustee may at any time accept
the resignation of or remove any separate trustee or
co-trustee.
(c) Any notice, request or other writing given
to the Trustee shall be deemed to have been given to each
of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee
shall refer to this Agreement and the conditions of this
Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested
with the estates or property specified in its instrument
of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all
the provisions of this Agreement, specifically including
every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed
with the Trustee and a copy thereof given to the
Servicer.
(d) Any separate trustee or co-trustee may at
any time constitute the Trustee as its agent or attorney-
in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in
respect to this Agreement on its behalf and in its name.
If any separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent
permitted by law, without the appointment of a new or
successor trustee.
Section 11.11 Tax Returns. Consistent with
Section 3.7, the Trustee shall not file any Federal tax
returns on behalf of the Trust; provided, however, that
if a class of Certificates is issued that will be
characterized as a partnership for federal income tax
purposes, partnership information returns shall be
prepared and signed by the Transferor, as general
partner. In the event the Trust shall be required to
file tax returns, the Servicer shall at its expense
prepare or cause to be prepared any tax returns required
to be filed by the Trust and, to the extent possible,
shall remit such returns to the Trustee for signature at
least five days before such returns are due to be filed.
The Trustee is hereby authorized to sign any such return
on behalf of the Trust. The Servicer shall prepare or
shall cause to be prepared all tax information required
by law to be distributed to Certificateholders and shall
deliver such information to the Trustee at least five
days prior to the date it is required by law to be
distributed to Certificateholders. The Trustee, upon
request, will furnish the Servicer with all such
information known to the Trustee as may be reasonably
required in connection with the preparation of all tax
returns of the Trust and shall, upon request, execute
such return. In no event shall the Trustee be liable for
any liabilities, costs or expenses of the Trust, the
Investor Certificateholders or the Certificate Owners
arising under any tax law, including without limitation
federal, state, local or foreign income or excise taxes
or any other tax imposed on or measured by income (or any
interest or penalty or addition with respect thereto or
arising from a failure to comply therewith).
Section 11.12 Trustee May Enforce Claims
Without Possession of Certificates. All rights of action
and claims under this Agreement or any Series of
Certificates may be prosecuted and enforced by the
Trustee without the possession of any of the Certificates
or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee. Any
recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel, be for the ratable benefit of any Series of
Certificateholders in respect of which such judgment has
been obtained.
Section 11.13 Suits for Enforcement. If a
Servicer Default of which a Responsible Officer of the
Trustee has knowledge shall occur and be continuing, the
Trustee, in its discretion may, subject to the provisions
of Section 10.1, proceed to protect and enforce its
rights and the rights of any Series of Certificateholders
under this Agreement by a suit, action or proceeding in
equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power
granted in this Agreement or for the enforcement of any
other legal, equitable or other remedy as the Trustee,
being advised by counsel, shall deem most effectual to
protect and enforce any of the rights of the Trustee or
any Series of Certificateholders.
Section 11.14 Rights of Certificateholders to
Direct Trustee. Holders of Investor Certificates
evidencing Undivided Interests aggregating more than 50%
of the Aggregate Invested Amount (or, with respect to any
remedy, trust or power that does not relate to all
Series, 50% of the aggregate Invested Amount of the
Investor Certificates of all Series to which such remedy,
trust or power relates) shall have the right to direct
the time, method, and place of conducting any proceeding
for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided,
however, that Holders of Investor Certificates
aggregating more than 50% of the aggregate Invested
Amount of any Class may direct the Trustee to exercise
its rights under Section 8.6; provided, further, that,
subject to Section 11.1, the Trustee shall have the right
to decline to follow any such direction if the Trustee
being advised by counsel determines that the action so
directed may not lawfully be taken, or if the Trustee in
good faith shall, by a Responsible Officer or Responsible
Officers of the Trustee, determine that the proceedings
so directed would be illegal or involve it in personal
liability or be unduly prejudicial to the rights of
Certificateholders not parties to such direction; and
provided, further that nothing in this Agreement shall
impair the right of the Trustee to take any action deemed
proper by the Trustee and which is not inconsistent with
such direction of such Holders of Investor Certificates.
Section 11.15 Representations and Warranties
of Trustee. The Trustee represents and warrants that:
(i) the Trustee is a corporation
organized, existing and authorized to engage in the
business of banking under the laws of the State of
its incorporation;
(ii) the Trustee is an entity that
satisfies the eligibility requirements of Section
11.6;
(iii) the Trustee has full power,
authority and right to execute, deliver and perform
this Agreement, and has taken all necessary action
to authorize the execution, delivery and performance
by it of this Agreement; and
(iv) this Agreement has been duly
executed and delivered by the Trustee.
Section 11.16 Maintenance of Office or Agency.
The Trustee will maintain at its expense an office or
offices, or agency or agencies, where notices and demands
to or upon the Trustee in respect of the Certificates and
this Agreement may be served. The Trustee initially
appoints its Corporate Trust Office as its office for
such purposes. The Trustee will give prompt written
notice to the Servicer and to Certificateholders (or in
the case of Holders of Bearer Certificates, in the manner
provided for in the related Supplement) of any change in
the location of the Certificate Register or any such
office or agency.
[End of Article XI]
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and
responsibilities of the Transferor, the Servicer and the
Trustee created hereby (other than the obligation of the
Trustee to make payments to Certificateholders as
hereafter set forth) shall terminate, except with respect
to the duties described in Section 8.4 and 11.5 and
subsection 12.3(b), on the Trust Termination Date;
provided, however, that the Trust shall not terminate on
the date specified in clause (i) of the definition of
"Trust Termination Date" if each of the Servicer and the
Holder of the Exchangeable Transferor Certificate notify
the Trustee in writing, not later than five Business Days
preceding such date, that they desire that the Trust not
terminate on such date, which notice (such notice, a
"Trust Extension") shall specify the date on which the
Trust shall terminate (such date, the "Extended Trust
Termination Date"); provided, however, that the Extended
Trust Termination Date shall be not later than June 29,
2034. The Servicer and the Holder of the Exchangeable
Transferor Certificate may, on any date following the
Trust Extension, so long as no Series of Certificates is
outstanding, deliver a notice in writing to the Trustee
changing the Extended Trust Termination Date.
(b) In the event that (i) the Trust has not
terminated by the Distribution Date occurring in the
second month preceding the Trust Termination Date, and
(ii) the Invested Amount of any Series, exclusive of any
Transferor Retained Class (after giving effect to all
transfers, withdrawals, deposits and drawings to occur on
such date and the payment of principal on any Series of
Certificates to be made on the related Distribution Date
during such month pursuant to Article IV), would be
greater than zero, the Servicer shall sell within 30 days
after such Transfer Date an amount of Receivables up to
the remaining Invested Amount if it can do so in a
commercially reasonable manner. The Servicer shall
notify each Enhancement Provider of the proposed sale of
the Receivables and shall provide each Enhancement
Provider an opportunity to bid on the Receivables. The
Transferor shall have the right of first refusal to
purchase the Receivables on terms equivalent to the best
purchase offer as determined by the Trustee in its sole
discretion. The proceeds of any such sale shall be
treated as Collections on the Receivables and shall be
allocated and deposited in accordance with Article IV;
provided, however, that the Trustee shall determine
conclusively in its sole discretion the amount of such
proceeds which are allocable to Imputed Yield Collections
and the amount of such proceeds which are allocable to
Principal Collections. During such thirty-day period,
the Servicer shall continue to collect payments on the
Receivables and allocate and deposit such payments in
accordance with the provisions of Article IV.
(c) All principal or interest with respect to
any Series of Investor Certificates shall be due and
payable no later than the Series Termination Date with
respect to such Series. Unless otherwise provided in a
Supplement, in the event that the Invested Amount of any
Series of Certificates is greater than zero, exclusive of
any Class held by the Transferor, on its Series
Termination Date (the "Affected Series"), after giving
effect to all transfers, withdrawals, deposits and
drawings to occur on such date and the payment of
principal to be made on such Series on such date, and the
Trustee will sell or cause to be sold, and the Trustee
will pay the proceeds to all Certificateholders of such
Series pro rata in final payment of all principal of and
accrued interest on such Series of Certificates or, if
any Class of such Series is subordinated, in order of
their respective seniorities, an amount of Principal
Receivables and the related Imputed Yield Receivables (or
interests therein) up to 110% of the Invested Amount of
such Series at the close of business on such date (but
the amount of such Principal Receivables not to be more
than an amount of Receivables equal to the sum of (1) the
product of (A) the Transferor Percentage, (B) the
aggregate outstanding Principal Receivables and (C) a
fraction the numerator of which is the Invested Amount
of such Series on such date and the denominator of which
is the sum of the Invested Amounts of all Series on such
Date and (2) the Invested Amount of such Series).
Receivables on which the Obligor has not made the full
monthly payment for the prior months shall be deemed to
be in default for purposes of this Section 12.1(c) to the
extent that the cash allocated to any Class of Transferor
Retained Certificates of such Series pursuant to a sale
under Section 12.1(c) is less than the amount that would
have been allocated to the Exchangeable Transferor
Certificate and the Transferor Retained Certificates had
the proceeds from such sale been allocated pursuant to
Section 4.3. The Servicer shall notify each Enhancement
Provider of the proposed sale of such Receivables and
shall provide each Enhancement Provider an opportunity to
bid on such Receivables. The Transferor shall be
permitted to purchase such Receivables in such case and
shall have a right of first refusal with respect thereto
to the extent of a bona fide offer by an unrelated third
party or to the extent the Receivables represent
Defaulted Receivables. Any proceeds of such sale in
excess of such principal and interest paid shall be paid
to the Holder of the Exchangeable Transferor Certificate.
Upon such Series Termination Date with respect to the
applicable Series of Certificates, final payment of all
amounts allocable to any Investor Certificates of such
Series shall be made in the manner provided in Section
12.3.
Section 12.2 Optional Termination. (a) If so
provided in any Supplement, the Transferor may, but shall
not be obligated to, cause a final distribution to be
made in respect of the related Series of Certificates on
a Distribution Date specified in such Supplement by
depositing into the Distribution Account or the
applicable Series Account, not later than the Transfer
Date preceding such Distribution Date, for application in
accordance with Section 12.3, the amount specified in
such Supplement; provided, however that if the short-term
deposits or long-term unsecured debt obligations of the
Transferor are not rated at the time of such purchase of
Receivables at least P-3 or Baa3, respectively, by
Moody's, no such event shall occur unless the Transferor
shall deliver to the Trustee, with a copy to Moody's, an
Opinion of Counsel that such deposit into the
Distribution Account or any Series Account as provided in
the related Supplement would not constitute a fraudulent
conveyance of the Transferor.
(b) The amount deposited pursuant to
subsection 12.2(a) shall be paid to the Investor
Certificateholders of the related Series pursuant to
Section 12.3 on the related Distribution Date following
the date of such deposit. All Certificates of a Series
with respect to which a final distribution has been made
pursuant to subsection 12.2(a) shall be delivered by the
Holder to, and be canceled by, the Transfer Agent and
Registrar and be disposed of in a manner satisfactory to
the Trustee and the Transferor. The Invested Amount of
each Series with respect to which a final distribution
has been made pursuant to subsection 12.2(a) shall, for
the purposes of the definition of "Transferor Interest,"
be deemed to be equal to zero on the Distribution Date
following the making of the deposit, and the Transferor
Interest shall thereupon be deemed to have been increased
by the Invested Amount of such Series.
Section 12.3 Final Payment with Respect to any
Series.
(a) Written notice of any termination,
specifying the Distribution Date upon which the Investor
Certificateholders of any Series may surrender their
Certificates for payment of the final distribution with
respect to such Series and cancellation, shall be given
(subject to at least four Business Days' prior notice
from the Servicer to the Trustee) by the Trustee to
Investor Certificateholders of such Series mailed not
later than the fifth day of the month of such final
distribution (or in the manner provided by the Supplement
relating to such Series) specifying (i) the Distribution
Date (which shall be the Distribution Date in the month
(x) in which the deposit is made pursuant to subsection
2.4(e), 9.2(a), 10.2(a), or 12.2(a) of the Agreement or
such other section as may be specified in the related
Supplement, or (y) in which the related Series
Termination Date occurs) upon which final payment of such
Investor Certificates will be made upon presentation and
surrender of such Investor Certificates at the office or
offices therein designated (which, in the case of Bearer
Certificates, shall be outside the United States), (ii)
the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution
Date is not applicable, payments being made only upon
presentation and surrender of the Investor Certificates
at the office or offices therein specified. The
Servicer's notice to the Trustee in accordance with the
preceding sentence shall be accompanied by an Officers'
Certificate setting forth the information specified in
Article V of this Agreement covering the period during
the then current calendar year through the date of such
notice and setting forth the date of such final
distribution. The Trustee shall give such notice to the
Transfer Agent and Registrar and the Paying Agent at the
time such notice is given to such Investor
Certificateholders.
(b) Notwithstanding the termination of the
Trust pursuant to subsection 12.1(a) or the occurrence of
the Series Termination Date with respect to any Series,
all funds then on deposit in the Excess Funding Account,
the Interest Funding Account, the Principal Account, the
Distribution Account or any Series Account applicable to
the related Series shall continue to be held in trust for
the benefit of the Certificateholders of the related
Series and the Paying Agent or the Trustee shall pay such
funds to the Certificateholders of the related Series
upon surrender of their Certificates (which surrenders
and payments, in the case of Bearer Certificates, shall
be made only outside the United States). In the event
that all of the Investor Certificateholders of any Series
shall not surrender their Certificates for cancellation
within six months after the date specified in the above-
mentioned written notice, the Trustee shall give a second
written notice (or, in the case of Bearer Certificates,
publication notice) to the remaining Investor
Certificateholders of such Series upon receipt of the
appropriate records from the Transfer Agent and Registrar
to surrender their Certificates for cancellation and
receive the final distribution with respect thereto. If
within one and one half years after the second notice
with respect to a Series, all the Investor Certificates
of such Series shall not have been surrendered for
cancellation, the Trustee may take appropriate steps or
may appoint an agent to take appropriate steps, to
contact the remaining Investor Certificateholders of such
Series concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds in the
Distribution Account or any Series Account held for the
benefit of such Investor Certificateholders. The Trustee
and the Paying Agent shall pay to the Transferor upon
request any monies held by them for the payment of
principal or interest which remains unclaimed for two
years. After payment to the Transferor, Investor
Certificateholders entitled to the money must look to the
Transferor for payment as general creditors unless an
applicable abandoned property law designates another
Person.
(c) All Certificates surrendered for payment
of the final distribution with respect to such
Certificates and cancellation shall be canceled by the
Transfer Agent and Registrar and be disposed of in a
manner satisfactory to the Trustee and the Transferor.
Section 12.4 Termination Rights of Holder of
Exchangeable Transferor Certificate. Upon the
termination of the Trust pursuant to Section 12.1, and
after payment of all amounts due hereunder on or prior to
such termination and the surrender of the Exchangeable
Transferor Certificate, the Trustee shall execute a
written reconveyance substantially in the form of Exhibit
F pursuant to which it shall reconvey to the Holder of
the Exchangeable Transferor Certificate (without
recourse, representation or warranty) all right, title
and interest of the Trust in the Receivables, whether
then existing or thereafter created, all moneys due or to
become due with respect thereto (including all amounts
theretofore posted as Imputed Yield Receivables)
allocable to the Trust pursuant to any Supplement, except
for amounts held by the Trustee pursuant to subsection
12.3(b). The Trustee shall execute and deliver such
instruments of transfer and assignment, in each case
prepared by the Transferor and without recourse,
representation or warranty (other than a warranty that
such property is conveyed free and clear of any Lien of
any Person claiming by or through the Trustee) as shall
be reasonably requested by the Holder of the Exchangeable
Transferor Certificate to vest in such Holder all right,
title and interest which the Trust had in the Receivables
and other Trust Property.
[End of Article XII]
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment.
(a) This Agreement (including any Supplement)
may be amended from time to time by the Servicer, the
Transferor and the Trustee, without the consent of any of
the Certificateholders, (i) to cure any ambiguity, to
revise any exhibits or Schedules (other than Schedule 1),
to correct or supplement any provisions herein or thereon
which may be inconsistent with any other provisions
herein or thereon or (ii) to add any other provisions
with respect to matters or questions raised under this
Agreement which shall not be inconsistent with the
provisions of this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the
interests of any of the Investor Certificateholders.
Additionally, this Agreement may be amended from time to
time by the Servicer, the Transferor and the Trustee,
without the consent of any of the Certificateholders, to
add to or change any of the provisions of this Agreement
to provide that Bearer Certificates may be registrable as
to principal, to change or eliminate any restrictions on
the payment of principal of (or premium, if any) or any
interest on Bearer Certificates to comply with the Bearer
Rules, to permit Bearer Certificates to be issued in
exchange for Registered Certificates (if then permitted
by the Bearer Rules), to permit Bearer Certificates to be
issued in exchange for Bearer Certificates of other
authorized denominations or to permit the issuance of
Certificates in uncertificated form.
This Agreement (including any Supplement), and
any schedule or exhibit thereto may also be amended from
time to time by the Servicer, the Transferor and the
Trustee, without the consent of any of the
Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating
any of the provisions of this Agreement, or of modifying
in any manner the rights of the Holders of Certificates;
provided, however, that (i) the Servicer shall have
provided an Officer's Certificate to the Trustee to the
effect that such amendment will not materially and
adversely affect the interests of the Certificateholders,
(ii) such amendment shall not, as evidenced by an Opinion
of Counsel, cause the Trust to be characterized for
Federal income tax purposes as an association taxable as
a corporation or otherwise have any material adverse
impact on the Federal income taxation of any outstanding
Series of Investor Certificates or any Certificate Owner
and (iii) the Servicer shall have provided at least ten
Business Days prior written notice to each Rating Agency
of such amendment and shall have received written
confirmation from each Rating Agency to the effect that
the rating of any Series or any class of any Series will
not be reduced or withdrawn as a result of such
amendment; provided, further, that such amendment shall
not reduce in any manner the amount of, or delay the
timing of, distributions which are required to be made on
any Investor Certificate of such Series without the
consent of the related Investor Certificateholder, change
the definition of or the manner of calculating the
interest of any Investor Certificateholder of such Series
without the consent of the related Investor
Certificateholder or reduce the percentage pursuant to
Subsection 13.1(b) required to consent to any such
amendment, in each case without the consent of all such
Investor Certificateholders; provided, further, that the
transfer of the Receivables to and the generation of new
Receivables by, a credit card bank established by
Fingerhut or any Affiliate thereof and/or the appointment
of a credit card bank established by Fingerhut as
Servicer hereunder in connection with such transfer and
any other transactions related, supplemental or
incidental thereto shall be deemed not to materially and
adversely affect the interests of the Certificateholders.
(b) This Agreement and any Supplement may also
be amended from time to time by the Servicer, the
Transferor and the Trustee with the consent of the
Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 66-2/3% of the
Invested Amount of each and every Series adversely
affected, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any
manner the rights of the Investor Certificateholders of
any Series then issued and outstanding; provided,
however, that no such amendment under this subsection
shall (i) reduce in any manner the amount of, or delay
the timing of, distributions which are required to be
made on any Investor Certificate of such Series without
the consent of all of the related Investor
Certificateholders; (ii) change the definition of or the
manner of calculating the interest of any Investor
Certificateholder of such Series without the consent of
the related Investor Certificateholder or (iii) reduce
the aforesaid percentage required to consent to any such
amendment, in each case without the consent of all such
Investor Certificateholders.
(c) Notwithstanding anything in this Section
13.1 to the contrary, the Supplement with respect to any
Series may be amended on the items and in accordance with
the procedures provided in such Supplement.
(d) Promptly after the execution of any such
amendment (other than an amendment pursuant to paragraph
(a)), the Trustee shall furnish notification of the
substance of such amendment to each Investor
Certificateholder of each Series adversely affected and
ten Business Days prior to the proposed effective date
for such amendment the Servicer shall furnish
notification of the substance of such amendment to each
Rating Agency providing a rating for such Series.
(e) It shall not be necessary to obtain the
consent of Investor Certificateholders under this Section
13.1 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of
obtaining such consents and of evidencing the
authorization of the execution thereof by Investor
Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
(f) Any Supplement executed and delivered
pursuant to Section 6.9, executed in accordance with the
provisions hereof, shall not be considered amendments to
this Agreement for the purpose of subsections 13.1(a) and
(b).
(g) In connection with any amendment, the
Trustee may request an Opinion of Counsel from the
Transferor or Servicer to the effect that the amendment
complies with all requirements of this Agreement. The
Trustee may, but shall not be obligated to, enter into
any amendment which affects the Trustee's rights, duties
or immunities under this Agreement or otherwise.
Section 13.2 Protection of Right, Title and
Interest to Trust.
(a) The Servicer shall cause this Agreement,
all amendments hereto and/or all financing statements and
continuation statements and any other necessary documents
covering the Certificateholders and the Trustee's right,
title and interest to the Trust to be promptly recorded,
registered and filed, and at all times to be kept
recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve
and protect the right, title and interest of the
Certificateholders or the Trustee, as the case may be,
hereunder to all property comprising the Trust. The
Servicer shall deliver to the Trustee file-stamped copies
of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as
available following such recording, registration or
filing. The Transferor shall cooperate fully with the
Servicer in connection with the obligations set forth
above and will execute any and all documents reasonably
required to fulfill the intent of this subsection
13.2(a).
(b) Within 30 days after the Transferor makes
any change in its name, identity or corporate structure
which would make any financing statement or continuation
statement filed in accordance with paragraph (a) above
materially misleading within the meaning of Section 9-
402(7) of the UCC as in effect in the Relevant UCC State,
the Transferor shall give the Trustee written notice of
any such change and shall file such financing statements
or amendments as may be necessary to continue the
perfection of the Trust's security interest in the
Receivables and the proceeds thereof.
(c) Each of the Transferor and the Servicer
will give the Trustee prompt written notice of any
relocation of any office from which it services
Receivables or keeps records concerning the Receivables
or of its principal executive office and whether, as a
result of such relocation, the applicable provisions of
the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or
of any new financing statement and shall file such
financing statements or amendments as may be necessary to
continue the perfection of the Trust's security interest
in the Receivables and the proceeds thereof. Each of the
Transferor and the Servicer will at all times maintain
each office from which it services Receivables and its
principal executive office within the United States of
America.
(d) The Servicer will deliver to the Trustee
on or before March 31 of each year, beginning with March
31, 1995, an Opinion of Counsel, substantially in the
form of Exhibit E.
Section 13.3 Limitation on Rights of
Certificateholders.
(a) The death or incapacity of any Investor
Certificateholder shall not operate to terminate this
Agreement or the Trust, nor shall such death or
incapacity entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court
for a partition or winding up of the Trust, nor otherwise
affect the rights, obligations and liabilities of the
parties hereto or any of them.
(b) No Investor Certificateholder shall have
any right to vote (except with respect to the Investor
Certificateholders as provided in Section 13.1 hereof) or
in any manner otherwise control the operation and
management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or
contained in the terms of the Certificates, be construed
so as to constitute the Certificateholders from time to
time as members of an association; nor shall any Investor
Certificateholder be under any liability to any third
person by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right
by virtue of any provisions of this Agreement to
institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement,
unless such Certificateholder previously shall have given
written notice to the Trustee, and unless the Holders of
Certificates evidencing Undivided Interests aggregating
more than 50% of the Invested Amount of any Series which
may be adversely affected but for the institution of such
suit, action or proceeding, shall have made written
request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and
shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and
the Trustee, for 60 days after its receipt of such
notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and
being expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no
one or more Certificateholders shall have the right in
any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect,
disturb or prejudice the rights of the Certificateholders
of any other of the Certificates, or to obtain or seek to
obtain priority over or preference to any other such
Certificateholder, or to enforce any right under this
Agreement, except in the manner herein provided and for
the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement
of the provisions of this Section 13.3, each and every
Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 13.4 Governing Law. THIS AGREEMENT
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 13.5 Notices. All demands, notices
and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally
delivered at, sent by facsimile to, sent by courier at or
mailed by registered mail, return receipt requested, to
(a) in the case of the Transferor, to 4400 Baker Road,
Suite F480, Minnetonka, Minnesota, 55343, Attention:
Chief Financial Officer, with a copy to the Servicer as
provided below, (b) in the case of the Servicer, to 3904
West Technology Circle, Suite 102, Sioux Falls, South
Dakota 57106, Attention: President, with a copy to
Fingerhut, 4400 Baker Road, Minnetonka, Minnesota 55343,
Attention: Treasurer, (c) in the case of the Trustee, to
the Corporate Trust Office, (d) in the case of the
Enhancement Provider for a particular Series, the
address, if any, specified in the Supplement relating to
such Series and (e) in the case of the Rating Agency for
a particular Series, the address, if any, specified in
the Supplement relating to such Series; or, as to each
party, at such other address as shall be designated by
such party in a written notice to each other party.
Unless otherwise provided with respect to any Series in
the related Supplement any notice required or permitted
to be mailed to a Certificateholder shall be given by
first class mail, postage prepaid, at the address of such
Certificateholder as shown in the Certificate Register,
or with respect to any notice required or permitted to be
made to the Holders of Bearer Certificates, by
publication in the manner provided in the related
Supplement. If and so long as any Series or Class is
listed on the Luxembourg Stock Exchange and such Exchange
shall so require, any Notice to Investor
Certificateholders shall be published in an authorized
newspaper of general circulation in Luxembourg within the
time period prescribed in this Agreement. Any notice so
mailed within the time prescribed in this Agreement shall
be conclusively presumed to have been duly given, whether
or not the Certificateholder receives such notice.
Section 13.6 Severability of Provisions. If
any one or more of the covenants, agreements, provisions
or terms of this Agreement shall for any reason
whatsoever be held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable
from the remaining covenants, agreements, provisions or
terms of this Agreement and shall in no way affect the
validity or enforceability of the other provisions of
this Agreement or of the Certificates or rights of the
Certificateholders thereof.
Section 13.7 Assignment. Notwithstanding
anything to the contrary contained herein, except as
provided in Section 8.2, this Agreement may not be
assigned by the Servicer without the prior consent of
Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 66 2/3% of the
Invested Amount of each Series on a Series by Series
basis. Upon such assignment, the Trustee shall provide
notice to Moody's in a prompt manner.
Section 13.8 Certificates Non-Assessable and
Fully Paid. Except to the extent otherwise expressly
provided in Section 7.4 with respect to the Transferor,
it is the intention of the parties to this Agreement that
the Investor Certificateholders shall not be personally
liable for obligations of the Trust, that the Undivided
Interests represented by the Certificates shall be non-
assessable for any losses or expenses of the Trust or for
any reason whatsoever, and that Certificates upon
authentication thereof by the Trustee pursuant to
Sections 2.1 and 6.2 are and shall be deemed fully paid.
Section 13.9 Further Assurances. The
Transferor and the Servicer agree to do and perform, from
time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by
the Trustee more fully to effect the purposes of this
Agreement, including, without limitation, the execution
of any financing statements or continuation statements
relating to the Receivables and the other Trust Property
for filing under the provisions of the UCC of any
applicable jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the
part of the Trustee, any Enhancement Provider or the
Investor Certificateholders, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and
not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 13.11 Counterparts. This Agreement
may be executed in two or more counterparts (and by
different parties on separate counterparts), each of
which shall be an original, but all of which together
shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This
Agreement will inure to the benefit of and be binding
upon the parties hereto, the Certificateholders and, to
the extent provided in the related Supplement, to the
Enhancement Provider named therein, and their respective
successors and permitted assigns. Except as otherwise
provided in this Article XIII, no other Person will have
any right or obligation hereunder.
Section 13.13 Actions by Certificateholders.
(a) Wherever in this Agreement a provision is
made that an action may be taken or a notice, demand or
instruction given by Investor Certificateholders, such
action, notice or instruction may be taken or given by
any Investor Certificateholder, unless such provision
requires a specific percentage of Investor
Certificateholders.
(b) Any request, demand, authorization,
direction, notice, consent, waiver or other act by a
Certificateholder shall bind such Certificateholder and
every subsequent holder of such Certificate issued upon
the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done
or omitted to be done by the Trustee or the Servicer in
reliance thereon, whether or not notation of such action
is made upon such Certificate.
(c) Any request, demand, authorization,
direction, notice, consent, waiver or other action
provided by this Agreement or any Supplement to be given
or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially
similar tenor signed by such Certificateholders in person
or by agent duly appointed in writing; and except as
herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are
delivered to the Trustee and, when required, to the
Transferor or the Servicer. Proof of execution of any
such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Agreement or
any Supplement and conclusive in favor of the Trustee,
the Transferor and the Servicer, if made in the manner
provided in this Section.
(d) The fact and date of the execution by any
Certificateholder of any such instrument or writing may
be proved in any reasonable manner which the Trustee
deems sufficient.
Section 13.14 Rule 144A Information. For so
long as any of the Investor Certificates of any Series or
any Class are "restricted securities" within the meaning
of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Servicer, the Trustee and the Enhancement
Provider for such Series agree to cooperate with each
other to provide to any Investor Certificateholders of
such Series or Class and to any prospective purchaser of
Certificates designated by such an Investor
Certificateholder upon the request of such Investor
Certificateholder or prospective purchaser, any
information required to be provided to such holder or
prospective purchaser to satisfy the condition set forth
in Rule 144A(d)(4) under the Securities Act.
Section 13.15 Merger and Integration. Except
as specifically stated otherwise herein, this Agreement
sets forth the entire understanding of the parties
relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this
Agreement. This Agreement may not be modified, amended,
waived or supplemented except as provided herein.
Section 13.16 Headings. The headings herein
are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any
provision hereof.
[End of Article XIII]
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Agreement to be
duly executed by their respective officers as of the day
and year first above written.
FINGERHUT RECEIVABLES, INC.
Transferor
By: /s/ James M. Wehmann
Name: James M. Wehmann
Title: Vice President, Assistant
Treasurer
FINGERHUT NATIONAL BANK
Servicer
By: /s/ Terry H. Hughes
Name: Terry H. Hughes
Title: Chief Executive Officer
THE BANK OF NEW YORK (DELAWARE)
Trustee
By: /s/ Joseph G. Ernst
Name: Joseph G. Ernst
Title: Assistant Vice President
SCHEDULE 1
TAX RETURNS AND PAYMENTS
The Transferor, Fingerhut, FNB and FCI have filed all
applicable federal, state and material local tax returns
and have paid or caused to be paid all associated taxes
due and payable on such returns or on any assessments
received by them; except that the Transferor, Fingerhut,
FNB and FCI have not filed certain tax returns purported
to be required because they believe the requirements are
invalid and unenforceable under the commerce clause of
the United States Constitution as interpreted by the
Supreme Court in National Bellas Hess v. Department of
Revenue of Illinois, 386 U.S. 753 (1967) and the
supporting lines of cases, including Quill Corp. v. North
Dakota, 112 S. Ct. 1904 (1992). The following are the
states in which the Transferor, Fingerhut, FNB and FCI
are currently collecting sales/use taxes:
California Ohio
Florida Pennsylvania
Illinois South Carolina
Iowa South Dakota
Minnesota Tennessee
New York
Notwithstanding the Supreme Court decisions, the
following states, to the best knowledge of the
Transferor, Fingerhut, FNB and FCI currently have
legislation in effect which purports to require the
Transferor, Fingerhut, FNB and FCI to collect sales or
use taxes: Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia North Dakota
Idaho Ohio
Illinois Oklahoma
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky South Dakota
Louisiana Tennessee
Massachusetts Texas
Michigan Utah
Minnesota Vermont
Mississippi Virginia
Washington
West Virginia
In addition, because FNB is a national banking entity
(established in 1996) which derives the majority of its
income from granting credit, it may be subject to special
financial institution rules in certain states. Such
rules attempt to impute state income tax nexus to a
company if it obtains finance revenue and/or has
receivables generated from customers in that state. Of
the states that have adopted such financial institution
rules, Minnesota is the only state where FNB is currently
filing income or franchise tax returns. States which
currently have rules pursuant to which they may attempt
to impose income tax nexus based upon such activity
include:
Arkansas Minnesota
California New Mexico
Hawaii Tennessee
Indiana West Virginia
Massachusetts
FNB has not filed in states implementing such rules other
than Minnesota because it believes the above-referenced
financial institution rules to be unconstitutional. Note
that FNB does file tax returns in South Dakota, its state
of domicile.
EXHIBIT A
FORM OF EXCHANGEABLE TRANSFEROR CERTIFICATE
No. 1 One Unit
FINGERHUT MASTER TRUST
ASSET BACKED CERTIFICATE
THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND
SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS
CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST.
This Certificate represents an
Undivided Interest in the Fingerhut Master Trust
Evidencing an undivided interest in a trust, the corpus of which
consists of receivables generated from time to time in the ordinary
course of business from a portfolio of installment sale contracts
generated or to be generated by certain customers of Fingerhut
Corporation ("Fingerhut") and other assets and interests
constituting the Trust under the Pooling and Servicing Agreement
described below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut Corporation,
Fingerhut National Bank, Fingerhut Companies, Inc.
or any Affiliate of either of them.)
This certifies that FINGERHUT RECEIVABLES, INC. ("FRI",
the "Holder" or the "Transferor," as the context requires) is the
registered owner of a fractional undivided interest in the
Fingerhut Master Trust (the "Trust") issued pursuant to the Pooling
and Servicing Agreement, dated as of June 29, 1994 (the "Pooling
and Servicing Agreement"; such term to include any amendment or
Supplement thereto) by and among FRI, as Transferor, Fingerhut
National Bank, as Servicer (the "Servicer"), and The Bank of New
York (Delaware), as Trustee (the "Trustee"), as supplemented by
each supplement thereto existing from time to time. The corpus of
the Trust will include (i) a portfolio of Receivables (the
"Receivables") generated from time to time by Fingerhut satisfying
certain criteria, (ii) all funds to be collected from Obligors in
respect of the Receivables, (iii) all right, title, and interest of
the Transferor in, to, and under the Purchase Agreement, (iv) the
benefit of funds on deposit in the Excess Funding Account, (v)
Recoveries, (vi) moneys on deposit in the Pre-Funding Account,
(vii) proceeds of the foregoing, (viii) all monies due or to become
due with respect thereto and all amounts received with respect to
the Receivables in existence on the Closing Date or generated
thereafter, all monies on deposit in the Collection Account, the
Interest Funding Account, the Principal Account, the Distribution
Account, the Pre-Funding Account and the Excess Funding Account
(excluding any investment earnings on such deposited amounts except
for such amounts as are on deposit in the Pre-Funding Account and
the Excess Funding Account), and all other assets and interests
constituting the Trust and (ix) all proceeds of the foregoing.
To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Pooling and Servicing
Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Pooling and Servicing
Agreement, to which Pooling and Servicing Agreement, as amended
from time to time, the Holder by virtue of the acceptance hereof
assents and by which the Holder is bound.
This Certificate has not been registered or qualified
under the Securities Act of 1933, as amended, or any state
securities law. No sale, transfer or other disposition of this
Certificate shall be permitted other than in accordance with the
provisions of Section 6.3, 6.9 or 7.2 of the Pooling and Servicing
Agreement.
The Receivables arise generally from amounts charged to
Obligors for consumer goods, services or financial service
products.
This Certificate is the Exchangeable Transferor
Certificate (the "Certificate"), which represents an undivided
interest in the Trust, including the right to receive the
Collections and other amounts at the times and in the amounts
specified in the Pooling and Servicing Agreement to be paid to the
Holder of the Exchangeable Transferor Certificate. The aggregate
interest represented by this Certificate at any time in the
Principal Receivables in the Trust shall not exceed the Transferor
Interest at such time. In addition to this Certificate, Series of
Investor Certificates will be issued to investors pursuant to the
Pooling and Servicing Agreement, each of which will represent an
Undivided Interest in the Trust. This Certificate shall not
represent any interest in any Enhancement, except to the extent
provided in the Pooling and Servicing Agreement. The Transferor
Interest on any date of determination will be an amount equal to
the aggregate amount of Principal Receivables at the end of the day
immediately prior to such date of determination plus amounts on
deposit in the Excess Funding Account and Pre-Funding Account (but
not including any investment earnings thereon) minus the Aggregate
Invested Amount at the end of such day.
The Servicer shall deposit all Collections in the
Collection Account as promptly as possible after the Date of
Processing of such Collections. Unless otherwise stated in any
Supplement, throughout the existence of the Trust, the Servicer
shall allocate to the Holder of the Certificate an amount equal to
the product of (A) the Transferor Percentage and (B) the aggregate
amount of such Principal Collections and Imputed Yield Collections,
respectively, in respect of each Monthly Period. Notwithstanding
the first sentence of this paragraph, the Servicer need not deposit
this amount or any other amounts so allocated to the Certificate
pursuant to the Pooling and Servicing Agreement into the Collection
Account and shall pay, or be deemed to pay, such amounts as
collected to the Holder of the Certificate.
FNB or any permitted successor or assignee, as Servicer,
is entitled to receive as servicing compensation a monthly
servicing fee. The portion of the servicing fee which will be
allocable to the Holder of the Certificate pursuant to the Pooling
and Servicing Agreement will be payable by the Holder of the
Certificate and neither the Trust nor the Trustee or the Investor
Certificateholders will have any obligation to pay such portion of
the servicing fee.
This Certificate does not represent a recourse obligation
of, or any interest in, the Transferor or the Servicer. This
Certificate is limited in right of payment to certain Collections
respecting the Receivables, all as more specifically set forth
hereinabove and in the Pooling and Servicing Agreement.
Upon the termination of the Trust pursuant to Section
12.1 of the Pooling and Servicing Agreement, the Trustee shall
assign and convey to the Holder of the Certificate (without
recourse, representation or warranty) all right, title and interest
of the Trust in the Receivables, whether then existing or
thereafter created, and all proceeds relating thereto. The Trustee
shall execute and deliver such instruments of transfer and
assignment, in each case without recourse, as shall be reasonably
requested by the Holder of the Certificate to vest in such Holder
all right, title and interest which the Trustee had in the
Receivables.
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 Pooling
and Servicing Agreement, or be valid for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this
Certificate to be duly executed.
FINGERHUT RECEIVABLES, INC.
By:__________________
Name:
Title:
Date:
CERTIFICATE OF AUTHENTICATION
This is the Exchangeable Transferor Certificate referred
to in the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK
Authenticating Agent
By:____________________________
Name:
Title:
EXHIBIT B
FORM OF DAILY REPORT
FINGERHUT RECEIVABLES, INC.
______________________________
FINGERHUT MASTER TRUST
______________________________
The undersigned, a duly authorized representative of
Fingerhut National Bank (the "Servicer"), as Servicer pursuant to
the Amended and Restated Pooling and Servicing Agreement dated as
of January 12, 1997 (the "Pooling and Servicing Agreement"; such
term to include any amendment or Supplement thereto) by and among
Fingerhut Receivables Inc. (the "Transferor"), the Servicer and The
Bank of New York (Delaware), as Trustee, does hereby certify as
follows:
[TO BE SUPPLIED]
[Will need to know: Beginning Total Receivables
Total Collections
Principal Collections
Imputed Yield Collections
New Receivables generated
Default Amount]
EXHIBIT C
FORM OF SETTLEMENT STATEMENT
[TO BE SUPPLIED]
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
______________________________
FINGERHUT MASTER TRUST
______________________________
The undersigned, a duly authorized representative of
Fingerhut National Bank ("FNB"), as Servicer pursuant to the
Amended and Restated Pooling and Servicing Agreement dated as of
January 12, 1997 (the "Pooling and Servicing Agreement"; such term
to include any amendment or Supplement thereto) by and among
Fingerhut Receivables, Inc. (the "Transferor"), FNB, as Servicer
and The Bank of New York (Delaware), as trustee (the "Trustee")
does hereby certify that:
1. FNB is Servicer under the Pooling and Servicing
Agreement.
2. The undersigned is duly authorized pursuant to
the Pooling and Servicing Agreement to execute and deliver
this Certificate to the Trustee.
3. This Certificate is delivered pursuant to
Section 3.5 of the Pooling and Servicing Agreement.
4. A review of the activities of the Servicer
during (the period from the Closing Date until) (the twelve
fiscal month period ended) ________, 19__ was conducted under
our supervision.
5. Based on such review, the Servicer has, to the
best of our knowledge, fully performed all its obligations
under the Pooling and Servicing Agreement throughout such
period and no default in the performance of such obligations
has occurred or is continuing except as set forth in paragraph
6 below.
6. The following is a description of each default
in the performance of the Servicer's obligations under the
provisions of the Pooling and Servicing Agreement, including
any Supplement, known to us to have been made during such
period which sets forth in detail (i) the nature of each such
default, (ii) the action taken by the Servicer, if any, to
remedy each such default and (iii) the current status of each
such default:
[If applicable, insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed
this certificate this ___ day of ________, ____.
FINGERHUT NATIONAL BANK
as Servicer
-------------------------------------
Name:
Title:
EXHIBIT E
FORM OF ANNUAL OPINION OF COUNSEL
The opinion set forth below, which is to be delivered
pursuant to subsection 13.2(d)(ii) of the Pooling and Servicing
Agreement, may be subject to certain qualifications, assumptions,
limitations and exceptions taken or made in the opinion of counsel
delivered on the Initial Closing Date with respect to similar
matters.
No filing or other action, other than such filing or
action described in such opinion, is necessary from the date of
such opinion through ________ of the following year to continue the
perfected status of the interest of the Trust in the collateral
described in the financing statements referred to in such opinion.
EXHIBIT F
FORM OF RECONVEYANCE OF RECEIVABLES
RECONVEYANCE OF RECEIVABLES, dated as of _____ __ , 19__
by and between FINGERHUT RECEIVABLES, INC., a corporation organized
and existing under the laws of the State of Delaware (the
"Transferor"), and THE BANK OF NEW YORK (DELAWARE), a banking
corporation organized and existing under the laws of the State of
Delaware (the "Trustee") pursuant to the Pooling and Servicing
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to
the Amended and Restated Pooling and Servicing Agreement dated as
of January 12, 1997 (hereinafter as such agreement may have been,
or may from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement") by and among the
Transferor, Fingerhut National Bank as Servicer, and the Trustee;
WHEREAS, pursuant to the Pooling and Servicing Agreement,
the Transferor wishes to cause the Trustee to reconvey all of the
Receivables and proceeds thereof, whether now existing or hereafter
created, from the Trust to the Transferor pursuant to the terms of
Section 12.4 of the Pooling and Servicing Agreement upon
termination of the Trust pursuant to subsection 12.1(a) of the
Pooling and Servicing Agreement (as each such term is defined in
the Pooling and Servicing Agreement);
WHEREAS, the Trustee is willing to reconvey the
Receivables subject to the terms and conditions hereof;
NOW THEREFORE, the Transferor and the Trustee hereby
agree as follows:
1. Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined
meanings when used herein, unless otherwise defined herein.
"Reconveyance Date" shall mean _____ __, 19__.
2. Return of Lists of Receivables. The Trustee shall
deliver to the Transferor or the bailee of the Transferor, not
later than three Business Days after the Reconveyance Date, each
and every computer file or microfiche list of Receivables delivered
to the Trustee pursuant to the terms of the Pooling and Servicing
Agreement.
3. Conveyance of Receivables. (a) The Trustee does
hereby reconvey to the Transferor, without recourse, representation
or warranty, on and after the Reconveyance Date, all right, title
and interest of the Trust in and to each and every Receivable now
existing and hereafter created, all monies due or to become due
with respect thereto (including all Imputed Yield Receivables), all
proceeds (as defined in Section 9-306 of the UCC as in effect in
the Relevant UCC State) of such Receivables, except for amounts, if
any, held by the Trustee pursuant to subsection 12.3(b) of the
Pooling and Servicing Agreement.
(b) In connection with such transfer, the Trustee
agrees to execute and deliver to the Transferor on or prior to the
date of this Reconveyance, such UCC termination statements as the
Transferor may reasonably request, evidencing the release by the
Trust of its lien on the Receivables.
4. Counterparts. This Reconveyance may be executed in
two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
5. Governing Law. THIS RECONVEYANCE SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this
Reconveyance of Receivables to be duly executed and delivered by
their respective duly authorized officers on the day and year first
above written.
FINGERHUT RECEIVABLES, INC.
By ____________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
Trustee
By ____________________________
Name:
Title:
EXHIBIT G
FORM OF AGREED-UPON PROCEDURES
The Servicer and Trustee will engage a firm of nationally
recognized independent public accountants (who may also render
other services to the Servicer or any of its subsidiaries) to
perform certain agreed-upon procedures substantially similar to the
following:
[Describe appropriate procedures]
EXHIBIT 10.A(iii)
_________________________________________________________
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT NATIONAL BANK
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1997-1 Certificateholders
SERIES 1997-1 SUPPLEMENT
Dated as of January 21, 1997
to
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
Dated as of January 12, 1997
____________________________________
FINGERHUT MASTER TRUST
Variable Funding Trust
Certificate, Series 1997-1, Class A
Variable Funding Trust
Certificate, Series 1997-1, Class B
_________________________________________________________
TABLE OF CONTENTS
Page
SECTION 1. Designation . . . . . . . . . . . . . . . . . 1
SECTION 2. Definitions . . . . . . . . . . . . . . . . . 1
SECTION 3. Reassignment Terms . . . . . . . . . . . . . . 18
SECTION 4. Delivery and Payment for the Series 1997-1
Certificates . . . . . . . . . . . . . . . . . 19
SECTION 5. Form of Delivery of Series 1997-1
Certificates . . . . . . . . . . . . . . . . . 19
SECTION 6. Article IV of Agreement . . . . . . . . . . . 19
ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF
COLLECTIONS . . . . . . . . . . . . . . . 20
Section 4.4 Rights of Certificateholders . . . . 20
Section 4.5 Collections and Allocation;
Payments on Exchangeable Transferor
Certificate . . . . . . . . . . . . 20
Section 4.6 Determination of Interest for the
Series 1997-1 Certificates . . . . . 21
Section 4.7 Determination of Principal Amounts . 22
Section 4.8 Shared Principal Collections . . . . 24
Section 4.9 Application of Funds on Deposit in
the Collection Account for the
Certificates . . . . . . . . . . . . 25
Section 4.10 Coverage of Required Amount for the
Series 1997-1 Certificates . . . . . 33
Section 4.11 Payment of Certificate Interest . . 34
Section 4.12 Payment of Certificate Principal . . 35
Section 4.13 Investor Charge-Offs . . . . . . . . 35
Section 4.14 Reallocated Principal Collections
for the Series 1997-1 Certificates . 36
Section 4.15 Payment Reserve Account . . . . . . 37
SECTION 7. Article V of the Agreement . . . . . . . . . . 38
ARTICLE V DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS . . . . . . . . . . . 38
Section 5.1 Distributions . . . . . . . . . . . 38
Section 5.2 Certificateholders' Statement . . . 39
SECTION 8. Article VI of the Agreement . . . . . . . . . 41
ARTICLE VI THE CERTIFICATES . . . . . . . . . . . . 41
Section 6.15 Additional Class A Invested
Amounts . . . . . . . . . . . . . . 41
Section 6.16 Additional Class B Invested
Amounts. . . . . . . . . . . . . . . 43
Section 6.17 Extension . . . . . . . . . . . . . 44
SECTION 9. Series 1997-1 Pay Out Events . . . . . . . . . 46
SECTION 10. Series 1997-1 Termination . . . . . . . . . . 48
SECTION 11. Class A Pre-Payment . . . . . . . . . . . . . 48
SECTION 12. Legends; Transfer and Exchange; Restrictions
on Transfer of Series 1997-1 Certificates;
Tax Treatment . . . . . . . . . . . . . . . . 49
SECTION 13. Sale of Class B Certificates . . . . . . . . . 54
SECTION 14. Purchases of the Class A Certificates by the
Transferor . . . . . . . . . . . . . . . . . . 56
SECTION 15. Increased Costs . . . . . . . . . . . . . . . 56
SECTION 16. Replacement of Certain Investor
Certificateholders . . . . . . . . . . . . . . 58
SECTION 17. FCI Note . . . . . . . . . . . . . . . . . . . 59
SECTION 18. GOVERNING LAW . . . . . . . . . . . . . . . . 60
SECTION 19. Instructions in Writing . . . . . . . . . . . 60
SECTION 20. Amendments . . . . . . . . . . . . . . . . . . 60
SECTION 21. Ratification of Agreement . . . . . . . . . . 61
SECTION 22. Counterparts . . . . . . . . . . . . . . . . . 61
EXHIBITS
EXHIBIT A Form of Class A Investor Certificate
EXHIBIT B Form of Class B Investor Certificate
EXHIBIT C Form of Monthly Certificateholders' Statement
EXHIBIT D Form of 144A Exchange Notice and Certification
EXHIBIT E Form of Extension Notice
EXHIBIT F Form of Investor Certificateholder Election Notice
SERIES 1997-1 SUPPLEMENT, dated as of January
21, 1997 (this "Series Supplement") by and among
FINGERHUT RECEIVABLES, INC., a corporation organized and
existing under the laws of the State of Delaware, as
Transferor (the "Transferor"), FINGERHUT NATIONAL BANK, a
national banking association organized and existing 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
Amended and Restated Pooling and Servicing Agreement,
dated as of January 12, 1997, 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.
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 1997-1 Certificates."
The Series 1997-1 Certificates shall be issued in two
Classes, which shall be designated generally as the
Variable Funding Trust Certificates, Series 1997-1, Class
A (the "Class A Certificates") and the Variable Funding
Trust Certificates, Series 1997-1, Class B (the "Class B
Certificates"). Series 1997-1 shall be a Series of
Variable Funding Certificates.
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 1997-1
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
1997-1 Certificates and no other Series of Certificates
issued by the Trust.
"Additional Class A Invested Amounts" shall
have the meaning specified in Section 6.15 of the
Agreement.
"Additional Class B Invested Amounts" shall
have the meaning specified in Section 6.16 of the
Agreement.
"Additional Interest" shall mean, at any time
of determination, the sum of Class A Additional Interest
and Class B Additional Interest.
"Amortization Period" shall mean the period
beginning on the day following the last day of the
Revolving Period and ending on the Series 1997-1
Termination Date.
"Amortization Period Commencement Date" shall
mean (i) the earlier of the first day of the May 1998
Monthly Period and the Pay Out Commencement Date or (ii)
if there is any Extension, the earlier of the date
specified as such in the most recent Extension Notice and
the Pay Out Commencement Date.
"Available Series 1997-1 Imputed Yield
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 Class A Certificate Rate, plus (ii)
the Series Servicing Fee Percentage.
"Benefit Plan" shall mean (i) an employee
benefit plan (as defined in Section 3(3) of ERISA) that
is subject to the provisions of Title I of ERISA, (ii) a
plan described in Section 4975(e)(1) of the Code or (iii)
any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity.
"Carryover Class A Interest" shall mean any
Class A Interest due but not paid on any previous
Distribution Date.
"Carryover Class B Interest" shall mean any
Class B Interest due but not paid on any previous
Distribution Date.
"Class A Adjusted Invested Amount" shall mean,
with respect to any date of determination, an amount
equal to the Class A Invested Amount minus the Defeasance
Account Balance on such date of determination.
"Class A Available Commitment" shall mean
initially $417,600,000 but may be increased from time to
time to an amount not to exceed the Class A Maximum
Invested Amount by written notice from the Transferor and
The Chase Manhattan Bank to the Trustee and the Servicer
and shall be reduced by the amount of principal payments
made to the Class A Certificateholders pursuant to
subsection 11(a) of this Series Supplement; provided,
however, that if the Class A Certificateholders shall
permanently no longer be obligated to make future
purchases hereunder, the Class A Available Commitment
shall be zero.
"Class A Breakage Costs" shall have the meaning
specified in subsection 11(b) of this Agreement.
"Class A Certificateholders" shall mean the
Persons in whose names a Class A Certificate is
registered in the Certificate Register.
"Class A Certificateholders' Interest" shall
mean the portion of the Series 1997-1 Certificateholders'
Interest evidenced by the Class A Certificates.
"Class A Certificates" shall mean the variable
funding certificates executed by the Transferor and
authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A hereto.
"Class A Certificate Rate" shall mean with
respect to each Interest Accrual Period, a per annum rate
.35% in excess of the LIBOR Rate, as determined on the
related LIBOR Determination Date; provided, however, that
on and after the date of receipt of a rating of all or a
portion of the Class A Certificates of at least A by
Standard & Poor's or A2 by Moody's and for so long as
such a rating or higher rating shall remain in effect,
the Class A Certificate Rate with respect to such portion
of the Class A Invested Amount shall be a per annum rate
.25% in excess of the LIBOR Rate, as determined on the
related LIBOR Determination Date.
"Class A Costs" shall mean with respect to any
Business Day, the sum of (a) the increased costs, if any,
specified in Section 15 of this Series Supplement, (b)
Class A Breakage Costs and (c) the product of (i) a
fraction the numerator of which is the actual number of
days from but excluding the next preceding Business Day
to and including the current Business Day and the
denominator of which is the actual number of days in the
then current calendar year, (ii) the excess of the Class
A Available Commitment over the Class A Invested Amount
on such Business Day after giving effect to all
transactions on such Business Day and (iii) the sum of
(x) .125% multiplied by a fraction, the numerator of
which is the portion of the Class A Available Amount
which is rated at least A by Standard & Poor's or A2 by
Moody's on such Business Day, and the denominator of
which is the Class A Available Amount, plus (y) .175%
multiplied by a fraction, the numerator of which is the
Class A Available Amount minus the portion of the Class A
Available Amount which is rated at least A by Standard &
Poor's or A2 by Moody's on such Business Day, and the
denominator of which is the Class A Available Amount.
"Class A Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class A Adjusted Invested Amount on such day after taking
into account all adjustments of the Class A Invested
Amount on such 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; provided, however,
that with respect to the allocation of Principal
Collections on and prior to the Series 1994-1 Funding
Date, the numerator specified above shall be zero.
"Class A Interest" shall mean the interest
distributable in respect of the Class A Certificates as
calculated in accordance with 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)
$59,600,000, plus (b) the aggregate principal amount of
any Additional Class A Invested Amounts purchased
pursuant to Section 6.15 of the Agreement, minus (c) the
aggregate amount of principal payments made to Class A
Certificateholders through and including such Business
Day, minus (d) the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates, minus (e)
the Class A Invested Amount represented by any Class A
Certificates purchased by the Transferor on the secondary
market which have been cancelled by the Trustee at the
Transferor's request in accordance with Section 14 of
this Series Supplement, plus (f) 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)(vi) of the Agreement and,
with respect to such subsection and pursuant to
subsections 4.10(a) and (b) and Section 4.14 of the
Agreement, and the amount designated pursuant to
subsection 4.13(c) of the Agreement for the purpose of
reinstating amounts reduced pursuant to the foregoing
clause (d).
"Class A Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(b) of the Agreement.
"Class A Investor Percentage" shall mean, for
any Business Day, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period, the
Class A Floating Allocation Percentage and (b) with
respect to Principal Receivables during the Amortization
Period, the Fixed/Floating Allocation Percentage.
"Class A Maximum Invested Amount" shall mean
$900,000,000 less the Class B Maximum Required Amount.
"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)
$59,600,000, plus (b) the aggregate principal amount of
any Additional Class A Invested Amounts purchased by the
Class A Certificateholders on or prior to such Business
Day pursuant to Section 6.15 of the Agreement minus (c)
the aggregate amount of principal payments 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 and the Class B Invested Amount.
"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) the amount
described in subsection 4.9(a)(i)(y) of the Agreement for
such Business Day, (ii) the Class A Floating Allocation
Percentage of the Servicing Fee for such Business Day,
(iii) the Class A Floating Allocation Percentage of the
Default Amount, if any, for such Business Day and, to the
extent not previously paid, for any previous Business Day
in such Monthly Period, (iv) on each Transfer Date the
Class A Percentage of the Series Allocation Percentage of
the Adjustment Payment required to be made by the
Transferor but not made on such Transfer Date and (v) the
amount of unreimbursed Class A Investor Charge-Offs over
(y) the Available Series 1997-1 Imputed Yield Collections
plus any Excess Imputed Yield Collections from other
Series and any Transferor Imputed Yield Collections
allocated with respect to the amounts described in
clauses (x)(i) through (v).
"Class 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 1997-1 Certificateholders'
Interest evidenced by the Class B Certificates.
"Class B Certificate Rate" shall mean with
respect to each Interest Accrual Period, initially zero;
provided, however, that such certificate rate may be
increased pursuant to the terms of a supplemental
agreement or amended and restated series supplement
entered into in accordance with Section 13 of this Series
Supplement.
"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 B hereto.
"Class B Daily Principal Amount" shall have the
meaning specified in subsection 4.9(c)(ii) of the
Agreement.
"Class B Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class B
Invested Amount at the end of the last day of the
Revolving Period (or, if the Pay Out Commencement Date
occurs prior to the Series 1994-1 Funding Date, the Class
B Invested Amount at the end of the day on the Series
1994-1 Funding Date) and the denominator of which is the
greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account at the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Collections for all Series; provided, however,
that with respect to the allocation of Principal
Collections on and prior to the Series 1994-1 Funding
Date, the numerator specified above shall be zero.
"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; provided, however, that
with respect to the allocation of Principal Collections
on and prior to the Series 1994-1 Funding Date, the
numerator specified above shall be zero.
"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 Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
upon the initial issuance of the Class B Certificate,
zero, plus (b) the aggregate principal amount of any
Additional Class B Invested Amounts pursuant to Section
6.16 of the Agreement, minus (c) the aggregate amount of
principal payments made to Class B Certificateholders
prior to such Business Day, minus (d) the aggregate
amount of Class B Investor Charge-Offs for all prior
Distribution Dates pursuant to subsections 4.13(a) and
4.13(c) of the Agreement, minus (e) the aggregate amount
of Reallocated Principal Collections for all prior
Business Days, plus (f) the sum of the aggregate amount
allocated and available on all prior Business Days
pursuant to subsection 4.9(a)(vii) of the Agreement and,
with respect to such subsection, pursuant to subsections
4.10(a) and (b) of the Agreement, for the purpose of
reinstating amounts reduced pursuant to the foregoing
clauses (d) and (e).
"Class B Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(a) of the Agreement.
"Class B Investor Percentage" shall mean, for
any Distribution Date, (a) with respect to Imputed Yield
Receivables and Defaulted Receivables at any time or
Principal Receivables during the Revolving Period, the
Class B Floating Allocation Percentage and (b) with
respect to Principal Receivables during the Amortization
Period, the Fixed/Floating Allocation Percentage.
"Class B Maximum Required Amount" shall mean
initially zero; provided, however, that such Class B
Maximum Required Amount may be increased pursuant to the
terms of a supplemental agreement or amended and restated
series supplement entered into in accordance with Section
13 of this Series Supplement.
"Class B Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the aggregate principal amount of any
Additional Class B Invested Amounts pursuant to Section
6.16 of the Agreement, minus (b) the aggregate amount of
principal payments made to Class B Certificateholders
prior to such Business Day.
"Class B Percentage" shall mean a fraction the
numerator of which is the Class B Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount and the Class B Invested Amount.
"Class B Principal" shall mean the principal
distributable in respect of the Class B Certificates as
calculated in accordance with subsection 4.7(b) of the
Agreement.
"Class B Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
in an Amortization Period on which the Class A Invested
Amount equals or is reduced to zero or, if there are no
Principal Collections allocable to the Series 1997-1
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, 12.1 or 12.2 of the Agreement or Section 3 of this
Series Supplement.
"Closing Date" shall mean January 21, 1997.
"Defeasance Account" shall have the meaning
specified in subsection 11(a) of this Series Supplement.
"Defeasance Account Balance" shall mean, with
respect to any date of determination, the principal
amount, if any, on deposit in the Defeasance Account on
such date of determination.
"Distribution Date" shall mean February 20,
1997, and the twentieth day of each month thereafter, or
if such day is not a Business Day, the next succeeding
Business Day; provided, that the final Distribution Date
with respect to the payment of principal and interest
shall be the Scheduled Series 1997-1 Termination Date.
"Early Amortization Period" shall mean the
period beginning on the day on which a Pay Out Event
occurs or is deemed to have occurred and ending on the
earlier of (i) the date on which the Class A Invested
Amount and the Class B Invested Amount have been paid in
full and (ii) the Series 1997-1 Termination Date.
"Election Date" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Election Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Enhancement" shall mean, with respect to the
Class A Certificates, the subordination of the Class B
Invested Amount (including any portion thereof arising
pursuant to Section 6.16 of the Agreement in connection
with the cancellation of the Series 1994-1 Class D
Investor Certificates).
"Eurocurrency Reserve Requirements" shall mean,
for any day, the aggregate (without duplication) of the
rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of the Federal Reserve
System.
"Excess Imputed Yield Collections" shall mean,
with respect to any Business Day, as the context
requires, either (x) the amount described in subsection
4.9(a)(x) of the Agreement allocated to the Series 1997-1
Certificates but available to cover shortfalls in amounts
paid from Imputed Yield Collections for other Series, if
any, or (y) the aggregate amount of Imputed Yield
Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect
to such Series, if any, and available to cover shortfalls
with respect to the Series 1997-1 Certificates.
"Extension" shall mean the procedure by which
the Investor Certificateholders consent to the extension
of the Revolving Period to the new Amortization Period
Commencement Date set forth in the Extension Notice,
pursuant to Section 6.17 of the Agreement.
"Extension Date" shall mean April 20, 1998 or
if an Extension has already occurred, the date of the
next Extension Date set forth in the Extension Notice
relating to the Extension then in effect (or, if any such
date is not a Business Day, the next preceding Business
Day).
"Extension Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Tax Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"FCI Note" shall have the meaning specified in
Section 17 of this Series Supplement.
"FCI Note Required Amount" shall have the
meaning specified in Section 17 of this Series
Supplement.
"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 (or,
if the Pay Out Commencement Date occurs prior to the
Series 1994-1 Funding Date, the Invested Amount at end of
the day on the Series 1994-1 Funding Date) 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; provided, however, that with respect to the
allocation of Principal Collections on and prior to the
Series 1994-1 Funding Date the numerator specified above
shall be zero.
"Floating Allocation Percentage" shall mean for
any Business Day the sum of the applicable Class A
Floating Allocation Percentage and Class B Floating
Allocation Percentage for such Business Day.
"Interest Accrual Period" shall mean a Monthly
Period and, with respect to a Distribution Date, the
preceding Monthly Period; provided, however, that the
initial Interest Accrual Period shall be the period from
the Closing Date to and including the last day of the
Monthly Period preceding the initial Distribution Date.
"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 and (b) the Class B Invested Amount as of such
Business Day; provided, however, that for purposes of
determining the Servicing Fee and the Aggregate Invested
Amount, the Invested Amount shall mean an amount equal to
the sum of the Class A Adjusted Invested Amount as of
such Business Day and the Class B Invested Amount as of
such Business Day; provided, further, that for so long as
the Series 1994-1 Certificates are outstanding, for
purposes of determining the Minimum Aggregate Principal
Receivables under the Agreement, the Invested Amount
shall be deemed to be zero.
"Investment Earnings" shall mean, with respect
to any Business Day, the investment earnings on amounts
on deposit in (i) the Payment Reserve Account, deposited
in the Collection Account pursuant to subsection 4.15(c)
of the Agreement and (ii) the Defeasance Account,
deposited in the Collection Account pursuant to
subsection 11(a) of this Series Supplement.
"Investor Certificateholder" shall mean the
Holder of record of an Investor Certificate of Series
1997-1.
"Investor Certificates" shall mean the Class A
Certificates and the Class B Certificates.
"Investor Charge-Offs" shall mean the sum of
Class A Investor Charge-Offs and Class B Investor Charge-
Offs.
"Investor Default Amount" shall mean, with
respect to each Business Day, an amount equal to the
product of the Default Amount identified since the prior
reporting date and the Floating Allocation Percentage
applicable for such Business Day.
"Investor Percentage" shall mean for any
Business Day, (a) with respect to Imputed Yield
Collections and Defaulted Amounts at any time or
Principal Collections during the Revolving Period, the
Floating Allocation Percentage and (b) with respect to
Principal Collections during the Amortization Period, the
Fixed/Floating Allocation Percentage.
"LIBOR Base Rate" shall mean, for any Interest
Accrual Period, the rate for deposits in United States
dollars for a period equal to such Interest Accrual
Period (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;
provided that, the LIBOR Base Rate for the Initial
Interest Accrual Period shall be 5.44531%. 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 United States dollars
are offered by the Reference Banks (as defined below) 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 such Interest Accrual Period
(commencing on the first day of such Interest Accrual
Period). The Trustee will request the principal London
office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations
are provided, the rate for such Interest Accrual Period
will be the arithmetic mean of the quotations. If fewer
than two quotations are provided, the rate for such
Interest Accrual Period will be the arithmetic mean of
the rates quoted by major banks in New York City,
selected by the Trustee, at approximately 11:00 A.M., New
York City time, on the first day of such Interest Accrual
Period for loans in United States dollars to leading
European banks for a period equal to such Interest
Accrual Period (commencing on the first day of such
Interest Period). As used in this definition, "Reference
Banks" means four major banks in the London interbank
market selected by the Trustee.
"LIBOR Determination Date" shall mean the
second Business Day prior to the commencement of each
Interest Accrual Period. 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.
"LIBOR Rate" shall mean, with respect to each
day during each Interest Accrual Period, a rate per annum
determined for such day in accordance with the following
formula (rounded upward to the nearest 1/100th of 1%):
LIBOR Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Minimum Rating Condition" shall mean that a
rating of at least BBB by Standard & Poor's or Baa2 by
Moody's has been obtained with respect to the Class A
Maximum Invested Amount and has not been withdrawn or
reduced as a result of the failure to maintain the Stated
Class B Amount.
"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 1997-1 Certificates
shall begin on and include the Closing Date and shall end
on and include the last day of the then current fiscal
month of the Transferor.
"Net Revolving Principal Collections" shall
have the meaning specified in subsection 4.9(b) of the
Agreement.
"Negative Carry Amount" shall have the meaning
specified in subsection 4.10(a) of the Agreement.
"Paying Agent" shall mean, for the Series
1997-1 Certificates, The Bank of New York.
"Payment Reserve Account" shall have the
meaning specified in subsection 4.15 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
1997-1 Pay Out Event is deemed to occur pursuant to
Section 9 of this Series Supplement.
"Portfolio Yield" shall mean for the Series
1997-1 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 1997-1 Imputed Yield
Collections for such Monthly Period (not including the
Floating Allocation Percentage of the portion of Imputed
Yield Collections for such period described in clause (D)
of the definition thereof or the amounts on deposit in
the Payment Reserve Account, if any), calculated on a
cash basis, minus the aggregate Investor Default Amount
for such Monthly Period and the Series Allocation
Percentage of any Adjustment Payments which the
Transferor is required but fails to make pursuant to the
Pooling and Servicing Agreement for such Monthly Period,
and the denominator of which is the average daily
Invested Amount for such Monthly Period.
"Principal Shortfalls" shall mean on any
Business Day (i) prior to the Amortization Period
Commencement Date, zero and (ii) after the Amortization
Period Commencement Date, the Invested Amount of the
Class then receiving principal payments after the
application of Principal Collections on such Business Day
(less the amount then on deposit in the Principal Account
for the benefit of such Class); provided, however, that
on and prior to the Series 1994-1 Funding Date the
Principal Shortfall for Series 1997-1 shall be equal to
the lesser of the amount specified above and the maximum
amount that will allow Shared Principal Collection
allocable with respect to any principal shortfall for the
Series 1994-1 Certificates to be equal to the full amount
of the principal shortfall for such Series.
"Rating Agency" shall mean with respect to any
Business Day each statistical rating agency selected by
the Transferor to rate the Class A Certificates which on
such Business Day has issued a rating which is
outstanding with respect to the Class A Certificates.
"Rating Agency Condition" shall mean, at any
time at which the Class A Certificates are rated by a
Rating Agency, the written confirmation of the Rating
Agency that a specified event or modification of the
terms of the Investor Certificates will not result in the
withdrawal or downgrade of the rating of the Class A
Certificates then in effect.
"Reallocated Principal Collections" shall have
the meaning specified in subsection 4.14 of the
Agreement.
"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 1997-1 Termination Date"
shall mean the October 2002 Distribution Date, unless (i)
a different date shall be set forth in any Extension
Notice, or (ii) a different date shall be specified in a
written notice from the Transferor to the Trustee as
necessary to satisfy the Minimum Rating Condition.
"Revolving Principal Collections" shall have
the meaning specified in subsection 4.9(b) of the
Agreement.
"Series 1994-1 Certificates" shall mean the
investor certificates issued pursuant to the Series
1994-1 Supplement.
"Series 1994-1 Funding Date" shall mean the
first Business Day on which an amount equal to the
invested amount of the Series 1994-1 Class A, Class B and
Class C Investor Certificates has been deposited in the
Principal Account for the benefit of such Series 1994-1
Certificates.
"Series 1994-1 Supplement" shall mean the
Series 1994-1 Supplement, dated as of June 29, 1994 by
and among Fingerhut Receivables, Inc., as Transferor,
Fingerhut Corporation (as predecessor servicer to
Fingerhut National Bank), as Servicer, and The Bank of
New York (Delaware), as Trustee under the Agreement, as
it may be amended from time to time.
"Series 1997-1" shall mean the Series of the
Fingerhut Master Trust represented by the Series 1997-1
Certificates.
"Series 1997-1 Certificates" shall mean the
Class A Certificates and the Class B Certificates.
"Series 1997-1 Certificateholder" shall mean
the holder of record of any Series 1997-1 Certificate.
"Series 1997-1 Certificateholders' Interest"
shall have the meaning specified in Section 4.4 of the
Agreement.
"Series 1997-1 Pay Out Event" shall have the
meaning specified in Section 9 of this Series Supplement.
"Series 1997-1 Termination Date" shall mean the
earlier to occur of (i) the day after the Distribution
Date on which the Series 1997-1 Certificates are paid in
full, or (ii) the Scheduled Series 1997-1 Termination
Date.
"Series Servicing Fee Percentage" shall mean
2.00% per annum.
"Servicing Fee" shall mean for any Business
Day, an amount equal to the product of (i) a fraction the
numerator of which is the actual number of days from but
excluding the next preceding Business Day to and
including the current Business Day and the denominator of
which is the actual number of days in the then current
calendar year, (ii) the applicable Series Servicing Fee
Percentage and (iii) the Invested Amount on such Business
Day after giving effect to all transactions on such
Business Day.
"Shared Principal Collections" shall mean, as
the context requires, either (a) the amount allocated to
the Series 1997-1 Certificates which, in accordance with
subsections 4.9(b) and 4.9(c)(iii) of the Agreement, may
be applied in accordance with Section 4.3(e) of the
Agreement or (b) the amounts allocated to the investor
certificates (other than Transferor Retained
Certificates) of other Series which the applicable Series
Supplements for such Series specify are to be treated as
"Shared Principal Collections" and which may be applied
to cover Principal Shortfalls with respect to the Series
1997-1 Certificates.
"Stated Class B Amount" shall mean initially
zero; provided, however, that such Stated Class B Amount
may be increased pursuant to the terms of a supplemental
agreement or amended and restated series supplement
entered into in accordance with Section 13 of this Series
Supplement or may be increased by written notice from the
Transferor to the Trustee in connection with obtaining
one or more ratings of the Class A Certificates and shall
thereafter be the amount specified in such written
notice.
"Targeted Holder" shall mean (i) each holder of
a right to receive interest or principal with respect to
investor certificates (or other interests in the Trust),
including the Class A Certificates, 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 (ii) 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 and the occurrence of the Scheduled
Series 1997-1 Termination Date.
"Transferor Imputed Yield Collections" shall
mean on any Business Day the product of (a) the Imputed
Yield Collections for such Business Day, (b) the
Transferor Percentage and (c) the Series Allocation
Percentage.
"Transferor Retained Certificates" shall mean
investor certificates of any Series, including the Class
B Certificate, which the Transferor retains, but only to
the extent that and for so long as the Transferor is the
Holder of such Certificates.
SECTION 3. Reassignment Terms. The Series
1997-1 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 Class A Invested Amount is reduced to
an amount less than or equal to 10% of the sum of the
highest invested amount during the Revolving Period of
the Class A Certificates plus, to the extent that the
Class B Certificates, any portion thereof or any other
Class of Series 1997-1 Certificates is sold by the
Transferor in accordance with the provisions of Section
13 of this Series Supplement, the highest invested amount
during the Revolving Period of such Class B Certificates
or other Class of Series 1997-1 Certificates sold by the
Transferor. 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 invested amount of any other
Class of Series 1997-1 Certificates then outstanding plus
accrued and unpaid interest on the Series 1997-1
Certificates through the day prior to the Distribution
Date on which the final distribution occurs.
SECTION 4. Delivery and Payment for the Series
1997-1 Certificates. The Transferor shall execute and
deliver the Series 1997-1 Certificates to the Trustee for
authentication in accordance with Section 6.1 of the
Agreement. The Trustee shall deliver the Series 1997-1
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 1997-1
Certificates. The Class A Certificates and the Class B
Certificates shall be delivered as Registered
Certificates as provided in Section 6.1 of the Agreement.
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 1997-1 Certificates:
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.4 Rights of Certificateholders. The
Series 1997-1 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 1997-1 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 Imputed Yield Collections)
available in the Collection Account, (b) funds allocable
to the Series 1997-1 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 Account and the
Defeasance Account (for such Series, the "Series 1997-1
Certificateholders' Interest"). The Class B Invested
Amount shall be subordinated to the Class A Certificates
to the extent provided in this Article IV. Except in
connection with a payment of Class B Daily Principal
pursuant to subsection 4.9(e) of this Agreement, 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.
Section 4.5 Collections and Allocation;
Payments on Exchangeable Transferor Certificate.
(a) Collections. The Servicer will apply
or will instruct the Trustee to apply all funds on
deposit in the Collection Account and the Excess Funding
Account allocable to the Series 1997-1 Certificates, and
all funds on deposit in the Interest Funding Account, the
Principal Account, the Distribution Account, the Payment
Reserve Account and the Defeasance Account maintained for
this Series, as described in this Article IV.
(b) Payments to the Holder of the
Exchangeable Transferor Certificate. On each Business
Day, the Servicer shall determine whether a Pay Out Event
is deemed to have occurred with respect to the Series
1997-1 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 after the Series 1994-1 Funding
Date, 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 (w) the product of the
Floating Allocation Percentage and the amount of
Principal Collections on such Business Day, minus
(x) the portion thereof constituting a part of Net
Revolving Principal Collections to be deposited in
the Defeasance Account pursuant to subsection 4.9(b)
of the Agreement, minus (y) the Reallocated
Principal Collections for such Business Day minus
(z) the amount of any Class B Daily Principal for
such Business Day; and
(ii) For each Business Day during the
Amortization Period, 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) 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 Imputed Yield
Receivables or Principal Receivables as provided in the
Agreement.
Section 4.6 Determination of Interest for the
Series 1997-1 Certificates. (a) The amount of interest
(the "Class A Interest") allocable to the Class A
Certificates with respect to any Business Day shall be an
amount equal to the product of (i) the Class A
Certificate Rate and (ii) a fraction, the numerator of
which is the actual number of days from and including the
immediately preceding Business Day to but excluding such
Business Day, and the denominator of which is 360 and
(iii) the Class A Outstanding Principal Amount on such
Business Day after giving effect to all transactions on
such Business Day.
(b) The amount of interest (the "Class B
Interest") allocable to the Class B Certificates with
respect to any Business Day shall be an amount equal to
the product of (i) the Class B Certificate Rate and (ii)
a fraction, the numerator of which is the actual number
of days from and including the immediately preceding
Business Day to but excluding such Business Day, and the
denominator of which is 360 and (iii) the Class B
Outstanding Principal Amount on such Business Day after
giving effect to all transactions on such Business Day.
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 (A) the Revolving
Period shall be an amount equal to the amounts deposited
into the Principal Account from the Defeasance Account
pursuant to Section 11 of this Series Supplement and (B)
the Amortization Period shall be equal to an amount
calculated as follows: the sum of (i) an amount equal to
the product of the Fixed/Floating Allocation Percentage
and the aggregate amount of Principal Collections (less
the amount of Reallocated Principal Collections) with
respect to the preceding Monthly Period (or, in the case
of the Distribution Date in the first Monthly Period in
the Amortization Period following the Series 1994-1
Funding Date, the Fixed/Floating Allocation Percentage of
Principal Collections from the day following the Series
1994-1 Funding Date), (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)(iv), (v),
(vi) and (vii) of the Agreement and, with respect to such
subsections, pursuant to subsections 4.10(a) and (b) and
4.14 of the Agreement with respect to such Distribution
Date and, (iv) the amount of Shared Principal Collections
allocated to the Class A Certificates with respect to
such Distribution Date and pursuant to subsection 4.3(e)
and Section 4.8 of the Agreement; provided, however, that
with respect to any Business Day, Class A Principal may
not exceed the Class A Invested Amount; provided,
further, that with respect to the Scheduled Series 1997-1
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, or in the case of
distributions of Class B Daily Principal pursuant to the
last proviso of this subsection 4.7(b) of the Agreement,
on each Business Day, shall equal an amount calculated as
follows: the sum of (i) an amount equal to the product
of the Fixed/Floating Allocation Percentage and the
aggregate amount of Principal Collections (less the
amount of Reallocated Principal Collections) with respect
to the preceding Monthly Period (or, in the case of the
first Distribution Date in the Amortization Period
following the date on which an amount equal to the Class
A Invested Amount is paid to the Class A
Certificateholders in respect of Class A Principal, the
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) of the Agreement with respect to the
preceding Monthly Period, (iii) the amount, if any,
allocated to the Class B Certificates pursuant to
subsections 4.9(a)(iv), (v) and (vii) of the Agreement
and, with respect to such subsections, pursuant to
subsections 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 B
Certificates with respect to the preceding Monthly Period
pursuant to subsection 4.3(e) and Section 4.8 of the
Agreement on and after the Class B Principal Payment
Commencement Date; provided, however, 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 1997-1
Termination Date, the Class B Principal shall be an
amount equal to the Class B Invested Amount; provided
further, that on any Business Day during any period other
than an Early Amortization Period, the Transferor may
designate that either (x) an amount up to the lesser of
(i) the excess of the Class B Invested Amount over the
Stated Class B Amount on such day after taking into
account all adjustments of the Class A Invested Amount on
such day and (ii) (I) during the Revolving Period an
amount equal to (x) the product of the Class B Floating
Allocation Percentage and the amount of Principal
Collections on such Business Day minus (y) Reallocated
Principal Collections on such Business Day or (II) after
the Amortization Period Commencement Date an amount equal
to (x) the product of the Fixed/Floating Allocation
Percentage and the amount of Principal Collections on
such Business Day minus (y) the amount with of Principal
Collections to be applied with respect to Class A
Principal on such Business Day minus (z) Reallocated
Principal Collections on such Business Day (such
designated amount, the "Class B Daily Principal") shall
be distributed in accordance with subsection 4.9(e) or
(y) an amount up to the excess of the Class B Invested
Amount over the Stated Class B Amount on such day after
taking into account all adjustments of the Class B
Invested Amount on such day, shall be subtracted from the
Class B Invested Amount and added to the Transferor
Interest.
Section 4.8 Shared Principal Collections.
Shared Principal Collections allocated to the Series
1997-1 Certificates and to be applied pursuant to
subsections 4.9(b), 4.9(c)(i)(z) and 4.9(c)(ii)(z) for
any Business Day shall mean an amount equal to the sum of
(i) 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 1997-1 Certificates for such Business Day and the
denominator of which is the aggregate amount of Principal
Shortfalls for all Series for such Business Day and (ii)
Shared Principal Collections for all Series for such
Business Day, less the amount thereof to be applied with
respect to Principal Shortfalls for all Series for such
Business Day to the extent provided below. Prior to the
Pay Out Commencement Date and with respect to the period
on and after the April 1997 Distribution Date, if the
Minimum Rating Condition is satisfied with respect to the
Class A Certificates, the amounts specified in clause
(ii) of the preceding sentence shall be applied to the
Series 1997-1 Certificates solely at the option of the
Transferor in accordance with Section 4.3(e) of the
Agreement. On and after the April 1997 Distribution
Date, if the Minimum Rating Condition is not satisfied
with respect to the Class A Certificates, the Transferor,
promptly following receipt by the Servicer and the
Trustee of written directions from Holders of Series
1997-1 Certificates evidencing Undivided Interests
aggregating more than 50% of the Class A Invested Amount,
shall direct the Servicer and the Trustee that the
amounts specified in clause (ii) of the first sentence of
this Section 4.8 be deposited in the Defeasance Account
or the Principal Account as specified in subsections
4.9(b) and 4.9(c)(i) and (ii) of the Agreement. If the
Minimum Rating Condition is not satisfied on the May 1997
Distribution Date, the amounts deposited in the
Defeasance Account or the Principal Account pursuant to
the preceding sentence shall be applied to make principal
payments with respect to the Class A Certificates or, if
the Minimum Rating Condition is satisfied on the May 1997
Distribution Date, such amounts shall be paid to the
Holder of the Exchangeable Transferor Certificate. On
and after the May 1997 Distribution Date, if the Minimum
Rating Condition was not satisfied on the May 1997
Distribution Date with respect to the Class A
Certificates, the Transferor shall direct the Servicer
and the Trustee that the amounts specified in clause (ii)
of the first sentence of this Section 4.8 be deposited in
the Defeasance Account or the Principal Account as
specified in subsection 4.9(b) and 4.9(c)(i) and (ii) of
the Agreement for distribution to the Certificateholders
on each subsequent Distribution Date.
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 from
the Collection Account, to the extent of the sum of (w)
the Floating Allocation Percentage of Imputed Yield
Collections available in the Collection Account, (x)
Investment Earnings on deposit in the Collection Account
and (y) amounts on deposit in the Payment Reserve
Account, if any, if and to the extent so designated by
the Transferor (the "Available Series 1997-1 Imputed
Yield Collections") the amounts set forth in subsections
4.9(a)(i) through 4.9(a)(x) 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 allocate to the Class A Certificates and
withdraw first from the Collection Account and then
from the Payment Reserve Account and deposit into
the Interest Funding Account, to the extent of the
Available Series 1997-1 Imputed Yield Collections,
an amount equal to the lesser of (x) the Available
Series 1997-1 Imputed Yield Collections and (y) the
sum of (A) the Class A Interest for such Business
Day plus (B) the excess, if any, of the amount
required to be deposited pursuant to clause (A)
above on each prior Business Day over the amount on
deposit in the Interest Funding Account with respect
thereto on such Business Day plus (C) an amount
equal to the portion of Carryover Class A Interest
attributable to amounts required to be deposited
pursuant to clause (A) above that were not so
deposited prior to such Business Day minus the
amounts required to be deposited pursuant to clause
(B) above.
(ii) Class B Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall allocate to the Class B Certificates and
withdraw first from the Collection Account and then
from the Payment Reserve Account and deposit into
the Interest Funding Account, to the extent of the
Available Series 1997-1 Imputed Yield 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 1997-1 Imputed Yield
Collections and (y) the sum of (A) the Class B
Interest for such Business Day plus (B) the excess,
if any, of the amount required to be deposited
pursuant to clause (A) above on each prior Business
Day over the amount on deposit in the Interest
Funding Account with respect thereto on such
Business Day plus (C) an amount equal to the portion
of Carryover Class B Interest attributable to
amounts required to be deposited pursuant to clause
(A) above that were not so deposited prior to such
Business Day minus the amounts required to be
deposited pursuant to clause (B) above.
(iii) Investor Servicing Fee. On each
Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first
from the Collection Account and then from the
Payment Reserve Account and distribute to the
Servicer, to the extent of any Available Series
1997-1 Imputed Yield Collections remaining after
giving effect to the withdrawals 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 1997-1 Imputed Yield Collections
and (y) the Servicing Fee for such Business Day plus
any Servicing Fees due with respect to any prior
Business Day but not distributed to the Servicer.
(iv) Investor Default Amount. On each
Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first
from the Collection Account and then from the
Payment Reserve Account, to the extent of any
Available Series 1997-1 Imputed Yield 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 1997-1 Imputed
Yield Collections and (y) the sum of (1) the
aggregate Investor Default Amount for such Business
Day plus (2) the unpaid Investor Default Amount for
each previous Business Day during such Monthly
Period, such amount to be (A) during the Revolving
Period treated as Shared Principal Collections, (B)
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 related
Distribution Date and (C) during the Amortization
Period, on and after the day on which such deposit
to the Principal Account with respect to the Class A
Invested Amount has been made and on and prior to
the day on which an amount equal to the Class B
Invested Amount is deposited in the Principal
Account, to be deposited in the Principal Account
for payment to the Class B Certificateholders on the
related Distribution Date.
(v) Adjustment Payment Shortfalls. On
each Business Day, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw
first from the Collection Account and then from the
Payment Reserve Account, to the extent of any
Available Series 1997-1 Imputed Yield 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)
any such remaining Available Series 1997-1 Imputed
Yield Collections and (y) an amount equal to the
Series Allocation Percentage of any Adjustment
Payment which the Transferor is required but fails
to make pursuant to subsection 3.8(a) of the
Agreement, such amount, (i) during the Revolving
Period, 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 to the Principal
Account with respect to the Class A Invested Amount
has been made and on and prior to the day on which
an amount equal to the Class B Invested Amount is
deposited in the Principal Account for payment to
the Class B Certificateholders on the related
Distribution Date.
(vi) Reimbursement of Class A Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Collection
Account and then from the Payment Reserve Account,
to the extent of any Available Series 1997-1 Imputed
Yield 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) any such remaining Available Series
1997-1 Imputed Yield Collections and (y) the
unreimbursed Class A Investor Charge-Offs, if any,
such amount to be applied to reimburse Class A
Investor Charge-Offs, and, 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 related Distribution Date.
(vii) Reimbursement of Class B Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Collection
Account and then from the Payment Reserve Account,
to the extent of any Available Series 1997-1 Imputed
Yield 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 1997-1 Imputed Yield Collections and (y) the
unreimbursed amount by which the Class B Invested
Amount has been reduced on prior Business Days
pursuant to clauses (d) and (e) of the definition of
Class B Invested Amount, if any, such amount,
(i) during the Revolving Period 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 related
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 related Distribution Date.
(viii) Class A Costs. On each Business
Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first
from the Collection Account and then from the
Payment Reserve Account and deposit into the
Interest Funding Account, to the extent of any
Available Series 1997-1 Imputed Yield 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 1997-1 Imputed
Yield Collections and (y) the Class A Costs for such
Business Day and any such amounts that remain unpaid
from any source from previous days to the extent not
included in Class A Costs for such Business Day.
(ix) Payment Reserve Account. 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 1997-1 Imputed Yield 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 1997-1 Imputed
Yield 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,
into the Payment Reserve Account.
(x) Excess Imputed Yield Collections.
Any amounts remaining in the Collection Account to
the extent of any Available Series 1997-1 Imputed
Yield Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i)
through (ix) of the Agreement, shall be treated as
Excess Imputed Yield Collections, and the Servicer
shall direct the Trustee in writing on each Business
Day to withdraw such amounts from the Collection
Account and to first make such amounts available to
pay to Certificateholders of other Series to the
extent of shortfalls, if any, in amounts payable to
such certificateholders from Imputed Yield
Collections allocated to such other Series, then to
pay any unpaid commercially reasonable costs and
expenses of a Successor Servicer, if any, and then
pay any remaining Excess Imputed Yield Collections
to the Transferor.
(b) For each Business Day with respect to the
Revolving Period, the funds on deposit in the Collection
Account to the extent of the lesser of (A) the Class A
Invested Amount and (B) the sum of (x) product of (i) the
Floating Allocation Percentage and (ii) the amount of
Principal Collections on such Business Day (such product
the "Revolving Principal Collections") less the amount of
Reallocated Principal Collections on such Business Day
(the Revolving Principal Collections less the Reallocated
Principal Collections on the related Business Day, the
"Net Revolving Principal Collections"), and (y) Shared
Principal Collections allocated to the Series 1997-1
Certificates in accordance with Section 4.8 on such
Business Day may, at the option of the Transferor,
pursuant to instructions delivered to the Servicer and
the Trustee by facsimile or other similar means of
documented communication, or, to the extent specified in
subsection 4.8 of the Agreement, shall, be deposited into
the Defeasance Account and applied as provided in Section
11(b) of this Series Supplement. During the Revolving
Period, an amount equal to the Net Revolving Principal
Collections less any amount deposited to the Defeasance
Account pursuant to the immediately preceding sentence
shall be treated as Shared Principal Collections and
applied pursuant to the written direction of the Servicer
in the Daily Report for such Business Day, as provided in
Section 4.3(e) of the Agreement.
(c) For each Business Day on and after the
Amortization Period Commencement Date, the amount of
funds on deposit in the Collection Account and the other
amounts described below will be distributed, pursuant to
the written direction of the Servicer in the Daily Report
for such Business Day in the following priority:
(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 (w) the product of the 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 Principal Collections on such
Business Day), (x) 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, (y) amounts to
be paid pursuant to subsections 4.9(a)(iv), (v),
(vi) and (vii) of the Agreement from Available
Series 1997-1 Imputed Yield Collections and from
amounts available pursuant to subsections 4.10(a)
and (b) and 4.14 of the Agreement on such Business
Day, and (z) the amount of Shared Principal
Collections allocated to the Series 1997-1
Certificates in accordance with subsection 4.3(e)
and Section 4.8 of the Agreement on such Business
Day, will be deposited into the Principal Account;
(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 (w) an amount equal to the product of the
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 Principal Collections
on such Business Day), (x) 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, (y) the amount,
if any, allocated to be paid to the Class B
Certificates pursuant to subsections 4.9(a)(iv), (v)
and (vii) of the Agreement from Available Series
Imputed Yield Collections and from amounts available
pursuant to subsections 4.10(a) and (b) of the
Agreement with respect to such Business Day, and (z)
the amount of Shared Principal Collections allocated
to the Series 1997-1 Certificates in accordance with
subsection 4.3(e) and Section 4.8 of the Agreement
on such Business Day (such sum, the "Class B Daily
Principal Amount") will be deposited into the
Principal Account;
(iii) an amount equal to the excess, if
any, of (A) the sum of the amounts described in
clauses (i)(w) and (y) and (ii)(w) and (y) above
over (B) the sum of Class A Principal and Class B
Principal will be treated as Shared Principal
Collections and applied as provided in subsection
4.3(e) of the Agreement.
(d) On the first Business Day of the
Amortization Period, funds on deposit in the Excess
Funding Account will be deposited in the Principal
Account; provided, however, that if any other Series
enters its Amortization Period, as defined in its related
Series Supplement, at the same time as Series 1997-1 the
amount of the foregoing deposit shall be equal to the
product of an amount equal to the amount of funds on
deposit in the Excess Funding Account and a fraction the
numerator of which is the Invested Amount and the
denominator of which is equal to the sum of the invested
amounts of each Series then entering its related
Amortization Period as defined in its related Series
Supplement; provided, further, that on any Business Day
prior to the Series 1994-1 Funding Date any amounts
allocated to the Series 1997-1 Certificates from the
Excess Funding Account as described above shall instead
be reallocated to the Series 1994-1 Certificates.
Amounts deposited in the Principal Account pursuant to
the foregoing sentence will be allocated in the following
order of priority: (i) to the Class A Certificates in an
amount not to exceed the Class A Principal after
subtracting therefrom any amounts to be paid to the Class
A Certificateholders with respect thereto pursuant to
subsections 4.9(c)(i)(w) and (y) of the Agreement, and
(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)(w) and
(y).
(e) On each Business Day on which Class B
Daily Principal has been allocated pursuant to subsection
4.7(b) of the Agreement, funds on deposit in the
Collection Account in an amount equal to the Class B
Daily Principal Amount designated by the Transferor with
respect to such Business Day will be distributed to the
Class B Certificateholders.
Section 4.10 Coverage of Required Amount for
the Series 1997-1 Certificates. (a) To the extent that
any amounts are on deposit in the Excess Funding Account
on any Business Day, the Servicer shall apply, in the
manner specified for application of Available Series
1997-1 Imputed Yield Collections in subsections 4.9(a)(i)
through (ix), Transferor Imputed Yield Collections in an
amount equal to the excess of (x) the product of (a) the
Base Rate, (b) the amounts on deposit in the Excess
Funding Account and (c) the number of days elapsed since
the previous Business Day divided by the actual number of
days in such year over (y) the aggregate amount of all
earnings since the previous Business Day available from
the Cash Equivalents in which funds on deposit in the
Excess Funding Account are invested (the "Negative Carry
Amount").
(b) To the extent that on any Business Day
payments are being made pursuant to any of subsections
4.9(a)(i) through (ix), 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 1997-1
Imputed Yield Collections in subsections 4.9(a)(i)
through (ix), all or a portion of the Excess Imputed
Yield Collections from other Series with respect to such
Business Day allocable to the Series 1997-1 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 1997-1 Imputed Yield Collections and
Transferor Imputed Yield Collections on such Business Day
(the "Required Amount"). Excess Imputed Yield
Collections allocated to the Series 1997-1 Certificates
for any Business Day shall mean an amount equal to the
product of (x) Excess Imputed Yield Collections available
from all other Series for such Business Day and (y) a
fraction, the numerator of which is the Required Amount
for such Business Day and the denominator of which is the
aggregate amount of shortfalls in required amounts or
other amounts to be paid from Imputed Yield Collections
for all Series for such Business Day.
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
1997-1 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 (x) to the Class A Certificateholders from
the Distribution Account the amount deposited into the
Interest Funding Account during the preceding Monthly
Period pursuant to subsections 4.9(a)(i) and 4.9(a)(viii)
and Sections 4.10 and 4.14 with respect to the related
Interest Accrual Period and (y) the Class B
Certificateholders from the Distribution Account the
amount deposited into the Interest Funding Account during
the preceding Monthly Period pursuant to subsections
4.9(a)(ii) and Section 4.10 with respect to the related
Interest Accrual Period.
Section 4.12 Payment of Certificate Principal.
(a) On the Transfer Date preceding the first
Distribution Date in the Amortization Period and on 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 A Principal for such Distribution
Date. On the first Distribution Date in the Amortization
Period and on each Distribution Date thereafter until the
Class A Invested Amount is paid in full, the Paying Agent
shall pay in accordance with subsection 5.1(a) to the
Class A Certificateholders from the Distribution Account
such amount deposited into the Distribution Account on
the related Transfer Date.
(b) On each Business Day the Trustee acting in
accordance with instructions from the Servicer set forth
in the Daily Report for such Business Day shall make
payments of principal to the Class B Certificateholders
of Class B Daily Principal, if any, designated by the
Transferor pursuant to Section 4.7(b) of the Agreement.
Any amounts remaining in the Principal Account
and allocable to the Series 1997-1 Certificates, after
the Class B Invested Amount has been paid in full, will
be treated as Shared Principal Collections and applied in
accordance with Section 4.3(e) of the Agreement.
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
1997-1 Imputed Yield Collections applied to the payment
thereof pursuant to subsections 4.9(a)(iv) and (v) of the
Agreement and the amount of Transferor Imputed Yield
Collections and Excess Imputed Yield Collections
allocated thereto pursuant to Section 4.10 of the
Agreement, and the amount of Reallocated Principal
Collections applied with respect thereto pursuant to
Section 4.14 of the Agreement, the Class B 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 B Investor
Charge-Off").
(b) In the event that any such reduction of
the Class B Invested Amount would cause the Class B
Invested Amount to be a negative number, the Class B
Invested Amount will be reduced to zero, and the Class A
Invested Amount will be reduced by the amount by which
the Class B Invested Amount would have been reduced below
zero, but not more than the remaining aggregate Investor
Default Amount and Series Allocation Percentage of unpaid
Adjustment Payments for such Monthly Period (a "Class A
Investor Charge-Off").
(c) Following the occurrence of a Class A
Investor Charge-Off, if the Class B Invested Amount is
increased, including any increase thereof pursuant to
Section 6.16 of the Agreement, to the extent of the Class
B Invested Amount the amount of any unreimbursed Class A
Investor Charge-Off shall be reduced and, the Class A
Invested Amount shall be correspondingly increased in an
amount not to exceed the amount of such increased Class B
Invested Amount, the Class B Invested Amount shall be
correspondingly decreased and the amount of such decrease
shall be deemed to be a Class B Investor Charge-Off.
Section 4.14 Reallocated Principal Collections
for the Series 1997-1 Certificates. 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 with respect to such Business Day and (iii)
an amount equal to the Class A Required Amount for such
Business Day (such amount called "Reallocated Principal
Collections") and shall apply Principal Collections in an
amount equal to such amount to the components of the
Class A Required Amount in the same priority as amounts
are applied to such components from Available Series
1997-1 Imputed Yield Collections pursuant to subsection
4.9(a) of the Agreement.
Section 4.15 Payment Reserve Account
(a) The Servicer shall establish and maintain
or cause to be established and maintained with a
Qualified Institution, which may be the Trustee, in the
name of the Trustee, on behalf of the Certificateholders,
the "Payment Reserve Account," which shall be a
segregated trust account with the corporate trust
department of such Qualified Institution, bearing a
designation clearly indicating that the funds deposited
therein are held for the benefit of the
Certificateholders. The Trustee shall possess all right,
title and interest in all funds on deposit from time to
time in the Payment Reserve Account and in all proceeds
thereof. The Payment Reserve Account shall be under the
sole dominion and control of the Trustee for the benefit
of the Certificateholders. If, at any time, the
institution holding the Payment Reserve Account ceases to
be a Qualified Institution, the Trustee shall within 20
Business Days establish a new Payment Reserve Account
meeting the conditions specified above with a Qualified
Institution, and shall transfer any cash or any
investments to such new Payment Reserve Account. From
the date such new Payment Reserve Account is established,
it shall be the "Payment Reserve Account."
(b) The Transferor, at its discretion, may
withdraw on any Determination Date a part or all of any
amounts remaining in the Payment Reserve Account after
giving effect to any withdrawals required to be made
under Section 4.9(a) above.
(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. On
each Business Day following a deposit of funds to the
Payment Reserve Account, the aggregate proceeds of any
such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for
application as Available Series 1997-1 Imputed Yield
Collections.
SECTION 7. Article V of the Agreement.
Article V of the Agreement shall read in its entirety as
follows and shall be applicable only to the Series 1997-1
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 Class A
Certificates held by such Certificateholder) of amounts
on deposit in the Distribution Account as are payable to
the Class A Certificateholders pursuant to Section 4.11
and 4.12 of the Agreement by wire transfer to an account
or accounts designated by such Class A Certificateholders
by written notice given to the Paying Agent not less than
five days prior to the related Distributed Date;
provided, however, that with respect to amounts payable
pursuant to Section 4.11, the portion of such amounts
constituting increased costs and Class A Breakage Costs
shall be paid to Class A Certificateholders on the basis
of certifications provided to the Trustee and the
Servicer pursuant to Section 15 and subsection 11(b) of
this Series Supplement; provided, further, 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 Certificateholders) of amounts
on deposit in the Distribution Account as are payable to
the Class B Certificateholders pursuant to Section 4.11
and 4.12 of the Agreement by wire transfer to an account
or accounts designated by such Class B Certificateholder
by written notice given to the Paying Agent not less than
five days prior to the related Distributed Date;
provided, however, that the final payment in retirement
of the Class B Certificates will be made only upon
presentation and surrender of the Class B Certificates at
the office or offices specified in the notice of such
final distribution delivered by the Trustee pursuant to
Section 12.3.
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 a statement substantially in the form
of Exhibit C prepared by the Servicer and delivered to
the Trustee and the Paying Agent on the preceding
Determination Date setting forth the following
information:
(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 and the Class B
Certificates, respectively;
(v) the amount of Imputed Yield
Collections processed during the preceding Monthly
Period and allocated in respect of the Class A
Certificates and the Class B Certificates,
respectively;
(vi) the aggregate amount of Principal
Receivables, the Invested Amount, the Class A
Invested Amount, the Class B Invested Amount, the
Floating Allocation Percentage and, during the
Amortization Period, the Fixed/Floating Allocation
Percentage and Class B Fixed/Floating Allocation
Percentage, 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, 30-59, 60-89, and
90 days and over delinquent as of the end of the day
on the last day of the related Monthly Period;
(viii) the aggregate Investor Default
Amount for the preceding Monthly Period;
(ix) the aggregate amount of Class A
Investor Charge-Offs and Class B Investor Charge-
Offs for the preceding Monthly Period;
(x) the amount of the Servicing Fee for
the preceding Monthly Period;
(xi) the amount of unreimbursed
Reallocated Principal Collections for the related
Monthly Period; and
(xii) the aggregate amount of funds in
the Excess Funding Account as of the last day of the
Monthly Period immediately preceding the
Distribution Date.
(b) Annual Certificateholders' Tax
Statement. On or before January 31 of each calendar
year, beginning with calendar year 1998, the Paying Agent
shall distribute to each Person who at any time during
the preceding calendar year was a Series 1997-1
Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in
the regular report to Series 1997-1 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
1997-1 Certificateholder, together with, on or before
January 31 of each year, beginning in 1998, 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 1997-1
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. Article VI of the Agreement.
Article VI (except for Sections 6.1 through 6.14 thereof)
shall read in its entirety as follows and shall be
applicable only to the Series 1997-1:
ARTICLE VI
THE CERTIFICATES
Section 6.15 Additional Class A Invested
Amounts. Each Class A Certificateholder agrees, by
acceptance of the Class A Certificates, that the
Transferor may from time to time, other than after a Pay
Out Commencement Date, request that such Class A
Certificateholder acquire on any Distribution Date
additional undivided interests in the Trust in specified
amounts (such amounts, the "Additional Class A Invested
Amounts") in an aggregate amount equal to the excess of
the amount of the reduction in the invested amount of the
Series 1994-1 Certificates on such Distribution over the
amount of the increase of the Class B Invested Amount on
such Distribution Date; provided, however, that if such
an increase in the Class A Invested Amount would cause a
Trust Pay Out Event or a Series 1997-1 Pay Out Event to
occur, then the amount of the increase in the Class A
Invested Amount shall be limited on such Distribution
Date to the maximum increase in the Class A Invested
Amount that may be obtained without causing either a
Trust Pay Out Event or a Series 1997-1 Pay Out Event to
occur; provided further, that in no case shall the Class
A Invested Amount be increased above the lesser of (x)
the Class A Maximum Invested Amount and (y) the Class A
Available Commitment; and provided, further, that if the
Minimum Rating Condition is not satisfied with respect to
the Class A Certificates (i) on the April 1997
Distribution Date, after giving effect to any increase of
the Class A Invested Amount and Class B Invested Amount
on such Distribution Date, the Class A Invested Amount
shall not be increased on such Distribution Date, or (ii)
on the May 1997 Distribution Date, after giving effect to
any increase or decrease of the Class A Invested Amount
or Class B Invested Amount on such Distribution Date, the
Class A Invested Amount shall not be increased on such
Distribution Date or thereafter. The Additional Class A
Invested Amount on any Distribution Date shall not exceed
an amount equal to the excess of the sum of the aggregate
amount of Principal Receivables and amounts on deposit in
the Excess Funding Account over the greater of (a) the
sum of (i) the aggregate invested amount of each Series
then outstanding as of such day, including the Series
1997-1 Certificates (prior to giving effect to such
Additional Class A Invested Amount), minus amounts on
deposit in the Principal Account for any Series, if any,
and (ii) the Minimum Transferor Interest as of such day
or (b) the Minimum Aggregate Principal Receivables less
any principal repaid to the Series 1994-1 Certificates.
The Class A Certificateholders shall acquire such
Additional Class A Invested Amount, only if (a) the Class
B Invested Amount following the acquisition of such
Additional Class A Invested Amount shall be at least
equal to the Stated Class B Amount (including increases
to the Class B Invested Amount pursuant to Section 6.16
of the Agreement) and (b) after giving effect to the
proposed increase in the Class A Invested Amount no
Series 1997-1 Pay Out Event shall exist or occur as a
result of such increase. If the Class A
Certificateholders acquire such Additional Class A
Invested Amount, such Class A Certificateholders shall
pay an amount equal to the Additional Class A Invested
Amount to the Trustee and, in consideration of such
Certificateholder's payment of the Additional Class A
Invested Amount, the Servicer shall appropriately note
such Additional Class A Invested Amount (and the
increased Class A Invested Amount) on the next succeeding
Servicer's report and direct the Trustee in writing to
pay to the Transferor such Additional Class A Invested
Amount, and the Invested Amount of the Class A
Certificates will be equal to the Invested Amount of the
Class A Certificates stated in such Servicer's report.
The purchase of any Additional Class A Invested
Amount shall be in an aggregate principal amount that is
not less than $1,000,000 or integral multiples of
$100,000 in excess thereof.
Each Class A Certificateholder shall be and is
hereby authorized to record on the grid attached to its
Class A Certificate (or at such Class A Certificate-
holder's option, in its internal books and records) the
date and amount of its percentage interest in any
Additional Class A Invested Amount purchased by it, and
each repayment thereof; provided that failure to make any
such recordation on such grid or any error in such grid
shall not adversely affect such Class A
Certificateholder's rights with respect to its Class A
Invested Amount and its right to receive interest
payments in respect of the Class A Invested Amount held
by such Class A Certificateholder.
Section 6.16 Additional Class B Invested
Amounts.
On each Distribution Date while any Series
1997-1 Certificates are outstanding, the Transferor may
elect to increase the Class B Invested Amount and after
the Pay Out Commencement Date the Transferor agrees to
increase the Class B Invested Amount (such additional
amounts, "Additional Class B Invested Amounts") by
written notice to the Trustee on such date which notice
shall specify the effective date and the amount of such
increase in the Class B Invested Amount; provided,
however, that if such an increase in the Class B Invested
Amount would cause a Trust Pay Out Event or a Series
1997-1 Pay Out Event to occur, then the amount of the
increase in the Class B Invested Amount shall be limited
on such Business Day to the maximum increase in the Class
B Invested Amount that may be obtained without causing
either a Trust Pay Out Event or a Series 1997-1 Pay Out
Event to occur; provided further, that in no case shall
the Class B Invested Amount be increased above the Class
B Maximum Required Amount; and provided further that no
such increase in the Class B Invested Amount shall be
permitted under this Section 6.16 unless: (i) after
giving effect to the proposed increase in Class B
Invested Amount the Transferor Interest shall equal or
exceed the Minimum Transferor Interest and (ii) no Series
1997-1 Pay Out Event will occur as a result of such
increase in the Class B Invested Amount. The Transferor
agrees that, subject to satisfaction of the conditions
specified above, (i) the Transferor shall increase the
Class B Invested Amount on each Distribution Date after
the Pay Out Commencement Date by an amount equal to the
reduction of the invested amount of the Series 1994-1
Certificates on each such Distribution Date and (ii) on
the Business Day on which the aggregate invested amounts
of the Class A, Class B and Class C Investor Certificates
of Series 1994-1 are paid in full, the Transferor shall
increase the Class B Invested Amount by an amount equal
to the invested amount of the Series 1994-1 Class D
Investor Certificates on such Business Day and shall
cancel such Series 1994-1 Class D Investor Certificates
concurrently with such increase of the Class B Invested
Amount; provided, however, that in no event shall the
Transferor be required to increase the Class B Invested
Amount to an amount in excess of the lesser of (x) 30% of
the sum of the Class A Invested Amount and the Class B
Invested Amount and (y) the amount of Class B Invested
Amount relative to the then outstanding Class A Invested
Amount which is required by Standard & Poor's or Moody's
to satisfy the Minimum Rating Condition or, if such
rating shall be higher, to maintain the then current
rating of the Class A Certificates.
Section 6.17 Extension. (a) If a Pay Out
Event has not occurred on or before the 30th Business Day
preceding the Extension Date, the Transferor, in its sole
discretion, may deliver to the Trustee on or before such
date a notice substantially in the form of Exhibit E (the
"Extension Notice") to this Series Supplement. The
Trustee shall deliver a copy of the Extension Notice and
all documents annexed thereto to the Investor
Certificateholders of record on the date of receipt
thereof. The Transferor shall state in the Extension
Notice that it intends to extend the Revolving Period
until the later Amortization Period Commencement Date set
forth in the Extension Notice. The Extension Notice
shall also set forth the next Extension Date. The
following documents shall be annexed to the Extension
Notice: (i) a form of the Opinion of Counsel addressed
to the Transferor and the Trustee to the effect that
despite the extension the Trust will not be treated as an
association taxable as a corporation (the "Extension Tax
Opinion"); (ii) a form of the Opinion of Counsel
addressed to the Transferor and the Trustee (the
"Extension Opinion") to the effect that (A) the
Transferor has the corporate power and authority to
effect the Extension, (B) the extension has been duly
authorized by the Transferor, and (C) all conditions
precedent to the Extension required by this Section 6.17
have been fulfilled; and (iii) a form of Investor
Certificateholder Election Notice substantially in the
form of Exhibit F (the "Election Notice") to this Series
Supplement. In addition, the Extension Notice shall
state that any Investor Certificateholder electing to
approve the Extension must do so on or before the
Election Date (as defined below) by returning the annexed
Election Notice properly executed to the Trustee in the
manner described below. The Extension Notice shall also
state that an Investor Certificateholder may withdraw any
such election in whole or in part on or before the
Election Date, and the Transferor, in its sole
discretion, may, prior to the Election Date, withdraw its
election to extend the Revolving Period. Any Holder that
elects to approve an Extension hereunder shall deliver a
duly executed Election Notice to the Trustee at the
address designated in the Extension Notice on or before
3:00 p.m., New York City time, on or before the fifth
Business Day preceding the Extension Date (such Business
Day constituting the "Election Date").
(b) No extension shall occur unless each of
the following conditions have been satisfied prior to the
close of business on the Election Date: (i) no Pay Out
Event shall have occurred and be continuing, (ii) there
shall have been delivered to the Trustee (A) the
Extension Tax Opinion and the Extension Opinion, each
addressed to the Trustee and (B) written confirmation
from each Rating Agency rating any class of the
Certificates at the request of the Transferor at the time
of such Extension that the Extension will not cause such
Rating Agency to lower or withdraw its then current
rating of such Investor Certificates, (iii) each of the
holders of the Class A Certificates and the Class B
Certificates, shall have elected to approve the Extension
by returning to the Trustee on or before the Election
Date the executed Election Notice annexed to the
Extension Notice delivered to the Certificateholders
pursuant to subsection 6.17(a) of the Agreement. If, by
the close of business on the Election Date, all of the
conditions stated in this subsection 6.17(b) of the
Agreement have not been satisfied and all such documents
delivered to the Trustee pursuant to this subsection
6.17(b) of the Agreement are not in form satisfactory to
it, or if the Transferor has notified the Trustee, prior
to the Election Date, that the Transferor has exercised
its right to withdraw its election of an Extension, no
Extension shall occur.
(c) The execution by the required number of
Investor Certificateholders of the applicable Election
Notice and return thereof to the Trustee by the required
date and time, the continued election by the Transferor
to extend the Revolving Period at the Election Date, and
the compliance with all of the provisions of this Section
6.17, shall evidence an extension or renewal of the
obligations represented by the Investor Certificates, and
not a novation or extinguishment of such obligations or a
substitution with respect thereto.
(d) To the extent required by applicable laws
and regulations, as evidenced by an Opinion of Counsel
delivered by the Transferor to the Trustee, the
provisions of this Section 6.17 shall or may be modified
to comply with all applicable laws and regulations in
effect at the time of the Extension.
SECTION 9. Series 1997-1 Pay Out Events. If
any one of the following events shall occur with respect
to the Series 1997-1 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, except as expressly
provided in the Agreement; 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 1997-1 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 1997-1
Certificates evidencing Undivided Interests aggregating
not less than 50% of any of the Class A Invested Amount
or the Class B Invested Amount, and continues to affect
materially and adversely the interests of the Series
1997-1 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 1997-1
Certificates evidencing Undivided Interests aggregating
more than 50% of any of the Class A Invested Amount or
the Class B Invested Amount, and (ii) as a result of
which the interests of the Series 1997-1
Certificateholders are materially and adversely affected
and continue to be materially and adversely affected for
such period; provided, however, that a Series 1997-1 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 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 of 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
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 and the
Class B Outstanding Principal Amount or (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, in each case as
of any Determination Date;
(e) any Servicer Default shall occur
which would have a material adverse effect on the Series
1997-1 Certificateholders; or
(f) the amount on deposit in the Excess
Funding Account as a percentage of the sum of the
aggregate amount of Principal Receivables plus the amount
on deposit in the Excess Funding Account shall equal or
exceed 30% on the last day of three consecutive Monthly
Periods;
then, in the case of any event described in subparagraph
(a), (b) or (e), after the applicable grace period, if
any, set forth in such subparagraphs, the Holders of
Series 1997-1 Certificates evidencing Undivided Interests
aggregating more than 50% of any of the Class A Invested
Amount or the Class B Invested Amount by notice then
given in writing to the Trustee, the Transferor and the
Servicer may declare that a pay out event (a "Series
1997-1 Pay Out Event") has occurred as of the date of
such notice, and in the case of any event described in
subparagraphs (c), (d) or (f), a Series 1997-1 Pay Out
Event shall occur without any notice or other action on
the part of the Trustee or the Series 1997-1
Certificateholders immediately upon the occurrence of
such event.
SECTION 10. Series 1997-1 Termination. The
right of the Series 1997-1 Certificateholders to receive
payments from the Trust will terminate on the first
Business Day following the Series 1997-1 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 1997-1 Certificateholders shall
remain entitled to receive proceeds of such sale when
such sale occurs.
SECTION 11. Class A Pre-Payment. (a) The
Holder of the Exchangeable Transferor Certificate may
specify upon an Exchange, pursuant to Section 6.9 of the
Agreement, that the purchaser of a newly issued Series
deposit payment therefor, in full or in part, in the
Defeasance Account in an amount not to exceed the
Invested Amount on such date. On the Closing Date the
Trustee shall, for the benefit of the Certificateholders,
establish and maintain with a Qualified Institution in
the name of the Trust, a certain segregated trust account
(the "Defeasance Account"). Any amounts on deposit in
the Defeasance Account on any Business Day shall be
invested at the direction of the Servicer in Cash
Equivalents which mature on the next succeeding Business
Day. On each Business Day following a deposit of funds
to the Defeasance Account, the aggregate proceeds of any
such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for
application as Available Series 1997-1 Imputed Yield
Collections.
(b) Upon the direction of the Servicer
any amounts, up to the Invested Amount, on deposit in the
Defeasance Account may, or upon the occurrence of a Pay
Out Event the amount on deposit in the Defeasance Account
shall, be deposited in the Principal Account for
distribution on a date to be specified by the Transferor
(which shall not be later than the Distribution Date in
the next succeeding Monthly Period) to be applied
first to the payment of Class A Principal and second to
the payment of Class B Principal. Such amounts shall be
applied and paid in accordance with Sections 4.7, 4.12
and 5.1 of the Agreement. In the event the date of
payment of such amounts is not a Distribution Date, a
Certificateholder may provide to the Trustee and the
Servicer within 30 days of such payment a written
certificate setting forth any reasonable loss or expense
that such Certificateholder sustained or incurred as a
consequence of such payment being made on a date other
than a Distribution Date (with respect to the Class A
Certificates, "Class A Breakage Costs") and an amount
equal to the Class A Breakage Costs shall be paid to
Class A Certificateholders to the extent of funds
available therefor pursuant to subsection 4.9(a)(viii) of
the Agreement and as further specified in Section 4.11
and subsection 5.1(a) of the Agreement. Subsequent to
any reduction of the Class A Invested Amount as a result
of payments pursuant to this Section 11, the Class A
Invested Amount may be increased pursuant to the terms
and conditions set forth in Section 6.15 of the
Agreement.
SECTION 12. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1997-1 Certificates;
Tax Treatment.
(a) Each Class A Certificate will bear a
legend substantially in the following form:
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING
THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY
BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT TO AN
INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS
OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A
QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE,
THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, OR TO THE
TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING A
BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO
REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF
ANOTHER QIB. THE TRANSFER OF THIS CERTIFICATE IS
SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
NO SALE, ASSIGNMENT, PARTICIPATION, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF A
CLASS A CERTIFICATE (OR ANY INTEREST THEREIN) SHALL
BE MADE UNLESS THE TRANSFEROR SHALL HAVE GRANTED ITS
PRIOR CONSENT THERETO, WHICH CONSENT MAY NOT BE
UNREASONABLY WITHHELD. NOR MAY AN INTEREST IN THIS
CERTIFICATE BE MARKETED, ON OR THROUGH 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 OVER-THE-COUNTER-
MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT
REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.
(b) Each Class A Certificate and Class B
Certificate will bear a legend substantially in the
following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS
SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE
TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT
THE PURCHASE OR HOLDING OF A CLASS A CERTIFICATE OR
CLASS B CERTIFICATE BY SUCH PURCHASER WILL NOT
RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE
PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE
CODE AND WILL NOT SUBJECT THE TRUSTEE, THE
TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN
ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND
SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (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 (INCLUDING FOR PURPOSES OF
CLAUSES (IV) AND (V), ANDY INSURANCE COMPANY GENERAL
ACCOUNT, BUT EXCLUDING ANY ENTITY REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
(c) Each Class B Certificate will bear a
legend substantially in the following form:
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. FINGERHUT
RECEIVABLES, INC. SHALL BE PROHIBITED FROM
TRANSFERRING ANY INTEREST IN OR PORTION OF THIS
CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL
HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT
ADVERSELY AFFECT THE FEDERAL INCOME TAX
CHARACTERIZATION OF ANY OUTSTANDING SERIES OF
INVESTOR CERTIFICATES. THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
NO SALE, ASSIGNMENT, PARTICIPATION, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF A
CLASS B CERTIFICATE (OR ANY INTEREST THEREIN) SHALL
BE MADE UNLESS THE TRANSFEROR SHALL HAVE GRANTED ITS
PRIOR CONSENT THERETO, WHICH CONSENT MAY NOT BE
UNREASONABLY WITHHELD. NOR MAY AN INTEREST IN THIS
CERTIFICATE BE MARKETED, ON OR THROUGH 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 OVER-THE-COUNTER-
MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT
REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.
(d) Upon surrender for registration of
transfer of a Class A Certificate or Class B Certificate
at the office of the Transfer Agent and Registrar,
accompanied by a certification by the potential purchase
substantially in the form attached as Exhibit D executed
by such purchaser or by such purchaser's attorney
thereunto duly authorized in writing, such Class A
Certificate or Class B Certificate shall be transferred
upon the register, and the Transferor shall execute, and
the Trustee shall authenticate and deliver, in the name
of the designated transferees one or more new registered
Class A Certificates or Class B Certificates of any
authorized denominations and of a like aggregate
principal amount and tenor. Transfers and exchanges of
Class A Certificates and Class B Certificates shall be
subject to the restrictions set forth in this Section 12,
to such restrictions as shall be set forth in the text of
the Class A Certificates and Class B Certificates and
such reasonable regulations as may be prescribed by the
Transferor. Successive registrations and registrations
of transfers as aforesaid may be made from time to time
as desired, and each such registration shall be noted on
the register.
(e) The Transferor shall be prohibited
from transferring any interest in or portion of the Class
B 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 income tax characterization of any
outstanding Series of Investor Certificates. In no event
shall any interest in or portion of the Class B
Certificate be transferred to Fingerhut. Prior to the
transfer of any interest in the Class B Certificate by
the Transferor the conditions specified in Section 13 of
this Series Supplement must be satisfied.
(f) No transfer of a Class A Certificate
or Class B Certificate will be permitted to be made to a
Benefit Plan unless such Benefit Plan, at its expense,
delivers to the Trustee, the Servicer and the Transferor
an opinion of counsel satisfactory to them to the effect
that the purchase or holding of a Class A Certificate or
Class B Certificate by such Benefit Plan will not result
in the assets of the Trust being deemed to be "assets of
the Benefit Plan" and subject to the prohibited
transaction provisions of ERISA and the Code and will not
subject the Trustee, the Transferor or the Servicer to
any obligation in addition to those undertaken in the
Agreement. Unless such opinion is delivered, each person
acquiring a Class A Certificate or Class B Certificate or
the beneficial ownership of a Class A Certificate or
Class B Certificate will be deemed to represent to the
Trustee, the Transferor and the Servicer that it is not
(i) an employee benefit plan (as defined in Section 3(3)
of ERISA) that is subject to the provisions of Title I of
ERISA, (ii) a plan described in Section 4975(e)(1) of the
Code, (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
(including for purposes of clauses (iv) and (v),
insurance company general account, but excluding any
entity registered under the Investment Company Act of
1940, as amended).
(g) The Class A Certificateholders shall
comply with their obligations under Section 3.7 of the
Agreement with respect to the tax treatment of the Class
A Certificates, except to the extent that a relevant
taxing authority has disallowed such treatment.
(h) In accordance with Section 6.2 of the
Agreement, no sale, assignment, participation, pledge,
hypothecation, transfer or other disposition of a Class A
Certificate or a Class B Certificate (or any interest
therein) shall be made unless the Transferor shall have
granted its prior consent thereto, which consent may not
be unreasonably withheld; provided, however, that for
purposes of this sentence, it shall in all cases be
reasonable for the Transferor to withhold consent to such
proposed sale, assignment, participation, pledge,
hypothecation, transfer or other disposition of all or
any part of a Class A Certificate or a Class B
Certificate (or any interest therein) if the transaction
would, if effected, give rise to any adverse tax
consequence, as determined in the sole and absolute
discretion of the Transferor.
(i) Each purchaser of an interest in a
Class A Certificate or a Class B Certificate shall
certify that it is a Person who is either (A)(i) a
citizen or resident of the United States, (ii) a
corporation 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 Class A Certificates or Class B
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 whose
ownership of any interest in a Class A Certificate or
Class B Certificate will not result in any withholding
obligation with respect to any payments with respect to
the Class A Certificates or Class B Certificates, as
applicable, 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. Each such purchaser
shall agree that if they are a Person described in clause
(A)(iii) above, they will furnish to the Person from whom
they are acquiring a Class A Certificate or Class B
Certificate, the Servicer and the Trustee, a properly
executed U.S. Internal Revenue Service Form 4224 and a
new Form 4224, or any successor applicable form, 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).
(j) No subsequent transfer of a Class A
Certificate is permitted unless (i) such transfer is of a
Class A Certificate with a minimum principal amount of at
least $1,000,000 and (ii) the condition specified in
clause (h) above shall have been satisfied; provided,
that any attempted transfer that would cause the number
of Targeted Holders to exceed ninety-nine shall be void.
SECTION 13. Sale of Class B Certificates. The
Transferor may at any time, without the consent of the
Class A Certificateholders, (i) sell or transfer all or a
portion of the Class B Certificates in one or more
classes and (ii) in connection with any such sale or
transfer, enter into a supplemental agreement with the
Trustee or an amendment and restatement of this Series
Supplement pursuant to which the Transferor and the
Trustee may amend the Class B Certificate Rate, set forth
the amount of monthly interest due Class B
Certificateholders, provide for the payment of additional
amounts with respect to any shortfall in payments of such
Class B Interest and provide for such other provisions
with respect to the Class B Certificates as may be
specified in such agreement, provided that in each such
case (A) the Transferor shall have given notice to the
Trustee, the Servicer and any Rating Agencies then rating
the outstanding Class A Certificates at the request of
the Transferor of such proposed sale or transfer of the
Class B Certificates and such agreement at least five
Business Days prior to the consummation of such sale or
transfer and the execution of such proposed agreement;
(B) the Rating Agency Condition shall have been satisfied
prior to the consummation of such proposed sale or
transfer of Class B Certificates or the execution of such
agreement; (D) the Transferor shall have delivered an
Officer's Certificate, dated the date of the consummation
of such sale or transfer and the effectiveness of such
agreement, to the effect that, in the reasonable belief
of the Transferor, such action will not, based on the
facts known to such officer at the time of such
certification, cause a Pay Out Event to occur with
respect to any Series, and (E) the Transferor will have
delivered an Opinion of Counsel dated the date of such
sale or subdivision to the effect that (i) the
certificates issued and sold to third parties will be
characterized as indebtedness or an interest in a
partnership (not taxable as a corporation) for Federal
income tax purposes, (ii) the subdivision will not
adversely affect the Federal income tax characterization
of any outstanding Series of investor certificates or
outstanding Class of Series 1997-1 Certificates and (iii)
the subdivision will not be treated as a taxable sale,
exchange or other disposition for Federal income tax
purposes; provided, further, as a condition to the sale
or transfer of all or a portion of the Class B
Certificates the transferee shall be required to agree
not to institute against, or join any other Person in
instituting against, the Trust or the Transferor any
bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding, or other proceeding under any
federal or state bankruptcy or similar law, for one year
and one day after all Investor Certificates are paid in
full.
SECTION 14. Purchases of the Class A
Certificates by the Transferor. The Transferor may from
time to time, purchase Certificates on the secondary
market and request the Trustee to cancel such
Certificates held by the Transferor and reduce the
Invested Amount by a corresponding amount.
SECTION 15. Increased Costs. (a)
Notwithstanding any other provision herein, if after the
Closing Date), any change in applicable law or regulation
or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force
of law) shall change the basis of taxation of payments to
any Class A Certificateholder that is a commercial bank
or controlled by a commercial bank of the principal of or
interest on any Class A Certificate (other than changes
in respect of taxes imposed on the overall net income of
such Class A Certificateholder by the jurisdiction in
which such Class A Certificateholder has its principal
office or by any political subdivision or taxing
authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the
account of or credit extended by such Class A
Certificateholder, or shall impose on such Class A
Certificateholder or the London interbank market any
other condition affecting this Series Supplement or any
Class A Certificate owned by such Class A
Certificateholder, and the result of any of the foregoing
shall be to increase the cost to such Class A
Certificateholder of holding any Class A Certificate or
to reduce the amount of any sum received or receivable by
such Class A Certificateholder hereunder (whether of
principal or interest) in respect thereof by an amount
deemed by such Class A Certificateholder to be material,
then the Trustee will pay to such Class A
Certificateholder upon demand such additional amount or
amounts as will compensate such Class A Certificateholder
for such additional costs incurred or reduction suffered.
Any Class A Certificateholder claiming any additional
amounts payable pursuant to this Section 15 shall use
reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document
requested by the Transferor or the Trustee or to change
the jurisdiction of its applicable lending office if the
making of such a filing or change would avoid the need
for or reduce the amount of any additional amount which
may thereafter accrue and would not, in the sole
determination of such Class A Certificateholder, be
otherwise disadvantageous to such Class A
Certificateholder.
(b) If any Class A Certificateholder that
is a commercial bank or controlled by a commercial bank
shall have determined that the adoption after the Closing
Date of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of
any of the foregoing by any Governmental Authority,
central bank or comparable agency charged with the
interpretation or administration thereof, or compliance
by any such Class A Certificateholder (or any lending
office of such Class A Certificateholder) or any such
Class A Certificateholder's holding company with any
request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Class A
Certificateholder's capital or on the capital of such
Class A Certificateholder's holding company, if any, as a
consequence of this Series Supplement or the Class A
Certificates owned by such Class A Certificateholder to a
level below that which such Class A Certificateholder or
such Class A Certificateholder's holding company could
have achieved but for such adoption, change or compliance
(taking into consideration such Class A Certificate-
holder's policies and the policies of such Class A
Certificateholder's holding company with respect to such
capital adequacy) by an amount deemed by such Class A
Certificateholder to be material, then from time to time
the Trustee shall pay to such Class A Certificateholder
such additional amount or amounts as will compensate such
Class A Certificateholder or such Trustee's holding
company for any such reduction suffered after the date
hereof.
(c) A certificate of a Class A
Certificateholder setting forth such amount or amounts,
along with such Class A Certificateholder's method of
computation of such amounts, as shall be necessary to
compensate such Class A Certificateholder as specified in
paragraph (a) or (b) above, as the case may be, shall be
delivered to the Trustee and the Servicer and shall be
conclusive absent manifest error. The Trustee shall pay
each Class A Certificate- holder the amount shown as due
on any such certificate delivered by it on the
Distribution Date immediately succeeding the Monthly
Period in which such certificate is delivered; provided
however, that the amounts owing by the Trustee pursuant
to this Section 15 shall be payable solely from amounts
available therefor pursuant to subsections 4.9(a)(viii)
of the Agreement.
(d) Failure on the part of any eligible
Class A Certificateholder to demand compensation for any
increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect
to any period shall not constitute a waiver of such Class
A Certificateholder's right to demand compensation with
respect to such period or any other period; provided,
however, that no Class A Certificateholder shall be
entitled to compensation for any such increased costs or
reductions unless it shall have submitted a certificate
under subsection 15(c) of this Series Supplement with
respect thereto not more than 90 days after the date that
such Class A Certificateholder knows that such increased
costs have been incurred or such reduction suffered.
Notwithstanding any other provision of this Section 15,
no Class A Certificateholder shall demand compensation
for any increased cost or reduction referred to above if
it shall not at the time be the general policy of such
Class A Certificateholder to demand such compensation in
similar circumstances under comparable provisions of
credit or other similar agreements, and each Class A
Certificateholder shall in good faith endeavor to
allocate increased costs or reductions fairly among all
of its affected commitments and credit extensions
(whether or not it seeks compensation from all affected
borrowers). The protection of this Section 15 shall be
available to each Class A Certificateholder that is a
commercial bank or controlled by a commercial bank
regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have
occurred or been imposed.
SECTION 16. Replacement of Certain Investor
Certificateholders. In the event that (i) a Class A
Certificateholder requests compensation pursuant to
Section 15 of this Series Supplement, (ii) a Holder of
Investor Certificates (a "Non-Consenting Holder") does
not consent to an amendment, supplement, waiver or other
modification with respect to this Series Supplement or to
the Agreement, as provided in Section 20 of this Series
Supplement within the time period specified for delivery
of such consent pursuant to the documentation associated
therewith and the amendment, supplement, waiver or other
modification is not approved in accordance with said
Section 20 of this Series Supplement, or (iii) an
Investor Certificateholder fails to approve any Extension
requested by the Transferor pursuant to Section 6.17 of
the Agreement, the Transferor shall have the right to
replace such Holder with a Person or Persons meeting the
requirements of Section 12 of this Series Supplement, by
giving three Business Days prior written notice to the
Trustee and such Holder, specifying the date on which
such Holder s Certificates shall be transferred;
provided, however that, (a) such transfer shall not
conflict with any law, rule or regulation or order of any
court or other Governmental Authority, and (b) in the
case of clause (ii) above, all Non-Consenting Holders
with respect to any one proposed amendment, supplement,
waiver or other modification or Extension must be
concurrently replaced in accordance with this Section 16.
In the event of the replacement of an Investor
Certificateholder, such Investor Certificateholder agrees
to assign, without recourse, its rights and obligations
hereunder to a replacement Holder selected by the
Transferor upon payment by the replacement Holder to such
Investor Certificateholder in immediately available funds
of the principal amount of such Investor
Certificateholder's outstanding Certificates and any
interest accrued and unpaid thereon and all other amounts
owing to such Investor Certificateholder hereunder and to
execute and/or deliver any certification or other
document required to be delivered pursuant to Section 12
of this Series Supplement.
SECTION 17. FCI Note. The Transferor has
received a note from Fingerhut Companies, Inc. in the
amount of $18,000,000 (such note, together with any
additional notes of Fingerhut Companies, Inc. held by the
Transferor at any time, the "FCI Note"). The Transferor
hereby agrees that at no time shall aggregate the
principal amount of the FCI Note be less than $1,000,000
(the "FCI Note Required Amount"). The FCI Note may not
be sold, transferred, assigned, pledged, hypothecated,
participated or otherwise conveyed or encumbered, nor may
the Transferor grant any security interest in the FCI
Note.
SECTION 18. 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 19. 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 20. Amendments. Solely with respect
to any amendment pursuant to Section 13.1(b) of the
Agreement and any consent required pursuant thereto from
the Holders of Investor Certificates of Series 1997-1,
this Series Supplement and the Agreement may be amended
from time to time by the Servicer, the Transferor and the
Trustee with the consent of the Holders of Investor
Certificates evidencing Undivided Interests aggregating
not less than 66 2/3% of the Invested Amount of the
Series 1997-1 Certificates and (y) not less than 51% of
the Class A Invested Amount to the extent that such Class
would be adversely affected, for the purpose of adding
any provisions to or changing in any manner or
eliminating any of the provisions of this Series
Supplement or the Agreement or of modifying in any manner
the rights of the Certificateholders of any Class of the
Series 1997-1 Certificates then issued and outstanding;
provided, however, that no such amendment under this
Section 20 shall (i) reduce in any manner the amount of,
or delay the timing of, distributions which are required
to be made on any Investor Certificate of such Class
without the consent of all of the related Investor
Certificateholders; (ii) change the definition of or the
manner of calculating the interest of any Investor
Certificate of such Class without the consent of the
related Investor Certificateholders or (iii) reduce the
aforesaid percentage required to consent to any such
amendment, in each case without the consent of all such
Investor Certificateholders.
SECTION 21. 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.
(b) For so long as any of the Class A
Certificates are outstanding, each of the Transferor, the
Servicer and the Trustee agree to cooperate with each
other to provide to any Class A Certificateholder and to
any prospective purchaser of Class A Certificates
designated by such a Class A Certificateholder upon the
request of such Class A Certificateholder or prospective
purchaser, any information required to be provided to
such holder or prospective purchaser to satisfy the
condition set forth in Rule 144A(d)(4) under the
Securities Act.
SECTION 22. 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.
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Series 1997-1
Supplement to be duly executed by their respective
officers as of the day and year first above written.
FINGERHUT RECEIVABLES, INC.
Transferor
By:/s/ James M. Wehmann
----------------------------
Name: James M. Wehmann
Title: Vice President,
Assistant Treasurer
FINGERHUT NATIONAL BANK
Servicer
By:/s/ Terry H. Hughes
---------------------------
Name: Terry H. Hughes
Title: Chief Executive Officer
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:/s/ Joseph G. Ernst
---------------------------
Name: Joseph G. Ernst
Title: Assistant Vice President
Exhibit A
[FORM OF CLASS A VARIABLE FUNDING CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING
THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY
BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT TO AN
INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS
OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A
QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE,
THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, OR TO THE
TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING A
BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO
REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF
ANOTHER QIB. THE TRANSFER OF THIS CERTIFICATE IS
SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
NO SALE, ASSIGNMENT, PARTICIPATION, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF A
CLASS A CERTIFICATES (OR ANY INTEREST THEREIN) SHALL
BE MADE UNLESS THE TRANSFEROR SHALL HAVE GRANTED ITS
PRIOR CONSENT THERETO, WHICH CONSENT MAY NOT BE
UNREASONABLY WITHHELD. NOR MAY AN INTEREST IN THIS
CERTIFICATE BE MARKETED ON OR THROUGH 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 OVER-THE-COUNTER-
MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT
REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS
SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE
TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT
THE PURCHASE OR HOLDING OF A CLASS A CERTIFICATE OR
CLASS B CERTIFICATE BY SUCH PURCHASER WILL NOT
RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE
PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE
CODE AND WILL NOT SUBJECT THE TRUSTEE, THE
TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN
ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND
SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (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 (INCLUDING FOR PURPOSES OF
CLAUSES (IV) AND (V), ANDY INSURANCE COMPANY GENERAL
ACCOUNT, BUT EXCLUDING ANY ENTITY REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
No. _____ Percentage Interest: ___%
FINGERHUT MASTER TRUST
VARIABLE FUNDING TRUST
CERTIFICATE, SERIES 1997-1, 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 installment sale contracts or loans
generated or to be generated by Fingerhut Corporation
("Fingerhut") or Fingerhut National Bank (the "Bank" or
the "Servicer") and other assets and interests
constituting the Trust under the Agreement described
below.
(Not an interest in or a recourse obligation
of Fingerhut Receivables, Inc., Fingerhut, the Bank or
any affiliate thereof.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and
Restated Pooling and Servicing Agreement, dated as of
January 12, 1997 (the "Pooling and Servicing Agreement";
such term to include any amendment thereto) by and
between Fingerhut Receivables, Inc., as Transferor (the
"Transferor"), the Bank, as Servicer, and The Bank of New
York (Delaware), as Trustee (the "Trustee"), and the
Series 1997-1 Supplement, dated as of January 21, 1997
(the "Series 1997-1 Supplement"), among the Transferor,
the Bank as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1997-1
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) and
Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is one of a
Class of Certificates entitled the "Fingerhut Master
Trust Variable Funding Trust Certificates, Series 1997-1,
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. In
the case of any conflict between terms specified in this
Certificate and terms specified in the Agreement, as
amended from time to time, the terms of the Agreement
shall govern.
The Transferor has structured the Agreement and
the Class A Certificates with the intention that the
Class A Certificates will qualify under applicable tax
law as indebtedness, and both the Transferor and each
holder of Class A Certificates (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.
Except in limited circumstance described in the
third succeeding paragraph no principal will be payable
to the Class A Certificateholders before the first
Business Day in the Amortization Period. Except in
connection with a payment of Class B Daily Principal, the
Class B Certificate will not have the right to receive
payments of principal until the Class A Invested Amount
has been paid in full.
Upon issuance, the Class A Certificates
represents the right to receive, on each Business Day, an
amount equal to the lesser of (x) the Available Series
1997-1 Imputed Yield Collections for such Business Day
and (y) the sum of (A) the product of (i) the Class A
Certificate Rate, (ii) a fraction the numerator of which
is the actual number of days from and including the next
preceding Business Day to but excluding such Business Day
and the denominator of which is 360, and (iii) the Class
A Outstanding Principal Amount as of the closed of
business on the preceding Business Day plus (B) the
excess, if any, of the amount payable to the Class A
Certificateholders pursuant to clause (A) on each prior
Business Day over the amount which has been deposited in
the Interest Funding Account with respect thereto on each
prior Business Day.
Principal will be distributed to the Class A
Certificateholders on each Distribution Date with respect
to the Amortization Period following the Series 1994-1
Funding Date.
On any Business Day during the Revolving
Period, the Transferor may specify an amount, not to
exceed the Net Revolving Principal Collections, to be
deposited into the Defeasance Account. Any amounts so
deposited, shall be paid to the Class A
Certificateholders in accordance with Section 11 of the
Agreement and upon payment shall reduce the Class A
Invested Amount by an amount equal to any such payment.
In addition the Transferor may specify, upon the issuance
of a new Series pursuant to an Exchange made at any time
during the Revolving Period that the proceeds of such
issuance be deposited into the Defeasance Account for
payment to the Class A Certificateholders pursuant to
Section 11 of the Agreement. The Class A Invested
Amount will be reduced by an amount equal to the amount
of any such payments made.
In addition, pursuant to Section 6.15 of the
Agreement, the holders of this Certificate may from time
to time be required, prior to the Pay Out Commencement
Date, to purchase Additional Class A Invested Amounts on
the terms and conditions specified therein. The holder
of this Certificate is authorized to record on the grid
attached to its Class A Certificates (or at such
Certificateholder's option, in its internal books and
records) the date and amount of any Additional Class A
Invested Amount purchased by it, and each repayment
thereof; provided that failure to make any such
recordation on such grid or any error in such grid shall
not adversely affect such Certificateholder's rights with
respect to its Class A Invested Amount and its right to
receive interest payments in respect of the Class A
Invested Amount held by such Certificateholder.
"Class A Invested Amount" means, when used with
respect to any Business Day, an amount equal to (a)
$59,600,000 plus (b) the aggregate principal amount of
any Additional Class A Invested Amounts purchased
pursuant to Section 6.15 of the Agreement, minus (c) the
aggregate amount of principal payments made to Class A
Certificateholders prior to such date, and minus (d) the
aggregate amount of Class A Investor Charge-Offs for all
prior Distribution Dates, and plus (e) the aggregate
amount of Available Series Imputed Yield Collections,
Transferor Imputed Yield Collections, Excess Imputed
Yield Collections and Reallocated Principal Collections
applied on all prior Distribution Dates for the purpose
of reimbursing amounts deducted pursuant to the foregoing
clause (d).
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
October 2002 Distribution Date, unless (i) a different
date shall be set forth in any Extension Notice, or (ii)
a different date shall be specified in a written notice
from the Transferor to the Trustee as necessary to
satisfy the Minimum Rating Condition (the "Scheduled
Series 1997-1 Termination Date"). After the Scheduled
Series 1997-1 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 Scheduled 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 and the Class B 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.
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.
FINGERHUT RECEIVABLES, INC.
By:
----------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is the Class A Certificates referred to in
the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK
By:
----------------------------
Name:
Title:
Beginning Ending
Principal Principal
Date Balance Additions Payments Balance
---- --------- --------- -------- ---------
Exhibit B
[FORM OF CLASS B VARIABLE FUNDING CERTIFICATE]
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. FINGERHUT
RECEIVABLES, INC. SHALL BE PROHIBITED FROM
TRANSFERRING ANY INTEREST IN OR PORTION OF THIS
CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL
HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT
ADVERSELY AFFECT THE FEDERAL INCOME TAX
CHARACTERIZATION OF ANY OUTSTANDING SERIES OF
INVESTOR CERTIFICATES. THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
NO SALE, ASSIGNMENT, PARTICIPATION, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF A
CLASS B CERTIFICATE (OR ANY INTEREST THEREIN) SHALL
BE MADE UNLESS THE TRANSFEROR SHALL HAVE GRANTED ITS
PRIOR CONSENT THERETO, WHICH CONSENT MAY NOT BE
UNREASONABLY WITHHELD. NOR MAY AN INTEREST IN THIS
CERTIFICATE BE MARKETED ON OR THROUGH 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 OVER-THE-COUNTER-
MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT
REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS
SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE
TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT
THE PURCHASE OR HOLDING OF A CLASS B CERTIFICATE BY
SUCH PURCHASER WILL NOT RESULT IN THE ASSETS OF THE
TRUST BEING DEEMED TO BE "ASSETS OF THE BENEFIT
PLAN" AND SUBJECT TO THE PROHIBITED TRANSACTION
PROVISIONS OF ERISA AND THE CODE AND WILL NOT
SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE SERVICER
TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN
THE POOLING AND SERVICING AGREEMENT, SUCH PURCHASER
IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN
SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II)
A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), (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 (INCLUDING
FOR PURPOSES OF CLAUSES (IV) AND (V) ANY INSURANCE
COMPANY GENERAL ACCOUNT, BUT EXCLUDING ANY ENTITY
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED).
No. Percentage Interest: ___%
FINGERHUT MASTER TRUST
VARIABLE FUNDING TRUST
CERTIFICATE, SERIES 1997-1, 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 installment sale contracts or loans
generated or to be generated by Fingerhut Corporation
("Fingerhut") of Fingerhut National Bank (the "Bank" or
the "Servicer") and other assets and interests
constituting the Trust under the Agreement described
below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut, the Bank or any
affiliate thereof.)
This certifies that _________ (the
"Certificateholder") is the registered owner of a
fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and
Restated Pooling and Servicing Agreement, dated as of
January 12, 1997 (the "Pooling and Servicing Agreement";
such term to include any amendment thereto) by and
between Fingerhut Receivables, Inc., as Transferor (the
"Transferor"), the Bank, as Servicer, and The Bank of New
York (Delaware), as Trustee (the "Trustee"), and the
Series 1997-1 Supplement, dated as of January 21, 1997
(the "Series 1997-1 Supplement"), among the Transferor,
the Bank as Servicer and the Trustee (the Pooling and
Servicing Agreement, as supplemented by the Series 1997-1
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) and
Section 4.4 of the Agreement.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Certificate is one of a
Class of Certificates entitled "Fingerhut Master Trust
Variable Funding Trust Certificates, Series 1997-1, 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. In the case of any conflict
between terms specified in this Certificate and terms
specified in the Agreement, as amended from time to time,
the terms of the Agreement shall govern.
[The Transferor has structured the Agreement,
the Class B Certificates, the Fingerhut Master Trust
Variable Funding Trust Certificate, Series 1997-1, Class
A (the "Class A Certificates ) with the intention that
the Class A Certificates and the Class B Certificates
will qualify under applicable tax law as indebtedness,
and both the Transferor and each holder of a Class B
Certificate (a "Class B Certificateholder") or any
interest therein by acceptance of its Certificate or any
interest therein, agrees to treat the Class B Certificate
for purposes of federal, state and local income or
franchise taxes and any other tax imposed on or measured
by income, as indebtedness.]
Principal will be payable to the Class B
Certificateholders on the Class B Principal Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date, on which the Class
A Invested Amount had been paid in full. Except in
connection with a payment of Class B Daily Principal,
principal will be payable to the Class B
Certificateholders until all principal payments have been
made to the Class A Certificateholders.
"Class B Invested Amount" means an amount equal
to (a) the aggregate principal amount of any Additional
Class B Invested amount pursuant to Section 6.16 of the
Agreement minus (b) the aggregate amount of principal
payments made to Class B Certificateholders prior to such
date minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates, minus (d)
the aggregate amount of Reallocated Principal Collections
for all prior Business Days and plus (e) the aggregate
amount of Available Series Imputed Yield Collections,
Transferor Imputed Yield Collections, Excess Imputed
Yield Collections and Reallocated Principal Collections
applied on all prior Distribution Dates for the purpose
of reimbursing amounts deducted pursuant to the foregoing
clauses (c) and (d).
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 Certificate pursuant to the terms
of the Agreement. All principal of and interest on the
Class B Certificate is due and payable no later than the
October 2002 Distribution Date, unless (i) a different
date shall be set forth in any Extension Notice, or (ii)
a different date shall be specified in a written notice
from the Transferor to the Trustee as necessary to
satisfy the Minimum Rating Condition (the "Scheduled
Series 1997-1 Termination Date"). After the Scheduled
Series 1997-1 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 Scheduled Series 1997-1 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 and the Class B 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.
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.
FINGERHUT RECEIVABLES, INC.
By:
----------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to
in the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK
By:
----------------------------
Name:
Title:
Exhibit C
[Form of Monthly Certificateholders' Statement]
Exhibit D
____________, ____
Fingerhut Receivables, Inc.
4400 Baker Road
Suite F480
Minnetonka, MN 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Re: Class A Certificates, Series 1997-1
Ladies and Gentlemen:
In connection with our proposed purchase of
$___________ in principal amount of Fingerhut Master
Trust, Variable Funding Trust Certificates, Series 1997-
1, Class A (the "Class A Certificates"), we confirm that:
1. We have received such information and
documentation as we deem necessary in order to make our
investment decision. We understand that such information
and documentation speaks only as of its date and that
such information and documentation may not be correct or
complete as of any time subsequent to such date.
2. We agree to be bound by the restrictions and
conditions set forth in the Amended and Restated Pooling
and Servicing Agreement, dated as of January 12, 1997, as
supplemented by the Series 1997-1 Supplement dated as of
January 21, 1997 (the "Series 1997-1 Supplement" and
together with the Pooling and Servicing Agreement, each
as amended from time to time, the "Pooling and Servicing
Agreement"), each by and among Fingerhut Receivables,
Inc., as Transferor, Fingerhut National Bank, as
Servicer, and The Bank of New York (Delaware), as
Trustee, relating to the Class A Certificates, including
the obligation to purchase Additional Class A Invested
Amounts, as specified in Section 6.15 of the Pooling and
Servicing Agreement, and agree to be bound by, and not
reoffer, resell, pledge or otherwise transfer (any such
act, a "Transfer") the Class A Certificates except in
compliance with, such restrictions and conditions
including but not limited to those in Section 12 of the
Series 1997-1 Supplement.
3. We understand that the Class A 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 Class A
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) pursuant to Rule 144A under the
Securities Act to a person that we reasonably believe is
a qualified institutional buyer within the meaning of
Rule 144A ("QIB") purchasing for its own account or a QIB
purchasing for the account of a QIB, whom we have
informed, in each case, that the reoffer, resale, pledge
or other transfer is being made in reliance on Rule 144A.
4. We have neither acquired nor will we Transfer
any Class A Certificate we acquire (or any interest
therein) or cause any Class A Certificate (or any
interest therein) to be marketed on or through 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.
5. We are not and will not become, for so long as
we hold any interest in the Class A Certificates, a
partnership, Subchapter S corporation or grantor trust
for United States federal income tax purposes.
6. We are a person who is either (A)(i) a citizen
or resident of the United States, (ii) a corporation 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 Class A 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 Class A Certificate will
not result in any withholding obligation with respect to
any payments with respect to the Class A 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 Class A
Certificate, the Servicer and the Trustee, a properly
executed U.S. Internal Revenue Service Form 4224 and a
new Form 4224, or any successor applicable form, 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 Class A Certificates may constitute unrelated
business taxable income.
7. We understand that no subsequent Transfer of a
Class A Certificate is permitted unless (i) such Transfer
is of a Class A Certificate with a minimum principal
amount of at least $1,000,000 and (ii) the Transferor
consents in writing to the proposed Transfer; provided,
that any attempted Transfer that would cause the number
of Targeted Holders to exceed ninety-nine shall be void.
8. We are a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) purchasing
for our own account or for the account of a "qualified
institutional buyer" and we understand that the sale to
us is being made in reliance on Rule 144A under the
Securities Act.
9. We are acquiring each of the Class A
Certificates purchased by us for our own account or for a
single account (each of which is a "qualified
institutional buyer") as to which we exercise sole
investment discretion.
10. 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 Code, (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 (including for
purposes of clauses (iv) and (v) any insurance company
general account, but excluding any entity registered
under the Investment Company Act of 1940, as amended).
11. We understand that any purported Transfer of
any Class A Certificate in contravention of the
restrictions and conditions in paragraphs 1 through 10
above (including any violation of the representation in
paragraph 5 by an investor who continues to hold a Class
A Certificate occurring any time after the Transfer in
which it acquired such Class A Certificate) shall be null
and void and the purported transferee shall not be
recognized by the Trust or any other person as a Class A
Certificateholder for any purpose.
12. We further understand that, on any proposed
resale, pledge or transfer of any Class A 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 Class A Certificates and the Pooling
and Servicing Agreement pursuant to which the Class A
Certificates were issued and we agree that if we
determine to Transfer any Class A 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
Class A Certificates purchased by us will bear a legend
to the foregoing effect.
13. The person signing this letter on behalf of the
ultimate beneficial purchaser of the Class A Certificates
has been duly authorized by such beneficial purchaser of
the Class A Certificates to do so.
14. The Class A Certificates purchased by us should
be registered in the name and issued in the denominations
set forth on Schedule 1 hereto. All payments on the
Class A Certificates held by us should be wired to us in
accordance with the instructions set forth on Schedule 1
hereto unless we otherwise notify the Transferor, the
Servicer and the Trustee in writing.
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
[NAME OF PURCHASER]
By:
----------------------------
Name:
Title:
Schedule 1
Registration and Payment Instructions
-------------------------------------
Registration Instructions:
-------------------------
Full Legal Name of Purchaser:__________________________
Number and Denomination of Certificates:________________
________________
Payment Instructions:
--------------------
Name of Bank: ____________________
Address of Bank:____________________
Account Name: ___________________
Account Number:___________________
ABA Number: ___________________
Reference: ___________________
Exhibit E
FORM OF EXTENSION NOTICE
FINGERHUT MASTER TRUST, SERIES 1997-1
The undersigned, a duly authorized
representative of Fingerhut Receivables, Inc., a Delaware
corporation (the "Transferor"), as Transferor pursuant to
the Amended and Restated Pooling and Servicing Agreement
dated as of January 12, 1997 (the "Pooling and Servicing
Agreement"), by and among the Transferor, Fingerhut
National Bank, as servicer (the "Servicer"), and The Bank
of New York (Delaware), as trustee (the "Trustee"), as
supplemented by the Series 1997-1 Supplement, dated as of
January 21, 1997 (the "Series 1997-1 Supplement"), by and
between the Transferor, the Servicer and the Trustee (the
Pooling and Servicing Agreement, as supplemented by the
Series 1997-1 Supplement, and as each may from time to
time be amended, supplemented, or modified, the
"Agreement"), does hereby notify the Trustee (or any
successor Trustee) and the Investor Certificateholders:
A. Capitalized terms used but not defined in
this Certificate shall have the respective meanings set
forth in the Agreement. References herein to certain
sections and subsections are references to the respective
sections and subsections of the Agreement.
B. The undersigned is a [Vice President] or
more senior officer of the Transferor who is duly
authorized to execute and deliver this Certificate on
behalf of the Transferor.
C. This Certificate is being delivered
pursuant to Section 6.17(a) of the Agreement.
D. The Transferor is the Transferor under the
Agreement.
E. No Pay Out Event has occurred that has not
been remedied pursuant to the provisions of the
Agreement.
F. The Certificate is being delivered to the
Trustee on or before the date specified in subsection
6.17(a) for delivery.
G. NOTIFICATION OF EXTENSION
Pursuant to subsection 6.17(a) and in respect
of [ , ] (the "Current Extension Date"), the
Transferor hereby notifies the Trustee and the Investor
Certificateholders of the Transferor's intention to
extend the Revolving Period in respect of Series 1997-1
on the Current Extension Date pursuant to the provisions
of Section 6.17, until the date set forth below (such
extension, the "Extension").
H. REQUIREMENTS TO COMPLETE EXTENSION
(1) Annexed hereto is an election notice (an
"Election Notice") to be returned by any Investor
Certificateholder electing to approve the Extension. No
Extension shall occur unless Investor Certificateholders
holding at least more than fifty percent of each of the
aggregate principal amount of Class A Certificates and
Class B Certificates, respectively, shall return properly
executed Election Notices approving the Extension by the
Election Date (as defined below). Any Investor
Certificateholder electing to approve the Extension must
deliver a properly executed Election Notice at the office
of the Trustee, [ ] on or before 3:00 p.m., [] time, on
[ ,] (the "Election Date"). Any Investor
Certificateholder may withdraw any Election Notice
delivered by it to the Trustee by notifying the Trustee
in writing at the address set forth in the previous
sentence on or prior to the Election Date.
(2) THE EXTENSION SHALL NOT OCCUR UNTIL PRIOR
SATISFACTION OF CERTAIN CONDITIONS PRECEDENT BY THE CLOSE
OF BUSINESS ON THE ELECTION DATE, INCLUDING THE APPROVAL
OF SUCH EXTENSION BY THE INVESTOR CERTIFICATEHOLDERS
HOLDING THE REQUIRED AGGREGATE PRINCIPAL AMOUNT OF CLASS
A CERTIFICATES AND CLASS B CERTIFICATES THAT NO PAY OUT
EVENT SHALL HAVE OCCURRED AND BE CONTINUING, AND THAT
CERTAIN LEGAL OPINIONS AND RATING AGENCY CONFIRMATIONS
SHALL HAVE BEEN DELIVERED TO THE TRANSFEROR AND THE
TRUSTEE PURSUANT TO SECTION 6.17(b). THE TRANSFEROR MAY
IN ITS SOLE DISCRETION WITHDRAW THIS EXTENSION NOTICE AT
ANY TIME ON OR PRIOR TO THE ELECTION DATE BY DELIVERING
NOTICE OF SUCH WITHDRAWAL IN WRITING TO THE TRUSTEE. IF
ANY SUCH NOTICE OF WITHDRAWAL SHALL BE SO DELIVERED, NO
EXTENSION SHALL OCCUR.
I. NEW PROVISIONS TO BECOME EFFECTIVE ON THE
EXTENSION DATE
(1) The new Amortization Period Commencement
Date shall be the earlier of (a) [,] or (b) the Pay Out
Commencement Date.
(2) The new Extension Date shall be
[ , ].
[(3) The new Scheduled Series 1997-1
Termination Date shall be [,].]
(4) The new Class A Expected Payment Date is
______.
[(5) The following are additional provisions
that will apply to the Investor Certificates on and after
the Extension Date:
INSERT PROVISIONS]
J. Annexed hereto are the following:
(1) the form of Extension Tax Opinion.
(2) the form of Extension Opinion.
(3) the Election Notice.
IN WITNESS WHEREOF, the undersigned has duly
executed this certificate this [ ] day of [ , ].
FINGERHUT RECEIVABLES, INC.
By:
----------------------------
Name:
Title:
Exhibit F
FORM OF INVESTOR CERTIFICATEHOLDER ELECTION NOTICE
[INSERT NAME
AND ADDRESS OF TRUSTEE]
Re: Fingerhut Master Trust:
Election Notice to Extend Series 1997-1
Ladies and Gentlemen:
The undersigned hereby elects to approve the
extension of the Revolving Period for Series 1997-1 until
the Amortization Period Commencement Date set forth in
the Extension Notice dated [ , ] (the
"Extension Notice") and delivered to the undersigned
pursuant Section 6.17(a) of the Amended and Restated
Pooling and Servicing Agreement, dated as of January 12,
1997, including the Series 1997-1 Supplement thereto,
dated as of January 21, 1997, each by and among Fingerhut
Receivables, Inc., as transferor, Fingerhut National
Bank, as servicer, and The Bank of New York (Delaware),
as trustee (collectively, and as each may be amended,
supplemented or modified from time to time, the "Pooling
and Servicing Agreement"). The undersigned hereby
acknowledges that, commencing on the Current Extension
Date (as defined in the Extension Notice), the terms and
provisions of the Pooling and Servicing Agreement shall
be modified as set forth in the Extension Notice.
IN WITNESS WHEREOF, the undersigned registered
owner(s) has [have] executed this Election Notice as of
the date set forth below.
Dated:
Name(s):_______________________
Address:_______________________
(Please Print)
Signature(s):__________________
Exhibit 10.g(i)
AMENDMENT
dated as of February 4, 1997
to
Fingerhut Companies, Inc. Stock Option Plan
The following amendments to the Fingerhut Companies,
Inc. Stock Option Plan (the "1990 Plan") were adopted by the
Board of Directors of Fingerhut Companies, Inc., on February
4, 1997:
1. Effective as of the date hereof, Section 5(c) of
the 1990 Plan is hereby amended to read in its entirety as
follows:
"(c) Except as otherwise determined by the
Committee or in an option or award agreement, no
option or award granted under the Plan shall be
transferable by an optionee or grantee, otherwise
than by will or the laws of descent or
distribution and during the lifetime of an
optionee or grantee, the option shall be
exercisable only by such optionee."
2. Effective as of the date hereof, Section 9(b) of
the 1990 Plan is hereby amended to read in its entirety as
follows:
"(b) Except as otherwise provided in this Plan or
in an option or award agreement, a participant's
rights and interest under the Plan may not be
assigned or transferred in whole or in part either
directly or by operation of law or otherwise
including, but not limited to, execution, levy,
garnishment, attachment, pledge, bankruptcy or in
any other manner and no such right or interest of
any participant in the Plan shall be subject to
any obligation or liability of such participant."
3. Effective as of the date hereof, the introductory
language set forth in Section 5(d) of the 1990 Plan is
hereby amended to read as follows:
"Except as set forth in Section 5(h) below, the
Option shall not be exercisable:"
4. Effective as of the date hereof, Section 5(g) of
the 1990 Plan is hereby amended to read as follows:
"Except as otherwise set forth in Section 5(h)
below, no Option shall be exercised during the
first year following its grant and, except as
otherwise determined by the Committee, any Option
shall be exercisable, on a cumulative basis, with
respect to twenty percent (20%) of the Common
Shares subject to such Option on each annual
anniversary date from the date granted."
5. Effective as of the date hereof, the 1990 Plan is
hereby amended to add a new Section 5(h) to read in its
entirety as expressly set forth below:
(h) Notwithstanding the vesting provisions
contained in Section 5 hereof, but subject to the
other terms and conditions set forth herein, an
Option may be exercised in full immediately
following the date of a "Change in Control" (as
hereinafter defined). For purposes of this Plan,
the following terms shall have the definitions set
forth below:
(A) "Change in Control" shall mean:
(i) a change in control of a
nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not the Company is then subject
to such reporting requirement; or
(ii) the public announcement
(which, for purposes of this definition, shall
include, without limitation, a report filed
pursuant to Section 13(d) of the Exchange Act) by
the Company or any "person" (as such term issued
in Sections 13(d) and 14(d) of the Exchange Act)
that such person has become the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more
of the combined voting power of the Company's then
outstanding securities; provided, however, that
notwithstanding the foregoing, no Change of
Control shall be deemed to have occurred for
purposes of this Plan by reason of ownership of
30% or more of the total voting capital stock of
the Company then issued and outstanding by any
subsidiary of the Company or any employee benefit
plan of the Company or of any subsidiary of the
Company or any entity holding shares of the Common
Stock organized, appointed or established for, or
pursuant to the terms of, any such plan (any such
person or entity described in this proviso is
referred to herein as a "Company Entity"); or
(iii) the announcement of a
tender offer by any person or entity (other than a
Company Entity) for 30% or more of the Company's
voting capital stock then issued and outstanding,
which tender offer has not been approved by the
Board, a majority of the members of which are
Continuing Directors (as hereinafter defined), and
recommended to the shareholders of the Company; or
(iv) the Continuing Directors
(as hereinafter defined) cease to constitute a
majority of the Company's Board of Directors; or
(v) the shareholders of the
Company approve (x) any consolidation or merger of
the Company in which the Company is not the
continuing or surviving corporation or pursuant to
which shares of Company stock would be converted
into cash, securities or other property, other
than a merger of the Company in which shareholders
immediately prior to the merger have the same
proportionate ownership of stock of the surviving
corporation immediately after the merger; (y) any
sale, lease, exchange or other transfer (in one
transaction or a series of related transactions)
of all or substantially all of the assets of the
Company; or (z) any plan of liquidation or
dissolution of the Company.
(B) "Continuing Director" shall mean any
person who is a member of the Board of Directors
of the Company, while such person is a member of
the Board of Directors, who is not an Acquiring
Person (as defined below) or an Affiliate or
Associate (as defined below) of an Acquiring
Person, or a representative of an Acquiring Person
or of any such Affiliate or Associate, and who (x)
was a member of the Board of Directors on the date
of the applicable option or award agreement or (y)
subsequently becomes a member of the Board of
Directors, if such person's initial nomination for
election or initial election to the Board of
Directors is recommended or approved by a majority
of the Continuing Directors. For purposes of this
subparagraph (ii), "Acquiring Person" shall mean
any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) who or which,
together with all Affiliates and Associates of
such person, is the "beneficial owner" (as defined
in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly of securities of the
Company representing 30% or more of the combined
voting power of the Company's then outstanding
securities, but shall not include any Company
Entity; and "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in
Rule 12b-2 promulgated under the Exchange Act.
__________________________
Michael P. Sherman
Senior Vice President,
New Business Development,
General Counsel and Secretary
Exhibit 10.i(i)
AMENDMENT NO. 1
dated as of February 4, 1997
to
Fingerhut Companies, Inc.
1995 Long-Term Incentive and Stock Option Plan
The following amendments to the Fingerhut Companies, Inc.
1995 Long-Term Incentive and Stock Option Plan (the "1995
Plan") were adopted by the Board of Directors of Fingerhut
Companies, Inc., on February 4, 1997:
1. Effective as of the date hereof, Section 14 of the
1995 Plan is hereby amended to read in its entirety as
follows:
"14. Limits on Transferability.
Except as otherwise determined by the
Committee or in an option or award agreement, no
option or award granted under the Plan shall be
transferable by an optionee or grantee, otherwise
than by will or the laws of descent or distribution
and during the lifetime of an optionee or grantee,
the option shall be exercisable only by such
optionee."
2. Effective upon and subject to shareholder approval,
Section 2 of the 1995 Plan is amended by replacing the number
"2,500,000" therein with the number "4,500,000."
_____________________
Michael P. Sherman
Senior Vice President,
New Business Development,
General Counsel and Secretary
EXHIBIT 10.i(iii)
FINGERHUT COMPANIES, INC.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Agreement is made as of February
14, 1996 by and between Fingerhut Companies, Inc. (the
"Company") and [name] ("the Participant").
WHEREAS, the Compensation Committee (the "Committee")
of the Board of Directors of the Company (the "Board")
desires to provide Participant with an award of restricted
shares of common stock of the Company pursuant to the
provisions of the Fingerhut Companies, Inc. 1995 Long-Term
Incentive and Stock Option Plan (the "Plan") and this
Restricted Stock Award Agreement (the "Agreement"), and
Participant desires to acquire such option.
NOW, THEREFORE, for and in consideration of the mutual
covenants and promises contained herein, and for other
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as
follows:
1. Award of Restricted Stock
The Company hereby grants to the Participant a
restricted stock award of [number] ([no]) shares (the
"Shares") of common stock, par value $.01 per share, of the
Company (the "Common Stock"') subject to the terms and
conditions set forth herein and in the Plan. The grant of
this award of Shares to the Participant shall become
effective upon the Participant signing and returning this
Agreement to the Senior Vice President, Human Resources of
the Company.
2. Vesting; Change in Control
(a) Subject to the terms and conditions of this
Agreement, the Shares shall vest in Participant according to
the following schedule: 25% on March 31, 1996, 25% on March
31, 1997 and 50% on August 31, 1998, if Participant remains
continuously employed by the Company or any of its
subsidiaries until such respective dates. The portion of
the Shares that vest on March 31, 1996 shall remain subject
to the transfer restrictions set forth in Section 4(b).
(b) Notwithstanding the foregoing, in the event of a
Change in Control (as defined below) prior to the vesting of
the Shares, all Shares shall vest in full in Participant as
of the date of such Change in Control if Participant has
been continuously employed by the Company or any of its
subsidiaries until the date of such Change in Control.
(c) For purposes of this Agreement, "Change in
Control" shall mean:
(i) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is then subject to such reporting
requirement; or
(ii) the public announcement (which, for purposes
of this definition, shall include, without limitation, a
report filed pursuant to Section 13(d) of the Exchange Act)
by the Company or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) that such
person has become the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities; provided, however, that
notwithstanding the foregoing, no Change of Control shall be
deemed to have occurred for purposes of this Agreement by
reason of ownership of 30% or more of the total voting
capital stock of the Company then issued and outstanding by
any subsidiary of the Company or any employee benefit plan
of the Company or of any subsidiary of the Company or any
entity holding shares of the Common Stock organized,
appointed or established for, or pursuant to the terms of,
any such plan (any such person or entity described in this
proviso is referred to herein as a "Company Entity"); or
(iii) the announcement of a tender offer by
any person or entity (other than a Company Entity) for 30%
or more of the Company's voting capital stock then issued
and outstanding, which tender offer has not been approved by
the Board, a majority of the members of which are Continuing
Directors (as hereinafter defined), and recommended to the
shareholders of the Company; or
(iv) the Continuing Directors (as hereinafter
defined) cease to constitute a majority of the Company's
Board of Directors; or
(v) the shareholders of the Company approve (x)
any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which shares of Company stock would be converted
into cash, securities or other property, other than a merger
of the Company in which shareholders immediately prior to
the merger have the same proportionate ownership of stock of
the surviving corporation immediately after the merger; (y)
any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company; or (z) any
plan of liquidation or dissolution of the Company.
(b) "Continuing Director" shall mean any person who is
a member of the Board of Directors of the Company, while
such person is a member of the Board of Directors, who is
not an Acquiring Person (as defined below) or an Affiliate
or Associate (as defined below) of an Acquiring Person, or a
representative of an Acquiring Person or of any such
Affiliate or Associate, and who (x) was a member of the
Board of Directors on the date of this Agreement as first
written above or (y) subsequently becomes a member of the
Board of Directors, if such person's initial nomination for
election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing
Directors. For purposes of this subparagraph (ii),
"Acquiring Person" shall mean any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) who or
which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly
of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities, but shall not include any Company Entity; and
"Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated
under the Exchange Act.
3. Forfeiture; Early Vesting in Event of Death or
Disability
(a) If Participant ceases to be an employee of the
Company or any of its subsidiaries (as defined in the Plan)
for any reason other than death or Disability (as defined
below) prior to the vesting of the Shares pursuant to
Section 2 hereof, then Participant's rights to all of the
Shares not theretofore vested shall be immediately and
irrevocably forfeited.
(b) If Participant ceases to be an employee of the
Company or any of its subsidiaries by reason of death or
Disability prior to the vesting of the Shares pursuant to
Section 2 hereof, then Participant or Participant's
Representative (as defined below) shall become immediately
vested, as of the date of such death or Disability in all
unvested Shares. No transfer by will or by laws of descent
and distribution of any Shares which vest by reason of
Participant's death shall be effective to bind the Company,
unless the Company shall have been furnished with written
notice of such transfer and a copy of the will or such other
evidence as the Company may deem necessary to establish the
validity of the transfer.
(c) For purposes of this Agreement, the following
terms shall be defined as follows:
(i) "Disability" shall have the meaning given to
"permanent and total disability" in Section 22(e)(3) of the
Code (as defined in the Plan) and shall be determined by the
Committee (as defined in the Plan) in its sole and absolute
discretion.
(ii) "Representative" shall mean the person or persons
to whom Participant's rights under this Agreement shall pass
upon death, whether by will or by the applicable laws of
descent and distribution.
(d) A leave of absence granted in accordance with the
Company's usual procedure which does not operate to
interrupt continuous employment for other benefits granted
by the Company shall not be considered a termination of
employment under this Agreement. A period of "related
employment" during which Participant is not employed by the
Company nor a subsidiary (as defined in the Plan) shall not
be considered a termination of employment under this
Agreement if (i) such employment is undertaken by
Participant at the request of the Company or a subsidiary,
(ii) immediately prior to the undertaking of such employment
Participant was an officer or employee of the Company or a
subsidiary or was engaged in related employment, and (iii)
such employment is recognized by the Committee, in its sole
discretion, as related employment. The death or Disability
of Participant during a period of related employment shall
be treated, for purposes of this agreement, as if such death
or the onset of such disability had occurred while
Participant was an officer or employee of the Company or a
subsidiary.
(e) The Committee may accelerate the vesting schedule
provided in Section 2 at any time in its sole discretion.
4. Restriction on Transfer
(a) Except as provided in subsection 4(b) below, none
of the Shares may be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of or encumbered until
they vest pursuant to Section 2 or 3 hereof, and no attempt
to transfer the unvested Shares, whether voluntary or
involuntary, by operation of law or otherwise, shall vest
the transferee with any interest or right in or with respect
to such Shares.
(b) To the extent such transfers are permitted under
the Plan and are not restricted by Rule 16b-3 promulgated
under the Exchange Act, the Committee, in its sole
discretion, may establish, as permitted by applicable law,
rules and conditions under which a Participant may transfer
the unvested restricted stock granted pursuant to this
Agreement to any member of Participant's "immediate family"
(as such term is defined in Rule 16a-1(e) promulgated under
the Exchange Act), to a trust whose beneficiaries are
members of Participant's "immediate family" or to or for the
benefit of an organization exempt from federal income tax
pursuant to Section 501 of the Code. Any such transferee
will remain subject to the vesting and forfeiture provisions
contained in Section 2 and 3 hereof.
(c) Notwithstanding the foregoing, none of the Shares
may be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of or encumbered until August 15, 1996,
and no attempt to transfer the Shares, whether voluntary or
involuntary, by operation of law or otherwise, shall vest
the transferee with any interest or right in or with respect
to the Shares.
5. Issuance and Custody of Certificate
(a) The Company shall cause to be issued one or more
stock certificates, registered in the name of Participant,
evidencing the Shares. Unvested Shares may be registered in
book entry form at the Company's transfer agent. Each such
certificate or book entry registration shall bear one or
both of the following legends or other similar legends:
(i) "THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE, AND
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE
SHARES OF COMMON STOCK REPRESENTED HEREBY ARE
SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS
(INCLUDING RESTRICTIONS AGAINST TRANSFER)
CONTAINED IN THE FINGERHUT COMPANIES, INC. 1995
LONG-TERM INCENTIVE AND STOCK OPTION PLAN AND A
RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO
BETWEEN FINGERHUT COMPANIES, INC. AND THE
REGISTERED OWNER OF SUCH SHARES. COPIES OF SUCH
PLAN AND AGREEMENT ARE ON FILE IN THE OFFICE OF
THE SECRETARY OF FINGERHUT COMPANIES, INC., 4400
BAKER ROAD, MINNETONKA, MINNESOTA 55343."
(ii) If required under then applicable
securities laws: "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT (I)
THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
OF SUCH SECURITIES THAT SUCH TRANSFER MAY LAWFULLY
BE MADE WITHOUT REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR (II) SUCH REGISTRATION OR
QUALIFICATION."
(b) Participant agrees to sign stock powers relating
to the Shares from time to time and to deliver them to the
Company. These stock powers will be used to authorize the
issuance of new certificates upon lapse of restrictions upon
vesting.
(c) Each certificate issued pursuant to Section 5(a)
hereof, together with the stock powers relating to the
Shares, shall be deposited by the Company with the Secretary
of the Company or a custodian designated by the Secretary.
Upon request, the Secretary or such custodian shall issue a
receipt to the Participant evidencing the certificate or
certificates held which are registered in the name of the
Participant.
(d) After Shares vest pursuant to Sections 2 or 3
hereof, the Company shall promptly cause to be issued a
certificate or certificates evidencing such vested Shares,
free of the legend provided in Section 5(a)(i) and, subject
to receipt of an opinion of counsel satisfactory to the
Company (which may be counsel for the Company), free of the
legend provided in Section 5(a)(ii) hereof, and shall cause
such certificate or certificates, the stock powers relating
to such vested Shares and any additional shares of Common
Stock, any securities and any other property held in custody
with respect to such vested Shares pursuant to Section 6(c)
hereof to be delivered to the Participant or the
Participant's Representative. Only whole Shares shall be
issued to the Participant pursuant to this Agreement.
6. Distributions and Adjustments
(a) In the event that the outstanding shares of Common
Stock (other than shares held by dissenting shareholders)
shall be changed into, or exchanged for, a different number
or kind of shares of Common Stock or other securities of the
Company, or, if further changes or exchanges of any Common
Stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been
exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock
dividend, reclassification, split-up, combination of shares
or otherwise), then for each Share, there shall be
substituted and exchanged therefor the number and kind of
shares of Common Stock or other securities into or for which
each outstanding share of Common Stock (other than shares
held by dissenting shareholders) shall be so changed or
exchanged. If in the event of any such changes or exchanges
in order to prevent dilution or enlargement of rights under
this Agreement, it is necessary to make an adjustment in the
number or kind of the Shares, such adjustment shall be made
by the Committee and shall be effective and binding for all
purposes of this Agreement.
(b) Any additional shares of Common Stock, any other
securities of the Company and any other property (except for
cash dividends or other cash distributions) distributed with
respect to the Shares prior to the date the Shares vest
shall be subject to the same restrictions, terms and
conditions as the Shares. Any cash dividends or other cash
distributions payable with respect to the Shares shall be
distributed to Participant at the same time cash dividends
or other cash distributions are distributed to stockholders
of the Company generally.
(c) Any additional shares of Common Stock, any
securities and any another property (except for cash
dividends or other cash distributions) distributed with
respect to the Shares prior to the date such Shares vest
shall be promptly deposited with the Secretary or the
custodian designated by the Secretary to be held in custody
in accordance with Section 5(c) hereof.
7. Taxes
The Participant shall immediately notify the Company of
any election he/she may make under Section 83 of the Code
with respect to this restricted stock award. In order to
comply with all applicable federal or state income, social
security, payroll, withholding or other tax laws or
regulations, the Company may take such action, and may
require Participant to take such action, as it deems
appropriate to ensure that all applicable federal or state
income, social security, payroll, withholding or other
taxes, which are the sole and absolute responsibility of the
Participant, are withheld or collected from Participant.
The Company reserves the right to withhold from any transfer
or payment under the Plan or from any other payment due to
the Participant from the Company any taxes as may be
required pursuant to law and the Participant shall provide
any documentation necessary with respect to such
withholding. The Participant shall, if required by the
Company in its discretion, pay to the Company in cash any
amount required to be withheld for any applicable employment
or withholding taxes, and the Company may condition delivery
of vested, nonrestricted stock certificates upon receipt of
such payment.
8. Miscellaneous
(a) This Agreement is subject in all respects to the
terms of the Plan. By signing this Agreement, the
Participant acknowledges receipt of a copy of the Plan. In
the event that any provision of this Agreement is
inconsistent with the terms of the Plan, the terms of the
Plan shall govern. Any question of administration or
interpretation arising under this Agreement shall be
determined by the Committee or its delegates, and such
determination shall be final and conclusive upon all parties
in interest.
(b) Any compensation realized from the receipt or
payment of (or the lapse of restrictions relating to) this
restricted stock award shall constitute a special long-term
incentive payment to the Participant and shall not be taken
into account as compensation in determining the amount of
any benefit under any retirement or other employee benefit
plan of the Company or any of its affiliates.
10. Limitation of Liability. Nothing in this
Agreement shall be construed to:
(a) limit in any way the right of the Company or a
subsidiary to terminate the employment of Participant; or
(b) be evidence of any agreement or understanding,
express or implied, that the Company or a subsidiary shall
employ Participant in any particular position at any
particular rate of compensation or for any particular period
of time.
11. Severability. It is intended that each provision
of this Agreement shall be viewed as separate and divisible.
In the event that any provision hereof shall be held to be
invalid or unenforceable, the remaining provisions of this
Agreement shall continue to be in full force and effect.
12. Governing Law. This Agreement shall be construed
in accordance with and governed by the internal laws of the
State of Minnesota without regard for conflicts of laws
principles thereof.
13. Further Assurances. Each party hereto agrees to
execute and deliver such further instruments and to take
such other action as shall be reasonably required to carry
out the intent and purposes of this Agreement.
14. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same document.
15. Notices. All notices that are required or may be
given pursuant to the terms of this Agreement shall be in
writing and delivered personally or by registered or
certified mail, return receipt requested, postage prepaid,
addressed as follows and shall be deemed to have been given
upon delivery to the addressee:
To the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: General Counsel
To Participant:
At Participant's residence address listed in
the Company's personnel records.
Notice of a change in address of one of the parties hereto
shall be given in writing to the other party as provided
above, but shall be effective only upon actual receipt.
16. Amendment. This Agreement may not be amended or
modified by the parties hereto in any manner, except by a
written instrument signed by both parties hereto.
17. Binding Effect: Assignment. This Agreement shall
be binding upon the heirs, successors and assigns of the
parties hereto. This Agreement shall not be assigned by
either party hereto without the express written consent of
the other party.
18. Entire Agreement. The Plan and this Agreement
constitute, except as to any written agreement between the
parties hereto which specifically references this Section
18, the entire understanding between the parties hereto with
respect to the matters covered herein and supersede all
previous written, oral or implied understandings between the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company and Participant
have executed this Agreement as of the day and year first
above written.
FINGERHUT COMPANIES, INC.
By
John D. Buck
PARTICIPANT SIGNATURE
[name]
Social Security #: [ssn]
Date:
Exhibit 10.j(i)
AMENDMENT NO. 1
dated as of February 4, 1997
to
Fingerhut Companies, Inc.
1992 Long-Term Incentive and Stock Option Plan
The following amendment to the Fingerhut Companies, Inc.
1992 Long-Term Incentive and Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors of Fingerhut
Companies, Inc., on February 4, 1997:
1. Effective as of the date hereof, Section 14 of the
1992 Plan is hereby amended to read in its entirety as
follows:
"14. Limits on Transferability.
Except as otherwise determined by the
Committee or in an option or award agreement, no
option or award granted under the Plan shall be
transferable by an optionee or grantee, otherwise
than by will or the laws of descent or distribution
and during the lifetime of an optionee or grantee,
the option shall be exercisable only by such
optionee."
--------------------
Michael P. Sherman
Senior Vice President,
New Business Development,
General Counsel and Secretary
Exhibit 10.u
FINGERHUT CORPORATION
PENSION EXCESS PLAN
1996 REVISION
Table of Contents
Page
ARTICLE 1 Description
1.1 Plan Name
1.2 Plan Purpose
1.3 Plan Type
ARTICLE 2 Definitions, Construction and Interpretation
2.1 Administrator
2.2 Board
2.3 Code
2.4 Company
2.5 ERISA
2.6 Governing Law
2.7 Headings
2.8 Number and Gender
2.9 Participant
2.10 Pension Plan
2.11 Plan
2.12 Trust
2.13 Trustee
ARTICLE 3 Participation
3.1 Participation
3.2 Condition of Participation
ARTICLE 4 Benefits
4.1 Amount
4.2 Form and Time of Payment
4.3 Entitlement, Reductions
4.4 Payment in the Event of Incapacity
ARTICLE 5 Source of Payments; Nature of Interest
5.1 Establishment of Trust
5.2 Source of Payments
5.3 Status of Plan
5.4 Non-assignability of Benefits
ARTICLE 6 Amendment and Termination
6.1 Amendment
6.2 Termination of Participation
6.3 Termination
ARTICLE 7 Administration
7.1 Administrator
7.2 Rules and Regulations
7.3 Administrator's Discretion
7.4 Specialist's Assistance
7.5 Indemnification
7.6 Benefit Claim Procedure
7.7 Disputes
ARTICLE 8 Miscellaneous
8.1 Withholding and Offsets
8.2 Other Benefits
8.3 No Warranties Regarding Tax Treatment
8.4 No Employment Rights Created
FINGERHUT CORPORATION
PENSION EXCESS PLAN
1996 REVISION
ARTICLE 1
Description of Plan
1.1 Plan Name. The name of the Plan is the "Fingerhut
Corporation Pension Excess Plan."
1.2 Plan Purpose. The purpose of the Plan is to ensure, to
the extent provided in Section 4.1 of the Plan, that
Participants will not be deprived of benefits that would
otherwise be payable under the Pension Plan because of the
limitation on compensation imposed by Code section
401(a)(17).
1.3 Plan Type. The Plan is an unfunded plan maintained
primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated
employees and, as such, is exempt from Parts 2, 3 and 4 of
Subtitle B of Title I of ERISA by operation of sections
201(2), 302(a)(3) and 401(a)(4) thereof, respectively, and
from Title IV of ERISA by operation of section 4021(a)(6)
thereof. The Plan is also intended to be unfunded for tax
purposes. The Plan will be construed and administered in a
manner that is consistent with and gives effect to the
foregoing.
ARTICLE 2
Definitions, Construction and Interpretation
The definitions and rules of construction and interpretation set
forth in this article apply in construing the Plan unless the
context otherwise indicates.
2.1 Administrator. "Administrator" means the Company or any
individual or committee appointed by the Board to perform
administrative duties pursuant to Section 7.1.
2.2 Board. "Board" means the Company's Board of Directors or
any individual or committee authorized to act on behalf of
such Board of Directors.
2.3 Code. "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to a specific provision of the Code
includes a reference to that provision as it may be amended
from time to time and to any successor provision.
2.4 Company. "Company" means Fingerhut Corporation or any
successor thereto.
2.5 ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended. Any reference to a
specific provision of ERISA includes a reference to that
provision as it may be amended from time to time and to any
successor provision.
2.6 Governing Law. To the extent state law is not preempted by
the provisions of ERISA or any other laws of the United
States, this Plan will be administered, and all questions
pertaining to the construction, validity, effect and
enforcement of the Plan will be determined, in accordance
with the internal, substantive laws of the State of
Minnesota without regard to the conflict of law rules of the
State of Minnesota or of any other jurisdiction.
2.7 Headings. The headings of articles, sections, subsections
and clauses are included solely for convenience and, if
there is a conflict between such headings and the text of
the Plan, the text will control.
2.8 Number and Gender. Wherever appropriate, the singular may
be read as the plural, the plural may be read as the
singular and one gender may be read as the other gender.
2.9 Participant. "Participant" means an individual described in
Section 3.1.
2.10 Pension Plan. "Pension Plan" means the Fingerhut
Corporation Pension Plan, as amended from time to time.
2.11 Plan. "Plan" means the Fingerhut Corporation Pension Excess
Plan, as amended from time to time.
2.12 Trust. "Trust" means any trust or trusts established by the
Company pursuant to Section 5.1.
2.13 Trustee. "Trustee" means the independent corporate trustee
or trustees that at the relevant time has or have been
appointed to act as Trustee of the Trust.
ARTICLE 3
Participation
3.1 Participation. To be eligible to participate in the Plan,
an individual must
(a) be an employee of the Company after 1995 who is
eligible to participate in the Pension Plan,
(b) have compensation from the Company for a calendar
year (of the type that would be taken into account in
determining the Participant's normal retirement benefit
under the Pension Plan but for the limitation in effect
for the calendar year under Code section 401(a)(17))
under the Pension Plan in excess of the limitation in
effect for the calendar year under Code section
401(a)(17) and
(c) not be a party to a separate agreement with the
Company pursuant to which he or she is not eligible to
receive benefits pursuant to the Plan.
A Participant will cease to be such as of the date on which
all benefits to which he or she is entitled under the Plan
have been distributed in full.
3.2 Condition of Participation. As a condition to the receipt
of benefits pursuant to the Plan, each Participant is bound
by all of the terms and conditions of the Plan, including
but not limited to the reserved right of the Board to amend
or terminate the Plan and the provisions of Section 7.7, and
is required to furnish to the Administrator such pertinent
information, and must execute such instruments, as the
Administrator may require.
ARTICLE 4
Benefits
4.1 Amount.
(A) As of the date on which a Participant's Pension
Plan benefit is scheduled to commence, the
Administrator will determine the amount of the benefit
to which the Participant is entitled pursuant to the
Plan in accordance with Subsection (B).
(B) Subject to Sections 4.2 and 4.3, the amount of the
benefit to which a Participant is entitled pursuant to
the Plan will be computed in the following manner:
(1) The Administrator will determine a
monthly benefit amount equal to the amount by
which the monthly benefit determined pursuant to
clause (a) exceeds the monthly benefit determined
pursuant to clause (b), in each case based on a
benefit payable in the normal form under the
Pension Plan commencing at the later of the
Participant's normal retirement date under the
Pension Plan or the date on which benefits under
the Pension Plan are scheduled to commence.
(a) The monthly benefit to which
the Participant would be entitled under the
Pension Plan determined as if (i) the
limitation in effect under Code section
401(a)(17) for each calendar year after 1993
and before 1997 were $235,840 and for each
calendar year after 1996 were $300,000 and
(ii) the limitation in effect under Code
section 415(b)(1)(A) were $115,641.
(b) The actual amount of the
monthly benefit to which the Participant is
entitled under the Pension Plan.
(2) The amount determined pursuant to clause
(1) will be adjusted in the same manner as the
Participant's benefit under the Pension Plan to
reflect any early or late commencement of the
benefit.
(C) If a Participant dies before his or her "annuity
starting date," within the meaning of Code section
417(f)(2), and the Participant's surviving spouse is
entitled to a "qualified preretirement survivor
annuity," within the meaning of Code section 417(c),
from the Pension Plan or the Pension Plan provides for
the payment of any other death benefit to the surviving
spouse or any other person, the amount of the benefit
to which the surviving spouse or other person is
entitled pursuant to the Plan will be determined in
accordance with Subsection (B) but based, for the
purpose of clause (1), on the difference between the
normal form of the death benefit determined under items
(a) and (b).
4.2 Form and Time of Payment.
(A) Payment of a benefit to any Participant determined
pursuant to Section 4.1(B) or surviving spouse or other
person determined pursuant to Section 4.1(C) will be
made or commence, as the case may be, at the same time
and in the same form as his or her benefit under the
Pension Plan.
(B) If a Participant, surviving spouse or other person
entitled to receive a benefit under the Plan elects to
receive his or her benefit under the Pension Plan in a
form other than the normal form, the benefit under the
Plan will be actuarially adjusted to reflect the form
in which it is paid in the same manner as the benefit
under the Pension Plan.
(C) If a Participant dies following the commencement
of monthly benefit payments, any death benefits payable
under the form of payment applicable to the
Participant's benefit under the Plan will be paid to
the same beneficiary or joint or contingent annuitant,
as the case may be, as his or her benefit under the
Pension Plan.
4.3 Entitlement, Reductions. Notwithstanding the foregoing
provisions of this Article 4 -
(A) The Company has no obligation to pay a benefit
pursuant to the Plan to any former Participant to the
extent the obligation to pay the benefit has been
transferred to or assumed by a successor to all or any
portion of the business of the Company.
(B) If a Participant who is receiving or entitled to
receive a benefit pursuant to the Plan is reemployed
with the Company or an affiliate of the Company and, in
connection with such reemployment, his or her Pension
Plan benefit payment is suspended, his or her benefit
under the Plan will be suspended for the same period.
The Participant's benefit under the Plan will
recommence at the same time as his or her benefit under
the Pension Plan and the amount of the benefit at
recommencement will be adjusted, based on a methodology
and assumptions determined by the Administrator to be
reasonable, to reflect any additional benefits earned
and benefits previously paid.
4.4 Payment in the Event of Incapacity. If any person entitled
to receive any payment under the Plan is physically,
mentally, or legally incapable of receiving or acknowledging
receipt thereof, and no legal representative has been
appointed for such person, the Administrator, in his or her
discretion, may (but is not required to) cause any sum
otherwise payable to such person to be paid to any one or
more of the following (as may be chosen by the
Administrator): the person's beneficiary or joint or
contingent annuitant for purposes of his or her benefit
under the Plan, if any, the institution maintaining such
person, a custodian for such person under the Uniform
Transfers to Minors Act of any state, or such person's
spouse, children, parents or other relatives by blood or
marriage. Any payment so made completely discharges all
liability under the Plan to the extent of such payment.
ARTICLE 5
Source of Payments; Nature of Interest
5.1 Establishment of Trust. With the prior approval of the
Board, the Company may establish a Trust with an independent
corporate trustee. The Trust must (a) be a grantor trust
with respect to which the Company is treated as grantor for
purposes of Code section 677, (b) not cause the Plan to be
funded for purposes of Title I of ERISA and (c) provide that
Trust assets will, upon the insolvency of the Company, be
used to satisfy claims of the Company's general creditors.
The Company may from time to time transfer to the Trust
cash, marketable securities or other property acceptable to
the Trustee in accordance with the terms of the Trust.
5.2 Source of Payments.
(A) Subject to Subsection (B), a Participant's benefit
will be paid by the Company.
(B) The Trustee, if any, will make distributions to
Participants and Beneficiaries from the Trust in
satisfaction of the Company's obligations under the
Plan in accordance with the terms of the Trust.
5.3 Status of Plan. Nothing contained in the Plan or Trust is
to be construed as providing for assets to be held for the
benefit of any Participant or any other person or persons to
whom benefits are to be paid pursuant to the terms of this
Plan, the Participant's or other person's only interest
under the Plan being the right to receive the benefits set
forth herein. The Trust is established only for the
convenience of the Company and the Participants, and no
Participant has any interest in the assets of the Trust. To
the extent the Participant or any other person acquires a
right to receive benefits under this Plan or the Trust, such
right is no greater than the right of any unsecured general
creditor of the Company.
5.4 Non-assignability of Benefits. The benefits payable under
the Plan and the right to receive future benefits under the
Plan may not be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or
legal process.
ARTICLE 6
Amendment and Termination
6.1 Amendment.
(A) The Company reserves the right to amend the Plan
at any time to any extent that it may deem advisable.
To be effective, an amendment must be stated in a
written instrument approved in advance or ratified by
the Board and executed in the name of the Company by
its President or a Vice President and attested by the
Secretary or an Assistant Secretary.
(B) An amendment adopted in accordance with Subsection
(A) is binding on all interested parties as of the
effective date stated in the amendment; provided,
however, that no amendment will have any retroactive
effect so as to deprive any Participant, or the
beneficiary or joint or contingent annuitant of a
deceased Participant, of any benefit to which he or she
is entitled under the terms of the Plan in effect
immediately prior to the effective date of the
amendment, determined in the case of a Participant who
is employed by the Company or an affiliate as if he or
she had terminated employment immediately prior to the
effective date of the amendment.
(C) The provisions of the Plan in effect at the
termination of a Participant's employment will, except
as otherwise expressly provided by a subsequent
amendment, continue to apply to such Participant.
6.2 Termination of Participation. Notwithstanding any other
provision of the Plan to the contrary, if determined by the
Administrator to be necessary to ensure that the Plan is
exempt from ERISA to the extent contemplated by Section 1.3
or upon the Administrator's determination that a
Participant's interest in the Plan has been or is likely to
be includable in the Participant's gross income for federal
income tax purposes prior to the actual payment of benefits
pursuant to the Plan, the Administrator may take any or all
of the following steps:
(a) terminate the Participant's future participation
in the Plan;
(b) cause the Participant's entire interest in the
Plan to be distributed to the Participant in the form
of an immediate lump sum calculated based on a
methodology and assumptions determined by the
Administrator to be reasonable; and/or
(c) transfer the benefits that would otherwise be
payable pursuant to the Plan for all or any of the
Participants to a new plan that is similar in all
material respects (other than those which require the
action in question to be taken.)
6.3 Termination.
(A) The Company reserves the right to terminate the
Plan in its entirety or with respect to any group of
similarly situated current or former employees. The
Plan will terminate in its entirety or with respect to
a particular group of current or former employees as of
the date specified by the Company in a written
instrument adopted and executed in the manner of an
amendment.
(B) Upon the termination of the Plan in its entirety
or with respect to any group of current or former
employees, the Company will either cause (1) any
benefits to which Participants have become entitled
prior to the effective date of the termination to
continue to be paid in accordance with the provisions
of Article 4 or (2) the entire interest in the Plan of
any or all Participants, or the beneficiaries or joint
or contingent annuitants of any or all deceased
Participants, to be distributed in the form of an
immediate lump sum payment calculated based on a
methodology and assumptions determined by the
Administrator to be reasonable.
ARTICLE 7
Administration
7.1 Administrator. The Plan may be administered on behalf of
the Company by the Board or an individual or committee
selected by the Board.
7.2 Rules and Regulations. The Administrator has the
discretionary power and authority to make such rules and
regulations as the Administrator determines to be consistent
with the terms, and necessary or advisable in connection
with the administration, of the Plan and to modify or
rescind any such rules or regulations.
7.3 Administrator's Discretion. The Administrator has the
discretionary power and authority to make all determinations
necessary for administration of the Plan, except those
determinations that the Plan requires others to make, and to
construe, interpret, apply and enforce the provisions of the
Plan and Plan rules and regulations whenever necessary to
carry out its intent and purpose and to facilitate its
administration, including, without limitation, the
discretionary power and authority to remedy ambiguities,
inconsistencies, omissions and erroneous benefit
calculations. In the exercise of its discretionary power
and authority, the Administrator will treat all persons
determined by the Administrator to be similarly situated in
a uniform manner. The Administrator's interpretations,
determinations, rules, procedures, methodologies,
assumptions and calculations are final and binding on all
persons and parties concerned.
7.4 Specialist's Assistance. The Administrator may retain such
actuarial, accounting, legal, clerical and other services as
may reasonably be required in the administration of the
Plan, and may pay reasonable compensation for such services.
All costs of administering the Plan will be paid by the
Company.
7.5 Indemnification. The Company will indemnify and hold
harmless, to the extent permitted by law, each director,
officer and employee of the Company against any and all
liabilities, losses, costs and expenses (including legal
fees) of every kind and nature that may be imposed on,
incurred by or asserted against such director, officer or
employee at any time by reason of his or her services in
connection with the Plan, but only if he or she did not act
dishonestly or in bad faith or in willful violation of the
law or regulations under which such liability, loss, cost or
expense arises. The Company has the right, but not the
obligation, to select counsel and control the defense and
settlement of any action for which a director, officer or
employee may be entitled to indemnification under this
provision.
7.6 Benefit Claim Procedure.
(A) If a request for a benefit by a person is denied
in whole or in part, the person may, not later than 30
days after the denial, file with the Administrator a
written claim objecting to the denial.
(B) The Administrator, not later than 90 days after
receipt of such claim, will render a written decision
to the claimant on the claim. If the claim is denied,
in whole or in part, such decision will include the
reason or reasons for the denial; a reference to the
Plan provisions on which the denial is based; a
description of any additional material or information,
if any, necessary for the claimant to perfect his or
her claim; an explanation as to why such information or
material is necessary; and an explanation of the Plan's
claim procedure.
(C) The claimant may file with the Administrator, not
later than 60 days after receiving the Administrator's
written decision, a written notice of request for
review of the Administrator's decision, and the
claimant or his or her representative may thereafter
review relevant Plan documents which relate to the
claim and may submit written comments to the
Administrator.
(D) Not later than 60 days after receipt of such
review request, the Administrator will render a written
decision on the claim, which decision will include the
specific reasons for the decision, including a
reference to the Plan's specific provisions where
appropriate.
(E) The foregoing 90 and 60-day periods during which
the Administrator must respond to the claimant may be
extended by up to an additional 90 or 60 days,
respectively, if special circumstances beyond the
Administrator's control so require and notice of such
extension is given to the claimant prior to the
expiration of such initial 90 or 60-day period, as the
case may be.
(F) A person must exhaust the procedure described in
this section before making any claim of entitlement to
benefits pursuant to the Plan in any court or any other
proceeding.
7.7 Disputes.
(A) In the case of a dispute between a Participant or
beneficiary and the Company, Board, Administrator or
other person relating to or arising from the Plan, the
United States District Court for the District of
Minnesota is a proper venue for any action initiated by
or against the Company, Board, Administrator or other
person and such court will have personal jurisdiction
over any Participant or beneficiary named in the
action.
(B) Regardless of where an action relating to or
arising from the Plan is pending, the law as stated and
applied by the United States Court of Appeals for the
Eighth Circuit or the United States District Court for
the District of Minnesota will apply to and control all
actions relating to the Plan brought against the Plan,
Company, Administrator or any other person or against
any Participant or beneficiary.
ARTICLE 8
Miscellaneous
8.1 Withholding and Offsets. The Company and the Trustee retain
the right to withhold from any compensation or benefit
payment pursuant to the Plan any and all income, employment,
excise and other tax as the Company or Trustee deem
necessary in connection with any benefits earned or paid
pursuant to the Plan and the Company may offset against
amounts payable to any person under the Plan any amounts
then owing to the Company by such person.
8.2 Other Benefits. Amounts paid pursuant to the Plan do not
constitute salary or compensation for the purpose of
computing benefits under any other benefit plan, practice,
policy or procedure of the Company or any affiliate of the
Company unless otherwise expressly provided thereunder.
8.3 No Warranties Regarding Tax Treatment. The Company make no
warranties regarding the tax treatment to any person of
participation in the Plan or any action or omission of the
Company or Participant in connection therewith and each
Participant will hold the Administrator and the Company and
their officers, directors, employees, agents and advisors
harmless from any liability resulting from any tax position
taken in good faith in connection with the Plan.
8.4 No Employment Rights Created. Neither the establishment of
nor participation in the Plan gives any employee a right to
continued employment or limits the right of the Company or
any affiliate of the Company to discharge, transfer, demote
or modify the terms and conditions of employment or
otherwise deal with any employee without regard to the
effect such action might have on his or her with respect to
the Plan.
Exhibit 10.v
FINGERHUT CORPORATION
PROFIT SHARING EXCESS PLAN
1996 REVISION
Table of Contents
ARTICLE 1 Description of Plan
1.1 Plan Name
1.2 Plan Purpose
ARTICLE 2 Definitions
2.1 Administrator
2.2 Board
2.3 Code
2.4 Company
2.5 Participant
2.6 Plan
2.7 Plan Year
2.8 Profit Sharing Plan
ARTICLE 3 Participation
3.1 Participation
3.2 Condition of Participation
ARTICLE 4 Payments
4.1 Amount of Payment
4.2 Timing of Payment
ARTICLE 5 Miscellaneous
5.1 Administration
5.2 Status of Plan
5.3 Non-assignability of Benefits
5.4 Amendment and Termination
5.5 No Employment Rights Created
5.6 Withholding and Offsets
5.7 Other Benefits
5.8 Disputes
5.9 Governing Law
FINGERHUT CORPORATION
PROFIT SHARING EXCESS PLAN
1996 REVISION
ARTICLE 1
Description of Plan
1.1 Plan Name. The name of the Plan is the "Fingerhut
Corporation Profit Sharing Excess Plan."
1.2 Plan Purpose. The Plan provides current cash payments to
Participants for Plan Years beginning after 1995 to
compensate them to the extent provided in Section 4.1 of
the Plan for the reduction in contributions made on their
behalf under the Profit Sharing Plan due to the limitation
on compensation imposed by Code section 401(a)(17).
ARTICLE 2
Definitions
The definitions set forth in this article apply in construing the
Plan unless the context otherwise requires.
2.1 Administrator. "Administrator" means the Company or any
individual or committee appointed by the Board to perform
administrative duties pursuant to Section 5.1.
2.2 Board. "Board" means the Company's Board of Directors or
any individual or committee authorized to act on behalf of
such Board of Directors.
2.3 Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time. Any reference to a specific
provision of the Code includes a reference to that
provision as it may be amended from time to time and to any
successor provision.
2.4 Company. "Company" means Fingerhut Corporation or any
successor thereto.
2.5 Participant. "Participant" means an individual described
in Section 3.1.
2.6 Plan. "Plan" means the Fingerhut Corporation Profit
Sharing Excess Plan, as amended from time to time.
2.7 Plan Year. "Plan Year" means a calendar year.
2.8 Profit Sharing Plan. "Profit Sharing Plan" means the
Fingerhut Corporation Profit Sharing Plan, as amended from
time to time.
ARTICLE 3
Participation
3.1 Participation. To be eligible to receive payments pursuant
to the Plan for a Plan Year after 1995, an individual must
(a) be eligible to share in the Company's
contribution to the Profit Sharing Plan for the Plan
Year,
(b) have compensation from the Company for the Plan
Year (of the type that would be taken into account in
allocating the Company's contribution to the Profit
Sharing Plan for the Plan Year but for the limitation
in effect for the Plan Year under Code section
401(a)(17)) in excess of the limitation in effect for
the Plan Year under Code section 401(a)(17) and
(c) not be a party to a separate agreement with the
Company pursuant to which he or she is not eligible to
receive payments pursuant to the Plan for the Plan
Year.
3.2 Condition of Participation. Each Participant is bound by
all of the terms and conditions of the Plan, including but
not limited to the reserved right of the Board to amend or
terminate the Plan, and is required to furnish to the
Administrator such pertinent information, and must execute
such instruments, as the Administrator may require.
ARTICLE 4
Payments
4.1 Amount of Payment. For each Plan Year beginning after 1995
for which the Company makes a contribution to the Profit
Sharing Plan and the Company's Chief Executive Officer
authorizes payments pursuant to the Plan, the Company will
make a cash payment to each Participant in an amount equal
to the sum of
(a) the amount of the contribution that would have
been made on the Participant's behalf for the Plan
Year under the Profit Sharing Plan if the limitation
in effect for the Plan Year under Code section
401(a)(17) were $235,840 for Plan Years ending before
1997 or $300,000 for Plan Years beginning after 1996,
minus the amount of the Company contribution actually
made on the Participant's behalf under the Profit
Sharing Plan for the Plan Year, provided that if for
any Plan Year the sum of the amount determined
pursuant to this clause (a) plus the amount of the
Company contribution actually made on the
Participant's behalf under the Profit Sharing Plan
would otherwise exceed $30,000, the amount determined
pursuant to this clause (a) will be reduced to the
extent necessary to prevent such excess, plus
(b) a corresponding tax "gross up" amount, as
determined by the Administrator based on assumptions
and calculation methodology determined by the
Administrator to be reasonable after consultation with
the Company's Tax Department, that reimburses the
Participant for his or her state and federal income
tax liability, as determined by the Administrator,
with respect to the payment received by the
Participant pursuant to the Plan for the Plan Year
(including the amount received pursuant to this clause
(b)).
4.2 Timing of Payment. The Company's payment for a Plan Year,
if any, will be made on a date determined by the Company
but in no case more than 30 days following the date on
which the Company has made its final contribution to the
Profit Sharing Plan for the Plan Year.
ARTICLE 5
Miscellaneous
5.1 Administration. The Plan may be administered on behalf of
the Company by the Board or an individual or committee
selected by the Board. The Administrator has the
discretionary power and authority to issue, modify and
revoke such rules and procedures as the Administrator deems
advisable, to construe, interpret, apply and enforce the
terms of the Plan and Plan rules and procedures and to
remedy ambiguities, inconsistencies, omissions and
erroneous Account balances. Whenever the Plan requires the
Administrator to make a determination, the determination
will be made by the Administrator in his, her or its sole
discretion and without regard to whether different
determinations have been made in the past with respect to
other persons, whether or not similarly situated. The
Administrator's interpretations, determinations, rules,
procedures and calculations are final and binding on all
persons and parties concerned.
5.2 Status of Plan. Nothing contained in the Plan is to be
construed as providing for assets to be held for the
benefit of any Participant or any other person or persons
to whom benefits are to be paid pursuant to the terms of
this Plan, the Participant's or other person's only
interest under the Plan being the right to receive the
benefits set forth herein. To the extent the Participant
or any other person acquires a right to receive benefits
under this Plan, such right is no greater than the right to
any unsecured general creditor of the Company.
5.3 Non-assignability of Benefits. The benefits payable under
the Plan and the right to receive future benefits under the
Plan may not be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered or subjected to any charge.
5.4 Amendment and Termination. The Company reserves the right
to amend or terminate the Plan at any time by way of a
written instrument approved or ratified by the Board and
executed in the name of the Company by a duly authorized
officer. No amendment or termination may adversely affect
a payment to which a Participant or Beneficiary became
entitled under the Plan prior to the date of such amendment
or termination.
5.5 No Employment Rights Created. Nothing in this Plan gives
any Participant a right to continued employment or limits
the right of the Company to discharge, transfer, demote,
modify terms and conditions of employment or otherwise deal
with the Participant without regard to the effect such
action might have on him or her under the Plan.
5.6 Withholding and Offsets. The Company retains the right to
withhold from any benefit payment under the Plan, any and
all income, employment, excise and other tax as the Company
may, in its sole discretion, deem necessary and the Company
may offset against amounts payable to a Participant under
the Plan any amounts then owing to the Company by such
Participant.
5.7 Other Benefits. Amounts paid pursuant to the Plan do not
constitute salary or compensation for the purpose of
computing benefits under any other benefit plan, practice,
policy or procedure of the Company unless otherwise
expressly provided thereunder.
5.8 Disputes. In the event of a dispute over whether the
Participant is entitled to a payment under this Plan, the
amount or timing of a payment or any other provision of
this Plan, the Participant is responsible for paying any
costs he or she incurs, including attorneys' fees and legal
expenses, and the Company is responsible for paying any
costs it incurs, including attorneys' fees and any legal
expenses. Any such dispute may be brought only in a court
of competent jurisdiction in Minnesota.
5.9 Governing Law. All questions pertaining to the
construction, validity, effect and enforcement of the Plan
will be determined in accordance with the internal,
substantive laws of the State of Minnesota without regard
to the conflict of law rules of the State of Minnesota or
of any other jurisdiction.
EXHIBIT 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE FISCAL YEARS ENDED DECEMBER 27, 1996, DECEMBER 29, 1995
AND DECEMBER 30, 1994
(In thousands of dollars, except share and per share data)
<TABLE>
1996 1995 1994
Primary
<S> <C> <C> <C>
Net earnings (a) $ 40,159 $ 50,858 $ 45,925
=========== =========== ===========
Weighted average shares of common stock outstanding 46,210,151 45,834,575 46,237,706
Common stock equivalents 2,418,157 2,644,396 4,032,713
Weighted average shares of common stock and common
stock equivalents (b) 48,628,308 48,478,971 50,270,419
=========== =========== ===========
Primary earnings per share of common stock and
common stock equivalents (a / b) $ .83 $1.05 $ .91
=========== =========== ===========
Fully Diluted
Net earnings (c) $ 40,159 $ 50,858 $ 45,925
=========== =========== ===========
Weighted average shares of common stock outstanding 46,210,151 45,834,575 46,237,706
Common stock equivalents 2,457,936 2,684,995 4,054,602
Weighted average shares of common stock and common
stock equivalents (d) 48,668,087 48,519,570 50,292,308
=========== =========== ===========
Fully diluted earnings per share of common stock
and common stock equivalents (c / d) $ .83 $1.05 $ .91
=========== =========== ===========
</TABLE>
Common stock equivalents for primary earnings per share are computed by the
treasury stock method using the average market price.
Common stock equivalents for fully diluted earnings per share are computed by
the treasury stock method using the ending market price or the average of the
fully diluted monthly amounts, whichever is higher.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except per share data)
<TABLE>
For the fiscal year ended
December 27, December 29, December 30, December 31, December 25,
1996 1995 1994 1993 (d) 1992
------------ ------------ ------------ ------------ ------------
Earnings data:
<S> <C> <C> <C> <C> <C> <C>
Revenues (a) $ 2,027,356 $ 2,077,344 $ 1,914,457 $ 1,792,595 $ 1,585,640
Earnings before income taxes and
minority interest (c) $ 64,991 $ 76,306 $ 70,926 $ 111,879 $ 93,930
Net earnings (c) $ 40,159 $ 50,858 $ 45,925 $ 75,328 $ 61,806
Net earnings as a percent of revenues (c) 2.0% 2.4% 2.4% 4.2% 3.9%
Per share:
Earnings (b) (c) $ .83 $ 1.05 $ .91 $ 1.50 $ 1.19
Dividends declared $ .16 $ .16 $ .16 $ .16 $ .16
At fiscal year-end
Financial position data:
Total assets $ 1,352,049 $ 1,281,077 $ 1,097,933 $ 988,302 $ 925,649
Total current debt $ 73,084 $ 215,099 $ 336 $ 313 $ 333
Long-term debt and capitalized leases,
less current portion $ 271,481 $ 146,564 $ 246,516 $ 246,852 $ 247,190
Total stockholders' equity $ 605,401 $ 547,490 $ 500,950 $ 472,389 $ 399,591
</TABLE>
(a) Prior year revenues have been restated to reflect the reclassification of
customer allowances from "administrative and selling expenses" to "net
sales." These amounts totaled $32.6 million, $19.9 million, $15.3 million
and $20.5 million for the fiscal years ended December 29, 1995,
December 30, 1994, December 31, 1993 and December 25, 1992, respectively.
(b) Based on a weighted average of 48,628,308; 48,478,971; 50,270,419;
50,101,739 and 51,937,936 shares of common stock and common stock
equivalents for the fiscal years ended December 27, 1996; December 29,
1995; December 30, 1994; December 31, 1993 and December 25, 1992,
respectively.
(c) 1994 earnings before income taxes and minority interest included a $29.9
million charge ($19.4 million after tax) relating to unusual items. 1995
earnings before income taxes and minority interest included an $8.0
million adjustment ($5.3 million after tax) to these unusual items. See
Note 3 to the Consolidated Financial Statements.
(d) In 1993, the Company sold certain assets of COMB Corporation and FDC,
Inc., a subsidiary of Figi's Inc.
Fingerhut Companies, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fingerhut Companies, Inc. (the "Company") experiences variances
in quarterly results from year to year that result from changes
in the timing of its promotions, the types of customers and
products promoted and, to some extent, variations in dates of
holidays and the timing of the fiscal quarter ends. In addition,
the individual cost components (product cost, administrative and
selling expenses, and provision for uncollectible accounts) and
gross margin as a percent of net sales may vary from period to
period due to the different types of products, mail programs and
customers promoted.
1996 COMPARED WITH 1995
The Company reported revenues of $2.027 billion in 1996.
Revenues reflected a decrease in net sales as a result of the
Company's strategy to reduce mailings and improve advertising
productivity. As a result of this initiative, sales per mailing
with respect to Fingerhut Corporation's existing customer list
increased 14 percent over 1995. 1996 revenues were positively
impacted by a significant increase in finance income and other
revenues due to the continued strong performance of Metris
Companies Inc. ("Metris"). In October 1996, Metris, a then
wholly owned subsidiary, completed an initial public offering of
its common shares, which reduced the Company's ownership interest
to approximately 83 percent. As a result of Metris becoming a
more significant portion of the Company's overall operations,
management's discussion of 1996 results will include individual
analyses of both the Direct-to-the-Consumer Marketing Segment and
Metris.
Direct-to-the-Consumer Marketing Segment
Highlights of Operations: For the Fiscal Year Ended
(In thousands of dollars) 1996 1995
Net sales $1,638,363 $1,782,282
Finance income and other revenues $ 241,130 $ 245,001
Product cost $ 827,086 $ 890,737
Administrative and selling expenses $ 633,448 $ 687,789
Provision for uncollectible accounts $ 283,762 $ 272,295
Discount on sale of accounts receivable $ 77,447 $ 82,392
Interest expense, net $ 25,305 $ 25,213
Net earnings $ 21,123 $ 46,277
Net sales in 1996 were $1.638 billion compared to net sales of
$1.782 billion in 1995, a decrease of 8 percent. Fingerhut
Corporation ("Fingerhut"), the Company's core business in this
segment, generated net sales of $1.538 billion in 1996 compared
to $1.639 billion in 1995, a decrease of 6 percent. Net sales
from Fingerhut's new customer acquisition programs decreased 5
percent in 1996 to $264 million. Net sales from Fingerhut's
existing customer list declined 6 percent to $1.274 billion.
Both decreases were primarily due to planned reductions in
mailings, partially offset by higher average order sizes and
higher sales per mailing. Net sales from Figi's Inc. ("Figi's")
increased 13 percent in 1996 to $93 million compared to $82
million in 1995 due to an increase in mailings coupled with a
higher average order size. Net sales from Infochoice USA, Inc.
("Infochoice") were $2 million in 1996 compared to $57 million
for 1995. Infochoice owns 50 percent of USA Direct/Guthy Renker,
Inc. ("USA Direct"), which had 1996 net sales of $10 million.
Montgomery Ward Direct L.P. ("MWD"), a former 50 percent owned
affiliate, had net sales of $31 million for 1996 compared to $165
million for 1995. Because USA Direct and MWD are both accounted
for under the equity method, their sales are not included as
revenues in the Company's consolidated financial statements. In
June 1996, the Company reached an agreement with Montgomery Ward
& Co., Incorporated to withdraw as a partner in the MWD joint
venture. This transaction did not have a material impact on the
Company's consolidated financial statements.
Finance income and other revenues for the year were $241.1
million compared to $245.0 million in 1995. The decrease was due
primarily to the decline in net sales as a result of Fingerhut's
strategy to reduce mailings, which was partially offset by the
effect of lengthened payment plans.
Product cost for the year was $827.1 million, or 50.5 percent of
net sales, compared to $890.7 million, or 50.0 percent of net
sales, during the prior year. The increase as a percent of net
sales was primarily due to margin reductions in the core catalog
business as a result of the full year impact of the price value
strategy implemented in mid-1995. This strategy is designed to
optimize profitability through the trade-off of a lower sales
price for an increase in response rates.
Administrative and selling expenses in 1996 were $633.4 million,
or 38.7 percent of net sales, compared to $687.8 million, or 38.6
percent of net sales, in the prior year. Higher sales per
mailing, coupled with Fingerhut's cost-reduction programs, offset
the impact of higher paper and depreciation costs as well as the
startup of two phone centers in Tampa, Florida.
The provision for uncollectible accounts in 1996 was $283.8
million, or 17.3 percent of net sales, compared with $272.3
million, or 15.3 percent of net sales, for the prior year. The
increase as a percent of net sales was due primarily to the
higher ongoing delinquency levels Fingerhut experienced as a
result of the systems error reported in the third quarter. In
addition, Fingerhut experienced a 1996 deterioration in credit
performance relating to sales booked in the fourth quarter of
1995. This deterioration was driven by a significant increase in
bankruptcies. Fingerhut has implemented corrective measures to
mitigate the risk of credit losses, including tighter credit
screens as well as accelerated collection programs. Management
believes that the reserves at December 27, 1996 are adequate to
cover future anticipated losses.
Discount on sale of accounts receivable for the year was $77.4
million compared to $82.4 million for 1995. The decrease
resulted primarily from lower amortization expense due to the
expiration of an interest rate cap agreement in December 1995
(the premium paid for this cap was previously capitalized and
amortized over the life of the agreement) as well as lower short-
term interest rates. These decreases were partially offset by an
increase in the amount of accounts receivable sold.
Net interest expense for the year was $25.3 million compared to
$25.2 million in 1995. Fingerhut incurred additional interest
expense during 1996 due to a $60.0 million capital contribution
made to Metris, which resulted in the segment having to incur
additional borrowings to fund operations. This increase was
offset by lower interest rates as well as an increase in interest
income.
The effective consolidated tax rate, which includes both the
Direct-to-the-Consumer Marketing Segment and the Financial
Services Segment, was 36.7 percent in 1996 compared with 33.3
percent in the prior year. The increase in the effective tax
rate was due primarily to a decrease in merchandise donations as
well as additional state income taxes. In addition, the 1995
effective tax rate included a benefit for prior years' net
favorable resolution of an Internal Revenue Service exam.
As a result of the items discussed above, the Direct-to-the-
Consumer Marketing Segment generated net earnings of $21.1
million, or $.44 per share, compared with $46.3 million, or $.96
per share, for 1995.
Financial Services Segment (Metris Companies Inc.)
Highlights of Operations: For the year ended December 31,
Income Statement Data (Managed Basis, in thousands) 1996 1995
Net interest income $143,491 $ 26,354
Provision for loan losses 136,305 26,234
Other operating income 126,647 52,969
Other operating expense 101,287 45,640
Provision for income taxes 12,530 2,868
-------- --------
Net income $ 20,016 $ 4,581
======== ========
Credit Card Data (Managed Basis)
Total accounts 1,418,062 702,891
Average managed loans (in thousands) $1,018,856 $183,274
Net charge-off ratio 6.16% 2.19%
Delinquency ratio 5.53% 3.95%
Metris reported net income for the year ended December 31, 1996,
of $20.0 million, or $.41 per share, up from $4.6 million, or
$.09 per share for 1995. The 337 percent increase in net income
is the result of an increase in net interest income and other
operating income partially offset by increases in the provision
for loan losses and other operating expenses. These increases
are largely attributable to the growth in average managed loans
from $183 million at December 31, 1995 to $1 billion at December
31, 1996, an increase of 456 percent.
The provision for loan losses on a managed basis was $136.3
million in 1996, compared to $26.2 million in 1995. The increase
primarily reflects an increase in credit card loans as well as an
increase in the net charge-offs consistent with the continued
seasoning of the portfolio and industry trends. The managed net
charge-off rate was 6.16 percent for 1996, compared to 2.19
percent in 1995.
Other operating income on a managed basis increased $73.7 million
to $126.6 million, primarily due to credit card fees, interchange
and other credit card income which increased to $88.3 million for
1996, up 298 percent over $22.2 million for 1995. In addition,
fee-based product revenues increased 348 percent to $29.9 million
for 1996, up from $6.7 million for 1995. These increases were
primarily due to the growth in total accounts and outstanding
receivables in the managed credit card loan portfolio.
Other operating expenses increased to $101.3 million in 1996,
compared to $45.6 million in 1995. However, Metris' managed
operating efficiency ratio improved to 37.5 percent in 1996 from
57.5 percent in 1995. The increase in operating expenses is
primarily due to investments in the infrastructure to support the
growth of all three Metris businesses: consumer credit products,
extended service plans, and fee-based products and services.
1995 COMPARED WITH 1994 (CONSOLIDATED)
The Company reported record revenues of $2.077 billion in 1995.
Revenues reflected increased sales from Fingerhut's existing
customer list and new customer acquisition programs as well as a
significant increase in finance income. The Company reduced
mailings to its existing customers in the second half of fiscal
1995 to increase sales per mailing and improve profitability.
1995 results also included higher provisions for uncollectible
accounts as well as higher administrative and selling expenses as
a result of increased paper and postage prices.
The Company's net sales in 1995 were $1.794 billion compared to
$1.699 billion in 1994, an increase of 6 percent. Fingerhut had
net sales of $1.639 billion in 1995 compared to $1.557 billion in
1994, an increase of 5 percent. Net sales from Fingerhut's
existing customer list increased 4 percent to $1.362 billion
primarily as a result of a higher average order size and higher
sales per mailing. Net sales from Fingerhut's new customer
acquisition programs increased 10 percent in 1995 to $277 million
primarily due to increased mailings as well as higher average
order size. Net sales from Figi's increased 18 percent in 1995
to $82 million compared to $70 million in 1994 due to an increase
in mailings coupled with a higher average order size and higher
sales per mailing. Net sales from Infochoice were $57 million in
1995 compared to $58 million for 1994. MWD had net sales of $165
million compared to $188 million for 1994.
Finance income and other revenues for the year were $283.6
million compared to $215.7 million in 1994. The increase was due
to net revenues from MasterCardr accounts issued by the Company's
subsidiary, Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank"). These net revenues
include finance income, net of asset backed financing expense,
loan loss provisions, and administrative and other fees related
to the sale of credit card receivables. Fingerhut also
recognized increased finance income for the year as a result of
higher revenues from existing customers and the effect of
lengthened payment plans.
Product cost for the year was $892.8 million, or 49.8 percent of
net sales, compared to $854.5 million, or 50.3 percent of net
sales, during the prior year. The decrease as a percent of net
sales was due to cost efficiencies partially offset by margin
reductions in the second half of the year as a result of offering
lower retail prices to improve the customer value package.
Administrative and selling expenses in 1995 were $723.3 million,
or 40.3 percent of net sales, compared to $681.7 million, or 40.1
percent of net sales, in the prior year. Price increases for
paper and postage, increased investment in new customer
acquisition programs, as well as operating and account
acquisition expenses associated with Direct Merchants Bank
contributed to the higher ratio of expense to net sales in 1995.
These increases were partially offset by benefits realized due to
the Company's cost reduction program, the absence of operating
expenses associated with, and the cancellation of, S The Shopping
Network and provisions for corporate streamlining in 1994, as
well as the partial recovery in 1995 of these restructuring
reserves.
The provision for uncollectible accounts in 1995 was $276.7
million, or 15.4 percent of net sales, compared with $229.4
million, or 13.5 percent of net sales, for the prior year. The
increase as a percent of net sales was due primarily to higher
delinquency levels experienced on both existing and new customer
receivables and an increase in new customer acquisitions which
have higher reserve requirements. In addition, provisions were
established for the portion of the MasterCard receivables that
remain on the Company's balance sheet.
Discount on sale of accounts receivable for the year was $82.4
million compared to $53.7 million for 1994. The increase
resulted primarily from higher short-term interest rates in 1995,
an increase in the amount of accounts receivable sold due to both
an increase in 1995 sales and the replacement of the Receivables
Transfer Agreement with the Fingerhut Master Trust in June 1994,
as well as the impact of extended pay plans.
Net interest expense for the year was $25.9 million compared to
$24.3 million in 1994. The increase was primarily due to the
higher utilization of the revolving credit agreement used to fund
normal business needs and to finance the growth of the MasterCard
portfolio, partially offset by the expiration of an interest rate
swap agreement in June 1994.
The effective tax rate for 1995 was 33.3 percent compared with
35.2 percent in the prior year. The decrease in the effective
tax rate was due to an increase in merchandise donations, as well
as a one-time benefit for prior years' net favorable resolution of
an Internal Revenue Service exam. These factors were partially
offset by additional state income taxes in 1995.
The above factors resulted in net earnings for 1995 of $50.9
million, or $1.05 per share, compared with $45.9 million, or $.91
per share, for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through internally generated
funds, the sale of accounts receivable pursuant to the Fingerhut
Master Trust and the Metris Master Trust (formerly known as the
Fingerhut Financial Services Master Trust) (the "Master Trusts"),
borrowings under the Company's Amended and Restated Revolving
Credit Facility and Metris' Revolving Credit Facility (the
"Revolving Credit Facilities") and the issuance of long-term debt
and common stock.
The proceeds from the sale of Fingerhut accounts receivable were
$1.280 billion and $1.254 billion at December 27, 1996 and
December 29, 1995, respectively. Net proceeds received from the
sale of MasterCard receivables were $1.397 billion at December
31, 1996 and $445.3 million at December 31, 1995, of which $17.0
million and $25.8 million, respectively, was deposited in an
investor reserve account held by the trustee of the Metris Master
Trust for the benefit of the Metris Master Trust's
certificateholders. In December 1996, the Fingerhut Master Trust
Series 1994-1 certificates commenced controlled amortization,
whereby collections on the securitized receivables are now being
used to pay down the principal portion of the underlying
certificates. In January 1997, the Company issued Series 1997-1
variable funding certificates to refinance approximately half of
the amortizing certificates. The Company believes the Fingerhut
Master Trust will be able to issue a new series of certificates
to replace the remaining portion of the amortizing certificates.
The Company plans to support future receivables growth through
the sale and issuance of additional certificates by the Master
Trusts and through borrowings under the Revolving Credit
Facilities.
The Revolving Credit Facilities provide for aggregate
commitments of up to $500.0 million, of which $200.0 million
represents the Company's credit facility and $300.0 million
represents Metris' credit facility. The expiration date for both
facilities is September 2001. Under the Revolving Credit
Facilities, outstanding revolving credit balances totaled $73.0
million and outstanding letters of credit totaled $5.9 million,
as of year-end 1996. As of year-end 1995, the Company had an
outstanding revolving credit balance of $115.0 million and
outstanding letters of credit of $4.6 million, under the then
existing Revolving Credit Facility. Additional outstanding open
letters of credit under a separate agreement aggregated $23.2
million and $34.3 million at December 27, 1996 and December 29,
1995, respectively.
In September 1996, the Company sold $125.0 million of three-year
notes via a private placement. As a result of this financing,
the Company had fixed rate notes outstanding of $270.0 million as
of December 27, 1996. This compared to fixed rate notes
outstanding of $245.0 million as of December 29, 1995. In
February 1997, the Company completed an exchange offer whereby
substantially all of the $125.0 million unregistered notes issued
in September 1996, were exchanged for registered notes with
substantially identical terms.
The Company generated $26.9 million in cash from operations in
1996 compared with $29.1 million used for operations in 1995.
This $56.0 million net increase in cash generated from operations
resulted from decreased working capital requirements, partially
offset by the decrease in earnings. The most significant items
affecting working capital were increases in customer accounts
receivable and deferred income taxes and decreases in inventory,
promotional material and other current assets, and accounts
payable. The change in customer accounts receivable from a
$112.6 million use of cash in 1995 to a $83.2 million use of cash
in 1996 resulted primarily from the decrease in the growth of
retained receivables associated with MasterCard accounts issued
by Direct Merchants Bank. Deferred income taxes increased
primarily as a result of an increase in reserve provisions for
uncollectible accounts. The decreases in inventory, promotional
material and other current assets were due to lower inventory
levels as a result of the planned reduction in mailings. The
$20.9 million decrease in accounts payable compared to the $29.4
million increase in 1995 was due to a decrease in purchasing
activity as a result of reduced mailings. In addition, 1995
accounts payable reflected a significant increase in activity
with respect to Metris.
Net cash used by investing activities was $51.9 million in 1996
compared with $94.4 million in 1995. The lower level of spending
in 1996 was primarily due to a significant reduction in capital
expenditures relating to the western distribution center in
Spanish Fork, Utah, as well as the data and technology center in
Plymouth, Minnesota, which opened in the second quarter of 1995.
The owner of certain office and warehouse facilities leased to
the Company exercised its right to require the Company to
repurchase those facilities for approximately $14.1 million. The
Company completed this purchase in January 1996.
Net cash provided by financing activities was $19.9 million in
1996 compared with $104.3 million in 1995. This net $84.4
million decrease in cash provided by financing activities was due
primarily to the decrease in borrowings under the Revolving
Credit Facilities, partially offset by a $25.1 million net
increase in long-term debt as well as $47.4 million of net
proceeds generated from the Metris initial public stock offering.
On January 23, 1997, the Company declared a cash dividend of $.04
per share, or an aggregate of $1.8 million, payable on February
20, 1997 to shareholders of record as of the close of business on
February 10, 1997.
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. During 1996, the Company repurchased at prevailing market
prices 358,800 shares of its common stock for an aggregate of
$4.9 million. Total purchases through December 27, 1996 were
1,380,300 shares for an aggregate of $21.5 million.
The Company believes it will have sufficient funds available to
meet current and future commitments. For further discussion of
the above financing arrangements, see the Notes to Consolidated
Financial Statements.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Since the Company's inventory turns approximately four times a
year, the product cost reported in the financial statements, on a
first-in, first-out basis, would not have been materially
different from the product cost at current prices. Also, since
the Company does not rely on any particular product group or
brand, management believes that the Company can adjust its
product mix to reduce the effects of price changes on its overall
merchandise base.
Due to the timing of the Company's promotions, the Company is
generally able to reflect cost increases and decreases resulting
from the effects of inflation and foreign currency fluctuations
in its selling prices. In addition, most foreign purchase orders
are denominated in U.S. dollars. Accordingly, the results of
operations for the periods discussed have not been significantly
affected by these factors.
Fingerhut Companies, Inc. and Subsidiaries
FORWARD LOOKING STATEMENTS
This annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements include statements regarding intent,
belief or current expectations of the Company and its management.
Shareholders and prospective investors are cautioned that any
such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that
may cause the Company's actual results to differ materially from
the results discussed in the forward-looking statements,
including: general economic conditions affecting disposable
consumer income such as employment, business conditions, interest
rates and taxation; risks associated with unsecured credit
transactions; interest rate risks; seasonal variations in
consumer purchasing activities; increases in postal and paper
costs; competition in the retail and direct marketing industry;
dependence on the securitization of accounts receivable and
credit card loans to fund operations; state and federal laws and
regulations related to advertising, offering and extending
credit, charging and collecting state sales/use taxes; product
safety; and risks of doing business with foreign suppliers. Each
of these factors is more fully discussed in Exhibit 99 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 27, 1996.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except share and per share data)
<TABLE>
For the fiscal year ended
December 27, December 29, December 30,
1996 1995 1994
Revenues: ------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 1,652,869 $ 1,793,727 $ 1,698,719
Finance income and other revenues 374,487 283,617 215,738
----------- ----------- ------------
2,027,356 2,077,344 1,914,457
----------- ----------- ------------
Costs and expenses:
Product cost 830,423 892,736 854,461
Administrative and selling expenses 723,843 723,279 681,654
Provision for uncollectible accounts 302,239 276,688 229,396
Discount on sale of accounts receivable 77,447 82,392 53,736
Interest expense, net 28,413 25,943 24,284
----------- ----------- ------------
1,962,365 2,001,038 1,843,531
----------- ----------- ------------
Earnings before income taxes and minority
interest 64,991 76,306 70,926
Provision for income taxes 23,852 25,448 25,001
----------- ------------ -----------
Net earnings before minority interest 41,139 50,858 45,925
Minority interest (980) - -
------------ -----------
Net earnings $ 40,159 $ 50,858 $ 45,925
============ =========== =========== ===========
Earnings per share $ .83 $ 1.05 $ .91
=========== =========== ===========
Weighted average shares outstanding 48,628,308 48,478,971 50,270,419
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
A S S E T S
<TABLE>
December 27, December 29,
1996 1995
Current assets: ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 61,003 $ 66,109
Customer accounts receivable, net 547,361 464,176
Inventories, net 127,735 156,352
Promotional material 60,871 80,357
Deferred income taxes 166,879 131,035
Other 24,365 23,542
---------- ----------
Total current assets 988,214 921,571
Property and equipment, net 285,182 279,455
Excess of cost over fair value of net assets acquired, net 42,601 44,047
Customer lists, net 9,801 11,201
Other assets 26,251 24,803
---------- ----------
$1,352,049 $1,281,077
========== ==========
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 164,557 $ 185,475
Accrued payroll and employee benefits 46,723 39,872
Other accrued liabilities 77,209 73,337
Revolving credit facility 73,000 115,000
Current portion of long-term debt 84 100,099
Current income taxes payable 60,721 42,380
---------- ----------
Total current liabilities 422,294 556,163
Long-term debt, less current portion 271,481 146,564
Deferred income taxes 21,744 23,096
Other non-current liabilities 7,692 7,764
---------- ----------
723,211 733,587
---------- ----------
Minority interest 23,437 -
S T O C K H O L D E R S ' E Q U I T Y
Preferred stock - -
Common stock 462 459
Additional paid-in capital 288,793 258,917
Unearned compensation (1,856) -
Earnings reinvested 318,002 288,114
---------- ----------
Total stockholders' equity 605,401 547,490
---------- ----------
$1,352,049 $1,281,077
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
For the fiscal year ended
December 27, December 29, December 30,
1996 1995 1994
Cash flows from operating activities: ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 40,159 $ 50,858 $ 45,925
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 52,464 47,103 37,693
Amortization of unearned compensation 2,922 - -
Minority interest in earnings 980 - -
Change in assets and liabilities,
excluding the effects of business
divestitures:
Customer accounts receivable, net (83,185) (112,571) 3,662
Inventories, net 28,617 2,696 (7,019)
Promotional material and
other current assets 18,663 (21,777) (13,010)
Accounts payable (20,918) 29,354 32,194
Accrued payroll and employee benefits 6,851 (19) 1,414
Accrued liabilities 3,872 (6,921) 26,599
Current income taxes payable 18,634 1,407 16,464
Deferred and other income taxes (37,196) (12,946) (40,664)
Other (5,010) (6,267) (10,869)
----------- ----------- ----------
Net cash provided (used) by operating activities 26,853 (29,083) 92,389
----------- ----------- ----------
Cash flows from investing activities:
Additions to property and equipment (51,855) (94,442) (69,578)
Proceeds from business divestitures - - 12,039
----------- ----------- ----------
Net cash used by investing activities (51,855) (94,442) (57,539)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 125,000 - -
Repayments of long-term debt (100,098) (381) (313)
Revolving credit facility (42,000) 115,000 -
Repurchase of common stock (4,877) (7,862) (8,706)
Issuance of common stock 1,881 4,829 1,930
Sale of minority interest in subsidiary 47,384 - -
Cash dividends paid (7,394) (7,334) (7,401)
---------- ----------- ----------
Net cash provided (used) by financing activities 19,896 104,252 (14,490)
---------- ----------- ----------
Net (decrease) increase in cash and cash
equivalents (5,106) (19,273) 20,360
Cash and cash equivalents at beginning
of year 66,109 85,382 65,022
------------ ------------ ------------
Cash and cash equivalents at end of year $ 61,003 $ 66,109 $ 85,382
============ ============ ============
Supplemental noncash investing and financing activities:
Net tax benefit from exercise of non-qualified stock
options, disqualified dispositions of ESPP
shares, and vesting of restricted stock $ 293 $ 1,354 $ 1,508
Accrued stock repurchase $ - $ - $ 4,695
Issuance of restricted stock $ 4,778 $ - $ -
The Company included in cash and cash equivalents liquid investments with maturities of 15 days
or less.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands of dollars, except share data)
<TABLE>
Common stock Additional
Number of Par paid-in Earnings Unearned
shares value capital reinvested compensation Total
---------- ------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <S> <C>
Balance, December 31, 1993 46,148,448 $ 461 $ 254,984 $ 216,944 $ - $ 472,389
Stock repurchase (807,400) (8) (4,493) (8,900) - (13,401)
Exercise of stock options 211,025 2 3,033 - - 3,035
Employee stock purchase plan 20,582 1 402 - - 403
Cash dividends paid - - - (7,401) - (7,401)
Net earnings - - - 45,925 - 45,925
----------- ------- --------- ---------- ----------- ----------
Balance, December 30, 1994 45,572,655 456 253,926 246,568 - 500,950
Stock repurchase (214,100) (2) (1,192) (1,974) - (3,168)
Exercise of stock options 471,599 4 4,718 - - 4,722
Employee stock purchase plan 119,568 1 1,465 (4) - 1,462
Cash dividends paid - - - (7,334) - (7,334)
Net earnings - - - 50,858 - 50,858
---------- ------- --------- ---------- ----------- ----------
Balance, December 29, 1995 45,949,722 459 258,917 288,114 - 547,490
Stock repurchase (358,800) (3) (1,997) (2,877) - (4,877)
Exercise of stock options 109,900 1 1,012 - - 1,013
Employee stock purchase plan 100,141 1 1,160 - - 1,161
Issuance of restricted stock,
net of forfeitures 353,917 4 4,774 - (4,778) -
Compensation expense - - - - 2,922 2,922
Excess of market value over book
value of minority interest sold - - 24,927 - - 24,927
Cash dividends paid - - - (7,394) - (7,394)
Net earnings - - - 40,159 - 40,159
---------- ------- --------- ---------- ----------- ----------
Balance, December 27, 1996 46,154,880 $ 462 $ 288,793 $ 318,002 $ (1,856) $ 605,401
========== ======= ========= ========== =========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Fingerhut Companies, Inc. (the "Company") is a database marketing company
selling a broad range of products and services to moderate-to
middle-income consumers via catalogs, telemarketing, television and other
media.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company
and its wholly owned and majority owned subsidiaries, after elimination
of all material intercompany transactions and balances. Minority interest
represents minority stockholders' 17 percent share of the equity in
Metris Companies Inc. ("Metris") (see Note 17). At December 27, 1996 and
December 29, 1995, the Company's principal subsidiaries were Fingerhut
Corporation ("Fingerhut"), Metris, Figi's Inc. ("Figi's") and Infochoice
USA, Inc. ("Infochoice").
Reclassifications have been made to prior years' Consolidated Financial
Statements whenever necessary to conform to the current year's
presentation.
Fiscal Year
The Company's fiscal year ends on the last Friday in December. The
fiscal years ended December 27, 1996, December 29, 1995 and December 30,
1994 included 52 weeks. The accounts of Metris are on a calendar year
basis.
Revenue Recognition
Substantially all of Fingerhut's sales are made on the installment
contract basis. Finance income on installment contracts (net of
estimated returns and exchanges, allowances, uncollectible amounts and
collection costs) is recognized using an effective interest method over
the weighted average of the contract periods (which approximates eighteen
months) or when collected, whichever is faster. When accounts receivable
are sold (see Note 4), finance income, net, is recognized.
Sales are recorded at the time of shipment and a provision for
anticipated merchandise returns and allowances, net of exchanges, is
recorded based upon historical experience. The provision charged against
sales for 1996, 1995 and 1994 amounted to $249.9 million, $295.9 million
and $295.2 million, respectively.
Amounts billed to customers for shipping and handling of orders are
netted against the associated costs.
Interest income on credit card receivables is accrued and earned based on
the principal amount of the receivables outstanding using the effective
yield method. Accrued interest is classified on the balance sheet with
the related credit card receivables. Interest income is generally
recognized until a loan is charged off. At that time, the accrued
interest portion of the charged-off balance is deducted from current
period interest income.
Certain credit card receivables have been securitized and sold to
investors with limited recourse (see Note 4). Upon sale, the receivables
are removed from the balance sheet, and a gain on sale is recognized 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 reduced by establishing a reserve for estimated
probable loan losses under the recourse provisions. Gains on sale,
recourse provisions and servicing cash flows of credit card receivables
are reported in the accompanying Consolidated Statements of Earnings as
"Finance income and other revenues."
Earnings Per Share
Earnings per share is computed by dividing net earnings by the weighted
average shares of common stock and common stock equivalents outstanding
during the year. The dilutive effect of the potential exercise of
outstanding options to purchase shares of common stock is calculated
using the treasury stock method.
Inventories
Inventories, principally merchandise, are stated at the lower of cost (as
determined on a first-in, first-out basis) or market. The Company has
established a reserve for excess and obsolete inventory, which is based
on management's best estimates of the amount of inventory that is slow
moving or subject to obsolescence. The estimates are subject to change
in the near term, depending on changes in economic conditions and other
factors.
Promotional Material
Promotional material primarily includes free gifts and items in inventory
associated with direct response advertising (paper, printing and
postage).
The cost of mailed or aired direct response advertising is deferred and
expensed over the period during which the orders are expected, generally
one to four months. The amount of mailed or aired direct response
advertising included in the Consolidated Statements of Financial Position
is not material. The cost of non-direct response advertising is expensed
as incurred.
Credit Card Origination Costs
Metris defers direct credit card origination costs associated with
successful credit card solicitations that it incurs in transactions with
independent third parties, and certain other costs that it incurs in
connection with loan underwriting and the preparation and processing of
loan documents. These deferred credit card origination costs are netted
against the related credit card annual fees, if any, and amortized on a
straight-line basis over the cardholder's privilege period, generally 12
months, as an adjustment to "Finance income and other revenues."
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on
a straight-line basis over their estimated economic useful lives (30
years for buildings; five years for software; three to 10 years for
machinery and equipment, furniture and fixtures; and over the estimated
useful life of the property or the life of the lease, whichever is
shorter, for leasehold improvements). The Company capitalizes software
developed for internal use that represents major enhancements and
replacements of operating and management information systems.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company adopted the provisions of FAS 121 in fiscal 1995.
Intangible Assets
The excess of cost over fair value of net assets acquired is amortized on
a straight-line basis over 40 years.
The ongoing cost of developing and maintaining customer lists is charged
to operations as incurred. Customer lists obtained by the acquisition of
a business are capitalized at fair market value and amortized over their
estimated useful lives, approximately 15 years.
At each balance sheet date, management assesses whether there has been an
impairment in the carrying value of intangible assets, primarily by
comparing current and projected sales, operating income and annual cash
flows with the related annual amortization expense. Based on this
assessment, management has concluded that intangible assets are fully
realizable.
Income Taxes
The Company provides for deferred taxes on the temporary differences
between the financial statement carrying amounts and the tax bases of
assets and liabilities that will result in future taxable or deductible
amounts. The Company provides for deferred taxes at the enacted tax rate
that is expected to apply when the temporary differences reverse.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Employee Compensation
Statement of Financial Accounting Standards No. 123 (FAS 123),
"Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation
cost for restricted stock is recorded over the vesting period of the
awards based on the fair market value of the Company's stock on the date
of grant. See Note 15.
Reclassifications
Customer allowances, which were previously included in the Consolidated
Statements of Earnings under the caption "Administrative and selling
expenses," have been reclassified as a reduction of "Net sales" for all
periods presented. This reclassification, which totaled $32.6 million
for 1995 and $19.9 million for 1994, conforms the Company's presentation
to industry practice.
Newly Issued Pronouncements
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 (FAS 125), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This statement is effective
for all such transactions occurring after December 31, 1996, and
supersedes and amends several FASB Statements, including Statement of
Financial Accounting Standards No. 77 (FAS 77), "Reporting by Transferors
for Transfers of Receivables with Recourse." The statement provides
consistent standards for distinguishing transfers of financial assets
that are sales (such as financial assets sold through a securitization)
from transfers that are secured borrowings with a pledge of collateral.
The Company has reviewed this statement and believes that it will affect
the classification and valuation of certain financial assets and
liabilities on its statements of financial position relating to its
accounts receivable securitizations, including excess servicing assets,
retained interests in receivables securitized and derivative financial
instruments related to such financial assets and liabilities. However,
the Company does not believe implementation will have an overall material
impact on the consolidated financial statements and the Company intends
to adopt this statement prospectively, in the first quarter of 1997, as
no early or retroactive application is permitted.
3. UNUSUAL ITEMS
In the fourth quarter of 1994, the Company recorded an after-tax charge
of $19.4 million, or $.39 per share, relating to the cancellation of its
proposed 24-hour cable television shopping channel. The $29.9 million
pre-tax charge covered the costs of closing down S The Shopping Network
and substantially scaling back Infochoice, as well as provisions for
corporate streamlining. The charge included $6.8 million for the cost of
severance and related employee benefits to approximately 100 employees
throughout all levels of the Company and $23.1 million for the write-off
and disposition of assets and anticipated costs of fulfilling contractual
commitments. These activities were substantially completed at December
27, 1996. A summary of the changes in the Company's reserve for unusual
charges is as follows:
<TABLE>
Administrative Provision for
Product and selling uncollectible
(In thousands of dollars) costs expenses accounts Total
--------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
Accrued unusual charges at December 30, 1994 $ 5,253 $ 20,771 $ 3,334 $ 29,358
Reserves utilized (2,226) (16,287) (431) (18,944)
Reserve adjustments (2,295) (2,761) (2,900) (7,956)
--------- --------- ---------
Accrued unusual charges at December 29, 1995 732 1,723 3 2,458
Reserves utilized (140) (1,112) (3) (1,255)
Reserve adjustments (150) (100) - (250)
--------- --------- --------- ---------
Accrued unusual charges at December 27, 1996 $ 442 $ 511 $ - $ 953
========= ========= ========= =========
</TABLE>
In December 1993, the Company signed a letter of intent to sell certain
assets of Figi's. The effects of the Figi's transaction were recorded in
the fourth quarter of 1993. During the fourth quarter of 1994, the
intended purchaser of Figi's was unable to complete its financing. As a
result, the Company reversed the effects of the sale. This did not
have a material impact on 1994 net earnings.
4. SALE OF ACCOUNTS RECEIVABLE
Fingerhut Master Trust
The Fingerhut Master Trust allows Fingerhut to sell, on a continuous
basis, an undivided interest in a pool of customer accounts receivables,
subject to meeting certain eligibility requirements. In June 1994, the
Fingerhut Master Trust issued the Series 1994-1 certificates which raised
$900.0 million of proceeds. The Series 1994-1 certificates commenced
controlled amortization in December 1996. In November 1994, the
Fingerhut Master Trust issued the Series 1994-2 variable funding
certificates with maximum proceeds of $490.4 million. In May 1995, the
Company amended the Series 1994-2 Supplement to extend the life of the
Series 1994-2 certificates with amortization periods beginning in May 1999.
The Fingerhut Master Trust allowed Fingerhut to sell a greater percentage
of its receivables than the Receivables Transfer Agreement it replaced in
June 1994. The proceeds from the sale of accounts receivable were $1.280
billion and $1.254 billion at December 27, 1996 and December 29, 1995,
respectively. The Company's retained interest in the Fingerhut Master
Trust was approximately $171.5 million and $186.1 million as of December
27, 1996 and December 29, 1995, respectively. The retained interest is
included in the Company's Consolidated Statements of Financial Position
under "Customer accounts receivable, net."
"Discount on sale of accounts receivable" is comprised of the interest,
discount and administrative and other fees paid or due to the purchasers of
the accounts receivable sold. The discount, determined under the Fingerhut
Master Trust and the Receivables Transfer Agreement, approximates the
prevailing short-term London Inter-Bank Offered Rate (LIBOR) and commercial
paper rates for high grade unsecured notes, respectively, plus
administrative fees. The rates (including administrative fees) applicable
to receivables sold as of December 27, 1996 and December 29, 1995 were 6.0
percent and 6.3 percent, respectively.
The Company has included in "Other accrued liabilities" the estimated
expenses related to the subsequent collections of the receivables sold
($18.1 million and $19.8 million for 1996 and 1995, respectively).
Metris Master Trust
In May 1995, the Company established the Metris Master Trust (formerly
known as the Fingerhut Financial Services Master Trust). The Metris Master
Trust allows the Company to sell, on a continuous basis, an undivided
interest in a pool of MasterCard receivables generated or acquired by
Direct Merchants Bank. In May 1995, the Metris Master Trust issued the
Series 1995-1 variable funding certificates with maximum proceeds of $512.6
million. The Series 1995-1 certificates enter into amortization periods
beginning in May 1999. In September 1996, the Company amended Series
1995-1 to increase the maximum proceeds to $1.025 billion. In April 1996,
the Metris Master Trust issued the Series 1996-1 certificates with a
principal amount of $655.5 million, generating proceeds of $653.9 million,
of which $400.0 million was used to pay down asset-backed commercial paper
supported by Series 1995-1. The Series 1996-1 certificates enter into
amortization periods beginning in August 1998.
Net proceeds generated from the sale of MasterCard receivables to the
Metris Master Trust were $1.397 billion at December 31, 1996 and $445.3
million at December 31, 1995, of which $17.0 million and $25.8 million,
respectively, was deposited in an investor reserve account held by the
trustee of the Metris Master Trust for the benefit of the Trust's
certificateholders. The Company's retained interest in the Metris Master
Trust was $158.4 million and $87.7 million as of December 31, 1996 and
December 31, 1995, respectively. The retained interest is included in the
Company's Consolidated Statements of Financial Position under "Customer
accounts receivable, net."
A credit risk exists for losses on receivables in which the certificate
purchasers have an undivided interest, up to the amount of the Company's
retained interest in the Fingerhut Master Trust and the Metris
Master Trust. Any losses beyond that level are the responsibility of the
certificate purchasers.
5. CUSTOMER ACCOUNTS RECEIVABLE
Substantially all of the Company's customer accounts receivable were
generated by Fingerhut, Direct Merchants Bank and Figi's. Fingerhut uses
fixed-term, fixed-payment installment plans with terms up to 36 months
(excluding deferred billing periods of generally four to five months) and
finance charge rates ranging from 18 percent to 25.9 percent. Direct
Merchants Bank grants MasterCard revolving lines of credit which typically
include an annual fee and floating rates of interest ranging from 14.7
percent to 24.9 percent. Figi's uses fixed-term, fixed-payment plans with
terms up to three months (excluding deferred billing periods of up to
approximately three months) with no finance charge. Customer accounts
receivable are classified as current assets and include some which are due
after one year, consistent with industry practice. Customer accounts
receivable, net of amounts sold, consists of the following:
(In thousands of dollars) 1996 1995
--------- ---------
Customer installment receivables $ 560,931 $ 511,174
Reserve for uncollectible accounts, net of
anticipated recoveries (117,296) (106,669)
Reserve for returns and exchanges (13,319) (13,442)
Other reserves (19,820) (18,571)
---------- ----------
Net collectible amount 410,496 372,492
Unearned finance income (23,969) (24,885)
---------- ----------
Customer installment receivables, net 386,527 347,607
---------- ----------
Credit card and other receivables, net 176,848 122,567
Reserve for uncollectible accounts, net of
anticipated recoveries (12,829) (3,679)
Other reserves (3,185) (2,319)
---------- ----------
Credit card and other receivables, net 160,834 116,569
---------- ----------
Customer accounts receivable, net $ 547,361 $ 464,176
========== ==========
Other reserves for customer installment receivables consist primarily of
allowances for anticipated adjustments of finance charges billed to
customers (due to earlier than scheduled payment) and anticipated costs
required to collect customer accounts.
Credit card and other receivables, net consist primarily of credit card
loans held for securitization, retained interests in securitized loans,
unbilled interest and fees, and other amounts due from or to the trust as a
result of securitizations. These amounts include interest-bearing
deposits, which constitute amounts subject to liens by the certificate-
holders of the individual securitizations under the Metris Master Trust and
amounts deposited in an investor reserve account held by the trustee for
the benefit of the Metris Master Trust's certificateholders. In addition,
these amounts include the excess servicing asset, which represents the net
gain recorded at any point in time for loans sold under the asset
securitizations, net of recourse reserves for securitized loans.
Other reserves for credit card receivables consist primarily of allowances
for anticipated adjustments of finance charges billed to certain customers
(due to unemployment and disability) and adjustments to principal and
finance charges billed to certain customers (due to death) under a debt
waiver plan offered by Direct Merchants Bank. These reserves are treated
as a reduction of receivables in the Consolidated Statements of Financial
Position as payments under the plan are generally used to reduce
outstanding receivables. Certain reclassifications were made to the prior
year credit card reserves to conform with the current year's presentation,
however, these reclassifications had no effect on total reserves or
receivables.
The above reserves represent management's best estimates of the amounts not
expected to be collected. A change in economic conditions could have a
significant impact on the Company's target market, which consists of
moderate- to middle-income consumers. As such, the reserve estimates are
subject to change in the near term.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(In thousands of dollars) 1996 1995
--------- ---------
Land and improvements $ 7,444 $ 7,267
Buildings and leasehold improvements 112,173 96,340
Construction in progress 74,828 53,679
Machinery and equipment 130,029 125,148
Software 115,700 107,715
Other, principally furniture and fixtures 19,988 19,377
--------- ---------
460,162 409,526
Less: Accumulated depreciation (111,219) (85,603)
Accumulated amortization of software (63,761) (44,468)
---------- ---------
Property and equipment, net $ 285,182 $ 279,455
========== ==========
Software amortization expense recorded in 1996, 1995 and 1994 was $19.3
million, $16.8 million and $14.3 million, respectively.
During 1994 through 1996, the Company capitalized $62.1 million relating to
the construction of the new western distribution center. The remaining
construction of this one million square-foot facility in 1997 is projected
to cost approximately $1.5 million. Management intends to begin using this
facility in the fourth quarter of 1997. FAS 121 requires that long-lived
assets to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected future cash flows
is less than the carrying amount of the asset, an impairment loss must be
recognized. Based on management's current plans and best estimates, the
undiscounted expected net future cash flows of the western distribution
center are greater than its carrying value. Therefore, the capitalized
value of the western distribution center is not considered impaired in
accordance with FAS 121.
7. REVOLVING CREDIT FACILITY
In September 1996, the Company restructured its bank credit facilities.
The Company's existing revolving credit facility was amended and restated
to, among other things, reduce the aggregate commitments for revolving
borrowings and letters of credit from $400 million to $200 million (the
"Amended Revolving Credit Facility"). The Amended Revolving Credit
Facility will continue to be guaranteed by certain subsidiaries of the
Company and expires in September 2001. The proceeds from borrowings under
the Amended Revolving Credit Facility are to be used by the Company to
provide for working capital and other general corporate purposes. At
December 27, 1996, the Company had an outstanding revolving credit balance
of $23.0 million. At December 29, 1995, the Company had an outstanding
revolving credit balance of $115.0 million. The weighted-average interest
rate on borrowings was 5.9 percent and 7.1 percent at December 27, 1996 and
December 29, 1995, respectively. The outstanding portion of open letters
of credit, primarily established to facilitate international merchandise
purchases, was not reflected in the accompanying financial statements and
aggregated $29.1 million at December 27, 1996 and $39.0 million at December
29, 1995.
In September 1996, Metris entered into a revolving credit facility with the
same group of lenders as in the Amended Revolving Credit Facility. Metris'
facility (the "Metris Revolving Credit Facility") provides for aggregate
commitments of $300 million and is to be used by Metris for working capital
and other general corporate purposes. Metris' obligations under the Metris
Revolving Credit Facility are secured by a pledge of the capital stock of
all of Metris' subsidiaries except Direct Merchants Bank. In addition, the
Metris Revolving Credit Facility is guaranteed by Fingerhut Companies,
Inc., Fingerhut Corporation, and all other subsidiaries that guarantee the
Amended Revolving Credit Facility. The Metris Revolving Credit Facility
expires in September 2001. At December 31, 1996, Metris had an outstanding
revolving credit balance of $50.0 million and the weighted-average interest
rate on borrowings was 5.9 percent.
8. LONG-TERM DEBT
In September 1996, the Company closed the private placement of $125.0
million of three-year senior notes. In connection with the sale of such
senior notes, the Company entered into a registration rights agreement
pursuant to which it agreed to file a registration statement with the
Securities and Exchange Commission with respect to an offer to exchange
such privately placed senior notes for senior notes of the Company with
substantially identical terms (the "Senior Notes"). In February 1997, the
Company completed an exchange offer whereby substantially all of such
unregistered notes were exchanged for registered notes. The amount,
interest rate and maturity date of the Senior Notes are identical to the
privately placed senior notes. The privately placed senior notes that were
tendered in exchange for the Senior Notes have been cancelled.
Long-term debt and related maturity dates are as follows:
<TABLE>
(In thousands of dollars) Maturity date Interest rate 1996 1995
Privately Placed Senior Notes
<S> <C> <C> <C> <C>
Series A June 1996 9.81% $ - $ 65,000
Series B December 1997 10.12% 25,000 25,000
Series C August 1996 9.74% - 20,000
Series D August 1996 6.96% - 15,000
Series A Unsecured June 2002 8.92% 60,500 60,500
Series B Unsecured June 2004 8.92% 14,500 14,500
Series C Unsecured August 2000 6.83% 45,000 45,000
Senior Notes September 1999 7.38% 125,000 -
Other indebtedness (due in various installments through
November 2014; interest at varying rates ranging from
5.69% to 8.0% at December 27, 1996) 1,565 1,663
---------- ----------
271,565 246,663
Current portion of long-term debt (84) (100,099)
---------- ----------
Long-term debt, less current portion $ 271,481 $ 146,564
========== ==========
</TABLE>
Scheduled annual maturities due on long-term debt at December 27, 1996 were
as follows:
(In thousands of dollars)
1997 $ 84
1998 $ 25,084
1999 $125,067
2000 $ 45,057
2001 $ 14
Thereafter $ 76,259
The Privately Placed Senior Notes contain covenants restricting the payment
of dividends. The maximum amount of dividends the Company was permitted to
pay at December 27, 1996 was $109.4 million.
9. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
This footnote discloses the fair value of all financial instruments, both
assets and liabilities, recognized and not recognized, in the Consolidated
Statements of Financial Position for which it is practicable to estimate
fair value.
Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, fair values are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve
uncertainties and matters of judgment, and therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
Cash and cash equivalents, Accounts payable, Accrued payroll and employee
benefits and Other accrued liabilities
The carrying amounts approximate fair value due to the short maturity of
these instruments.
Customer accounts receivable, net
Installment receivables: Since the average collection period exceeds 90
days, the discounted present value of expected future cash flows from the
collection of the receivables and related deferred finance income was
calculated and it was determined that the carrying amount approximates fair
value.
Credit card receivables: Currently, credit card receivables are originated
with variable rates of interest, with interest rate spreads that differ
based on the related risk of such receivables. Thus, carrying value
approximates market value. However, this valuation does not include the
value that relates to estimated cash flows generated from new loans from
existing customers over the life of the cardholder relationship.
Accordingly, the aggregate fair value of the credit card receivables does
not represent the underlying value of the established cardholder
relationships.
Sale of accounts receivable
The carrying amount of the Company's retained interest in the Fingerhut
Master Trust and the Metris Master Trust approximates fair value, as it was
determined that "Customer accounts receivable, net" approximates fair
value.
Long-term debt
The fair value of the Company's long-term debt was estimated based on the
amount of future cash flows associated with each instrument discounted
using the current rates offered to the Company for similar debt instruments
of comparable maturity.
Interest rate cap and swap agreements
The fair values of interest rate cap and swap agreements were obtained from
dealer quoted prices. These values represent the estimated amount the
Company would pay to terminate the agreements, taking into consideration
current interest rates and the current creditworthiness of the
counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
1996 1995
Carrying Estimated Carrying Estimated
(In thousands of dollars) amount fair value amount fair value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 61,003 $ 61,003 $ 66,109 $ 66,109
Customer accounts receivable, net $ 547,361 $ 547,361 $ 464,176 $ 464,176
Long-term debt $ 271,565 $ 278,218 $ 246,663 $ 259,373
Interest rate swap agreements
in a net receivable (payable) position $ - $ 2,683 $ - $ (10,598)
Interest rate cap agreements $ 7,291 $ 2,899 $ 6,748 $ 2,848
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN
TRADING
The Company enters into interest rate cap and swap agreements to hedge its
economic exposure to fluctuating interest rates previously associated with
the Receivables Transfer Agreement and currently associated with the
floating rate certificates issued by the Fingerhut Master Trust and the
Metris Master Trust. Any premiums paid for these agreements are amortized
to "Discount on sale of accounts receivable" if related to customer
installment receivables or "Finance income and other revenues" if related
to credit card receivables, where the economic exposure to fluctuating
interest rates exists.
During 1990, the Company entered into interest rate swap agreements for
notional amounts totaling $260.0 million. The agreements exchanged a
floating rate, which approximated the prevailing short-term commercial
paper rate, for a fixed interest rate of 9.5 percent. On June 30, 1993,
$160.0 million of the interest rate swap agreements expired. The remaining
$100.0 million expired on June 30, 1994.
The Fingerhut Master Trust Series 1994-1 floating rate certificates of
$900.0 million contain imbedded interest rate caps ranging from 11.0
percent to 11.7 percent. In December 1994, the Company entered into a
$500.0 million one year corridor cap which capped LIBOR at 6.5 percent.
This agreement expired December 29, 1995.
The Fingerhut Master Trust Series 1994-2 certificates, initially issued in
November 1994, required a six-year agreement which effectively capped LIBOR
at 11.2 percent on a notional amount varying up to $490.4 million over the
life of the agreement. In connection with the amendment of Series 1994-2
in May 1995, an additional two and one-half year, 11.2 percent interest
rate cap was required for up to a notional amount of $209.7 million.
As a result of the issuance of the $512.6 million Metris Master Trust
Series 1995-1 certificates in May 1995, the Company entered into an
eight-year agreement effectively capping short-term LIBOR at 11.2 percent
for the floating notional amount of the certificates. In connection with
the amendment of Series 1995-1 in September 1996, two additional six and
two-thirds year, 11.2 percent interest rate caps were required for up to a
notional amount of $513.0 million.
In June and July 1995, the Company entered into several interest rate
corridor swap agreements with total notional amounts of $900.0 million.
These agreements exchange an obligation to pay floating LIBOR of up to 11.2
percent for an obligation to pay fixed interest rates. The fixed interest
rate obligation is approximately 5.8 percent on a $400.0 million notional
amount and approximately 5.7 percent on the remaining $500.0 million
notional amount. These agreements expire in July 1998.
In connection with the issuance of the $655.5 million Metris Master Trust
Series 1996-1 certificates in April 1996, the Company entered into two
interest rate corridor swap agreements with total notional amounts of
$605.5 million. These agreements exchange an obligation to pay fixed
interest rates of approximately 6.3 percent for an obligation to pay
floating LIBOR rates. These agreements expire in February 2000.
For interest rate cap and swap transactions, the contract or notional
amounts do not represent exposure to credit loss. Entering into interest
rate cap and swap agreements involves the risk of dealing with
counterparties and their ability to meet the terms of the contracts.
Notional principal amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk are much
smaller.
10. INTEREST EXPENSE
Net interest expense was as follows:
(In thousands of dollars) 1996 1995 1994
--------- --------- ---------
Interest expense $ 30,073 $ 27,120 $ 25,711
Interest income (1,660) (1,177) (1,427)
--------- --------- ---------
Net interest expense $ 28,413 $ 25,943 $ 24,284
========= ========= =========
The Company paid interest of $35.0 million in 1996, $24.2 million in 1995
and $25.1 million in 1994.
11. OPERATING LEASES
Rental expense for both cancelable and non-cancelable operating leases,
(principally for office and warehouse facilities and computer equipment)
for fiscal years 1996, 1995 and 1994 was $35.9 million, $38.6 million and
$39.8 million, respectively. Future minimum annual rentals at December 27,
1996, under non-cancelable operating leases are as follows:
(In thousands of dollars)
1997 $ 25,552
1998 $ 20,698
1999 $ 13,707
2000 $ 3,001
2001 $ 480
Thereafter $ 93
The Company leased certain office and warehouse facilities (the
"properties") from a former affiliated company. Annual rental expense for
the properties in 1995 and 1994 was $1.7 million. The lessor exercised
its right to require the Company to purchase the properties for
approximately $14.1 million. The Company completed the purchase in
January 1996.
The Company also leased office space for one of its telemarketing centers
and warehouse space from a partnership owned by various members of the
immediate family of one of the Company's Directors. Rental expense for
1996, 1995 and 1994 was $.6 million, $1.9 million and $2.1 million,
respectively.
12. EMPLOYEE BENEFIT PLANS
The Company maintains four non-contributory, defined benefit pension plans
which together cover substantially all full-time non-union employees. The
plans provide monthly retirement benefits to eligible participants based
upon years of service and level of compensation. The Company's funding
policy is to make an annual contribution equal to, or exceeding, the
minimum required by the Employee Retirement Income Security Act of 1974.
The actuarial present value of the benefit obligation and the funded
status of the plans were as follows:
(In thousands of dollars) 1996 1995
------- -------
Actuarial present value of benefit obligations:
Vested benefits $18,932 $18,726
Non-vested benefits 2,097 1,676
------- -------
Accumulated benefit obligation 21,029 20,402
Effect of future compensation increases 9,437 9,289
------- -------
Projected benefit obligation 30,466 29,691
Plan assets at fair value 24,770 19,855
------- -------
Unfunded projected benefit obligation 5,696 9,836
Unrecognized prior service cost (1,345) (108)
Unrecognized net gain (loss) 6,170 (892)
Additional liability 327 32
-------- --------
Accrued pension cost $10,848 $ 8,868
======== ========
Plan assets at December 27, 1996 and December 29, 1995 were primarily
invested in an equity fund.
The actuarial present value of the projected benefit obligations
represents the present value of benefits to be paid in the future under
current provisions of the plan based on accumulated service to date and
assuming future annual pay increases of 5.5 percent in 1996 and 1995.
Projected benefits have been discounted using rates of 7.75 percent and
7.25 percent for 1996 and 1995, respectively. In determining pension
expense, the assumed long-term rate of return on plan assets was 9.5
percent for 1996, 1995 and 1994. The Company's non-union pension plans
have vesting periods of five years.
The components of pension expense for non-union employees were as follows:
(In thousands of dollars) 1996 1995 1994
------- ------- -------
Benefit earned during the period $ 2,942 $ 1,990 $ 2,460
Interest accrued on projected benefit
obligation 2,366 1,828 1,822
Actual return on assets (4,291) (4,360) (262)
Deferred gain (loss) 2,519 2,875 (1,038)
Amortization of prior service cost 76 7 5
Amortization of net (gain) loss 1 (85) 44
-------- -------- --------
Pension expense for the period $ 3,613 $ 2,255 $ 3,031
======== ======== ========
Additionally, the Company participates in a multi-employer pension plan
for all union employees. The plan provides monthly retirement benefits to
eligible participants based upon years of service. The plan is funded
with contributions made in accordance with negotiated labor contracts.
The pension expense related to this plan for 1996, 1995 and 1994 was $.9
million, $1.5 million and $1.6 million, respectively.
The Company also has several defined contribution plans (some of which
have, or are limited to, 401(k) provisions), which together cover
substantially all non-union employees. Employer contributions to the
plans are discretionary and are determined by the board of directors for
each of the individual companies. The maximum contribution allowed is 15
percent of each participant's eligible compensation. The cost to the
Company of these plans was $10.8 million, $11.7 million and $11.2 million
for 1996, 1995 and 1994, respectively.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits."
The impact of FAS 112 was not significant to the Company's financial
statements.
13. INCOME TAXES
The provision for income taxes consisted of the following:
(In thousands of dollars) 1996 1995 1994
Currently payable: -------- -------- --------
Federal $ 65,682 $ 36,072 $ 62,645
State 2,537 1,750 1,139
Deferred (44,367) (12,374) (38,783)
--------- --------- ---------
Provision for income taxes $ 23,852 $ 25,448 $ 25,001
========= ========= =========
The Company's effective income tax rate differed from the U.S. federal
statutory rate as follows:
1996 1995 1994
----- ----- -----
U.S. federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 1.4 .7
Merchandise donations (1.5) (3.1) (2.6)
Other, net 1.2 - 2.1
------ ------ ------
Effective income tax rate 36.7% 33.3% 35.2%
====== ====== ======
The "Other, net" tax rate in 1996, 1995 and 1994 was composed of
miscellaneous items, none of which were individually significant.
The current and long-term deferred income tax assets and liabilities
included in the Consolidated Statements of Financial Position as of
December 27, 1996 and December 29, 1995 were composed of the following:
(In thousands of dollars) 1996 1995
Current and long-term deferred income tax assets
resulting from future deductible temporary
differences are:
Accounts receivable reserves $ 234,566 $ 202,706
Yield reserve 14,557 12,493
Inventory obsolescence reserves 6,635 4,611
Other 18,366 21,004
---------- ----------
Total deferred income tax assets $ 274,124 $ 240,814
========== ==========
Current and long-term deferred income tax liabilities
resulting from future taxable temporary differences are:
Accelerated depreciation and amortization $ (24,125) $ (26,475)
Deferred finance income (97,284) (97,438)
Deferred advertising (6,140) (8,421)
Other (1,440) (541)
----------- ----------
Total deferred income tax liabilities $ (128,989) $ (132,875)
=========== ===========
Management believes the Company's prior operating earnings will allow for
full utilization of the deferred tax assets included in its consolidated
financial statements.
The Company paid income taxes (net of refunds) of $42.7 million, $37.1
million and $47.3 million during 1996, 1995 and 1994, respectively.
14. RELATED PARTY TRANSACTIONS
Related party transactions, detailed by subject and Note reference, are as
follows:
Operating leases Note 11
Stockholders' equity Note 15
15. STOCKHOLDERS' EQUITY
The Company currently has 100,000,000 authorized shares of $.01 par value
common stock of which 46,154,880 and 45,949,722 were issued and
outstanding as of December 27, 1996 and December 29, 1995, respectively.
The Company is authorized to issue 5,000,000 shares of $.01 par value
preferred stock, none of which have been issued.
During 1994, the Company's Board of Directors authorized the repurchase of
up to 2.5 million shares of the Company's common stock that may be made
from time to time at prevailing prices in the open market or by block
purchase and may be discontinued at any time. The purchases will be made
within certain restrictions relating to volume, price and timing in order
to minimize the impact of the purchase on the market for the Company's
stock. During 1994 through 1996, the Company repurchased 1,380,300 shares
of its common stock at prevailing market prices for an aggregate of $21.5
million.
Effective July 1, 1994, the Company made available to certain employees
the Fingerhut 1994 Employee Stock Purchase Plan under which eligible
employees have the opportunity to purchase Company common stock at a
discounted market value determined on the first or last business day of
the calendar quarter, whichever is lower. A maximum of 750,000 shares are
authorized, of which 500,000 shares are subject to shareholder approval.
During 1996, 100,141 shares were issued at an average price of $11.59 per
share. During 1995, 119,568 shares were issued at an average price of
$12.19 per share.
The Fingerhut Companies, Inc. Stock Option Plan provides certain
management of the Company with options to purchase up to 7,768,000 shares
of common stock of which 130,925 were available for grant at December 27,
1996. The options are granted at the fair market value on the date of
grant. The options become exercisable in five equal annual installments
beginning on the first anniversary of the date of grant. Unexercised
options will be canceled 10 years and one month after the date of grant.
The Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock Option
Plan provides for the granting of 2,250,000 stock options (either
incentive stock options or non-qualified stock options), stock
appreciation rights or restricted stock to officers and other employees.
At December 27, 1996, 143,716 shares were available for grant. The
Compensation Committee of the Board has the authority to determine the
exercise prices, vesting dates, expiration dates and other material
conditions upon which options or awards may be exercised, except that the
option price of incentive stock options may not be less than 100 percent
of the fair market value of the common stock on the date of grant, and not
less than 110 percent of the fair market value in the case of an incentive
stock option granted to any employee owning more than 10 percent of the
Company's common stock (a "Ten Percent Employee"), and the term of
non-qualified stock options may not exceed 15 years from the date of grant
(not more than 10 years for incentive stock options and five years for
incentive stock options granted to a Ten Percent Employee). During 1996
and 1995, the Compensation Committee granted a total of 687,973 and
1,401,800 non-qualified options, respectively, substantially all of which
become exercisable in three equal annual installments beginning on the
first anniversary of the date of grant and will be canceled 10 years after
the date of grant. In 1996, 353,917 shares of restricted stock were
issued. The grant date fair value of each of these awards was $13.50.
Twenty-five percent of the shares vested on March 31, 1996 and, subject to
continued employment, 25 percent vests on March 31, 1997 with the
remaining 50 percent 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 related to
the restricted stock awards totaled $3.6 million for the year ended
December 27, 1996, which included tax assistance payments made by the
Company with respect to the first 25 percent of the awards that vested.
The Fingerhut Companies, Inc. Performance Enhancement Investment Plan
("PEIP Plan") provided certain management of the Company with the right to
purchase options to acquire up to 3,000,000 shares of common stock. Under
the PEIP Plan, management was offered the opportunity to purchase option
units, each consisting of four options to purchase common stock, with
exercise prices of 110 percent, 120 percent, 130 percent and 140 percent,
respectively, of the fair market value at the time of grant. The options
were offered at prices determined by the Company on the grant date.
During 1995, the Company discontinued the PEIP Plan and cancelled the
remaining ungranted shares. During 1996 and 1995, the Company repurchased
251,000 and 1,724,956 options, respectively, granted under the PEIP Plan
at or below the original purchase price paid by the option holders, and
the repurchase had no impact on the Company's net earnings. As of
December 27, 1996, 91,244 options remained outstanding and will be
repurchased, if unexercised, at an amount equal to or less than the
purchase price on the earlier of the optionee's termination of employment
or the seventh anniversary of the grant date. The remaining obligation to
repurchase outstanding options has been accrued and is included in
"Accrued payroll and employee benefits" in the Consolidated Statements of
Financial Position.
The Fingerhut Companies, Inc. 1992 Stock Option and Long-Term Incentive
Plan provides certain management of the Company with options to purchase
up to 523,382 shares of common stock. In 1992, the Company granted the
Chairman and Chief Executive Officer non-qualified options to purchase
523,382 shares of common stock with an option price of $15.00, the fair
market value at the date of grant. In November 1993, 50 percent of these
options became exercisable, 50 percent became exercisable in November 1994
and all expire in December 1999.
The Company granted an executive a tandem option for either (a) 55,000
shares of the Company's common stock at an exercise price of $15.00 per
share or (b) a 3.3 percent equity interest in the Financial Services
Segment ("Metris") (see Note 19) at an exercise price equal to two times
the fair value of that interest at March 1994, adjusted for additional
capital contributions to Metris since the initial value date. In
connection with Metris' initial public offering, Metris assumed the
Company's obligation with respect to the Financial Services Segment equity
interest and provided the executive an option to purchase Metris common
stock, which vests over five years beginning March 1994. The exercise of
either option terminates the other option.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-
Based Compensation." Accordingly, no compensation cost has been
recognized with respect to the Company's stock option grants or the
Employee Stock Purchase Plan. Had compensation cost for these plans been
determined based on the fair value methodology prescribed by FAS 123, the
Company's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
(In thousands of dollars, except per share data) 1996 1995
Net earnings - as reported $ 40,159 $ 50,858
Net earnings - pro forma $ 37,549 $ 49,717
Earnings per share - as reported $ .83 $ 1.05
Earnings per share - pro forma $ .77 $ 1.03
The above pro forma amounts may not be representative of the effects on
reported net earnings for future years. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used
for grants in 1996 and 1995:
1996 1995
Dividend yield 1.1% 1.1%
Expected volatility 44.32% 43.42%
Risk-free interest rate 6.65% 6.16%
Expected lives 7.38 years 7.38 years
Information regarding the Company's stock option plans for 1996, 1995 and
1994 is as follows:
1996 1995 1994
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price Shares
Options outstanding,
beginning of year 6,833,547 $ 9.88 7,943,878 $ 13.08 8,334,778
Options exercised (109,900) $ 6.55 (471,599) $ 7.16 (211,025)
Options granted 968,973 $ 13.44 1,474,800 $ 15.13 484,500
Options canceled/
forfeited (667,735) $ 18.86 (2,113,532) $ 26.20 (664,375)
---------- ----------- ----------
Options outstanding,
end of year 7,024,885 $ 9.57 6,833,547 $ 9.88 7,943,878
========== ======== =========== ======== ==========
Weighted-average fair
value of options,
granted during the year $ 7.28 $ 8.09
Weighted-average exercise
price of options, exercisable
at end of year $ 7.98 $ 7.87
The following table summarizes information about stock options outstanding
at December 27, 1996:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/27/96 Life Price at 12/27/96 Price
$ 5.455 3,754,996 3.0 Years $ 5.455 3,754,996 $ 5.455
$ 6.750 to $10.875 314,075 3.3 Years $ 8.659 314,075 $ 8.659
$11.250 to $14.813 1,202,422 8.8 Years $13.461 226,197 $13.504
$15.000 1,540,648 6.6 Years $15.000 907,063 $15.000
$15.063 to $19.938 86,125 6.2 Years $18.070 40,440 $17.958
$21.140 to $35.690 126,619 5.5 Years $24.816 73,004 $24.919
--------- ---------
$ 5.455 to $35.690 7,024,885 5,315,775
========= =========
16. OTHER DISCLOSURES
Administrative and selling expenses included promotional material and
advertising expenses of $413.1 million, $488.6 million and $434.2 million
for 1996, 1995 and 1994, respectively.
Amortization expense relating to the excess of cost over fair value of net
assets acquired was $1.4 million for 1996 and $1.3 million for 1995 and
1994. Accumulated amortization was $10.5 million and $9.1 million at
December 27, 1996 and December 29, 1995, respectively.
Amortization expense relating to customer lists was $1.4 million for 1996,
1995 and 1994. Accumulated amortization was $11.2 million and $9.8 million
at December 27, 1996 and December 29, 1995, respectively.
17. SALE OF STOCK BY SUBSIDIARY
In October 1996, Metris, a then wholly owned subsidiary, completed an
initial public offering of 3,258,333 of its common shares at $16 a share.
The transaction reduced the Company's ownership interest to approximately
83 percent. Metris realized net cash proceeds of approximately $47.4
million from the sale of shares, after underwriting discounts and
commissions and expenses of the offering. The sale resulted in an
increase of approximately $24.9 million in the Company's proportionate
share of Metris' equity, which is included in "Additional paid-in capital"
in the Company's 1996 Consolidated Statement of Financial Position.
18. CONTINGENCIES
The Company is a party to various claims, legal actions, sales tax
disputes and other complaints arising in the ordinary course of business.
In the opinion of management, any losses which may occur are adequately
covered by insurance, are provided for in the consolidated financial
statements, or are without merit and the ultimate outcome of these matters
will not have a material effect on the consolidated financial position or
operations of the Company.
At December 31, 1996, Metris had unused credit line commitments on open
credit card accounts of $1.2 billion. The Company does not anticipate
that all of its customers will exercise this entire available credit at
any one time. Commitments on credit card lines are cancelable at any
time.
19. SEGMENT OF BUSINESS REPORTING
The operations of the Company are divided into the following business
segments for financial reporting purposes:
Direct-to-the-Consumer Marketing: Sells a broad range of products and
services directly to consumers via catalogs, television and other media.
Financial Services (Metris Companies Inc.): Metris is an information-
based direct marketer of consumer credit products, extended service plans
and fee-based products and services to moderate income consumers.
Currently, the segment operates three core business lines: (1) consumer
credit products, which presently consist of credit card lending through
various MasterCard credit card products issued by Direct Merchants Bank,
(2) sales of extended service plans to the Company's customers, and (3)
fee-based products and services, which presently include debt waiver
programs, card registration, third-party insurance and membership clubs.
Revenues, earnings before income taxes, identifiable assets, capital
expenditures and depreciation and amortization pertaining to the business
segments in which the Company operates are presented below:
(In thousands of dollars) 1996 1995 1994
Revenues
Direct-to-the-Consumer Marketing $1,879,493 $2,027,283 $1,898,795
Metris 155,434 58,212 14,725
---------- ---------- ----------
$2,034,927 $2,085,495 $1,913,520
========== ========== ==========
Earnings before income taxes
Direct-to-the-Consumer Marketing $ 32,445 $ 68,857 $ 67,423
Metris 32,546 7,449 3,503
---------- ---------- ----------
$ 64,991 $ 76,306 $ 70,926
========== ========== ==========
Identifiable assets
Direct-to-the-Consumer Marketing $1,100,382 $1,109,135 $1,088,077
Metris 251,667 171,942 9,856
---------- ---------- ----------
$1,352,049 $1,281,077 $1,097,933
========== ========== ==========
Capital expenditures
Direct-to-the-Consumer Marketing $ 47,742 $ 93,089 $ 69,339
Metris 4,113 1,353 239
---------- ---------- ----------
$ 51,855 $ 94,442 $ 69,578
========== ========== ==========
Depreciation and amortization
Direct-to-the-Consumer Marketing $ 54,960 $ 46,976 $ 37,667
Metris 426 127 26
---------- ---------- ----------
$ 55,386 $ 47,103 $ 37,693
========== ========== ==========
20. SUBSEQUENT EVENTS
On January 23, 1997, the Company declared a cash dividend of $.04 per
share, or an aggregate of $1.8 million, payable on February 20, 1997 to
shareholders of record as of the close of business on February 10, 1997.
In January 1997, the Fingerhut Master Trust issued Series 1997-1 variable
funding certificates with maximum proceeds of $417.6 million. The Series
1997-1 certificates enter into amortization periods beginning in May 1998.
In February 1997, the Company completed an exchange offer whereby
substantially all of the $125.0 million of privately placed notes, which
were issued in September 1996, were exchanged for registered notes.
Fingerhut Companies, Inc. and Subsidiaries
REPORT OF MANAGEMENT
To the Shareholders of Fingerhut Companies, Inc.:
The Company is responsible for the information presented in this annual report.
The consolidated financial statements contained herein were prepared in
accordance with generally accepted accounting principles and were based on
informed judgments and management's best estimates where appropriate.
Financial information elsewhere in this annual report is consistent with that
contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance, at suitable costs, that assets are safeguarded and
transactions are executed in accordance with established procedures. The
system of internal controls includes Standards of Ethical Business Conduct,
widely communicated to employees, which are designed to require them to
maintain high ethical standards in their conduct of Company affairs, written
procedures that provide for appropriate evidence of authority and a program of
internal audit with management follow-up.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Their audit was
conducted in accordance with generally accepted auditing standards. As part of
their audit of the Company's 1996 consolidated financial statements, our
independent accountants considered the Company's internal controls to the
extent they deemed necessary to determine the nature, timing and extent of
their audit tests.
The Audit Committee of the Board of Directors is composed entirely of
independent directors. This Committee supervises and reviews the Company's
accounting practices; recommends to the Board the independent auditors; reviews
the audit plans, scope, findings, reports and recommendations; and reviews the
Company's financial controls, procedures and practices. The independent public
accountants and the internal auditors have free access to the Audit Committee
without management present.
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and President
Peter G. Michielutti
Senior Vice President and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Fingerhut Companies, Inc.:
We have audited the accompanying consolidated statements of financial position
of Fingerhut Companies, Inc. and Subsidiaries (the "Company") as of December
27, 1996 and December 29, 1995 and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of the fiscal
years in the three-year period ended December 27, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fingerhut Companies, Inc. and Subsidiaries as of December 27, 1996 and December
29, 1995, and the results of their operations and their cash flows for each of
the fiscal years in the three-year period ended December 27, 1996 in conformity
with generally accepted accounting principles.
/KPMG Peat Marwick LLP/
Minneapolis, Minnesota
January 22, 1997
Quarterly Financial -- Fiscal Year Summaries
<TABLE>
(In thousands of dollars, 1996
except per share data) First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenues $ 402,941 $ 440,043 $ 441,877 $ 742,495 $2,027,356
Gross margin (a) $ 160,192 $ 168,364 $ 170,769 $ 323,121 $ 822,446
Net (loss) earnings $ (2,051) $ 2,145 $ 8,565 $ 31,500 $ 40,159
(Loss) earnings per share $ (.04) $ .04 $ .18 $ .65 $ .83
1995
First Second Third Fourth Total
Revenues $ 402,869 $ 464,587 $ 469,532 $ 740,356 $2,077,344
Gross margin (a) $ 180,695 $ 196,296 $ 194,365 $ 329,635 $ 900,991
Net earnings (b) $ 6,184 $ 5,794 $ 8,553 $ 30,327 $ 50,858
Earnings per share $ .13 $ .12 $ .18 $ .63 $ 1.05
</TABLE>
(a) Gross margin is equal to net sales less product cost.
(b) Net earnings during 1995 included reserve adjustments for unusual
items of $4.5 million, $1.0 million and $2.5 million for the first,
third and fourth quarters, respectively.
Stock Data
The Company's common stock is traded under the symbol "FHT" on the New
York Stock Exchange. As of February 28, 1997, there were 685 holders of
record of the Company's common stock.
1996
First Second Third Fourth Year
Common stock price:
High $ 15-1/8 $ 17-1/8 $ 16 $ 14-7/8 $ 17-1/8
Low $ 12-1/8 $ 12-3/8 $ 12-3/4 $ 11-1/4 $ 11-1/4
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
1995
First Second Third Fourth Year
Common stock price:
High $ 17 $ 16-5/8 $ 17-7/8 $ 16-1/8 $ 17-7/8
Low $ 10-7/8 $ 10-7/8 $ 14-7/8 $ 11-1/2 $ 10-7/8
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
Dividend Policy
The Company intends to pay regular quarterly cash dividends and expects to
retain a substantial portion of its net earnings to fund future growth.
The declaration and payment of dividends will be subject to the discretion
of the Board of Directors, and there can be no assurance that any
dividends will be paid in the future. In determining whether to pay
dividends (as well as the amount and timing thereof), the Board of
Directors will consider a number of factors including the Company's
results of operations, financial condition, future capital requirements
and any applicable restrictive provisions in any financing agreements.
See Note 8 for dividend restrictions.
Schedule II
Fingerhut Companies, Inc. and Subsidiaries
Valuation and Qualifying Accounts
For the Years Ended December 27, 1996, December 29, 1995
and December 30, 1994
(In thousands of dollars)
Additions
charged to
Balance at cost, Balance at
beginning expenses, end
Description of period revenues Deductions of period
- -------------- ---------- ---------- ---------- ----------
Accounts receivable
reserves:
1996 $144,680 $845,595 $823,826 (a) $166,449
1995 $113,383 $851,229 $819,932 (a) $144,680
1994 $112,533 $749,900 $749,050 (a) $113,383
Inventory reserves:
1996 $ 12,303 $ 28,175 $ 21,858 (b) $ 18,620
1995 $ 18,102 $ 22,756 $ 28,555 (b) $ 12,303
1994 $ 19,328 $ 27,913 $ 29,139 (b) $ 18,102
(a) Primarily represents reductions in the reserves for actual returns and
exchanges, allowances, uncollectible amounts (net of recoveries) and
collection costs. And also, includes the reserves related to the
accounts receivable sold under the Fingerhut Master Trust, the Metris
Master Trust, and the Receivables Transfer Agreement.
(b) Primarily represents inventory sold to liquidators and returned to
vendors.
Independent Auditors' Report
The Board of Directors and Stockholders
Fingerhut Companies, Inc.:
Under date of January 22, 1997, we reported on the consolidated statements of
financial position of Fingerhut Companies, Inc. and subsidiaries as of
December 27, 1996 and December 29, 1995, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 27, 1996, as
contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference
in the annual report on Form 10-K for the year 1996. In connection with
our audits of the aforementioned consolidated financial statements, we have
also audited the related financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, such financial statements schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/KPMG Peat Marwick LLP/
Minneapolis, Minnesota
January 22, 1997
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
Andy's Garage Sale, Inc. Minnesota
Customer Communications Center, Inc. Minnesota
Figi's Inc. Wisconsin
Fingerhut Corporation Minnesota
Distribution Specialists, Inc. Minnesota
FFS Holdings, Inc. Minnesota
Metris Companies Inc.(83%) Delaware
Direct Merchants Credit Card Bank,
National Association National Bank
Metris Direct, Inc. Minnesota
Metris Receivables, Inc. Delaware
Fingerhut Company Store, Inc. Minnesota
Wiman Corporation Minnesota
Fingerhut National Bank Minnesota
Fingerhut Receivables, Inc. Delaware
Infochoice USA, Inc. Minnesota
USA Direct/Guthy-Renker, Inc.(50%) Minnesota
Minnesota Telemarketing, Inc. Minnesota
Tennessee Distribution, Inc. Minnesota
Tennessee Telemarketing, Inc. Minnesota
Western Distribution, Inc. Minnesota
The above list omits the names of certain subsidiaries that,
considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary as of December 27, 1996.
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
Fingerhut Companies, Inc.:
We consent to incorporation by reference in the registration
statement (No. 33-38988 and 33-55871) on Form S-8 of
Fingerhut Companies, Inc. and subsidiaries of our reports
dated January 22, 1997 relating to the consolidated
statements of financial position of Fingerhut Companies,
Inc. as of December 27, 1996 and December 29, 1995 and the
related consolidated statements of earnings, changes in
stockholders' equity and cash flows and the related
financial statement schedule for each of the years in the
three-year period ended December 27, 1996, which reports
appear in or are incorporated by reference in the December
27, 1996 annual report on Form 10-K of Fingerhut Companies,
Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1997
<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
year ended December 27, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> DEC-27-1996
<CASH> 61,003
<SECURITIES> 0
<RECEIVABLES> 737,779
<ALLOWANCES> 190,418
<INVENTORY> 127,735
<CURRENT-ASSETS> 988,214
<PP&E> 460,162
<DEPRECIATION> 174,980
<TOTAL-ASSETS> 1,352,049
<CURRENT-LIABILITIES> 422,294
<BONDS> 271,481
0
0
<COMMON> 462
<OTHER-SE> 604,939
<TOTAL-LIABILITY-AND-EQUITY> 1,352,049
<SALES> 1,652,869
<TOTAL-REVENUES> 2,027,356
<CGS> 830,423
<TOTAL-COSTS> 1,856,505
<OTHER-EXPENSES> 78,427
<LOSS-PROVISION> 302,239
<INTEREST-EXPENSE> 28,413
<INCOME-PRETAX> 64,011
<INCOME-TAX> 23,852
<INCOME-CONTINUING> 40,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,159
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
Exhibit 99
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Fingerhut Companies, Inc. (the "Company") desires to take
advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is filing this
cautionary statement in connection with such safe harbor
legislation. The Company's Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or Form 8-K filed by the
Company or any other written or oral statements made by or on
behalf of the Company may also include forward-looking statements
that reflect the Company's current views with respect to future
events and financial performance. The words "believe," "expect,"
"anticipate," "intends," "estimate," "forecast," "project" and
similar expressions identify forward-looking statements.
The Company wishes to caution investors that any forward-
looking statements made by or on behalf of the Company are
subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to
the factors listed below (many of which have been discussed in
the Company's prior filings with the Securities and Exchange
Commission). Though the Company has attempted to list
comprehensively these important factors, the Company wishes to
caution investors that other factors may in the future prove to
be important in affecting the Company's results of operations and
financial condition. New factors emerge from time to time and it
is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business
or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements.
Investors are further cautioned not to place undue reliance
on such forward-looking statements as they speak only of the
Company's views as of the date the statement was made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise.
Importance of Fourth Quarter; Fluctuations in Quarterly Operating
Results
The Company's business is subject to seasonal variations in
demand that the Company believes are generally associated with
the direct marketing and retail industries. Historically, the
Company has realized a significant portion of its sales and net
earnings during the fourth quarter. Over the past several years,
the Company has observed that customers waited until later in the
fourth quarter to order merchandise from the Company's catalogs,
following a trend that has affected the retail industry as a
whole. The Company's annual results could be adversely affected
if the Company's sales were to be substantially below seasonal
norms during the fourth quarter of any year. In addition to
seasonal variations, the Company experiences variances in
quarterly results from year to year that result from changes in
the timing of its promotions and the types of customers and
products promoted and, to some extent, variations in dates of
holidays and the timing of quarter ends.
Holding Company Structure; Effective Subordination
The Company is a holding company and substantially all of
its consolidated assets are held by its subsidiaries.
Accordingly, the cash flow of the Company and the consequent
ability to service its debt, are dependent upon the earnings of
such subsidiaries. Furthermore, the Company's rights and the
rights of its creditors to participate in the assets of any
subsidiary upon the subsidiary's liquidation or reorganization
will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary, in which
case the claims of the Company would still be effectively
subordinate to any security interest in, or mortgages or other
liens on, the assets of such subsidiary and would be subordinate
to any indebtedness of such subsidiary senior to that held by the
Company. The Company may borrow up to $200 million under its
existing amended credit facility. All of the available $200
million under this credit facility is guaranteed by Fingerhut
Corporation ("Fingerhut"). Metris Companies Inc. ("Metris"), an
83% owned subsidiary of the Company, may borrow up to $300
million under its revolving credit facility. All of the
available $300 million under this facility is also guaranteed by
Fingerhut. In addition, as of December 27, 1996, the Company had
outstanding $270 million aggregate principal amount of
outstanding senior notes, which are also guaranteed by Fingerhut.
Increases in Postal, Paper and Freight Costs
The Company mails its catalogs and ships most of its
merchandise through the United States Postal Service. The Company
experienced a significant increase in postage costs in fiscal
1995. In addition, the Company experienced price increases in
1995 for paper used in the production of its catalogs, which
further increased the Company's cost of doing business in 1995
and 1996. Additional increases in postal rates or paper costs may
have a material adverse impact on the Company's results of
operations to the extent that the Company is unable to offset
such increase by raising selling prices or by implementing more
efficient mailing, delivery and order fulfillment systems.
Increases in fuel costs could also adversely affect the Company's
costs of incoming and outgoing freight.
Funding and Securitization Considerations
The Company depends heavily upon the securitization of its
subsidiaries' accounts receivable and credit card loans to fund
its operations and to date has been able to complete
securitization transactions on terms that it believes are
favorable. There can be no assurance, however, that the
securitization market will continue to offer attractive funding
alternatives. In addition, the Company's ability to securitize
the assets of its subsidiaries depends on the continued
availability of credit enhancement on acceptable terms and the
continued favorable legal, regulatory, accounting and tax
environment for securitization transactions. While the Company
does not at present foresee any significant problems in any of
these areas, any such adverse change could force the Company to
rely on other potentially more expensive funding sources. Adverse
changes in the performance of the securitized assets of the
Company's subsidiaries, including increased delinquencies and
losses, could result in a downgrade or withdrawal of the ratings
on the outstanding certificates under these securitization
transactions or cause early amortization of such certificates.
This could jeopardize the ability of the Company's subsidiaries
to effect other securitization transactions on acceptable terms,
thereby decreasing the Company's liquidity and forcing the
Company to rely on other funding sources to the extent available.
Consumer Spending
The Company is not immune to the cyclical nature of consumer
spending and payments. The success of the Company's operations
depends upon a number of economic conditions affecting disposable
consumer income such as employment, business conditions, interest
rates and taxation. Adverse changes in these economic conditions
may restrict consumer spending. There can be no assurance that
weak economic conditions or changes in the retail environment or
other economic factors that have an impact on the level of
consumer spending would not have a material adverse impact on the
Company. In addition, the Company's business depends on customer
response to its solicitations and marketing programs. A material
decrease in response levels would have a significant impact on
profitability.
Credit Risks
The Company is subject to all of the risks associated with
unsecured credit transactions, including (1) the risk of
increasing delinquencies and credit losses during economic
downturns, (2) the risk that an increasing number of customers
will default on the payment of their outstanding balances or seek
protection under bankruptcy laws, resulting in accounts being
charged off as uncollectible, (3) the risk of fraud and (4) in
the case of revolving credit accounts, the risk that increases in
discretionary repayment of account balances by customers will
result in diminished finance charges or other income. Also,
general economic factors, such as the rate of inflation,
unemployment levels and interest rates may affect the Company's
target market customers (moderate income consumers) more severely
than other market segments. In addition, Metris' credit card
portfolio, as of the date hereof, consists primarily of accounts
that have been generated in the last 24 months and, as a result,
there can be no assurance as to the levels of delinquencies and
losses that can be expected over time with respect to such
portfolio.
Interest Rate Risk
Fingerhut National Bank's closed-end credit card loans and
Fingerhut's existing closed-end installment sales contracts are
fixed-priced, fixed-term contracts. Fingerhut National Bank's
revolving credit card accounts currently have finance charges set
at a fixed rate. The Company intends to manage interest rate risk
through asset and liability management. Fluctuations in interest
rates may adversely affect the Company's cost of funds.
Regulatory Matters
The Company's business is subject to regulation by a variety
of state and federal laws and regulations related to advertising,
offering and extending credit, charging and collecting state
sales/use taxes and product safety. The Company's practices in
certain of these areas are subject to periodic inquiries and
proceedings by various regulatory agencies. None of these actions
has had a material adverse effect upon the Company. While the
Company believes it is in material compliance with all such laws
and regulations, if the Company is found not to be in compliance
with any such laws and regulations, it could become subject to
cease and desist orders, injunctive proceedings, obligations to
collect additional sales and use taxes, obligations for prior
uncollected sales and use taxes, civil fines and other penalties.
The occurrence of any of the foregoing could adversely affect the
Company's results of operations and financial condition.
Fingerhut relies on the Minnesota "time-price" doctrine in
establishing and collecting installment payments on products sold
in many states. Under this doctrine, the difference between the
time price and cash price for the same goods is not treated as
interest subject to regulation under laws governing the extension
of credit. Certain individuals who purchased goods from
Fingerhut filed suit challenging the applicability of the
time-price doctrine to Fingerhut's business. The court entered
summary judgment in favor of Fingerhut and dismissed the case,
which is subject to appeal.
Direct Merchants Credit Card Bank, National Association
("Direct Merchants Bank") and Fingerhut National Bank are subject
to numerous federal and state consumer protection laws that
impose requirements related to offering and extending credit. The
United States Congress and the states may enact laws and
amendments to existing laws to regulate further the credit card
industry or to reduce finance charges or other fees or charges
applicable to credit card and other consumer revolving loan
accounts. Such laws, as well as any new laws or rulings that may
be adopted, may adversely affect the ability of Direct Merchants
Bank and Fingerhut National Bank to collect on account balances
or maintain previous levels of periodic rate finance charges and
other fees and charges with respect to the accounts. Any failure
by the Company to comply with such legal requirements also could
adversely affect its ability to collect the full amount of the
account balances. Fingerhut National Bank and Direct Merchants
Bank are also subject to regulation by the Federal Reserve Board,
the Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency. Such regulations include limitations
on the extent to which Fingerhut National Bank or Direct
Merchants Bank can finance or otherwise supply funds to their
respective affiliates through dividends, loans or otherwise.
Changes in federal and state bankruptcy and debtor relief
laws also could adversely affect the Company if such changes
result in, among other things, additional administrative expenses
and accounts being written off as uncollectible.
Foreign Suppliers
Fingerhut purchases, directly or indirectly, a significant
portion (approximately 42% in fiscal 1996) of its merchandise
from foreign suppliers. Although substantially all of the
Company's foreign purchases are denominated in U.S. dollars, the
Company is subject to the risks of doing business abroad,
including increases in import duties, decreases in quotas,
adverse fluctuations in currency exchange rates, increased
customs regulations and political turmoil. The occurrence of any
of the foregoing could adversely affect the Company's earnings.
Competition
The direct marketing industry includes a wide variety of
specialty and general merchandise retailers and is both highly
fragmented and highly competitive. The Company's Direct-to-the
Consumer Marketing segment sells its products to customers in all
states of the United States and competes in the purchase and sale
of merchandise with all retailers, including general and
specialty catalog marketers, television shopping marketers,
retail department stores, discount department stores and variety
stores, many of which are national chains. The loss of any
significant portion of the Company's market share to other
retailers could adversely affect the Company's earnings.
As a marketer of consumer credit products, Metris faces
increasing competition from numerous providers of financial
services, many of which have greater resources than Metris. In
particular, Metris' credit card business competes with national,
regional and local bank card issuers as well as issuers of other
general purpose credit cards, such as American Express, Discover
Card and Diners Club. Many of these issuers are substantially
larger and have more seasoned credit card portfolios than the
Company and often compete for customers by offering lower
interest rates or fee levels. In general, customers are attracted
to credit card issuers largely on the basis of price, credit
limit and other product features and customer loyalty is often
limited.
